Some of my recommendations and predictions under the current monetary policy programmes;
- Value stocks – These firms can pass on inflation to its customers, and have a diverse customer base. Asset pricing models benefit these equities over other stocks, as their earnings are definite and immediate.
- Growth stocks will continue to lag. Many of these face fierce competition. The downward pressure on many of these firms has been relentless
- Commodities will remain strong as demand picks up again. With the willful US Fed on autopilot, it’s difficult to put the toothpaste back in the tube. The supply-chain shocks will persist, and actually may be encouraged by the Western governments themselves. For instance, the Biden regime’s energy policies have resulted in diminished oil/gas output, while restricting energy transport.
- Residential and warehouse real estate will continue to power ahead under the current set of monetary and fiscal policies. Given the higher levels of inflation, real estate prices will remain remarkably resilient to higher mortgage rate levels. According to the USA Today, the real estate market continued to break historic records in April, as home prices rose 21% YoY and the median home-sale price soared to $348,500. In May, this level rose above $350k. A year ago, we predicted an intermediate-term rise to $385k when it was $315k. We are quickly reaching our target.
- Residential rents have begun to rise again in earnest as the average renter will get squeezed from all directions. If rents rise higher than expected, this will provide rental investors more confidence in higher property prices. I predict rents will rise much higher than generally expected and the landlords will once again, gain the upper hand.
- Ranch/farm land – Regardless of interest rate levels, farm and ranch land prices will continue to trend higher. This would mirror our experiences of the late 1970s.
- Bond investors will increasingly find it more and more difficult to stay ahead, even if prices remained elevated from a loose monetary policy regime.
At some point, I have to conclude that this can’t be an accident
As millions remain out of work and as economic growth remains reliant on extraordinary monetary and fiscal support, the Fed’s concerns about the recovery are well founded. If the Fed is right that the U.S. economy is still weak enough to warrant near-zero interest rates and quantitative easing, while wrong that pricing pressures are temporary, investors are looking at the threat of stagflation. Longer term, some investors and economists warn of a so-called debt jubilee, effectively a default through hyperinflation, and the risk of the U.S. losing its reserve-currency status.
Policy makers are walking a fine line. The costs of not getting it exactly right are high, already affecting bottom lines, wallets, and investment returns, while threatening to unleash economic forces not seen in generations.
Inflation Is Here and Hotter Than It Looks. Why It’s Time to Worry., Barron’s May 14th
I came across an article from this weekend’s edition of Barron’s, and wanted to share it with you. I have attached a link to the web version, and you may be able to read it without a subscription.
I have also attached a pdf version of it below. While the pdf version does not contain a few charts that were available in the web version, everything else is the same.Inflation Is Here and Hotter Than It Looks
What’s the goal here?
I wanted to end with one final observation that was analyzed by Joel Skousen in his latest edition of the WAB. He makes an interesting conclusion as to why the US Fed is remaining remarkably loose, and while he often refers to sources I do not hold in high regard, it’s nearly impossible to ignore the growing inflation dilemma in the West.
I believe it has to do with the “great reset” the globalists created in the wake of the exaggerated pandemic. Locking down the small business and restaurant economy and then offering periodic stimulus payments got everyone on the dole, and each bailout bill had lots of bad legislation in it furthering government control—one of the goals of the Great Reset.
Creating high inflation allows Democrats to decry the not-so-free markets; blame them, and induce people to demand price controls, which Richard Nixon succumbed to during the high inflation of 1971. If price controls ever get reinstalled, I suspect they will keep them in place and never let us be free from them again—much like these pandemic restrictions. Price controls are a key aspect of Fabian socialist “solutions,” and may well lead to calls for even more government controls in healthcare, housing, and food.
Joel Skousen, World Affairs Brief, May 14th
As with deficit and all forms of social spending, the resulting inflation helps those with the assets, while hurting those who do not own them. If you were acquiring income generating assets over the years, you already have seen how your asset prices have kept pace and even rose higher than the general cost of living.
As asset owners, we will have to eventually confront the growing chorus from those left out of the bull market runs. As prices rise, the risk of facing new punishing taxation policies, ownership restrictions, or outright expropriation will climb as well.