This market has a serious case of the “flations.” Just listen to the financial media and you can diagnose it. INflation, REflation, DISINflation, DEflation, STAGflation…. I’ve heard them all lately and with a frequency that reminds me of the last time they were ringing in my ears - early 2000. Whenever I hear so many credible economists proposing that we are currently in different flations or simultaneously fearing that we are heading towards multiple forms of other flations, I get worried about the markets. It’s not that I am afraid of where we are economically or where we are going economically. Hearing so many flations at the same time, I start suspecting that the Fed, the economists, and investors really have no clue and that is very problematic for the markets. The competing statements of various Fed members over the past few days and weeks has been a sample of this confusion. The interpretations and projections of economists with multiple (and conflicting) views has only made it worse. It is no wonder that we get investor behavior like the past week and a half.

Historically, flations are phenomena that last for years, not weeks or months. In fact, they are often associated with decades - the 1930’s for DEflation, the 40’s, 50’s and 60’s for REflation, the 70’s are largely known for STAGflation, and the 80’s and 90’s for DISINflation. For the current decade we seem to be in a state of confusion to define what we are experiencing or more importantly, what we will experience next week. The rapid changes in the global economy are presenting fast moving challenges for monetary policy and in my opinion, they are the most likely reasons that Chairman Bernanke has gone from deflation fighting commentary in 2002 to inflation fighting in 2006. These changes will take years (maybe decades), not weeks or months to work themselves out. While I would like to stop hearing so many flations so we can have a more peaceful investing climate, I doubt that it will happen for a long time. I think I will coin the term for the 2000’s and beyond as a period of CONFUflation.