One of the criticisms we hear from bearish investors is that the Federal Reserve has set us up for massive inflation. Personally, I tend to be pragmatic on these issues. If there is inflation coming, it’s certainly hiding itself well. While commodity prices are on the rise, we have yet to see a large surge in consumer prices. That may change soon.
But I’m not concerned with the political implications of inflation — hyper or not. I’m much more concerned with inflation’s impact on equity prices.
The danger of inflation is that it hurts bond prices and that, in turn, hurts stock valuations. Generally speaking, inflation doesn’t impact the stock market until it reaches a 5% annualized rate. Read