Short-Term Transitory Inflation

The energy heavy Rogers Raw Materials Index was up considerably this week. Otherwise, the components of my Key Market Metrics were up only marginally. And my IDW has actually declined over the past four weeks from 189.17 to 184.24 as of Thursday, June 24. But from all I can see, the decline in my IDW is transitory rather than the CPI and PPI, which are the propaganda from the Fed and President Biden.

There is anecdotal information everywhere suggesting wage inflation may be a very significant problem for the first time since 2021. That would not be possible of course if it were not for transfer payments being sent to millions of lower income workers to stay home rather than go to work. When Mrs. Taylor and I went to a restaurant in Clarion, Pennsylvania, the manager of the restaurant told us he has to change the menu every day because he can’t count on receiving delivery of ordered food. Why? Because there is a shortage of truck drivers. And at virtually every restaurant we went to there is a “Help Wanted” sign on the door. With the help of helicopter money from the Fed to the lower income workers, the radical left is getting their minimum $15 per hour across the country.

Then, regarding inflation, there is this from Peter Boockvar, which he passed along to his subscribers on June 24: 

“Those that think that the excessive rise in inflation is just a temporary thing seem to be relying on used car prices and lumber missing what is going on everywhere else where every day there seems to be more stories about price increases. If you didn’t see in yesterday’s WSJ, “The global chip shortage is pushing up prices of items such as laptops and printers and is threatening to do the same to other top selling devices, including smart phones. Price increases are snowballing their way through suppliers and key materials in chip making.”

 “A laptop geared toward video gamers – made by Taiwanese manufacturer ASUS Tek Computer Inc – that Amazon lists as its bestseller rose from $900 to $950 this month, according to Keep a, a site that tracks prices. The cost of a popular HP Inc. Chromebook rose to $250 from $220 at the beginning of June. HP has raised consumer PC prices by 8% and printer prices by more than 20% in a year, according to Bernstein Research…Digi-Key Electronics, one of the US’s largest electronic component distributors, has raised prices of semi related components by roughly 15% this year…Certain components now cost as much as 40% more.” 

“There is a story on BN today saying “US restaurants, faced with higher food and labor costs, are raising menu prices at a much faster pace than historical rates, insistent on preserving profits after an arduous year. From local restaurants to national chains like Chipotle Mexican Grill, owners have boosted prices by as much as 5% in the past few weeks alone. Even at fast food companies that were locked in price wars just a couple of years ago to win over cost conscious customers, increases aren’t taboo anymore. They interviewed Andrew Koumi, an owner of 6 Green Market Cafe’s in Tampa, Florida and he said he ‘isn’t too worried about standing out with his price increases, because “everyone’s doing it.”’ Some people are doing it really drastically.” 

But the real reason you have to bet on inflation now:  The Fed is between a rock and a hard place and given its no-win situation, you can be sure of which of two unpleasant alternatives the Fed can be sure to take. Alasdair Macleod explains it as follows:

“There has been occasional speculation about what happens to asset values in a hyperinflationary collapse. The basis of the question has recently become suddenly relevant, because consumption in America and Britain has been stimulated with unprecedented monetary inflation aimed at consumers, and been met with limited supply, leading to strongly rising prices across the board.

“In short, unless urgent action is taken, the possibility of a hyperinflationary outcome has become a possibility. The only alternative is to stop monetary inflation and thereby deliberately crash the global economy.

“Along with other central banks, the Fed is trapped. We will assume that rather than face this reality, governments and central banks will continue with their money printing until both their fiat currencies and financial systems face collapse. All precedent points to this choice.

“That being the case, an examination of how a collapse in the purchasing powers of fiat currencies is likely to affect asset and consumer prices is timely. This article draws on theories of money as well as empirical evidence in search of some answers. The answers will surprise and discomfort many of its readers.”

In terms of gold, Michael Oliver said on my radio show last week that the most important market to watch for gold and silver’s next big move will be the equity market, which Alasdair believes in teetering on the brink. You should listen to my show on my YouTube channel (Jay Taylor Media) to learn Michael’s rationale.

Michael pointed out that, since 2016, gold has advanced without any dollar weakness. But now there seems to be an emergence of a negative correlation between the dollar and gold, suggesting that with an impending dollar weakness, gold may have some major wind at its back. Regarding the long-awaited Basel III regulation that many believe should trigger gold to higher levels, it actually goes into effect on Monday, June 28. We shall see if Alasdair and others are right in asserting much higher gold prices are likely to follow as a result.

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.