Do you believe in fairy tales? Share your story with CNN iReport. Share your photos, videos and stories from around the world. Visit for a new gallery of photos and videos. Send your stories of fairy tales to CNN iReporters.

Annual inflation in the United States, the eurozone, and the United Kingdom has soared to 40-year highs. Financial markets and central banks seem confident that the war against surging prices will be over by Christmas. If this happens, the world economy will soon return to the financially perfect conditions of the Goldilocks fairy tale.

Central bankers are more nervous than investors, but they are reassured by their economic models. Money markets are now predicting that U.S. interest rates will rise. Central bankers therefore see “well-anchored” inflation expectations as evidence that their policies are working. When central bankers and markets follow each other, both are likely to be led astray.

Financial markets' willingness to bet against warnings of return to 1970s-style stagflation. I have just spent three months traveling around the world to discuss with hundreds of professional investors why I have shifted to an unequivocally bearish outlook. Panglossian optimism about financial markets’ prospects has been replaced by pessimism.

Investor confidence rests on four fallacies, or at least cognitive biases. The first cognitive bias is to downplay and defy geopolitics. Professional investors take pride in trading against panicky investors. The October 1973 war between Israel and a coalition of Arab states led by Egypt and Syria ruined a generation of overconfident investors.
Posted by
Tap to Copy the Short Url to This Post: 
One-Stop Business News backed by Mark Cuban. Free to Use →