Those gazing into the future should be wary of inflationary storm clouds.

There is cash in the bank, cash flows that are almost within touching distance and there are cash flows that are barely visible to the naked eye. Then there are cash flows that are merely figments of the imagination. Extraordinary by-products of the Covid-19 era are the miraculous improvement in investors’ eyesight and the mind-bending expansion of their imaginations. In other words, there has been a stampede into long duration assets, including so-called growth stocks, corporate credit and government bonds.

It is as if the investment mainstream had put on a virtual reality headset and entered a world that was in a permanently disinflationary state. In the absence of the inflationary threat, there was no reason to believe that interest rates would ever rise again. A competition began among investors to look further and further into the future. Those that could see the furthest were naturally willing to pay the highest prices for the securities that represented valid claims on these income streams.