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Posted November 11, 2021

Sean Ring

By Sean Ring

Do You Need to Sprint to Outrun This Inflation?

  • Inflation hits a 30-year high. The last time it was this high, Dubyas Daddy was President.
  • Its great to own assets right now. Even - perhaps, especially - stocks.
  • But crypto and real estate have much more room to run, despite the Zillow kerfuffle.

Its Thursday! Nearly there

While the Journal is in an uproar over inflation - and its definitely an issue - its not time to hit the panic button yet.

In fact, if youve been exploring that second passport, buying crypto, building your online company for cash flow, and getting in shape, youre already in the perfect position to profit from this coming storm.

But before every storm, theres the calm. Thats where we are right now. So, hold fast.

The World is on Fire!

Ok, its not on fire, but practically every economics article on WSJ.com reads that somehow The World is falling apart.

Yesterday I accused The Wall Street Journal of straddling a political fence because its pretty, socially liberal, but occasionally sounds conservative.

And todays is one of the more conservative editions of the paper.

Price Jumps Awaken Caution in The Markets reads one headline.

Inflation Hits 30-Year High reads another headline.

In the opinion section, Inflation and Building Back Worse, and thats from the editorial board.

So, theres a lot of the-sky-is-falling-Chicken-Little attitude today.

Ill take you through a couple of stats.

But first, I agree that inflation is insidious and central bankers cannot turn it off when they choose to.

I ridiculed central bankers earlier in The Rude over saying that they could just turn off inflation when they want to.

Sure, they can stop printing money, and that would quell monetary inflation.

But the price inflation is already out of the bottle, and thats *the* big problem for most people.

If you look at the inflation numbers, most of them exclude food and energy.

Why? Because those prices are allegedly too volatile for the statisticians.

The real reason is that food and energy prices rise the most when governments print too much money. And thats what they dont want anyone to see.

If you look at this chart of the CPI for all urban consumers, youll see that from 1982 to 1984 (when the index is set to 100), prices have increased nearly three times (to 281).

Again, I remind you this doesnt include food and energy.

We know wages havent increased this much, so disposable income in households has declined markedly.

Thats terrible for people in the lower-income brackets whose disposable income gets spent primarily on food and energy.

The World Bank just printed its Commodity Markets Outlook for October, and its expected that energy prices will be 80% higher in 2021 than 2020. Energy will remain at elevated levels in 2022, according to the report.

But the Bank thinks prices will start to decline in the second half of the year as supply constraints ease. To them, the high commodity prices are not caused by monetary policy but the supply chain bottlenecks.

To the Bank, supply chain bottlenecks should ease by then. To me, thats just conjecture.

The Banks agricultural price index slowed its meteoric rise in Q3 this year, but its 25% higher than a year ago.

Maize prices have increased 64%, soybeans have been up 47%. Thats a significant increase for consumers.

Why Isnt This the End of the World?

One, The Fed, even though theyre talking about tapering, will not stop printing money.

If you look at the 10-year break-even inflation rate, its up a bit.

Right now, were at 2.70%, but it is not at a level that will cause any panic in any central bank.

Just to make sure: the break-even inflation rate represents a measure of expected inflation that comes from the 10-year treasury constant maturity securities and the 10-year inflation-indexed constant maturity security.

So, its the difference between the treasury inflation protection securities and the standard fixed coupon 10-year bond.

Thats what the markets expect inflation to be in the next ten years on average. Its elevated, but nothing that would cause any stress in the Eccles Building.

The St. Louis Fed Financial Stress Index is also low; its below average right now.

The stress index considers a bunch of different metrics, such as the treasury yield curve, 3-Month LIBOR, JP Morgan emerging markets index, and the VIX, among others.

It isnt showing that much stress at all. So, I dont think the central banks are going to change policy all that markedly.

What Does This Mean for You?

If youve been doing the things weve been talking about, like getting a second passport and buying cryptocurrencies.

Cryptocurrencies are doing very well right now.

What Ill add to that is if you own equities, youre doing fine as well. However, tech stocks will start feeling a bit of pressure, thanks to inflation.

Real estate is going to be soaring, despite the panic over Zillow.

Excellent markets commentator and Rebel Capitalist George Gammon thinks this is the first stage of failure in the real estate market.

I think were nearer to the end of the bull real estate market. But I dont think this is the end.

Monetary policy has an enormous effect on that markets performance, and it will climb for the foreseeable future.

In the Stansberry Digest this last evening, another good friend and colleague, Kim Iskyan, also pointed out the similarities between the 99-00 NASDAQ rally and the 20-21 NASDAQ rally. You can see the resemblance from the charts:

From this standpoint, tech stocks dont look like theyre ready to fall apart yet.

Although I think theyll start feeling pressure from inflation soon. But theyre not at the turning point yet.

So, the message today is to sit tight, keep doing what youre doing, and just ride that wave of money-printing.

Until tomorrow.

All the best,

Sean

 

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