This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Increasing Inflation Is the 800-Pound Gorilla in the Room

NEW YORK (TheStreet) -- The doomsday crowd has been gnashing its teeth about inflation for years.

After the passage of the Troubled Asset Relief Program and the Federal Reserve's Quantitative Easing programs, the inflation paranoia even crept into the mainstream. It seemed a virtual certainty the country was headed for runaway inflation.

Today, after five years of incontrovertible evidence showing hardly any inflation, the market now appears to have discounted the possibility entirely.

Stocks command premium valuations and display impressive technical resilience. Treasury yields are locked in a historically low range while bonds at the short end of the curve pay investors a negative real yield. Gold has collapsed 40% from its highs while commodity indexes like the CRB have gone essentially nowhere for years. Real estate, for all its price recovery lately, still shows activity far below normal.

This is not how any of these assets are supposed to behave when inflation is on the horizon.

Markets never change on consensus. Trends turn around only when we believe it's a near-guarantee they'll keep going in the same direction they have been. Clearly, the markets believe the trend of "non-inflation" will be continuing indefinitely.

This is why we're so quick to dismiss the latest data points. In the last few months producer prices have increased at the fastest rate in a year and a half. The consumer price index (CPI) increased 1.4% in the first quarter, an annualized rate well over 5%. The market doesn't seem to care.

But the markets get it wrong a lot. It's also slow to react. The earliest warning signals always come from where few pay attention.

Right now, that's wages. One of the reasons why price inflation never ran out of control as predicted is because wage inflation wasn't there to support it. Wages are what keep prices afloat. Evidence is now emerging that wage inflation may finally be picking up.

According to the NFIB, the number of companies planning to increase workers has nearly doubled in recent months. This correlates almost perfectly with actual increases in year over year compensation, as one would expect.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs