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Average Americans are worried about inflation, but the mainstream financial media doesn’t think they should be.
Even though inflation is a hot topic, the conversation seems to primarily center around the notion that inflation is overblown. In his podcast, Peter explains why this mainstream media spin downplaying inflation is dead wrong.
“Everybody is trying to reassure the public, investors that there really is no inflation, that it’s all transitory like the Fed says, and that those of us who are warning about inflation, well, we’re the same chicken littles who warned about inflation following the 2008 financial crisis when the Fed embarked on quantitative easing and zero percent interest rates for the first time.”
Since inflation never turned out to be a problem after ’08, the mainstream reasons it won’t be a problem now.
Peter wasn’t the only person worried about inflation in the aftermath of the financial crisis. Gold went up to $1,900 an ounce in 2011, driven by fears about the consequences of all the money printing.
“The fact that the Fed was able to convince everybody that there was no inflation, and the government was able to fool everybody with their highly manipulated consumer price numbers, the people who were concerned about inflation were discredited, even though we have had quite a bit of inflation below the surface.”
Peter said he thinks consumer prices rose more in the aftermath of the Great Recession than official government numbers indicate, and he noted that inflation doesn’t only manifest itself in rising consumer prices. It shows up in asset prices — in an overvalued stock market and spiking real estate prices. It also manifests itself in economic imbalances such as the trade deficit and budget deficits.
“So, inflation has, in fact, been here. It’s done a lot of damage beneath the surface.”
But Peter concedes that inflation didn’t show up in consumer prices in the way he and others thought it would.
“I still think those concerns are going to be borne out by reality. It’s just that the lag is going to be many, many years longer than I or other people originally expected.”
Peter said those people taking comfort in the fact that they think everybody who was warning about inflation were wrong and the Fed’s policy has been vindicated are the ones who are dead wrong.
“The policy was an abysmal failure, which is why the Fed has had to repeat it so many times. But now it really seems obvious that all of those inflation chickens are finally coming home to roost, and people like me are about to get vindicated. But the mainstream still is oblivious to this reality despite all of the overwhelming evidence that they can now see that inflation is creating its ugly head in a big way.”
Peter noted the price of oil, which topped $70 a barrel for the first time since the pandemic. In fact, oil prices are now higher than they were before the initial COVID collapse. More significant than the $70 handle is where the future price will likely be. There is very little upside resistance. Peter said he thinks the next area of significant resistance will be around $100 a barrel. He thinks we could see that price by the end of the year.
“That is a huge increase in oil prices from where the year began and from where they were at their low point. … The trajectory here is very significant. You can’t ignore it. But more importantly, where are oil prices likely to be in 2022, because if you look at this chart, it seems to me we are going to test the record highs just below $150 a barrel that were set back in the summer of 2008. That was just before the ’08 financial crisis, and that’s what really turned the whole commodity bull market.”
The reason oil came down off those highs was a big rally in the dollar.
“I think we’re going to revisit that $150 price level in 2022 in conjunction with a big decline in the dollar. I think the dollar is going to revisit the lows it established in the summer of 2008, most likely, I think, sometime in 2022. So, a big rise in oil prices is going to coincide with a big dump in the dollar. Of course, it’s not just going to be oil prices that are going up. It’s going to be all sorts of commodities and consumer prices.”
But right now, the financial media is overlooking the significance of rising oil prices.
Keep in mind, the price of oil rising isn’t causing inflation. It is the result of inflation. But the price of oil factors into a lot of other prices. In fact, the cost of all production inputs is going up – including labor.
“So, there is significant evidence of inflation right now if you just look at what’s happening to consumer prices. Yet the media continues to downplay the significance of what we’re seeing.”
The financial media points to the rising stock market and the bond market as evidence that there’s nothing to worry about. They argue that the bond market, in particular, isn’t showing any inflation premium.
“Well, the bond market is completely broken. It is not the same type of reliable indicator of inflation fears that it once was when we had a free market in bonds. The bond market has been totally corrupted by central bankers, in particular, the Fed. Also, foreign central banks. So, it is not reliable.”
As proof, just look at the yield on the 10-year Treasury. Figuring in taxes, it is factoring in less than 1% inflation per year. This is absurd even with an optimistic eye. The 30-year Treasury yield is even more out of whack. Even at a 2% inflation rate, a 30-year bond should be yielding 4 to 5%. We’re not even close to that level. If you look at the 30-year bond as an inflation gauge, you would assume that inflation in the US is going to run under 1% for the next 30 years.
“The fact that the yields are so low is proof that you can’t place any stock in anything you’re seeing in this bond market. It is completely broken. … It is completely corrupted by governments and central banks printing money, buying bonds. There may be some other leverged speculators in there that have no intention of holding these bonds to maturity. There’s some trading going on. So, forget about it. You can’t take any comfort in the bond market. It has been completely destroyed of any type of reliability.”
The financial media also points to the stock market, arguing that if investors were worried about inflation, it would be selling off.
“I think that is completely wrong. In fact, I think investors are buying stocks because they’re worried about inflation. They’re trying to find a way to preserve their wealth and they want to buy real assets. And so, they’re buying stocks.”
This is why we’ve seen this pivot from momentum stocks to value stocks. Value stocks provide a better inflation hedge.
“People who are pointing to the record highs in the stock market as some indication that investors aren’t worried about inflation — they have it completely backward. It’s because investors are worried about inflation that they are buying stocks.”
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