This is from Nomura’s Anthony Morris:
Historians say that generals tend to fight the previous war. Investors may have a worse problem — fighting what they mistakenly believe the last war was. An example of this may be perceptions of inflation risk and the presumed lessons of the 1970s. Some investors remain convinced that oil shocks caused the Great Inflation of that period, or that money supply growth always causes inflation. In this article, we try to identify and debunk some common mis-perceptions.
There’s a line you often hear about “hindsight being 20/20” as if everything is totally obvious if you’re looking backward.
Of course that’s complete hogwash. People are terrible at hindsight. Their memories are clouded by specious correlations, incorrect inferences, political biases, and basically all of the common things that make foresight so difficult. Investors, like everyone else, love to talk about the importance of knowing history, but a lot of the time, leaning on history will lead you down a cul de sac, preventing you from assessing the completely knew situation that’s popped up before you.
As for the misperceptions about inflation, Nomura points out that all the stories people tell about past inflationary episodes (including the growth of the money supply and the oil spike) don’t stand up to scrutiny. And yet people keep trying to mis-apply those lessons today, only to fall into a ditch.