Foreseeing The “Flation” Knuckleball & Investor Implications

“Flation” Knuckleball. Foreseeing it and the investor implications.

In baseball, a knuckleball is a distinctive pitch that only a very few significant leaguers can perfect. The goal of a knuckleball is to eliminate the baseball’s spin to create erratic ball movement. Despite a much slower speed than traditional pitches, knuckleballs are among the hardest pitches to hit. However, due to its slow velocity, a batter seeing the pitch well and correctly foreseeing where it will cross the plate has an excellent chance for a hit.

The following LINK provides a few knuckleball gems.

Today our economy is throwing a “flation” knuckleball. Our job is to figure out which “flation” is coming; inflation, hyperinflation, deflation, or disinflation? Like a knuckleball, it is likely what we see today may be vastly different from what crosses the plate months from now.

Getting the current and future “flation” call right can protect your wealth. Equally valuable, if the market is wrong and you catch it offsides, the potential upside might be a home run.

In this article, we review the unparalleled forces acting on prices. Further, we share some tools we use to gauge the market’s view on inflation.

Misplaced Confidence

The overconfidence of Fed officials, economists, market mavens, and many investors is stunning, considering the unprecedented factors driving economic and market forecasts.

We share a quote from our article Soar Above Confidence To Fortify Your Wealth.

“Despite such extraordinary circumstances, the level of confidence in economic and market forecasts is remarkably high. Many “experts” forecast beautiful days with a temporary bout of above-average inflation. There is nary a mention of the potential for debilitating inflation and almost no recognition of the troubling deflationary hurricane off at sea.”

Confidence drives markets. Confidence, especially in today’s environment, can erode quickly if economic data and inflation do turn out as expected.  The resulting loss of confidence can have volatile effects on many markets. It is for this reason, the odds of a fat pitch are not trivial.

 

A Tug of War of Price Pressures

Despite the overwhelming confidence of the Fed and economists, trying to forecast prices is more difficult today than at any time in the last 40 years due to the massive monetary and fiscal stimulus programs.

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