In Europe, equity markets worry that there is no growth – fear of inflation has disappeared. In the US, equity investors are uncertain whether the problem ahead is slowing growth or rising inflation. I reckon growth won’t be a problem in the US this year. But, ironically, that will be a big problem for investors since it will deflate asset and debt bubbles as interest rates move much higher than expected.
Why will rapid growth be bad news for investors? First, higher inflation in the US will raise the nominal and real cost of capital, making the cost of servicing debt mountains unbearable.
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