DEFLATION Coming Soon To A Theater Near You!
Stephanie Pomboy is the founder of a macro research firm called MacroMavens, and she was on this Wealthion Podcast recently, and it was so interesting I had to blog about it!
I was fascinated by her insistence that we face DEFLATION as early as next year because everyone is talking about how entrenched INFLATION is – because of climbing input costs, energy prices and labor costs, among other things.
She is a data wonk like no other too, so she makes a very strong case.
Here are a few takeaways:
- Q3 growth predictions have been plummeting, and we will likely see another quarter of negative growth.
- Consumer spending drives inflation, and it too is plummeting; it was expected to grow by 3.1% in this quarter but that prediction is down to 0.4% (and could go lower).
- Fed is overtightening/raising rates too much. This is because the Fed is determined to kill off inflation even if it has to destroy the economy. And – it can’t “pivot” (return to lowering rates & Quantitative Easing) like everyone expects because it will lose its credibility if it does.
- Stocks are likely to correct downward much further because profits are way down and the economy will slow much more because of the Fed’s excessive tightening.
- CPI/Consumer Spending closely correlates to the stock market/net worth. As stocks tank, so will consumer spending and so will the CPI.
- Households lost $6 TRILLION in wealth in Q2 alone, and that has already resulted in plummeting consumer spending.
- CPI lags net worth drops by about a year.
- Inflation was 5.6% in the summer of 2008, but it dropped to -2.1% (negative) by the summer of 2009 (she expects to see this effect again).
- The labor shortage will quickly turn into a huge labor surplus and employees will return to the office en masse because employers will have the power to make them.
- Inflation will return with a vengeance at some point because the Fed will be forced to print more money to cover pension shortfalls – along with entitlements, more giveaways (like student loan bailouts) and other budgetary shortfalls.
- She suggests holding a ton of cash because there will be many bargains in the stock market.
- She loves gold/hard assets because she is certain the U.S. dollar will be significantly devalued at some point.
I want to add that Macro Analyst, Alf Peccatiello (whose name came up in the above podcast) also made a very strong case for a recession and deflation or disinflation (at least) when he shared this tweet – pointing out that we are currently seeing the fastest slowdown in credit creation in 20 years!
- We are going to see a doozy of a recession.
- We will likely see rates fall (a lot) sooner than many people believe (so today’s buyers who are concerned about high rates will likely be able to refi).
- Houses, as hard assets, remain excellent hedges against long-term inflation – which seems inevitable.
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