In the days immediately following 9-11, markets understandably fretted that consumer spending would collapse as people would be too scared to go out. In fact, spending picked up – even the author’s usually frugal spending increased.
This may appear an odd question to ask given the recent slew of poor inflation data points that have been released but we suspect that “all is not quite as it seems” within bond markets, or even the global economy. First, the inflation story.
Major “events” in markets have been caused by wrong assumptions over mathematical relationships. The Long Term Capital Management Debacle (LTCMD) in 1998 was primarily the result of the incorrect assumption of perfect markets by a cluster of Nobel Laureates. The naïve and wrong assumptions over correlations proved to be the spectacular undoing of the mortgage markets in 2007-8.