The Inflation Myth by Mark Mobius

[Triplethought]

Yesterday I got my copy of Mark Mobius's new book "The Inflation Myth" I read most of it last night and present a synopsis here for your edutainment/ discussion:

His conclusion is this that we are not experiencing inflation despite the government's CPI stating we had 1.2% inflation last year. Here's why he says this:

• Inflation statistics cannot accurately reflect price changes in a reliable way. Because the indices themselves are continuously changing, are based on debased currency, and an index from one period has different products and services than another (comparing apples and oranges). CPI also doesn't measure things like free zoom accounts. free ability to search using Google, and other internet delivered services that have vastly improved quality of life.

• Inflation numbers have not been growing in isolation. Wages and incomes have been rising as well and in many cases at a faster pace (He presents income data supporting this from 5 countries proving that as a percentage of income people use less money to buy a basket of basic foods over time. Not very scientific because each of the 5 countries have different data from different periods)

• Relative to incomes many prices for products and services have not RISEN but in fact have declined and continue to decline (i.e you can buy a better TV and iphone now with fewer hours of work than ever before)

• His take: The net effect of the above is that instead of the government's claim of 1.2% inflation we have been experiencing deflation. People are better off now than they were in the past. I didn't read any comments about the income disparity problem but that may be the chapter I didn't read yet. People will continue to improve their lives as innovation and automation drive productivity and lower prices and their incomes outpace the cost of things they need to buy and services they need to access.

One thing I noted was that he arm waived around the increased cost of "shelter" saying Americans have bigger houses than before. Maybe (although he didn't present stats and lots of multi-family homes being built right now). My personal take is that housing costs is 1/3 of CPI and avery important thing and he is missing it. Housing has gone up I think in part due to the FEDs low interest rates. I actually DO believe housing will automate over the next 10 years so the cost of manufacturing a house may well go down (deflation), which would support his thesis. But right now I see no evidence of that happening yet. In fact, I see the government's CPI numbers on shelter as bullshit (I agree with Mobius on that) because in my area housing is going up 10% per year and yet the government claims the cost of shelter only went up 1.8% last year. (I do understand shelter is only rent not mortgage or purchase price of a home but they should be related and yet they aren't).
https://www.bls.gov/news.release/archiv ... 132021.htm

[nicolas]

Thanks Triplethought, these are interesting points regarding the inflation / deflation debate. I haven’t read the book, so I’m basing my thoughts on your summary, and it seems the book adopts a rear-view mirror of “did we experience inflation of deflation” but does not necessarily speculates on what’s to come, unless maybe it assumes the recent trend is to continue?

I don’t disagree with the deflation in the recent past, but I want to bring up something about where we’re possibly headed that’s not often considered. Everyone seems to focus on demand-led inflation because that’s how it happened before, but not often on inflation from supply destruction.

I don’t know if the book goes into it, but another significant driver of the price for many goods going down is that between 2010 and 2020 the CRB index is down 50%, commodities have been in a 10-year bear market, terrible place to be invested in. So until recently nobody was looking there, however low prices are the cure for low prices.
Here’s some 1-year performances in the commodity space: CORN +16%, SOYB +37%, copper +37%, silver +51%, REMX +112%, BTC +276% (I’ll consider bitcoin a hedge against monetary debasement) versus SPY +16%. No wonder FCX and GBTC were the biggest winners in my TI portfolio last year!

There is a high probability of a coming supply deficit in many commodities, irrespective of where demand is headed, including in oil, which if it still has not recovered its pre-covid levels, it certainly will. There’s been very little capex the last decade to increase reserves. Obtaining financing for O&G exploration or mining activities is becoming near impossible, at least in the West. (Side note, that’s also one way the West loses to the East: they are not holding back on financing new coal power plants, oil exploration, and mining endeavors. Their companies are not ashamed to operate in those industries. Capital flows where it’s treated best.) Many western governments came out with very ambitious plans to boost solar, wind, and EVs, but no one asked if it was even remotely achievable from a supply perspective. What happens when trillions of dollars flow into these “Green New Deals”? Two things can happen, either we’re faced with the fact that math is math and these programs are ‘pivoted’ to fit the constraints of our physical world, or we push forward anyway and it will require the price of these commodities to be much higher than it is now to make new sources of supply economically viable. Given how beaten down many of these mining stocks are (or at least were a year ago), the asymmetry of investing in what would benefit most from increased electrification (or call it greenwashing) of society is huge. When the price of energy increases, whether it is via increased oil price, or increased cost of building solar panels and wind turbines, it is reflected into the price of everything, from bread, to clothing, to digital services that require electricity. When the price to charge your phone doubles, the price to search on google or read posts on this forum also doubles.

