CHART: TIPS EXPECTED INFLATION

There are many good inflation gages around. The one above is frequently posted at the Macroblog site. My favorite is to plot the futures contract on the long bond by the futures contract on the CRB. The reason I like the futures is that it makes sharpe peaks and valley's at turning points. Right now has made a pretty sharpe peak at around 2.9%. The next move appears to be down.

GOOD NEWS FOR STOCKS! Stocks do well during times of moderate inflation. Some bloggers are currently obsessed with the appearance of high inflation. However, the sharp run up caused by the hurricanes will be followed by the sharpe drop afterward. For example, gasoline prices have declined 28% in recent weeks.

The more important thing to note is the pessimism caused by the high oil prices and other bad news. The pessimism has reached levels that have pushed the market down like a coiled spring. I have been talking about the BULL MARKET for a good while. I cannot say that the BIG BULL IS HERE. HOWEVER, I AM CONFIDENT THAT THE TIME IS NEAR.