Volatility Ahead, Deflation, Then Inflation, Equals Inflation

Deflation followed by inflation still amounts to inflation in the long run. This means when liquidity dries up the value is gone and you must have the staying power to ride things out. Thinking you can move in and out fast enough not to be crushed may be optimistic. The future looks far from tame and it is likely investors are in for a wild ride. Remember that bad things happen when you hit a wall.

The CPI is a poor indicator of true inflation, it is rigged to give the impression everything is still in control. Decades ago, politicians and those concocting this system created it as a way to reduce the cost of living adjustments for government payments to Social Security recipients, etc. By moving to a substitution-based index and weakening other constant-standard-of-living ties those reporting inflation have muddied the water lessening the impression of just how much our cost of living is impacted by inflation. 

Other tricks were also used to give the illusion of less inflation. In cases where the quality of the product is deemed by the government to be "improved" prices in the CPI, calculations are now adjusted lower to offset the higher quality. Extending this idea the Baskin Commission Report, December 4, 1996, actually used steak and chicken as its substitution example. It is said that without these changes, Social Security checks would be more than double what they are today.

Then we have the GDP. It is created by junk numbers, which makes it a "more out of nothing at all" thing. For example, utility bills are up everywhere, and guess what? For most consumers and businesses this acts as a "not good" driver of the GDP. Another driver is government spending which tends to be a negative growth multiplier that pulls money away from the private sector. In short, the case could be may that the GDP is a big fat hoax. 

Today we are looking at an America that is running a wartime deficit at a time of peace. Considering how the GDP numbers are figured this is heavily weighted to give the impression all is well. When we think about the definition of a recession, two consecutive quarters of negative GDP, government spending makes it almost impossible to get there. Still, other factors are at work that signal trouble ahead.

A fair number of economic forecasters foresee a hard downward move in the value of assets followed by a massive rise due to inflation. It has been my experience that it is not as easy to move in and out of hard assets such as real estate or even precious metals. The bars to entry are often high with a lot of fees, many of these markets are also illiquid. This is the main reason many investors turn to stocks. 

Are You Ready To Get Jerked Around?

Adding to the difficulty of moving in and out of hard and tangible assets is trust. Who do you buy from in an uncertain market? Will you get what you pay for or will you be scammed? Most investors lack the knowledge they need when moving into different markets and generally they don't have the specialized contacts they need. In fact, the average American often does not have the financial resources to open the accounts that would allow them to invest in many markets.

This all means we should focus on several points. Often the most important ingredient when it comes to wealth preservation is not putting yourself in a position where you get squeezed out of your asset. The squeeze usually is the result of debt and over-leverage. This is especially true in volatile markets where liquidity has dried up. It is also important to remember in a world of global markets many markets are still local. The collapse of a market in one area does not mean it will drop in another or guarantee it will stay down when due to narrow short-term circumstances.

Having assets that hold their value is important. Also, not putting all your eggs in one basket is something we should remember. When the so-called experts are busy downplaying the risk of jumping in and out of various markets a red flag appears in front of my eyes. What is in it for them, do they have an agenda? "They" don't care about you. The goal is to whipsaw investors and savers out of their money. There is a reason caveat emptor, a term that means "buyer beware," remains in our vocabulary. Buyer beware is still a relevant term. 

 

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)