Since the November election of Donald Trump, the investing landscape has gone through a dramatic change of expectations with respect to economic growth, market valuations and particularly inflation. As I noted two weeks ago, there is currently ‘extreme positioning’ in many areas which have historically suggested unhappy endings in the markets. To wit:
‘Much like a ‘rubber band,’ prices can only be stretched so far before having to be relaxed to provide the ability to be stretched again.
The chart below shows the long-term trend in prices has compared to its underlying growth trend. The vertical dashed lines show the points where extreme overbought, extended conditions combined with extreme deviations in prices led to a mean-reverting event.’
This post was published at Zero Hedge on Jan 29, 2017.