Gold, forests, property stocks, inflation-linked bonds, these are just some of the assets investors are betting lots money into on the view that the recent explosion of government spending and Fed stimulus may rouse inflation from its 10 yrs+ sleep.
If inflation really is “the dog that didn’t bark”, failing to respond to all the central bank’s money-printing unleashed in the wake of the Ys 2008-9 crisis, the Big Q is: why should investors prepare for it now, especially as demographics and technology are also conspiring to tamp down inflation across the developed world?
The Big A: Some analysts believe the dog really will bark this time, partly because, unlike in the post-2008 yrs governments around the world have also been rolling out massive spending packages, in a bid to limit the impact of the C-19 coronavirus chaos.
A Key indicator that analysts are citing is the velocity of money. This is essentially the count of how many times $1.00 is used. If the money is being used over and over again, it can mean inflation ahead.
As the US economy was recovering from the Y 2008 financial crisis, the money supply was around $9.50-T. Now, it is 2X that and growing. This represents an increase of about 100%
This time the velocity of money may not to go up much, but small increase may result in significantly higher prices.
It is possible that the C-19 coronavirus chaos has lowered the velocity of circulation: people may hold their money, not spend it. But one cannot be certain. We cannot forget the almost universally unexpected surge in inflation in the 1970’s. This could happen again.
What we see now is that at that there is no limit to fiscal stimulus, and investing in inflation hedges much much larger now than it was after Y 2008.
As a result of near Zero interest rates and QE we are seeing massive monetary inflation. It’s very possible that it will show up in prices now more than ever.
Have a healthy weekend, Keep the Faith!