Quote from Rearden Metal:
Here... Watch this:
I bet you'll see large groups of traders voting for <b>both</b> opposite answers!
You are talking about the government reported CPI? Trick question.
It is a trick question because CPI does not represent the reality. But in terms to how Wall Street reacts to CPI, it is a standard response, low CPI is bullish (rates stay flat or go down), high CPI is bearish (rates go up).
However, in reality, inflation is rampant. As the money supply grows and grows with the Fed member banks pyramiding loans, the dollar keeps depreciating. Which means asset inflation, hence "bullish" for equities to simply stay the same intrinsic value, they have to go up in US$ terms.
My point is that the reported CPI means jack sh*t for the most part because it is a number that is decided upon before it is calculated. It's all about money supply, mainly M3 which is not reported anymore. And judging from real life inflation, M3 is still being grown rapidly and liquidity is plentiful. Those dollars have to go somewhere, why do you guys think the financial sector has grown so much in the last 30 years. I would say 80%+ of the financial sector is nothing more than bullsh*t manufactured by turning up the printing presses.
Equities will most likely not be the frontier of the liquidity but they will benefit. Some new products will be pumped out through financial engineering (aka financial BS). But high inflation will continue as it has, so I guess there is your answer.
