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No surprise with Jean-Claude Trichet keeping rates unchanged this morning, but definitely a surprise to some of the US economic doves who are living in the myopia of the moment that there are no global inflation pressures.

Trichet said 3 things on inflation:

  1. Inflation is higher than he expected (oil prices cited as leading indicator)
  2. Global inflation pressures continue to mount and “may increase”
  3. “Price risks tilted to the upside.”

Now this view is an easy one to have. All you need are live Bloomberg quotes on your analytical machines. Its also a view that can and will change – because prices do. Our views on deflation in 2009 supporting a bullish stock market environment and our current bearish views on US stocks due to inflation are direct outputs of the direction of one factor – price. As prices change, we will.

Piling Debt upon Debt upon Debt to solve for these European liquidity issues will also end in long term inflation. See chapter 12 of Reinhart/Rogoff for empirical data supporting the view that accelerating long term inflation will continue to be the result of a world that’s resorted to printing fiat currencies.

Keith R. McCullough
Chief Executive Officer

Trichet: He Who Sees Inflation - 1