No logic to today’s drop
You would never think that the markets would drop due to worries of inflation, which is one of the biggest reasons we have advances and bubbles on the markets. Today the market suffered a quick loss after worries that inflation might pose a risk to the markets.
In an inflationary market, the price of stocks and equities should rise. Inflation is first seen on the markets and last seen in consumer prices. Money flows through the corporate level first, into investments and bonds and then makes it way out to the consumer who then has to pay inflated prices for goods. All of the depressions are caused by deflation, or the shrinking of money supply, not by inflation. In fact, as I have already shown, inflation is the solution to keep the GDP out of a statistical recession.
Crude oil and commodities advanced hugely on worries of inflation. Oil shot up over $100 per barrel to $100.02. While the value of oil stays virtually the same, currency fluctuations send the price up or down depending on the monetary supply.
This is incredible evidence that investors don’t care about the news, they just care if its positive or negative. With hyperinflation would come tons of money flooding the financial markets, instead people who are worried about inflation decide to put their money in low yield bonds. Last I checked, bonds don’t beat inflation or even match it.
Investors are mindless people who follow the rest. You can see by this news of higher inflation that people don’t have to really know what is happening, they just want to gauge if the news is good or bad. While inflation is bad, it is generally good for the markets. Bonds are no safe-haven from high inflation rates.
February 20th, 2008 at 8:45 pm
While Tuesday was a bit negative for the United States, the emerging markets faired quite well. Meanwhile, on Wednesday morning, there was a global downturn in the emerging markets in the morning, which recovered by the end of the day. Yes, the markets are quite fickle!