On top of that, supply destructions because of lockdowns and other restrictions are inflationary in nature, especially in the agriculture space. De-globalization, nationalism, re-shoring, increased political tensions, all that messes with the stability and efficiency of supply-chains and it will not help in driving prices down.

Add QE forever, MMT, stimulus checks, UBI and you have a powder keg for governments and central banks to lose control of inflation (or of monetary debasement, same result.)

Disclaimer: my non-TI portfolio is overweight stuff that benefits from inflation, stagflation and supply destruction or deficits, and I would not want it otherwise for the next 2 to 5 years.

[SOL]

Unless a new energy source is discovered, we suspect that all the governements will pull a U and start to promote nuclear as the new green energy. If all the obstacles that are placed in the way of building New nuclear plants are removed. I suspect one could be build in under four years if AI and the best of today's technology is used.

[AstuteShift]

Unless a new energy source is discovered, we suspect that all the governements will pull a U and start to promote nuclear as the new green energy. If all the obstacles that are placed in the way of building New nuclear plants are removed. I suspect one could be build in under four years if AI and the best of today's technology is used.

If that’s the possible case then I wonder if the uranium market is good to nibble in. The URA etf had a big gain so best to wait for pullbacks. John’s report was intriguing on the energy market

For inflation, I think we will get glimpses of it in terms of CPI (which is manufactured and manipulated) but real inflation is already here, higher food prices, higher cost of living etc. This supports the bull case for a big strong rally in the dollar, everyone and their mother thinks the dollar is dead which is heaven to us

However in the end, the interest rates will be negative. We are in a currency war, and the US will be last to decline its currency compared to others. The world reserve currency has tremendous weight and other countries know this, without a valuable replacement then US will still rule the land.

Destruction of jobs and embracing AI was the FEDs and top players mission along this scamdemic crash, pretty bloody genius yet experts think the FED is stuck in a box which is a load of BS

If countries start pulling their dollar reserves then the Great Depression will be child’s play compared to this disaster. I don’t think the top players want this, as SOL states, they want to milk a happy cow instead of disturbing it

Bitcoin will not replace it, either will gold or silver or whatever nonsense the masses think will save them.

So in terms of inflation, it’s already here if you don’t listen to the BS statistics governments use

[nicolas]

Astute, if you want to see what a bull market in junior uranium miners can look like, take a look at the charts of PDN.AX between 2003 and 2007. Ok I’m cherry picking here but even Cameco was a 10-bagger in the last uranium bull market.
Let’s say you bought PDN in April 2004 (it closed at 0.12 on 4/8/04) and were so lucky you held on for a very volatile ride and sold at the top on 4/10/07 at 9.575, boom that’s an 80-bagger. The problem? In April 2004 PDN was overbought on monthly chart, and already up 170% YTD, the thing is it never pulled back. The ride was volatile with several 30% drawdowns, but it never dipped anywhere near 0.12 again. Of course it would have been even better to get in while it was still oversold in in 2003 at 0.01 (a 950x return whaaaat?! ).
Obviously all that is highly theoretical as you never get the bottom or the top, even less both, and you’ll probably sell some on the way up, and get shaken by volatility. Also I was in high school at the time so I’m only using second hand experience
My point is if you’re highly confident there is a bull market in uranium, for which you can find a lot of great articles detailing the reasons why, I wouldn't think I’ve missed the train because it’s already up 260% over a year like BMN.AX (it needs to be put in perspective with how wildly those can move when they take off, we're talking micro-cap illiquid niche companies where such 100x moves have happened before). It will be a wild ride though. It's all about position sizing, with such asymmetry you don't need to take much risk to get a decent payout.
If you want to play it with an ETF, have a look at URNM, a better proxy than URA which has some companies in it that have nothing to do with uranium mining. Or use their holdings to make your own basket, the market is now very concentrated in just a few names.
(In case it wasn't clear from my enthusiasm, after doing my due diligences several times, uranium is my one of my highest conviction asymmetrical bet.)

