Good and Evil Inflation

Main Street got what they consider “good inflation” this week. Stocks and speculative Bitcoin were up, while “evil” inflation like gold, precious metals, and commodities were down. With this “risk off” mentality there was no need for safe havens like gold or U.S. Treasuries.

The dollar surged to 1.07 on the dollar index but as Michael Oliver pointed out, the “strong” dollar is merely worsening a depression causing inflation in Europe. The rise in the dollar is caused by the Fed’s QT program in an effort to get inflation under control. But with the world economy so badly leveraged, it’s only a matter of time before something breaks and the dominoes begin to fall, globally. Then there will be a major pivot.

But as David Stockman expressed in an article he wrote last week, until something breaks (and perhaps even after it does) the Fed has no choice but to keep the monetary brakes engaged. That’s in part because through his own language, Fed Chair Jerome Powell has boxed himself in by insisting that allowing inflation to get out of hand would be a bigger mistake than any kind of plunge over the abyss by being too tight. David observed that this is the first time since the 1970s that wage inflation is leading to “cost push” inflation and he thinks it’s far worse than in the 1970s. He sees a wage price spiral caused in large part by political pressure from the working class, which is losing ground as the cost of living is outpacing wage increases. Nor does Mr. Stockman think that inflation will roll over any time soon, despite hawkish Fed policy thanks in large part to the Biden Sanctions and refusal to unleash the productive capabilities of the U.S. economy starting with energy production here at home. On the other hand, David is also quite convinced that stock prices will continue to slide as we head into recession and earnings adjust accordingly. Indeed, the Atlanta Fed’s real time GDP estimates has the U.S. economy shrinking by more than 1% in the current quarter. With Q1 also being negative, if the Atlanta Fed is correct then we are already in a recession.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.