Inflation 2021: Is It Something To Worry About
Let’s start off with some headlines that have been posted over the years before we respond to the Inflation 2021 question. These headlines will illustrate how many times experts have cried wolf.
2009: “Inflation Scare: Crazy but Real” – American Enterprise Institute
2010: “My Inflation Nightmare: Am I crazy, or is the commentariat ignoring our biggest economic threat?” – Michael Kinsley, The Atlantic Monthly
2011: “Inflation: A high price to pay: Surge in cost of food and other products fuels fears of a re-run of 2008” – The Financial Times
2016: “Inflation will be the biggest economic story in 2016… Inflation is coming down the pike whether the markets believe it or not.” – Business Insider
2017: “Gold Won’t Protect You From Hyperinflation” – Barron’s
2018: “Investors are bracing for a period of consistently higher inflation” – The Wall Street Journal
2020: “The Coronavirus Economy Will Bring Inflation” – National Review
Now, look at the M3 Money supply chart
The actual definition of inflation is an increase in the money supply. Still, today the term has been bastardised, so everyone associates it with an increase in prices. An increase in the price of goods is the symptom of the disease and does not cover the actual illness itself. So, we will focus on the bastardised term, as the masses have embraced that definition. The real meaning is almost worthless for all intents and purposes.
Time to eviscerate the Inflation 2021 Argument
Hint; in part, the markets have been discounting the power of technology decades in advance. Now they are discounting the gut-wrenching deflationary forces AI will unleash upon this world.
25-year chart of CPI
Looks like a non-event, right. For 25 years, the CPI has essentially done nothing after having peaked roughly in 2009.
107-year chart of the CPI
This chart effectively puts an end to the Rubbish theory of inflation. The CPI index would have to hit 10 before we would start to pay close attention to it. Today, we have a generation of spoilt brats that include the old and the young. Everyone has been brainwashed into believing any crap published in a so-called respectable journal qualifies as the “word of God”. Less than 10% of the populace attempts to seek the truth. A large portion of what qualifies as science today should be classified as Pseudoscience. Secondly, most of today’s experts would have been classified as mental retards a few decades ago.
What about inflation in Europe?
Our response is, yeah, what about it?
The average annual inflation rate in Europe over the last five years equates to 0.9%. In 2020, it was 0.69%. Germany, the most significant player in the EU, experienced negative inflation for the second half of 2020. Spain has been floating in and out of the negative territory for years on end. Almost 70% of European sovereign bonds had negative nominal yields up to roughly Nov 2020.
So, all this big noise in Europe is being made because inflation is now trending slightly upward after sinking to multi-year lows. This so-called inflation wave in Germany, for example, started in the 1st quarter of 2021, after five back-to-back months of negative inflation. Energy prices basically dropped. The numbers on the vertical axis are negative. Remember when Oil futures briefly traded in negative territory. Now energy prices are rising because people are starting to move around again. As they move around, they will use more energy and consume more goods, so it’s natural to expect a rebound, especially when almost all these sectors were hammered.
There was a VAT holiday in Germany due to COVID, and that holiday has now been reversed. Hence one should expect a slight increase in prices.
Current German Yields
Well, if inflation were an issue, why are the 2, 5- and 10-year yields still negative. The 30-year bond yield is a whopping 0.45%. At that rate, it would take you almost forever to double your money.
You would think that the experts who have access to all this data and more would at least attempt to take a cursory look at it. But then again, why would they, when they know that 90% or more of their audience are brain dead and believe whatever crap they publish. So, keeping up with the style of shoddy journalism, these reporters/experts (AKA digital wenches) do what they are best known, serving crap under the guise of caviar. Here are some of the recent headlines that simply don’t fit the narrative when you look at the long-term charts we posted above.
Should a rising 10-year yield scare you out of stocks? Yahoo- March 4, 2021
Inflation Fear Lurks, Even as Officials Say Not to Worry. New York Times, March 10
ECB plans to ramp up bond buying to tackle surging yields CNBC – March 11
Eurozone inflation continued to surge in March. Reuters – March 31
Eurozone Inflation at Highest Rate Since Start of Pandemic. Financial Times Headline – March 31
Should You Be Worried About Inflation? Forbes- April 19
US: Inflation – to the moon! think.ing.com- May 12
Other random factors to consider
Let’s look at the 25-year chart of Nickel.
Looking at the 25-year chart of Nickel, if inflation were an issue, then prices should be trading above their highs of 50k set on April 5, 2007. The money supply was considerably smaller back then. The M3 money supply stood at 7.3 trillion; today, it’s almost 20 trillion. Using the bastardised definition of inflation, we can see that Nickel prices should be trading at least north of 100K to indicate that inflation is an issue today. Instead, they have been trending downwards, illustrating that deflation is the issue at hand. When the price of (almost ) every commodity is adjusted for inflation (adjusted to reflect the increase in the money supply), inflation appears to be a non-event. Prices appear to be trending downwards instead of upwards. So, what is really going on? In general, it seems to be a simple matter of supply and demand.
The velocity of money is a key factor when it comes to inflation
The velocity of money as defined by Investopedia
The velocity of money is a measurement of the rate at which money is exchanged in an economy. It is the number of times that money moves from one entity to another. It also refers to how much a unit of currency is used in a given period of time. Simply put, it’s the rate at which consumers and businesses in an economy collectively spend money.
We are referring to the Feds and most expert’s interpretation of inflation. Notice how the velocity of money has been nose-diving since it peaked in 1999. It is now at a 60-year low. Imagine that after all this money has been pumped into the economy, the velocity continues to drop. From a supercycle viewpoint, this is the market stating that AI will wreak havoc on all the models’ economists have come out with, indicating that inflation will be an issue. While the price of Gold, Silver, etc., has risen. When all the new money that has been created is factored in, commodities (in general) are trading at much lower levels than they were back in 2011.
Until the velocity of money starts to rise, inflation is going to be a non-event. This chart also indicates why yields will remain low for the foreseeable future, albeit with small intermediate spikes here and there. This, in turn, suggests that the amount of hot money being poured into the economy will continue to rise, and everyone will eventually be forced to speculate. If this hypothesis is true, the markets will trade to insane levels before this market blows up. However, on the way up, many sectors will blow up. For example, bitcoin could hit the 84K to 100K ranges, but the crash will be spectacular in nature if it does. However, it will have almost no impact on the overall market. So, when BTC blows up, the overall market will continue to trend higher.
AI will have a massive deflationary effect on the economy; many sectors/jobs will vanish because AI will render them useless/obsolete. For example, the middlemen in every sector of the economy will be a thing of the past. If you remove most of these chaps, prices will drop dramatically. A new world order is coming. That is a fact; it’s just not the NWO most individuals were expecting. For now, from a very long-term perspective, it appears that inflation is not a significant issue to focus on. Developments like this (and others we have mentioned) continue to signal that this bull market is unlike any other Bull Market 96% of the experts have ever witnessed.
What will occur in the commodities sector is that the forces of supply and demand will be mistaken for inflationary pressures.