By Jeff Miller
December 31, 2017

What should we worry about it 2018?

… A Helpful Classification


Inflation rates the cover on this week’s Barron’s. Even a small increase in prices can have a significant effect on bonds. Historically, higher inflation is associated with lower P/E multiples.

This is an argument that seems to be used to fit any author’s convenience. Some note that the Fed’s inflation target has not been reached, taking it as a sign of weak growth. Others have predicted (ever since 2010) that we were due for hyperinflation. Thinking clearly, we would like modest inflation and strong growth. If we can get the growth without a lot of inflation, that is desirable. If inflation is accompanied by stronger growth and better earnings, it is bad for bonds but not for stocks. This context is missing in everything I read.

Recession is a perennial forecast for many. After creating many home-made indicators, there is some attention to the yield curve. The current obsession is tracking every small flattening in the curve, with an emphasis on what might happen next. (Eric Parnell).

In 2010, I identified the best real-time recession forecaster, Dr. Robert Dieli. The yield curve is part – and only part – of his approach. He also monitors many coincident indicators for confirmation. In addition, I review and publish regularly the best work on recessions.

There is no reason to worry about modelers and pop economists who have tweaked past data to prove a point. As Dr. Dieli recently noted, they are trying to forecast the indicator, not the recession.

The dollar – declining or stronger. Critics worry about either.

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