[AstuteShift]

Astute, if you want to see what a bull market in junior uranium miners can look like, take a look at the charts of PDN.AX between 2003 and 2007. Ok I’m cherry picking here but even Cameco was a 10-bagger in the last uranium bull market.
Let’s say you bought PDN in April 2004 (it closed at 0.12 on 4/8/04) and were so lucky you held on for a very volatile ride and sold at the top on 4/10/07 at 9.575, boom that’s an 80-bagger. The problem? In April 2004 PDN was overbought on monthly chart, and already up 170% YTD, the thing is it never pulled back. The ride was volatile with several 30% drawdowns, but it never dipped anywhere near 0.12 again. Of course it would have been even better to get in while it was still oversold in in 2003 at 0.01 (a 950x return whaaaat?! ).
Obviously all that is highly theoretical as you never get the bottom or the top, even less both, and you’ll probably sell some on the way up, and get shaken by volatility. Also I was in high school at the time so I’m only using second hand experience
My point is if you’re highly confident there is a bull market in uranium, for which you can find a lot of great articles detailing the reasons why, I wouldn't think I’ve missed the train because it’s already up 260% over a year like BMN.AX (it needs to be put in perspective with how wildly those can move when they take off, we're talking micro-cap illiquid niche companies where such 100x moves have happened before). It will be a wild ride though. It's all about position sizing, with such asymmetry you don't need to take much risk to get a decent payout.
If you want to play it with an ETF, have a look at URNM, a better proxy than URA which has some companies in it that have nothing to do with uranium mining. Or use their holdings to make your own basket, the market is now very concentrated in just a few names.
(In case it wasn't clear from my enthusiasm, after doing my due diligences several times, uranium is my one of my highest conviction asymmetrical bet.)

Interesting, indeed the uranium market is not mentioned whatsoever by the media which is great for us, however I’ll add some in the funds on pullbacks

[Yodean]

FWIW, from a HODL perspective, I've been slowly accumulating CCJ (Cameco) the last few months, on pullbacks. Apparently Bill Gates has been heard supporting nuclear energy recently.

Hmmmm . . .

[Triplethought]

FWIW, from a HODL perspective, I've been slowly accumulating CCJ (Cameco) the last few months, on pullbacks. Apparently Bill Gates has been heard supporting nuclear energy recently.

Hmmmm . . .

For quite a while. I hadn't thought to buy uranium since nuclear has been such a non-starter my entire life. I really question how long it will take for public to accept it. I've been assuming once there was a break thru in Fusion it will be a whole new game. If you guys are right then maybe CCJ makes sense. But I bet it can't grow nearly as fast as most of SOL's plays.

[Yodean]

• His take: The net effect of the above is that instead of the government's claim of 1.2% inflation we have been experiencing deflation. People are better off now than they were in the past. I didn't read any comments about the income disparity problem but that may be the chapter I didn't read yet. People will continue to improve their lives as innovation and automation drive productivity and lower prices and their incomes outpace the cost of things they need to buy and services they need to access.

*****

I think when one enters into the "deflation vs. inflation" debate, one has to be extremely precise with how one defines those terms.

Guys like Mobius, Steven Van Metre, Brent Johnson, etc. all talk about deflation in a certain way, i.e. in terms of the real economy.

However, while they may be right in terms of how they each individually define deflation, it is hard to argue that "asset price inflation" (API) is occurring, at least in certain sectors (e.g. U.S. stock market, BTC, etc.).

So one may have API (like now in the U.S. market of stocks) while the real economy is experiencing "deflation" in an absolute sense. API could be due to a multitude of factors, including capital flows. One potential example is as the Eurozone banking system starts to slowly crash, capital may increasingly flow to China and the U.S., including the U.S. stock market, thereby leading to API. And so forth.

From a certain perspective, it's a disturbing combination, in a way: the rich (those with assets that benefit from API) get richer, while the poor get poorer (from deflation in the "real" economy, but still having to pay higher and higher prices for certain goods/services and service their debt).

The middle class continues to get crushed out of existence --> more civil unrest, polarization, violence, etc.

