Inflation is still top of our minds…
Yesterday, Federal Reserve chief Jay Powell told lawmakers that the inflationary uptick will fade soon.
But is he hiding something?
And how can you shield your buying power if inflation sets in?
It’s all in your Weekly Pulse video update at the top of the page.
It’s where I (Chris Lowe) and host Tom Beal break down the single most important market story on our radar for the week.
Editor, The Daily Cut and Legacy Inner Circle
P.S. If you prefer to read along, we’ve included a transcript of our conversation below.
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Tom Beal: The topic of inflation continues, with the Federal Reserve chiming in with their perspective.
What to do in these times?
My name is Tom Beal, host of The Weekly Pulse, where we break down the biggest wealth-growth story of the week.
I’m here today with the editor of Legacy Inner Circle, Chris Lowe. Chris, how do we kick off today’s conversation?
Chris Lowe: Tom, today, I thought we would go back to that big question that we raised in last week’s Weekly Pulse – is inflation permanent or a temporary thing? [Catch up here.]
We know it’s fairly high. In May, inflation came in (over the previous 12 months) at 5%.
We’re recording this on Tuesday morning. It’s not going to reach our viewers until Wednesday, but I do know that Federal Reserve chairman Jerome (Jay) Powell is gearing up to testify in front of Congress today.
He has released what he’s going to say – that inflation is transitory. He’s going to put the Fed firmly on the side of the transitory argument.
And he’s going to say things like inflation was very low this time a year ago. So there’s this base effect. If you have very low inflation a year ago, and you measure against that, you’re going to have a higher reading, like a bigger upsurge.
And he also blamed things that we talked about last week – higher gas prices, the rapid increase in consumer spending as the economy opens, and supply bottlenecks that have to do with COVID-19.
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Now, it’s back to this week’s episode…
Now, for last week’s Legacy Inner Circle, I talked with one of the world’s foremost authorities on inflation, a guy called Steve Hanke. He’s a professor of applied economics at John Hopkins University. He also heads up The Troubled Currencies Project at the Cato Institute. And he’s been involved in identifying inflations and hyperinflations and helping governments cut them off for several decades.
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And so I thought in this week’s Weekly Pulse, we’d look at how Steve Hanke’s view differs from Jay Powell’s view at the Fed.
Tom: As I discussed last week, I’m kind of new to all this stuff. So I don’t even know who Jay Powell is. But I’m interested to hear the difference between what he is going to say and what you talked about with Steve Hanke, so I can bring myself – and hopefully the Weekly Pulse viewers – up to speed.
Chris: Jay Powell is the Chairman of the Federal Reserve. President Trump appointed him to the post in the second year of his term. He took over from Janet Yellen. He is the world’s most powerful central banker. And he has been the one with his foot firmly down on the accelerator pedal all the way through the COVID-19 pandemic.
And, of course, the one thing that will slow down the stimulus by the Fed is rising inflation. That’s why we’ve been on this topic, Tom. We got that 5% annual inflation reading. That’s the highest year-over-year reading in 13 years.
So last week, we were like, is it something serious and baked in?
Or is it something like Jay Powell is trying to convince everyone not to worry about. It’s got to do with this base effect. Inflation was very low a year ago. Don’t worry, because there’s these bottlenecks in supply that are pushing up things like lumber and copper. These bottlenecks are going to disappear.
Well, I talked with Steve Hanke. He’s a professor of applied economics. He’s also been involved in currency reforms around the world. He’s worked with a number of states, including Albania, to implement sound currency systems there. He was just knighted by the government of Albania. He’s a very interesting character.
He said, “Wait a second. You’ve got this question set up wrong.” There are transitory effects. This is true. There are supply bottlenecks.
We talked last week, Tom, about used car prices, right? And I was saying, “Look, that’s a very big run-up in used car prices. That’s because new cars aren’t being built quick enough because of these bottlenecks. So it’s pushing up the price of used cars. Looks transitory.”
Steve Hanke said, “That’s true. But it’s also true that there’s a huge monetary underpinning behind all of this.”
I wanted to pull up some of the things he talked to me about. It was quite shocking. He pointed out that for the last 17 months, the average annual growth rate for M2 money supply (a broad measure of how many dollars are in the economy) was 20% per year.
