What Inflation Hawks Don't Get - Tactical Trading
November 15 2011 - 7:00PM
Zacks
Prepare to run and hide. It's coming, very soon. It will eat your
paycheck and your savings in no time at all. Your standard of
living and your wealth will evaporate like dollar bills in a fire.
What is it? Inflation, of course. Or so the
doomsayers have been warning us since the Federal Reserve's
quantitative easing (QE) policies officially began in March of
2009.
Why have they been way too early, if not down-right
wrong? First, if you fear a run away secular and structural trend
like inflation, you always worry about it. It's in your blood. You
constantly wait for it. So, of course, you are early.
Second, they don't understand the nature of a
systemic banking/housing meltdown and its major consequences:
credit contraction and deflation. Or how stubbornly persistent
these can be. They don't appreciate what happened/is happening in
Japan and so they can't apply the lessons here.
I've been defending Bernanke on his policies for
over two years. In fact, I've been praising him for his resolve --
in the face of massive criticism ("treason," for instance) -- in
understanding the depth and persistence of the problems our economy
faces.
In the first half of 2010, I wrote many articles
pointing out how silly the hawks were to cry of inflation and
higher interest rates right around the corner.
I tried to explain the depth of the housing bust
and bank contraction, and that these would not only hold inflation
back but also demand more QE. But you can only talk about facts so
much with an inflation hawk because they just refuse to get some
things.
The hawks don't get a few realities...
1) Hawks don't get that deflation is worse than
inflation. And that our systemic, generational banking/housing
crisis has not been pushing us toward the lesser evil.
2) Hawks don't get that the volatility in crude oil
prices is more a function of the secular and geological trends in
energy than dollar devaluation. In other words, if energy is one of
the biggest and costliest economic inputs, it will surely impact
inflation at some point. But that is our future regardless of
QE.
3) Hawks don't get that capital will seek returns
anywhere and everywhere. There will always be bubbles, in all asset
classes. While rates are low and dollars plentiful, they seek yield
in equities and gold. And a balance of safety in US treasuries. Who
knows what the next bubble will be, but it probably won't be
another housing one any time soon so I'm busy looking
elsewhere.
4) Hawks don't get that you beat inflation by being
an active, intelligent investor. I'm still wondering why we bother
to make pennies. And I am prepared to see nickels become obsolete
in my lifetime too. Good riddance. I'll enjoy the double-digit
returns I made investing and not worry about the 5% that inflation
ate.
5) Hawks don't get that inflation equals growth and
progress. It's as inevitable as death and taxes. Or at least they
will wish it so if they ever wake up in a deflationary spiral some
morning.
But don't take my word on any of this. I'm not an
economist. I'm just a trader. Take it from our resident quant, Dirk
Van Dijk, in his latest rant Inflation Low (and will stay that
way).
Kevin Cook is a Senior Stock Strategist with
Zacks.com
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