Is Inflation A Legitimate Fear On Wall Street and the Markets?
Charles R. Nelson, an economics professor at University of Washington, has studied the impact of price inflation, as measured by the consumer price index. He’s formulated the following trading rule: “When CPI inflation is on the rise, stay out of stocks; when CPI inflation is on the decline, buy stocks.” The chart below shows the CPI inflation index since 2000: As you can see, until last year, the CPI was declining. But now, it is beginning to rise. As long as inflation is a threat, be careful about investing in U.S. stocks. Recommendation: Better to invest in commodities and foreign stocks (as we have been recommending in our Stock Market Predictions for 2006). But when it becomes clear that inflation is subsiding, Wall Street should rally. I’ll keep you posted to determine when we can expect a fall in inflation. Good investing, Mark Today’s Investment U Cribsheet • Today, I mentioned again that all stock prices are forward-looking Head back to Investment U # 506, Yahoo in the Stock M