We had this really big money supply boost. And Steve says that what you really need, in order to keep pace with a growing economy, is 7% or 8% a year.
That’s a very big piece of this. The M2 money supply, the amount of dollars circulating in the economy, has grown at more than double the pace that Professor Hanke thinks is sensible and reasonable within the current environment.
Does that make sense, that these two things could actually be coexisting? And this binary question that we’ve been asking could be misplaced.
Tom: It makes sense. And it’s funny I didn’t know who Jay Powell was. He’s the head of the Federal Reserve. I used to know who the head of the Federal Reserve was, growing up. But I also used to think the Federal Reserve was part of the government. And then I found out they are not even part of the government. That was like finding out Santa Claus wasn’t real.
In my mind, I’m thinking they’re all about damage control. Call me skeptical. And by the way, these are my opinions, not anyone else’s. But to hear he’s the head of the Federal Reserve, I don’t believe much of what they’ll be saying, other than I’m seeing them as damage control. That’s where I stand.
Chris: I think that’s a really good point, Tom. You’re dead right to point that out. Of course, Jay Powell at the Fed wants to play down inflation. Their whole thing, going back through Janet Yellen and Ben Bernanke, who was there during the 2008 financial crisis, has been monetary stimulus.
So inject dollars into the economy via this thing called quantitative easing (QE) and drop interest rates to the floor. Okay. That’s the foot-on-the-gas thing.
Of course, he is out there, talking in front of Congress, and he’s going to play down the monetary factor.
But Steve Hanke, who, as I said, has been watching inflations and hyperinflations for 30 years, he’s like, “Hold on, Jay Powell. You’re playing a bit of a trick here.” It’s almost like one of those conjurist tricks, where you wave one hand while you do something in the other.
So, really, what Jay Powell is doing, says Steve Hanke, is waving his hand over here, saying all this transitory stuff. And he’s not wrong about that. But you can have both of these things at the same time.
I’ll break it down, Tom. Steve Hanke says we do have 5% inflation. It’s going to go higher. There’s typically a lag. There are three things that happen.
When you have this monetary injection, you have this stimulus that goes into asset prices, stocks, crypto, Dogecoin, all of these things. All this money that’s floating around goes zooming into the market.
We saw that, right? We saw the stock market crash in March last year. Then it came back up, and we saw this incredible rally in stocks. Steve’s right about that.
First, it goes into asset prices. Then it goes into the wider economy. Then it goes in through the Main Street economy.
And we’re seeing that. We’re seeing a fairly robust economy, given that we’ve just been through this pandemic and all the shutdowns.
The third thing that happens, Tom, is inflation in consumer prices. Another very big takeaway from my conversation with Steve Hanke is that you’ve got these lags. You first see inflation showing up in asset prices. Then, you see it showing up in economic growth. And then, it shows up in consumer price inflation.
The bottom line for Steve is that we’re going to see higher inflation. The Fed is doing this trick of the mind, like the Jedi mind trick, when Obi-Wan says, “You haven’t seen these droids.”
I think what we can expect, if Steve Hanke’s right, is higher inflation. He’s talking about 6% inflation. Which is a fairly big deal, considering we’ve had almost no inflation for the last decade. It’s been so low. One of the things that’s been missing from the whole picture is inflation.
I think that brings us back to that thing I talked about last week – a rally in scarcity. I’ll come back to that. But does that all make sense? The monetary versus the transitory?
Tom: It does. And I was thinking the same thing that you just brought up – the scarcity, which is the precious metals, the cryptocurrencies, but more specifically, bitcoin. Which is, at least from my understanding, one of the only ones that is limited to that total number that can’t be increased. Is that correct? Bitcoin and gold, etc. is a good thing in this type of scenario?
Chris: That’s right, Tom. My job is to communicate the big ideas of the Legacy Research team – guys like Teeka Tiwari and Dave Forest – and make sure that everyone who tunes in to The Daily Cut or The Weekly Pulse, or who subscribes to Legacy Inner Circle and gets those deep dives, knows what the team is thinking and what those big ideas are.
