Is Inflation The Real Economic “Juggernaut?”

Date: 12/10/2021
Author: Mr. X

“I think we could go to a period where we have an economic boom not unlike post-World War I,” gushed Jim Cramer yesterday. Calling the economy a “juggernaut,” the CNBC host argued that travel was going to increase, that the omicron variant might be an “acceptable” risk for those who are vaccinated, and that we could be on the brink of boom times. Indeed, we may be already in them, as he said “perhaps” it is the strongest economy that “I have ever seen.”

Meanwhile, JP Morgan is arguing that 2022 will be the “year of a full global recovery, an end of the pandemic, and a return to normal and market conditions we had prior to the COVID-19 outbreak.”

Such rosy predictions aren’t entirely based on wishful thinking. First time unemployment claims fell to 184,000 last week. These are the best jobless numbers since 1969. That’s not nothing.

Yet we’ve heard this before. It wasn’t long ago when seemingly every publication was boasting that new “Roaring Twenties” were upon us. Let’s just look at a few headlines from April 2021.

(Amazing how they all have the same Narrative at the same time, isn’t it? Never mind.)

Over the last few months, it hasn’t felt like the Roaring 20s to many Americans. A Wall Street Journal poll released days ago found Americans are profoundly pessimistic about the state of the economy. Sixty-three percent of respondents said the country was on the wrong track. A plurality of Americans said they thought the economy would get worse over the next year. As we near the midterm elections, Republicans enjoy an advantage in the generic congressional ballot and a more than 10% advantage when it comes to who Americans want handling economic issues.

All of this ultimately comes down to one issue – inflation. Democrats actually enjoy major advantages on a host of issues relevant to the economy – on infrastructure, on the pandemic, and on healthcare expenses. Yet the Republicans have an almost 20% advantage on the issue of handling inflation specifically. More importantly, most Americans polled said inflation was hurting them personally, with more than a quarter reporting that they face “major pressures.”

Americans (and the Biden Administration) may have some relief soon, as gasoline and natural gas prices are falling. Yet as one threat recedes, another emerges. Because of a urea shortage, fertilizer prices are increasing. There are calls for the Department of Justice to investigate, but it is likely that these prices are rising due to market conditions, not conspiracy. A new report from the Dutch bank Rabobank says that food prices will spike in 2022. Grim forecasts are already emerging from China and Canada.

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Whatever the actual inflation picture is in the United States, the perception is going to be shaped by the report that will be released on Friday, today. The jobless numbers may be the best in 50 years… but the inflation rate for November is expected to be the worst in 40 years. The expectation is 6.8%. If the report is even worse, the markets will probably end this week on a sour note.

This may be unfair to the president and convey an overly pessimistic message about the state of the economy. Jobs are plentiful… but what can you buy with that money?

We also shouldn’t overestimate the power of average Americans during this pandemic. Striking workers at Kellogg (K) learned that the hard way when the company called their bluff. The company is moving to permanently replace more than 1,400 workers, instead of just relying on temps.

Cryptocurrency has been one of the biggest beneficiaries of the pandemic, as increased government spending, rising government debt, and the decreased purchasing power of the dollar seem to confirm everything people have said about the evils of fiat currency.

Ron Paul tried to warn you

Yet it’s not so simple. In cryptocurrency too, there is major trouble.

As Dr. Kent Moors pointed out in a remarkably prescient column in July, there is a great deal of concern over Tether, the stablecoin that many crypto transactions rely on. Specifically, some argue that Tether is simply “minting” billions of dollars with insufficient banking.

In other words, the cryptocurrency sector might be vulnerable to the same thing that is supposedly destroying fiat currency – money being created out of “thin air.”

There are several potential crises that could hamper worldwide economic growth – the spread of the omicron variant of COVID-19, the emergence of a new or more serious variant, or a geopolitical crisis. We might get all of that at once, in almost every area of the world at once – with Ukraine, Taiwan, and Iran all looking very tense right now.

Cryptocurrency has served as the store of value for many investors during the pandemic – digital gold. Yet bitcoin is down almost 15% over the last week, Ether is down about half of that, and Solana, Cardano, and Polkadot are all down more than 20%. Terra Luna is up – and it’s probably not a coincidence that Terra’s UST algorithmic and decentralized stablecoin is an alternative to Tether and other centralized models.

That third one down may be leading to trouble

If we do see a crypto crash and continued inflation, this new model of stablecoins could be the foundation for more durable blockchains. We could also see a retreat into the old-fashioned alternative many have overlooked – gold and silver, the traditional hedge against inflation. However, if that flight into the ultimate hedge is coming, it hasn’t begun – both precious metals are down over the last year. In contrast, Terra Luna is up more than 14,000% over the same period.

Contra Jim Cramer, I don’t think this is the best economy in history. I don’t want to overstate the case. We are not in a meltdown, but we are in a tremendously unstable situation. Investors should consider that inflation is probably here to stay… and cryptocurrency as such may not even be the best hedge, let alone the best growth investment. An asset backed by nothing won’t be able to hold its value over the long-term – whether it is from a government or on the blockchain.

The worst part about this is that the response to surging inflation may be a sooner than expected hike in interest rates – which could prompt the long expected correction in the stock market.

As far as a growth industry, this may sound cynical (though politics will do that to you)… but don’t overlook vaccine manufacturers. Given that some countries are already on their fourth dose of COVID-19 shots, I don’t think that there will be a return to “normality” that won’t include shots that may be required in many countries. We will also see an increasing effort for vaccines that will attack both coronavirus variants and the flu, as well as other diseases that could be potentially be prevented or mitigated with mRNA technology.

I’m not a bear and don’t believe a collapse is at hand. I simply suggest caution, not wild claims about the greatest economy in our lifetimes. We’re a long way from “two weeks to stop the spread.” We’re even longer away from a second “Roaring Twenties.” Yet regardless of what the market does as a whole, there’s always a bull market somewhere… and more than that, there’s always a profit to profit, even from decline.

For that reason, indulge me a personal comment. I don’t specialize in options. However, my colleague Chris Hood does. His record over the last few months has been remarkable. Going into the next few months, we are going to be entering a time of massive financial and geopolitical instability.

More than ever, you will want an Options Coach in your corner. He’s unveiling something on Monday that is truly extraordinary, a trading approach that has allowed him to generate thousands in income monthly with a relatively small trading account. You’ll be able to follow along and see the strategy, step-by-step.

In politics, finance, and life, the key is to know what you are best at and know when to defer to the experts. (If only some of those I knew in politics followed that strategy.) In options, Chris Hood is the expert. I’ll be following along. I encourage you to join me on what will be an exciting and hopefully profitable journey.

In this market, frankly, I trust him far more than I trust Jim Cramer. 

Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for to bring you news on what those with power are debating, planning, and doing.

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