by John Mauldin
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham
You may have noticed a bit of manic activity in the stock market. You may have also noticed inflation (as measured by various government agencies) is quite low, despite a supply interruption in numerous goods and services.
These aren’t separate events. Both are consequences of the pandemic. Specifically, they result from the government and central bank response to the pandemic. As necessary as their actions may have been, they have side effects, many unintended and some of which will not be known for years. These hastily conceived programs have even more side effects than usual.
I think we actually have high inflation, but due to these side effects it is showing up in stock prices instead of consumer prices. I believe this, not V-shaped recovery expectations, is the main reason stocks are up. Today we’ll explore why this is, and how investors should respond.