EC4024 students: we may have to take a detour off the course outline for a little rap on Stagflation, just to get you used to the idea that macroeconomic variables can, and will, mess with your profits. THose of you with an interest in the financial industry, read the quote below and the linked post, and thank whatever God you believe in you've got two more years as undergrads.
There was virtually nothing pleasant about last week. At least, as far as the economy is concerned. The mass of data, the fresh instability in financial markets, and the latest testimony from Fed Chairman Ben Bernanke drove investors to the safety of US Treasury securities, all of which, at least at the short end, are yielding what must be negative expected real rates of return. Moreover, the odds now favor a 75bp cut at the FOMC meeting, a notch above the 50bp I am expecting. Not a surprise; the legacy of the past few months has been when you expect more, the Fed delivers. I am not ready to change my call at this juncture – I think it will be increasingly difficult for Bernanke to make the FOMC hawks choke down another big rate cut given the deteriorating inflation environment. And at some point, the Fed will need to hold their ground, or they will loose control of those anchored i
(Link, via Economist's View)