When I look at the ideas that are really popping, it’s nearly all around these scarce assets. We’ve got Dave Forest talking about rising oil prices, rising uranium prices, rising copper prices, rising you name it – all these scarce commodities.
Bill Bonner, our co-founder, he writes The Bonner-Denning Letter. In January, they were like, “Hey, we think that the Trade of the Decade is going to be selling the dollar and buying oil stocks.” (I wrote about this in The Daily Cut.) That has been a huge trade so far this year.
Oil and oil stocks are popping. That’s also around this rally in scarcity idea, because oil, of course, is scarce, if you take it out of the ground.
And then, as you say, bitcoin. Bitcoin has been through the wringer lately, down 50%, something around there. But yes, you can be sure of its limited supply; that’s baked into the code.
We’ve talked about the fact that bitcoin has a 21 million cap and it’s all run by code. You’ve got this thing called the “halving.” It happens every four years. The supply is cut in half. So you have this tapering supply.
I still think, and I said it at the beginning of the year, that if you just have one theme in your mind for 2021, the rally in scarcity has got to be top of your list.
Jeff Brown has said the same thing. Teeka Tiwari said the same thing. Watch out for inflation. You’re going to want to be tuning in to things that are scarce in supply.
Real estate is another great example. A lot of folks own their own home, and maybe a second home. Great time to be a real estate investor, because, of course, real estate is hard to build.
Anything you can’t print or create – by typing on a keyboard, like the Fed does – is going to be a great thing in 2021 and beyond.
Tom: That gets my mind to where and how can I make some moves in the scarcity realm. And Chris pointed out numerous different things to put some thought and attention into to see how you can grow and protect your wealth.
The main takeaway from here is put your mindset to grow and protect your wealth into the scarce things out there. Chris outlined a lot of them for you here.
Thank you, Chris, for sharing that with us today in this Weekly Pulse episode.
Chris: Thanks, Tom.
Tom: If you’re still here, that means you’re not yet part of Legacy Inner Circle. And as I’ve admitted, I was late to the game for growing my knowledge about how to grow and protect my wealth. But I teamed up with the people who are the experts.
And that’s exactly what Chris has access to inside Legacy Inner Circle, as all our members do. All of the Legacy Research experts, sharing their discoveries with us.
Even someone like me, who doesn’t have that high financial literacy, when I get in that expert realm, I know that they’re trustworthy, that their stuff works. I follow that direction. And holy cow, I start to see the results.
Chris, for those that aren’t in Legacy Inner Circle yet, how can you share now’s the most important time to take a closer look and join us in the members area to benefit from what the experts are sharing and what you bring to them as the curator, as the editor of Legacy Inner Circle?
Chris: Well, Tom, I think you touch on a fantastically important point. It’s literacy. It’s understanding what’s going on. It always reminds me of that quote from the Bible, “Teach a man to fish.” It’s basically this idea that you can give a man a fish, and he eats for a day. Teach a man to fish, and he can feed himself for 100 years. I think you understand the concept.
It’s not just being told what to do by people. It’s understanding what to do yourself.
And I want to make this very clear: I am not an expert on a lot of these things. I went on this journey myself.
I went to University in Dublin in Ireland, where I’m from. I came out of there, got a high-profile job in the City, the version of Wall Street in the UK. And I worked for Reuters, which is a big financial newswire agency. I was covering Enron at the time. They were taking me out of this big, corporate building every week and ferrying me through the city in a limo. And they were teaching me all about stocks and bonds. I was a graduate. I was going to be fast-tracked to management.
But it all went over my head, Tom. I never got interested in it. It just bored me.
It wasn’t until 10 years on that I started to work with Bill Bonner, who is the co-founder of Legacy Research. I started to read newsletters. Suddenly, a thing went off in my head. I was like, “This is so interesting.”
And I went through the same process. I learned about the bond market. What does this mean? I keep hearing it being talked about. I learned what interest rates did. I learned what the Fed did. I went on my own journey of learning.
Now, I’ve interviewed former Fed chair Alan Greenspan, one of the world’s most highly regarded central bankers. We sat down with Bill and I grilled him. Because I knew what I was talking about.
