Inflation
We get US CPI shortly.
Here’s Goldman’s ready reckoner.
It’s perfectly reasonable. There’s no way for us to make money off it. The DAA funds are well diversified, the equity sleeves are somewhat defensive. All the positions are “laid out”.
It’s not super clear which is “mispriced”, at the moment, stocks or bonds. You can argue that stocks are not pricing earnings risk, with margins normalising and earnings falling as growth cools off.
You can argue that bonds are mispriced, with real rates over time likely high, if we get a soft landing, but unemployment stays low, and a bias to higher inflation prints, relative to the decades of a bias to lower prints.
We try to proxy which is which by looking at the ERP. Stocks are probably slightly cheap relative to history on the ERP, or, depending on where you mentally draw the average, about fairly priced, relative to how much they return (ex ante) over bonds.
That doesn’t actually answer whether bonds themselves are overvalued, though.
Given the currently overheated economy, real rates seem quite appropriate.
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