Soft, Hard, or Otherwise,
Inflation Must Be Stopped
People want to live. After 3 years of being confined to their homes, everyone is traveling again. Heck, I just got back from skiing for the first time since January 2020.
A pandemic is just that, and it didn’t create any meaningful long-term trends… not even in the office. Even in commercial real estate, we’re seeing that whoever should be working from their office is being called back.
Some jobs were never meant to be office-based, and those employees will continue to choose if they want to come in, but the other 95% of workers are not going to be hybrid.
Spending is one temporary effect that has delayed a recession.
Supply chains moving out of China and into the U.S. and mass retirement by the Baby Boomers have kept unemployment rates at very low levels and slowed the impact of the tightening monetary regime.
Lastly, a deluge of marriages and new family formations fueling more couples to buy homes or just leave the nest have led to high demand for real estate and have been offsetting the crunch the mortgage spike has dealt to homebuyers.
But every plane, no matter how efficient in wingspan, how brilliant in aeronautics, or how capable its gliding profile is, MUST LAND.
If you think that a flight can last forever, Jerome, you don’t understand economics.
The markets are telling you that your insistent attempt to keep the plane in the air is foolish:
Courtesy: Zerohedge.com, Bloomberg
It’s not just credit risk on the national level, the kind that panics the elite, it’s also the market clearly pointing to signs of policy mistakes and testing the limits of the system.
Stocks are considered far riskier than bonds. Stocks are prone to the volatility of cycles, changing dynamics of the economy, needs of consumers, and booms and busts of the erratic situation in Europe and China. Compared with a fixed and guaranteed interest payment courtesy of Uncle Sam, bonds are not supposed to represent more volatility than stocks.
As you can see below, when that does happen and bonds are more volatile than stocks, it means trouble.
Courtesy: Zerohedge.com, Bloomberg
93% Of Investors Generate Annual Returns, Which Barely Beat Inflation.
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Gold thrives in that type of environment.
Gold is now up two quarters in a row, representing its best 6-month stretch since it formed the bottom in December 2015 and rallied in 2016.
I don’t hear anyone excited about this yet, which is bizarre and might mean there are more gains to be had.
While investors are running away from risk and fleeing to cash, I ask you if that’s the right choice:
In my view, cash was the trade of 2021. When everyone else was looking for any way to participate in the bubble, be it by buying stocks, bonds, real estate, crypto, or pictures of apes, that was the time to be in cash.
With everyone and their mother in cash, it can’t be the correct trade for 2023, and the fact that my TQQQ position is up 67% in the first three months of the year is proof that there are better uses for currency than being parked in cash.
Keep in mind one thing: the markets ALWAYS price in the future. If you can invest with a time horizon that bakes in the likely scenarios coming, you’ll be a better investor by definition.
Governments Have Amassed ungodly Debt Piles and Have Promised Retirees Unreasonable Amounts of Entitlements, Not In Line with Income Tax Collections. The House of Cards Is Set To Be Worse than 2008! Rising Interest Rates Can Topple The Fiat Monetary Structure, Leaving Investors with Less Than Half of Their Equity Intact!
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