How did I know what I was talking about? I dove into the newsletters that Bill, guys like Teeka, and all the guys you know, were writing.
I keep that in mind. It’s front and center in my mind, every time we publish something in Legacy Inner Circle. I think it’s hugely important to have that learning factor.
I don’t want to tell people, “Go and buy this stock.” You can get that anywhere.
What I think we do a very good job of, and pay a lot of attention to, is making sure we don’t leave anyone behind. We don’t want to talk over people. I hate that.
There’s a whole thing in investing and finance. It’s all jargon. It’s made into jargon to keep people out so you can waffle on about yield curves, all sorts of things. That’s on purpose. It’s meant to make other people feel stupid and feel like they can’t get involved.
It’s a boys club. It’s an exclusive little club, and people use the jargon.
We try to dispense with it all. We talk a lot internally about using “bar stool” language. How would you explain this to someone in a bar? Because why not? Why use all this highfalutin’ language?
Tom, this is a long way of saying that I think Legacy Inner Circle has a very big learning component. We often put explainers in the transcripts. We talk to people.
We try to do things like we did today, just say, “Hey, let’s break it down. Let’s go to basics and try to build up this body of knowledge within our readers so they can start to understand the world in a way that’s useful for them.”
And they can understand why they’re buying bitcoin. We talk about it all the time. Bitcoin is a hard asset. It’s hard to produce, relative to the existing supply. Why does that matter? Well, it matters because it’s inflation-proof.
Now, if I know that in my head, I know why I own bitcoin. I’m like, I’m not selling this thing. I think inflation is coming down the pike.
But honestly, a lot of people have no clue. They just buy the thing. Next-door neighbor buys it, they buy it. And what happens? It goes down, they sell. Because they have no conviction. It’s just something somebody told them.
We don’t want that. If you’re interested in learning about different aspects of the market, I’d highly encourage folks to give it a whirl. Because inside Legacy Inner Circle is a massive body of knowledge about how different markets work.
We cover cryptos. We cover commodities. We cover stocks. We cover technology. We cover precious metals. Anything that is making money for our readers, we’re going to be all over it and trying to explain it to Legacy Inner Circle members. And then bringing those voices to bear and bringing those insights.
Today, I talked with Jeff Brown. He’s our tech expert. I’m going to share the video interview I did with them on Friday in Legacy Inner Circle. We get stuck into the IPO market and how it’s changed over the years.
We cover a wide range of topics. We try to do it for people who are new to this, who are on their own learning journey. I hope we do a good job of it, Tom. And that’s why I think it’s a very attractive proposition to get into Legacy Inner Circle, if you’re starting out, just from that point of view.
Let’s forget about the fact we recommended bitcoin at $600, or whatever it was. Those are very good for your portfolio. But also, just to learn and expand. I think there’s an awful lot in there. That’s the reason I think it’s a good thing to do right now.
Tom: And it covers the entire spectrum. Whether you’re new to this and your financial literacy was like me, pretty much none. Or you’re an expert with a decent portfolio already. We cover that whole gamut.
So, you jump in there and wherever you are, it meets you where you are.
For me, I’m growing my financial literacy along with you. I’m in there as the Member Success Advocate, and sharing my perspectives on this journey that hopefully open up some eyes of similar people on their journey as well.
But one of the things that’s nice is I’m also taking action and have brag-worthy results. Now, I’m building that nest egg for me and my family, with the guidance of Chris, being the editor of Legacy Inner Circle and the curator of all the great experts we have at Legacy Research Group. Man, it’s been a life game-changer for me.
And that’s what we want for you inside Legacy Inner Circle. It all begins by joining us in there. We have a special offer for you here as a Weekly Pulse viewer. Click the button below. Go learn more about it.
You have everything to gain, nothing to lose. You’ll see the offer is absolutely irresistible.
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And we look forward to seeing testimonials, “Thank you for growing my financial literacy.” And “Holy cow! I’ve taken some action based on some recommendations of the experts, and I’m also receiving some brag-worthy results.” That’s the goal for all this.
Chris, thank you.
You, as a viewer here, we look forward to seeing you inside the members’ area. Click below and join.
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