Inflation is a general rise in prices over a period of time. Right now, consumer price inflation (CPI) is hovering above 4%.
Make no doubt about it, prices are going up for consumers across the board and it's not going to be as temporary or transitory as Fed chairman Jerome Powell might have you believe.
Most of us who visit the grocery store and the gas pump have been hammering on about higher prices for some time now and the data is proving what we already knew. Consumer price inflation is officially here.
inflation vs deflation
There's been some disagreement about inflation vs deflation between analysts. And the deeper you dig into each macro view, the more you realize it's more about definitions and terminology than real-world price increases.
So yes, prices are going up. Nobody disagrees. What many analysts are/were disagreeing on are the mechanisms that triggered these higher prices.
Some say it's the Fed over-supplying monetary heroin to sick markets, combined with the federal government over spending trillions on transfer payments. While others believe it's more about supply-side destruction and disruption brought on by the pandemic. Or a combination of both.
Will Inflation Be Short-Lived?
“I listened to a webinar today (4/28) with Mortgage Industry Guru, Barry Habib (CEO of MBS Highway), and he thinks we will see mortgage rates in the U.S. increase by as much as 1/2% this summer b/c of inflation fears.
He also believes inflation will be short-lived for two reasons:
- It is caused now by broken supply chains that will be repaired.
- All of the debt the U.S. is taking on will be a huge drag on the economy.
He further predicted that we will see a recession in 2022 and 2023 that will result in much lower interest rates again in the U.S. I am wondering if you agree with Mr. Habib at all, particularly b/c I think you believe long-term inflation is a significant concern.
Is it possible to have inflation and low interest rates at the same time?
According to Chris, yes. You can have inflation and low interest rates. In fact, central banks will have no choice but to keep rates low so governments do not default on their debts.
Can broken supply chains be easily repaired any time soon?
The short answer is no. Chris believes the current market cycle will be primarily driven by supply disruption and destruction, which is much harder to deal with than Federal Reserve interest rate manipulation and excessive money printing in the financial economy.
A lethal combination of trillions in transfer payments to millions of consumers, and massive supply destruction in goods and services has created a scenario where demands are high and supplies are low.
In a free market, prices will adjust to meet demand. However, we are no longer in a free-market economy, so expect government intervention (price controls) to make matters worse, for everybody.
Lumber prices are up 300% year-over-year. Lumber is unique in the fact that North America is dealing with mother nature (a nasty pine beetle infestation) on top of trade and pandemic barriers, so it's a special case.
However, high prices appear to be hitting consumers across the board, with no slow down in sight. It's not just lumber anymore.
Food, gas, shelter…the big stuff. It's all going up in price…
Chris has been talking about supply destruction and disruption since the beginning of the pandemic and it's not going away anytime soon. Unfortunately, he sees it getting worse.
There's no visibility into the future so growth has slowed
Economic stability is a must. For a sector to thrive, political and economic stability are must-have ingredients. A farmer needs to know that his food can be sold when he grows it. Shippers need to have confidence that tomorrow's demand will support the need to build a new ship today, etc.
Capital Expenditure (CapEx) spending collapses
Capital Expenditure is collapsing across just about everything. Why?
Businesses are less likely to grow without having some level of confidence in what the future holds.
It's that simple, and it's what we are seeing unfold, right now. Lack of confidence in what the future holds.
Capital Intense sectors that are debt-financed, like shipping, for example, have been hit particularly hard. There's been a tremendous amount of supply destruction and zero growth over the past year.
If shippers are too afraid to build more ships (debt-financed and capital intensive) then they won't build any more ships. So limited supply increases demand, which increases prices until new supply comes online or demand recedes.
This is just one example. The important things to consider are there are major knock-on effects that supply chains contribute to.
It's more than just shipping. From parts in your toaster oven to parts in your car…Production is in gridlock. It's not a demand problem, it's a supply problem.
Consumer Price Inflation Triggers Soaring Prices
The cost of your own basket of consumer goods is on the rise. These goods, that you buy for yourself and your family rely heavily on the supply chains being affected across the globe, right now. Expect this to continue.
Semi-conductor shortages force FORD Motor Company To adjust guidance
There's a microchip shortage wreaking havoc across the world right now. Manufacturers cannot get the chips they need to build the products that consumers want. Again, it's not a demand problem, it's a supply problem.
Energy Is Like The Blood In Your Veins
Without energy, everything starts to die off. Energy touches everything. And when you increase the cost of energy, then expect those costs to eventually touch everything you buy.
Investing for High Inflation
Sector rotation has been happening for some time now. Chris MacIntosh and Lyn Alden have had their fingers on the pulse and we've continued to be selective about the sectors and individual stocks to invest in.
It's still early. This fourth-turning environment has many years to play out still. Inflation is just getting started, and we are now beginning to see many of the knock-on effects Chris and Lyn have been talking about in Rebel Capitalist Pro.
Commodities are a hot ticket sector at the moment. During times of uncertainty smart money flows into real stuff. Expect precious metals, rare earth metals, energy, and shipping to do well.
However, things are moving fast. Lyn has already sold and profited from many commodity positions. The pandemic has accelerated markets, so it's critical that you practice sound risk management when re-balancing your portfolio. You can't be asleep at the wheel if you want to do this right.
You can try Rebel Capitalist Pro for only $1 for 7-days. If it's not for you, then self-cancel before the 7-days are up and you won't be charged a full monthly membership of $97/mo.
You get access to the knowledge, the pros, and their picks for less than $100/mo. You really have no excuses.
How is inflation affecting you and what are you investing in to hedge against it? Let us know in the comments,