Well, what a week. The Chairman of the US Federal Reserve admits that he’s ‘not at all sure’ that inflation will fade next year. OECD states that ‘Inflation is the main risk to global economic outlook’. The resultant expectation is tightening – a retraction of the money supply which will act as a brake on economic expansion, delivered via higher interest rates (higher costs, which slows the economy) and slowing bond purchases. Bond purchases are like an IV – infusing the economy with cash and liquidity to keep things moving. ‘Taper’ them down means less cash to go around, hence less inflationary pressure by slowing the economy.

So inflation, long talked about but aggressively ignored by policy makers, is finally taking centre stage and generating policy response.

On top of that we have the emergence of Omicron, the latest variation of COVID, the implications of which are completely unknown. But wow, has the media insisted on terrifying the hell out of us. It is shameless.

I’m old enough to have been through a few MAJOR market downturns. The two biggies were the dot-com bubble in 2000 / 2001, and the global financial crisis of 2007 / 2008.

Both were multi year events. For those positioned sensibly, they were survivable, and the carnage created some wonderful buying opportunities.

Now I’m not a market predictor. In fact, 80% of the time my holdings act independently of the market (as they are so unusual, small or illiquid). But guess what? My holdings have suddenly have moved into lock step with Mr. Market as risk appetite dries up. That is telling me something.

The VIX is also telling us something as it has exploded above 30 for only the 4th time in 5 years…..and the three times were during the initial chaos of COVID.

Markets have been on a tremendous run, fuelled with the fire of massive liquidity and low interest rates. Both look like they are changing. In fact, if you look at the recently passed US stimulus package, which unto itself is certainly inflationary, you can see policy makers probably have to act.

I’m staying long, with my eclectic portfolio of micro caps, technology plays and undervalued commodity assets. I can take a hit and get back up swinging.

But for those of you with focused exposure to the TSX, NASDAQ or stocks that have been on a multi year tear to historically or ridiculously high valuations – Be cautious.

GLTA!