Another month, another reason to expect high, persistent inflation.
People keep saying to me that that you need full employment to get inflation. That's obviously true, because inflation has always happened during full employment! Oh wait! No, it hasn't. There is even a term for it: stagflation. I'm just going to leave this here:
Stagflation is characterised by slow economic growth and relatively high unemployment—or economic stagnation—which is at the same time accompanied by rising prices (i.e. inflation). While many theories abound, the consensus is that stagflation occurs when money supply is expanding while supply is being constrained. For example, if a government prints currency, which would increase the money supply and create inflation, while raising taxes, which would slow economic growth, then the end result would be stagflation.
We've seen the most dramatic expanse in money supply since... forever, really. And, that's not contained to just the US.
The European Central Bank is doing this although at a slower pace than it did before: https://www.ecb.europa.eu/mopo/implement/app/html/index.en.html
The Bank of England is doing this although again the pace is consistent or slower with what it did before: https://www.bankofengland.co.uk/monetary-policy/quantitative-easing
My question here is how the hell does this help businesses? Lets look at the US. So far, we are seeing unemployment plateauing and even rising slightly. Wages are also rising. (Source: WSJ) Why? People in the US are quitting jobs at the highest rate in 20 years! (Source: The Guardian) One of the reasons is the unemployment benefits - they don't feel that it is necessary to work any longer. They can press the time out button for a bit and relax, which is nice, understandably. I don't blame them. I completely understand them. However, I struggle to see how encouraging people to leave work helps rebuild the economy? Some states have stopped offering these so that people can actually have an incentive to go to work, but the Federal government is still offering those and is even considering an extension!
All I see is the Biden administration's plan being put into place and using COVID as an excuse to justify government spending on a similar scale to WW2! Luckily for Biden, the US no longer has the Gold Standard so you can inflate the money supply endlessly and put off facing reality for the next president. Look at the graph of money stock! Disneyland has flatter roller coasters! The Fed started accumulating more and more assets in 2008, accelerated it during Obama. Interestingly enough, they finally started reducing their total assets during Trump's administration, but then COVID entered the scene. The Fed went nuts and really kicked off the buying spree last year! It's understandable, they had to help people out, they had to step in. The first help was welcomed. However, we are way, way past the point where it is useful, which begs the question... Why? Why do they still keep going? There are a lot of people who insist that the Fed is stuck. They are unable to stop buying. They cannot raise interest rates. This explains why:
https://www.zerohedge.com/markets/fed-box-part-1-they-cannot-raise-interest-rates
We are seeing negative real yields (Real Yield = 10YR US bonds yield - Inflation). There is a growing likelihood that we will see stagflation. More supply shortages. Further wage increases.
What does that lead to?
Rising commodity prices. Rising metal prices. Rising silver and gold prices.
I'm not trying to be all gloom-and-doom, but it's really weird seeing this. It's worrying. I'm 25 and it's starting to feel like the chances of me buying a house are getting slimmer by the year because of central bank programmes that are meant to help me, help us have more affordable prices, more affordable housing and a better quality of life. Is anyone else seeing the irony?
I still have most of my money tied in the stock market, but I'm increasingly moving towards miner stocks and precious metals. They are about 15-20% of my total portfolio now and I've also got a decent chunk in REITs. I've made some videos about:
Michael Burry mentioned that betting on inflation is a "widow maker" trade and it has definitely seemed that way over the last years so I would advice you to exercise some caution. This is all my personal opinion based on what I've read and seen, but I could easily be wrong. This is not financial advice. Do your own research. Put yourself and your family first and don't make risky bets. This is the reason why I personally have only allocated 20% of all assets to this. The majority of my assets are still index funds in an ISA (UK version of an Roth IRA, but with slightly relaxed rules on when you can withdraw). The good thing is that stocks as a whole also tend to do well in inflation so index funds remain a relatively safe bet IMO.
