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"These People Are Dangerous"

Tuesday, August 01, 2006 | 02:30 PM

Natexis Bleichroeder Technician John Roque makes these astute observations about the inflation rate as it relates to sentiment and the market:

"Bullish types deduced quickly that “with GDP soft and oil still high ($73.60) the Fed’ll tell us they’re done raising rates when they meet next.”

Curiously, at the same time, core conusumer prices and employment costs came in ahead of expectations portending higher future inflation, but market participants chose to pooh-pooh this fly-in-the-proverbial-lower-rate-scenario/ointment.

The jolt, in short, was that slower economic growth trumps higher inflation news and that two potential negatives were deemed positive."

He offered up this chart (yes, we have shown it before) as to where inflation is likely to go in the future:

CPI, Annual Changes, 1957 - 2006

Source: Natexis Bleichroeder

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It should be no surprise that this crowd continually changes their views on inflation -- regardless of what is actually happening in reality:

"We get the distinct impression that consensus thought right here is that “inflation is a lagging indicator.”

Funny thing about this sentiment info is that the people who’re telling us that “inflation is a lagging indicator” are the same people who’ve told us all along that “there’s no inflation,” the same people who said gold couldn’t rally, the same people who said oil wasn’t going to stay at high levels, and the same people who said tech would be a leader, the same people who said the “Fed’s done raising rates” for a year, and the same people who said the Yanks were out of the race.

Plainly, these people are dangerous and we think inflation will work higher."

Dangerous, indeed . . .