My daughter must have been about 7 years old when she asked me to increase her allowance by $2—just for that week, she begged—because she needed a couple of bucks more to afford something at the store. She promised, “It’s just this week, Dad. Really.”
That $2 was not just for that week. It became as permanent as a stately, ancient oak—rooted deep in my wallet.
Her rationale was simple and unassailable: “Dad—you gave me $2 last week, so $2 isn’t a problem. Plus, [her brother] already gets [the same amount] so it’s only fair.”
Honestly, I suck at negotiating with my kids. She won. My wallet suffered.
My daughter was Jerome Powell before “transitory” was cool.
Here we are, months after the chairman of the Federal Reserve insisted that inflation pressures in America are “transitory,” and yet they appear anything but.
Bloomberg and others have been reporting recently that central bankers around that world are now saying that inflation is going to persist longer than expected. Norway late last month became the first major Western economy to raise interest rates in years. And over in the U.K., the more-forthright politicians are now conceding that a “cost-of-living crisis” is underway.
A few weeks ago, I wrote here that even Powell himself admitted that “transitory” was just a BS word—that he was saying transitory doesn’t mean prices will come back down. He only meant that inflation would slow.
Of course, inflation is going to slow.
It’s the Law of Large Numbers applied to the economy. Nothing grows at a fast pace forever. It slows. But even when it slows, it’s still growing off of a much higher base. Meaning consumer prices—like my daughter’s “temporary” allowance hike—have reset permanently higher.
This is what I’ve been writing to you about for pretty much the entire year so far.
America’s debt. Congress and the Fed handing out free dollars like candy at Halloween. The multi-trillions of dollars spent in the wake of the pandemic. Demand that exceeds supply in so many industries right now because the pandemic destroyed supply chains.
All those free-range chickens are back in the pen and they’re here to roost.
And yet, it’s All Quite on the Investment Front…at least relative to the non-crypto assets I expect to see at inflation-fueled higher prices.
I’m talking about gold and silver, and industrial and food commodities.
Gold has been consolidating since August 2020 and is in what chartists call a “bullish pennant pattern.” Here:
The prices on the right aren’t so important here. Just notice the pennant pattern, the origin of which dates to September 2019. Historically, this chart pattern sees the price break past the top line of the pennant and exceed the previous high (north of $2,060).
As we approach a tipping point toward mainstream recognition of inflation, and as the Fed reacts to that by curtailing its bond purchases and raising interest rates, the gold market is going to respond positively.
Silver is in a very similar pattern dating to this past spring.
As for commodities, I just looked at a chart on IndexMundi.com and every single food and industrial commodity in the world is up over the past year (except for rice, bananas, peanuts, and the sugar that Europe imports).
I mean, that says something when pretty much the entire basket of global food crops is rising.
That’s going to leave a mark on wallets.
It’s why so many packaged-food companies are saying, “Hey, consumers—prices are going up and they’re staying up. Sorry, but it is what it is.”
The U.N. Food and Agriculture Organization says ingredients such as cereals and oils are at decade highs.
Kraft Heinz, a King Kong in the packaged-food jungle, just this week said that, unlike previous bouts of inflation, this time it’s “across the board.” So, the company is raising prices on pretty much everything.
Beverage behemoth PepsiCo, which has already raised prices, says more hikes are coming early in 2022.
Not so transitory really.
So, I continue to urge you to add gold, silver, and commodities to your portfolio. Scale back some tech holdings (if you have any) because they Street will crucify them in a rate hike. Head into the less sexy industries and commodities, instead.