I am outlining here sign posts you should be looking for that might turn the tide from disinflation to inflation. I will summarize what each macro thinker is looking for:
- Russell Napier: Russell believes that governments will mandate credit rations to the commercial banks for political goals. These political goals are reducing inequality, fighting climate change, favoring small business over big corporates, and the shift from return on capital to the return on labor. He expects money growth to grow on average 10% year over year. He expects inflation will be around 3% to 5%. He expects central banks (including the FED) to be compliant to government wishes. Examples: A) In the UK, usually the longest term fixed mortgage you could normally get was five years. Prime minister Boris Johnson has now created a 25 year fixed mortgage for first-time buyers, offered by banks, guaranteed by the government. B) Bank of Japan has mandated that commercial banks lend at 0% for climate change related lending. C) In the US watch for student loan forgiveness and other social programs for millennials. He expects government bond yields to stay low through central bank purchases and mandating financial institutions to buy more of government bonds. In another words no more free markets. So Raoul Pal's chart of truth turns into the chart of deceit!
- Russell Clark: Russell is following China closely. What he is observing is that China is already attempting to have policies that favor wage growth and the return on labor over return on capital. He is seeing that China is cleaning industries with over capacity, more regulations and crack down on big tech, not devaluing their currency and encouraging currency strength to encourage consumer spending. If this is so he expects food prices to go up since China is a big importer of food. He argues if the Chinese consumer gets richer, it will put pressure on food prices. As a result, the increase in food prices will filter in to the Western countries, which means growth in wages to workers to counteract food inflation. With food inflation expect politicians to favor wage growth policies.
- Luke Gromen: A) Luke sees commodities to be priced in other major currencies besides the dollar. If this would to happen even marginally then the demand for dollars as a transaction currency reduces greatly and since the US is twin deficit nation this will result in a much lower value of the dollar versus other currencies. Russia has agreed to sell their oil and gas in Eur and CNY. Will more follow? B) Foreigners have stopped buying US treasuries and central banks are increasing their gold reserves instead of treasuries. This means that the FED balance sheet will accelerate faster than the others because the US government will be increasingly reliant on FED purchases rather than foreigners to fund themselves.
Also watch the commodity space. The past decade has seen hardly any investments into real assets and add new reserves of various commodities. Most of the investment and capital went to Tech. If countries are pushing the green agenda that puts pressure on commodity supply which is inflationary. I am paying special attention to whether we have reached peak oil. I think Luke Gromen has said it beautifully how this is important: "the world debt markets as we know them can only be maintained with cheap and cheaper oil; without cheap oil, the system fails!, if “Peak Cheap Oil” were a reality, we would expect to see the world’s major Central Banks effectively being forced to contiguously bail out global debt markets, effectively creating new base money to prevent debt defaults from occurring."
So how to play this? You need to own Gold and Silver. Raoul has mentioned many times that gold is the sweet spot for both disinflation and inflation. He says that if disinflation persists, then the FED is forced to print more and drive yield more negative. If inflation happens he says expects some form of yield curve control to keep rates negative. Other assets that work: 1) Commodities and commodity producers, 2) value stocks, 3) and floating rate debt. Avoid fixed income and tech stocks. I do not know how BTC will behave in such an inflationary environment. BTC is viewed by the retail crowd as a store of value whereas it is treated as a speculative asset by the hedge fund community.
Any contrary view please lay them out.