Stockholm:“How should we think about inflation?” asked the Strategic Asset Allocation Committee. “Is inflation something that should have been much lower were it not for such low interest rates and so much QE? Because if that is so, won’t policy normalization cause deflation? Or has QE created disinflation? Because if it has, won’t its reversal create inflation? How will politics affect inflation? And what should we think of Trump? Who will come next? A socialist? Is Fed independence under attack? And what are we to make of your trade conflict with China?”

Stockholm II:“Our conflict with China is about far more than a trade deficit,” I explained. “It is about slowing China’s rise, economically, militarily. Confronting them on intellectual property, market access.” The committee agreed. “US and EU policy, business, and military circles all seem to believe that this is necessary, overdue, but many are offended by our approach.” The Swedes agreed. “What would have happened if the US had tried to coordinate its European allies to confront China in a multi-lateral way?” I asked them. “Nothing,” they said. And I agreed.

Stockholm III: “US markets are priced for roughly 2% or less inflation every year for 30yrs,” I said. In a world of extraordinary debt, rising deficits, and impossible entitlement liabilities, pricing low and stable inflation when governments print money seems a poor bet.

“Electorates are voting for higher wages, greater income security, less trade and immigration – more balanced division of economic profits between labor and capital. And if the current parties do not deliver this result, they will be replaced by parties that will lift inflation through socialist redistribution.”

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