The Following is an excerpt from a recent Op-Ed in The Hill
The market has, for months, been signaling the risk of inflation. Reflationary asset trades have been among the best performers. The price of gold, the classic inflationary bellwether, is up by nearly a third from March lows. A leading ETF for timber and forestry, another reflationary bet, is up by two-thirds over the same period. The Federal Reserve’s five years forward inflation expectation rate has more than doubled. The S&P500 is itself up over 50 percent, largely due to the performance of the FANGs.
The p/e ratio for the S&P500 is now above 30 times, signaling inter alia that investors are willing to accept substantially lower yields for the partial hedge against inflation that equities offer. Real interest rates have gone below zero, rendering ineffective monetary stimulus from the Federal Reserve and making the U.S. dollar relatively unattractive to the foreign investors upon which America has come to rely.