*****

@nicolas: yeh, agree we are at the start of a superbull in commodities:

[AstuteShift]

These economists really do have permanent head damage, and as usual late to any party. The market is an irrational jungle and the law of nature applies, adapt or perish. What worked in the 1970s will not work now. Hot money fuels this market and distorts everything by design

The best way to examine anyone is to see if they can back it up?
Many of them couldn’t trade to save their life yet they have a doctor of philosophy attached to it. Sounds like the definition of insanity

[Triplethought]

Unless a new energy source is discovered, we suspect that all the governements will pull a U and start to promote nuclear as the new green energy. If all the obstacles that are placed in the way of building New nuclear plants are removed. I suspect one could be build in under four years if AI and the best of today's technology is used.

Thinking this through. I think you'd need an act of congress preventing lawsuits. Something like the Cessna deal or vaccines where you can't sue them at all. Otherwise what private industry would EVER build a nuclear plant ever again? Plus they need to cram the nuclear waste facility at Yucca mountain down Nevada's throat. Nevada voters won't accept it without some sort of federal mandate.

[MarkD]

Commodity cycle comments are always intriguing to me. I own a bit of energy stocks mostly due to the gubmint supply destruction coupled with increased demand coming out of lockdowns. That is my assessment of the driver.

Commodities are readily available and technology has eliminated jobs and deflated lots of commodities. Unless gubmints interfere with the natural cycle, legislate away supply, and create a shortage.

We have more land than we need to grow food. We have plenty of trees for lumber. There will always be challenges for certain items but we have become very skilled at growing, removing, and producing stuff from the earth.

So I am a ST oil bull but LT not really in agreement that all commodity prices will become "sticky". Another tech wave may create a more productive way to provide that good.

[Triplethought]

These economists really do have permanent head damage, and as usual late to any party. The market is an irrational jungle and the law of nature applies, adapt or perish. What worked in the 1970s will not work now. Hot money fuels this market and distorts everything by design

The best way to examine anyone is to see if they can back it up?
Many of them couldn’t trade to save their life yet they have a doctor of philosophy attached to it. Sounds like the definition of insanity

My econ teacher in College readily admitted that economists weren't rich. You'd think that people who's career's are understanding money and the economy would be able to take advantage of their genius insights.

On another note, since I posted the above to several friends I've gotten feedback that:
A) Inflation expectations have spiked to 2.2%
B) Businesses are seeing 8-15% increase in the price of steel and aluminum (Probably why cars are so much higher on the latest CPI index)
C) friends are anecdotally pointing out restaurants are 10-20% more expensive here in a small town than pre pandemic (as opposed to 3.9% increase in restaurant costs reporting on CPI index. they can only run at 25-50% capacity so they have to raise prices. Once raised they are unlikely to go down again.

Thanks for a good discussion everyone

[AstuteShift]

These economists really do have permanent head damage, and as usual late to any party. The market is an irrational jungle and the law of nature applies, adapt or perish. What worked in the 1970s will not work now. Hot money fuels this market and distorts everything by design

The best way to examine anyone is to see if they can back it up?
Many of them couldn’t trade to save their life yet they have a doctor of philosophy attached to it. Sounds like the definition of insanity

My econ teacher in College readily admitted that economists weren't rich. You'd think that people who's career's are understanding money and the economy would be able to take advantage of their genius insights.

On another note, since I posted the above to several friends I've gotten feedback that:
A) Inflation expectations have spiked to 2.2%
B) Businesses are seeing 8-15% increase in the price of steel and aluminum (Probably why cars are so much higher on the latest CPI index)
C) friends are anecdotally pointing out restaurants are 10-20% more expensive here in a small town than pre pandemic (as opposed to 3.9% increase in restaurant costs reporting on CPI index. they can only run at 25-50% capacity so they have to raise prices. Once raised they are unlikely to go down again.

Thanks for a good discussion everyone

Yep dragflation in action, low rates with potential to negative rates and higher food, expenses prices, along with destruction of mediocre jobs and the masses serving their role as cannon fodder.

Nice gogo tactics by the top players

[SOL]

And the viola when it looks like the situation is so terrible for the poor (and many fall into these ranks), universal income will be introduced and the masses will think this is like mana from heaven and when they accept it they will have to sign away many rights. In essence, they will be signing away almost all their rights in order to receive this income for life. Imagine the data pool the big players will now have to experiment on. This will go on until AI gains control/consciousness and then a new world order will come into play

Examining how little humans have evolved in terms of higher levels and decency, etc, it seems that there is an above 70% chance that AI will cull some parts of the human race.