Managing Editor’s Note: Today, we return to the topic of inflation…
Daily Cut editor Kris Sayce recently shared his take on the market run-up after the latest consumer price index (CPI) results… and the reasons you might not want to rejoice just yet.
While stocks are rising now, that may not last for long…
The “inflate-up” continues.
We brought this idea to readers’ attention last week.
It explains – in our humble view – why the market could rise markedly over the next year or so…
But not without big risks and big volatility.
That’s why we recommend you cash out some of your stock market exposure.
But it’s also why we don’t suggest selling everything (as the perma-bears would have you do) because you’ll miss the chance of further gains.
We’re sure all this sounds confusing. We’ll try to keep it simple. And explain more of this idea below…
It Doesn’t Matter Who’s in the White House
In all this talk of the “inflate-up,” there’s one thing we haven’t yet mentioned.
It’s that the inflation rate you see reported in the news – the inflation rate that the market went cock-a-hoop about last week – is likely not the real rate of price inflation.
We were reminded of that in a recent issue of Grant’s Interest Rate Observer, where Jim Grant notes:
[The] 1983 overhaul of the Consumer Price Index… eliminated interest expense from the cost of living. Add it back, and today’s inflation data looks more like the double-digit shockers that may have cost President Jimmy Carter the White House in 1980.
Part of that adjustment involved removing the cost of interest payments from the CPI.
Grant’s story quotes from a report published in February from the National Bureau of Economic Research. That report notes:
When both personal interest payments and the cost of homeownership are accounted for in the CPI, the [year-over-year] inflation rate increases from 3% to 9% in November.
In other words, today’s “official” published inflation rate is likely three times higher than the government, the Federal Reserve, Wall Street, and the talking heads on CNBC would have you believe.
As an aside, remember that when that adjustment was made, it was a Republican, Ronald Reagan, in the White House. And remember who was the Fed chairman at the time – the falsely idolized Paul Volcker.
The point we make here isn’t necessarily political. It’s that it doesn’t matter who you vote for. The government and the Fed will find a way to screw you. It’s just a matter of from which direction it arrives.
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We expect the next 12 months to be no different. If Mr. Trump wins in November, perhaps he would scrap all the nonsense “Green New Deal” spending… But he’ll only replace that with more defense spending and fossil fuel spending.
So the net result would be no different.
The point is that the inflate-up is here. It’s in full effect. So you should forget any idea that the inflation rate will fall. The old inflation target was around 2%. The new target, which the Fed has yet to admit, is 3%.
That likely means higher stock prices.
But don’t get too excited about that, because when investors figure out the real story, those high stock prices won’t last for long.
Cheers,
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Kris Sayce
Editor, The Daily Cut