A just-published report outlined MRB’s framework for asset manias, and compared the current macro backdrop with the factors that have traditionally led to bubble episodes. For the first time in decades, there is now a consumer price inflation consequence of providing forceful monetary and fiscal stimulus. This has the potential to make the world much less bubbly, provided policymakers become committed to restoring consumer price stability.
The latter is not yet the case, since the major central banks and the bond market are still overly complacent on the inflation outlook. Going forward, we anticipate that as the consensus eventually capitulates to acknowledging a higher inflationary backdrop, policy rates and/or bond yields will rise further and help dampen speculative tendencies in global financial markets, as well as deflate many of the bubbles that were inflated on the back of previously cheap money. Stay tuned.