Inflationary Bumps and Grinds

I recently sat on a panel with Marc Chandler of BBH in which he gave an excellent talk where  he mentioned “bumps and grinds”. In this talk, Mr. Chandler talked of the events of 9/11 as a bump in the  growth road as opposed to the events of 2008 which has given way to a grinding environment in which growth is challenged anywhere above 2%. This got us thinking about the transitional period between deflation/dis-inflation towards something much, much different.  One might think of the events of 2008 as a bump in the long road back towards reflation/inflation. During this period, the synchronized global growth that we had experienced since 2004 gave way to a bifurcation between developed and developing economies. This bifurcation would have serious ramifications for the duration and shape of that transition. Eventually this bifurcation has subsided leaving us with the “grind” towards higher levels of inflation. This grind is reinforced by generally slack global production and oversupply across many input markets. Markets, by their very nature, are short term oriented and not prone to  have much appetite for “grinding” environments. This is evidenced by their almost universal disavowal of any potential for a resurgence in inflation. In our estimation, therein lies the opportunity, given that the prices of assets that would benefit from such a transition are currently severely under-priced. While some might claim that being early is the same as being wrong, we would vehemently disagree, particularly during such large secular shifts.  Sell Paper Buy Stuff (early)

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