RE: Official CPI @ 0.4% ?24 Mar 2021 15:07
The only places where you could argue that there is actual value to be had is in precious metals – but few seem to care about them now we have “gold 2.0” in the form of bitcoin (for more on the relative merits of bitcoin and gold, see Charlie Morris’ guest column in the forthcoming issue of MoneyWeek).
Value can also be found in value stocks themselves in the real economy, especially in the UK, where the Brexit discount is still on offer. Then again, I’m not even sure the “real economy” exists any more. I haven’t been more than a couple of miles from my house in what seems like months.
As these examples hopefully illustrate, inflation is everywhere you look – except in the government statistics. There is a good reason for that. Governments cannot afford an environment where rates are 3% or 5%. At that point everything breaks down.
“In the UK and US, just over 65% of all government marketable debt is now effectively floating, with the interest bill either tied to inflation or to short term rates”, says Tim Bond of Odey Wealth in his latest report, To Inflation and Beyond.
“Currently, a 1% change in UK or US short-term interest rates would drive a 0.6% of GDP change in government interest expenses. Obviously, the longer QE [quantitative easing] lasts and the more government bonds central banks buy, the greater the increase in this latent sensitivity to interest rate shifts”.
The solution is these dodgy measures of inflation: hallowed economic models that have nothing to do with real life. “High government debt burdens are manageable,” says Bond, “so long as the real interest rate on the debt remains below the real growth rate of the economy”. That then is the game.
The debasement of money is a process that has been going on for decades. In the US since 1971. In the UK since 1914. In Ancient Rome they kept it going for centuries. In 64AD the Emperor Nero reduced the silver purity of the denarius from 98% to 93.5%. Roughly a century after Nero, around 150AD, the purity of silver had been reduced to 83%. By 250AD the silver purity was 50%. By 275AD it was just 5%. By the time of Diocletian, who was emperor from 284AD to 305AD, there was so little silver that the emperor had to resort to price controls.
Don’t hold cash, hold assets. That’s been the way to play it the debasement of our times. Except when things get overblown.
Take some profits – but be prepared for long-term inflation
Every now and then I get one of those little voices at the back of my head. I have tried to learn to listen to him, as he often talks sense, though he tends to get drowned out by the noise. At the moment he is saying – like my buddy on Signal – “take some money off the table”. We may be in an inflationary tide, but when everybody is getting over-excited – things get toppy.
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