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Thursday, August 5, 2021

INFLATION VS DEFLATION: Hard assets

 




If you listen to most talking heads all you hear is inflation blah blah blah.

Here are the facts of the world we live in.  Japan has been in Deflation for the last 30 years.

Europe is in the grip of a vicious Deflation with negative interest rates and QE Forever.

China is either in Deflation or at least desperately battling Deflation as they go back into lockdown.

That is 40 percent of World GDP.  DEFLATION.

And those are all Creditor Central Banks. So Deflation is manageable for creditors.

The US has had trend below 2 percent growth ever since 2009.  Under Trump that number sank to about 1.6 percent trend despite 3 trillion dollars of new debt - Before Covid.  After Covid the New Debt figure has grown to about 8 to 10 trillion through Fed balance sheet growth and we will get some temporary quarterly growth figures from deep trough comparisons, but then return to sub 2 percent trend.

This is not my opinion.  These are the financial facts.

Within this is there some brutal Inflation?  Yes.  In home prices, education, health care costs, food, some materials.  

But for a deep debtor nation such as the United States, inflation is vastly superior to deflation  And Jerome Powell understands this.  Thank God.  He will keep rates low and keep QE forever.

But if some in the nattering Political class get their way and try to battle inflation.  Which does destroy unprotected wealth.  Look out below.  Because a deflationary spiral will wipe out everything.

So what to do?  Hard Assets will fare best under inflation or deflation.  Why?  Because their value is intrinsic and not based on "Multiples" and Economic Models.  Their value is based on the fact that people throughout history have loved them, admired them, collected them, cherished them as emblems of either natural beauty, artistic beauty or great human achievement or all three.

Protect yourself, with at least some of your portfolio in Hard Assets, because inflation or deflation: its a hard, its a hard, its a hard, its a hard. Its a hard rain, a gonna fall.

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