“As of late, I’ve been expressing my concern about inflation, how I believe our overly generous monetary policies of the past two years and other factors would give rise to sudden and unexpected inflation in America. Inflation, as you know, is already a big problem in many countries.
A week ago today, the U.S. Labor Department reported that consumer prices rose in April by 3.2% from April 2010—the highest year-over-year increase since October 2008. In the U.K., inflation jumped to 4.5% in April. Even core inflation in the U.K. is out of control, presently running at the fastest pace in 14 years—3.7%.
The blessing in the U.S., many believe, is the stock market. If things pan out as I predict, and the stock market starts moving lower after the current bear-market rally ends, the falling stock market will join the housing market in placing deflationary pressure on prices. Or will it?
If your investments (your stock portfolio) are down sharply, do you feel like spending money? Of course not; your mood is ruined, your wallet tightened.
If the Dow Jones Industrial Average makes a run at its March 2009 low of 6,440 (I know, I’m the only market commentator out there that believes it will), consumer demand will drop, and companies will need to drop the prices of their goods and services. This is all deflationary.
But unlike the last time the Dow Jones Industrials visited 6,440, the money will not be running to U.S. Treasuries this time. No, money will actually be running away from the greenback….”
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