The Inflation/Deflation Tug of War

Hey There Income Hunters,


All I hear these days when I listen to financial podcasts is a debate about whether we’re going into inflation or deflation.


It’s incredible to me how many people have been brainwashed by the Fed — and their media cronies.


I never watch network TV anymore, but apparently the talking heads are doing a great job convincing listeners that our central bank has everything under control.


It’s really amazing, because the Fed never had control and never had a clue what to do when the Covid-induced crisis took hold …


Except to print money.


Now all you have to do is read a bit of history to know we are repeating the inflationary era of the late-60s and 70s.


I also think most investors today lack the patience to stay with a strategy through a period of volatility out of fear their long-term view may be wrong.


Well, trust me when I say this …


We are entering a period of “secular inflation.” By that, I mean we are talking about an indefinitely long period of higher prices for goods and services — which will ultimately not end well.


So, here at the start of Q3, I’ll set the table on what may happen in the short run and what will definitely happen in the long run.


The Tug-of-War Between Inflation and Deflation


It is so difficult for people to wrap their hands around inflation because the Fed has gone 40-years fighting deflation.


I’m lucky to have traded during our last bout with inflation, so I understand the menacing force it can be.


I’m also a dedicated Fed watcher because once I realized how badly they could mess things up, I hung on their every word waiting for the fatal mistake they would inevitably make when you-know-what hit the fan.


Rest assured, they will make a miscue before this year is out — although it may be on purpose.


You see, here is the problem — and it’s something many are unwilling to admit, but I have no problem highlighting …


The Fed can not raise interest rates.


Period. End of story.


You see, the markets are far too fragile with such a large debt burden hanging over it.


Trillions in stimulus will do that.


Just look at the margin debt traders have taken, which is fueling the financial markets bubbles:



I am sure Treasury Secretary Janet Yellen reminds Fed Chairman Jerome “J-Pow” Powell  of that every day.


In fact, as 2021 progresses, I believe the Fed will need to find a reason to print MORE money in spite of high inflation.


I mean, inflation may come off a touch in the months ahead but that’s all we should expect …



So the Fed will need to find another reason — and that could mean engineering a correction in stocks.


Then they could ride in on their white horse and save the day with another $3 trillion in stimulus…


Bring It Home


My point is that the Fed needs to find some cover so they can keep printing money.


A stock market correction would provide that cover.


It is really important to understand the Fed’s predicament and that any correction in stocks that causes a downtrend in commodities and metals is an opportunity to buy.


Fed stimulus injected to save the stock market will further ignite the inflation already in the system.

 


The deflation/Inflation tug-of-war is exciting — and filled with opportunity.


You just don’t want to be behind the anchor man when the whole team gives way.


Have a great weekend, and as always…


Live and Trade with Passion My Friends,


Griff

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