[ihc-hide-content ihc_mb_type="show" ihc_mb_who="10,13,14,16,18,19" ihc_mb_template="1"] By Osama Rizvi and Mark Rossano for Primary Vision Network As life slowly starts to return to normal, the global markets are headed towards the other direction. Margin debt is at record highs, mortgage debt at the highest level and a whopping $24 trillion has so far been added to the global debt levels in one year (2020) along with this, we have also witnessed an apocalyptic amount of COVID19 cases globally. With a shaky foundation, the prospects of a future growth seem tenuous at best so far as most of the hopes and developments are based on one variable i.e. low interest rates. Interestingly and ironically, optimism in the global financial markets is holding firm with stock markets rising along other asset valuations. However, inflation is also ticking up. With the last development the overall equation becomes asymmetrical as an uptick in prices can eventually lead to rising interest rate that, in combination of inflated levels of debt, can cause a serious correction. Fed in their recently released Financial Stability Report has categorically voiced concern regarding asset prices as they continue to rise. However, Fed mentioned the possibility of a “significant declines” in these prices if sentiments change and if history is a witness, we can gauge everything but a change in sentiments - as fickle as they are. As mentioned above equities are on the upside with M1 money supply increasing 36.9 percent. Not only this the blank cheque companies, known formally as Special Purpose Acquisition Vehicles (SPACs) already broke its 2020 record only 3 months into 2021 with the raised value at $87.9 billion as compared to $83 billion in 2020. Asset prices have continued to rise but the Fed have not been worried, at least, until now. One of the reasons is that Fed follows MMT (Modern Monetary Theory) according to which until there is an inflation, the government should continue to print money and Fed has certainly followed the theory in earnest. Also, the asset price inflation isn’t usually included in the mainstream inflation measures such as Consumer Price Index (CPI), Producer Price Index (PPI) and finally Personal Consumption Deflator (PCE) only because of the highly volatile nature of the former but not doing so leads to a misrepresentation of the real world (see chart below). We at Primary Vision Network have been speaking and writing about the rise in inflation and the unsustainable optimism being practised by the market. In an article, two months back it was noted how most observers including the Fed is not considering inflation as a factor. With product and food prices rising across the globe and political unrests following up as a result of COVID19 as it substantially increased the number of people below poverty line, the overall combination is a deadly one. Now the Fed have voiced the same concerns especially as crowds gather (digitally) around the meme stocks such as Dogecoin, that has managed to gain 30,000 percent since last year, and Gamestop that busted Wall Street firms. The Consumer Price Index, in April, experienced a sharp rise of 4.2 percent as compared to last year - the fastest rise since 2008 and the core inflation registered its largest monthly gain since 1981. Prices have also started to creep up throughout global supply chains as is evidenced by the rising Producer Price Index (PPI). The largest increase have been amongst the countries that are U.S. largest trading partners and in that way inflation is being imported into the country as well with it only being a matter of time when this increase will be passed on the customers. China is one of those countries that has seen prices rising sharply and with government trying to cut back on growth in credit and liquidity, the companies will only be left with the option to increase prices to get some margin. Due to high seasonal demand the shortages in shipping and of containers is also adding upward pressure on prices. Due to the recent closure of business, including slowdown in global trade, inventory levels across the world has been very low and this is why companies will continue to buy products regardless of the rising costs testing further the shortages in shipping industry and rising unavailability of truck drivers subsequently contributing to the overall inflation trend. To say that the global economy has stabilized and that we are on our way to recovery is too early at this point. With rising inflation levels across the globe, especially the food prices, not only is the OECD countries at the risk of financial panic but also the emerging markets - even more so given their inflated debt levels, rampant unemployment and stagnant wages (case in point: see this article by one of the authors that explain what is happening in Pakistan). Oil prices have increased crossing $70, however the physical market tells a different story. To say the least, a correction is afoot. Time will tell when and how, but we believe it isn't a matter of 'if' now. [/ihc-hide-content]