Inflation, deflation-or both?

Many smart people have differing opinions on whether we will experience inflation or deflation going forward. Those who expect deflation look at a collapsing economy and rightly propose that weaker demand will cause lower prices.

Those who expect inflation will propose that the Fed, Treasury and President will do all they can to prop up the economy and asset prices. This is already taking place as the Fed is buying $40 BILLION per month in Treasuries, the Treasury is already planning to buy mortgage- backed securities that are rolling off the Fed’s books (with “money” borrowed from the Fed and conjured up from nowhere) and the president will be appointing a new Fed president in May. Many are speculating he will be doing the president’s bidding. The President has made no bones about wanting lower rates and a weaker dollar. This will take trillions of dollars that don’t currently exist to pull off.

As usual, this “money” which costs virtually NOTHING to conjure up and produces NOTHING leads to “too much money chasing too few goods- or the perfect recipe for higher prices- for almost everything.

While I am in the camp of INFLATION because throughout history, we have seen that when faced with the situation we are in now, those “in charge” have always taken the easy way out and “printed” their currency into oblivion.

Having said that, I believe that we will see inflation in places and deflation in places. I also believe that inflation will be grossly underreported (as it currently is anyway) with the cover provided by- in particular, falling prices in real estate.

While the inflation numbers EXCLUDE food and energy prices- things we all use day to day- one of the metrics used in the inflation numbers is housing.

It is not too hard to imagine that those “in charge” will be doing victory laps as the inflation numbers are reported even as we see the prices of our necessities skyrocketing. They will likely use the housing numbers to report that inflation is falling.

This is a clear illustration of why looking at reports- which in many cases are managed to get to a desired outcome rather than to the truth-is not even close to the whole story.

In reality, there is no “inflation rate” that can be measured for everyone. It really depends upon your lifestyle and spending patterns. The one thing that we can all be sure of is that we all need to eat, drink and have energy. Of course, these are metrics that are NOT included in the “reports.”

In looking at inflation vs. deflation the outcome could have a significant impact on our investments. With inflation, I would look to have hard assets of all kinds. Gold, silver, oil, gas, food, etc. I would also hold the companies that produce these assets along with only short-term debt as inflation destroys the VALUE of longer-term bonds.

In a deflationary environment some bonds may make some sense, and my opinion is that, in this case, the big winner would be GOLD. Why? Because of the debt-based system we are in cannot manage deflation. It would lead to bankruptcies and defaults on a global scale.

Companies that are hanging on now could go bust and wipe out ALL shareholder value. Loans that could not be refinanced could be defaulted on and lead to massive losses for consumers and banks. Many jobs would also be lost.

In simple terms, in a deflation you would likely see a loss of confidence in most- if not all- financial assets that are nothing much more than someone else’s promise to repay. At that time history shows that confidence needs to be restored and throughout history GOLD has been the asset that has been used to restore faith.

I believe that the central banks and their buddies are well aware of the inability to repay the massive global debts through productive efforts. I believe they know that the only way this continues is by “printing and buying” and that at some point the entire system implodes.

This is likely why central banks have been buying record amounts of gold for 5 years now and countries are repatriating their gold.

While many on Main Street are just waking up to gold and silver in particular and they have missed out on large gains, my belief is that we are still at the beginning of a historic bull run, particularly in the precious metals.

Based upon the money “printed” and the inflation caused by it, along with the suppression of the PRICES over a 50-year period there is a LOT of price appreciation needed to catch up to the VALUE. In addition, the producers- mostly in the global south, are waking up to the fact that those who produce NOTHING have been setting the PRICE through trading paper and robbing them of the true VALUE of their production.

This is a perfect storm coming together that will bring MASSIVE changes going forward.

BE PREPARED!

Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not prove to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct.

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