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Even last week’s GDP report showed inflation is accelerating.For clues on inflation, or the QE assassinator, I plan to continue monitoring trends in company-specific costs, wages, and pricing. While equity investors appear unconcerned, the short-end of the curve appears to be sniffing out what I’ve been observing and documenting.Considering I don’t own equities, it may come as a surprise that I believe the operating environment for most businesses is satisfactory.

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Despite the best efforts of dip buyers, financial television enthusiasts, and central bank talking heads, the stock market gets tired, rolls over, and dies of old age.And because this market lacks valuation support, stocks can decline considerably before genuine margins of safety reappear and protect investors on the downside.Going forward, I expect rising equity prices will be accompanied by rising inflation and interest rates – classic ailments of an aging market and economic cycle.In effect, I believe we’re entering the stage of the cycle when the equity and bond markets transition from being friends to adversaries.It’s not especially strong growth, but the economic expansion and profit cycle continues nonetheless.

Given my view on the economy and profit cycle, I’m not expecting stocks to decline near-term due to poor earnings.

Maybe, maybe not, but the belief that central banks will always be capable of bailing out investors with an unlimited bid is flawed, in my opinion.

Based on my observations over the past two quarters, the trend in inflation (especially wages) is clearly higher.

In recent posts and quarterly management commentary, I provide many examples illustrating the Federal Reserve’s inflationary “success”.

Assuming the end of the current market cycle coincides with a period of accelerating inflation, will the bond and currency markets permit another round of open-ended QE?

Nevertheless, in my opinion, the risk associated with equity overvaluation remains significant.