Markets spent most of last week awaiting the latest US inflation figures with bated breath. Turns out that in November, US consumer prices rose by 6.8% year-on-year. That’s the highest level seen in nearly 40 years.

If you’d been told this time last year that inflation would hit a near-40-year high in the US (and in lots of other places) by the end of 2021, you might imagine a number of scenarios.

So I still think that the market is underestimating the odds of a much more inflationary outcome here. What do you do? Same as we’ve been suggesting for a while: buy cheap stuff, hold gold, make sure there’s cash to hand for capitalising on opportunities as and when they arise.

You might imagine that the US Federal Reserve and other global central banks would have stopped printing money. You might imagine that the more overvalued markets might have crashed. You might imagine that bond yields would have risen significantly. The market reaction reads more to me as though investors are still hoping for a Goldilocks-style outcome. You’ll get a slow but steady shift higher in interest rates. The cycle will peak earlier than before but so will inflation – particularly if supply chains start to clear. And so it’s worth reining in bets on the more loopy stuff, but no point in betting on spiking yields or collapsing stock markets.

Money Morning