Hey There Income Hunters,
Hope you enjoyed the Christmas break!
I was up in New York visiting family and friends, and it was amazing how many conversations involved Bitcoin, TESLA and IPOs …
That’s my world 24/7, of course, but I really was more interested in sharing Christmas cheer …
However, I do get it.
Anyone who has a wealth manager or directed investment account feels great when they look at their account statements.
For many in the long-only investor club, good times really have never seemed so good!
This had me thinking about the real potential for a major spike in spending over the next six months.
I’ll lay out what I’m looking at starting with the “big picture” boom/bust cycle (below) and where we’re at in it …
The US Shift to Inflationary Boom
- Since 2008 the US has been in a Deflationary Boom, close to trend growth (the long-run average of growth) with new innovations keeping downward pressure on prices.
- COVID-19 severely restrained economic activity, while money supply simultaneously soared. That built pent-up demand for goods and services.
- Prices are just beginning to rise and a transition to the Inflationary Boom quadrant has begun. Check it out …
Follow Up Considerations:
- Since interest rates are already at zero, this cycle is different than any we’ve seen post-depression.
- The Fed has only one option … fuel inflation and hope it doesn’t lead to a shift to the upper left quadrant and an Inflationary Bust.
The Green Shoots of the Inflation Tree
I have three Inflation Indicators that will guide us along the reflation path …
1. Money Supply: It is flashing green as you can see …
2. Fed Quantitative Easing (QE): The Fed buys bonds from member banks and credits their account at the Fed. The Banks mostly use it for stock and bond market making and it made a new all-time high this past week.
3. Future Spending Capacity: This indicator gives us a heads up for a rise in spending activity (velocity). This is the most important for signs of impending inflation and it is flashing green for reflation trades.
So, as you can see, judging by my indicators, we are headed for more of the same with an acceleration of inflation by mid-year.
My best guess is we get another stimulus package in Q1 and that will be the gasoline on the fire that leads to a second-half surge in prices.
Next time I’ll share my reflation portfolio and my favorite strategy that lets me sleep at night …
Live & Trade with Passion My Friends,
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