Last week we published two MRB Theme Reports on our longstanding theme of “A Bubbly World”. After a long period of extraordinarily high returns, the macro foundations supporting asset bubbles are slowly eroding and the prospects for continued rapid asset price inflation are diminishing.
Forceful policy reflation and abundant liquidity conditions have inflated a wide range of asset bubbles over the past two decades, especially since the pandemic earlier this decade. Even though the threat of deflation ended by the mid-2010s, extreme policy reflation did not.
For the first time in decades, there is now a consumer price inflation consequence of providing ongoing monetary and fiscal stimulus. This has the potential to make the world less bubbly, provided policymakers become committed to restoring consumer price stability, or bond markets force such a change.
