Advancing Time: The Hard Asset Inflation / Paper Asset Deflation T...

Advancing Time: The Hard Asset Inflation / Paper Asset Deflation T...: All fiat currencies are no more than floating abstractions of value. Society has put its faith in fiat currency issued by governments. These...

The Hard Asset Inflation / Paper Asset Deflation Theory

All fiat currencies are no more than floating abstractions of value. Society has put its faith in fiat currency issued by governments. These government-issued currencies are not backed by a physical commodity, such as gold or silver, but rather by the promises from the government that issued it. A difficult question investors today face is determining which assets will appreciate most thus rising in value and which form to hold their wealth.

The value of fiat money is derived from supply and demand and the stability of the government that issues it. Over the years many promises have been made that simply cannot or will not be honored. History and many real-life examples exist that indicate that promises are easier to make than keep.

It is very possible in the near future we may see a strong bifurcation of the financial system. The Hard Asset Inflation / Paper Asset Deflation Theory laid out below is based on the idea that as wealthy individuals begin to realize the fragility of the current financial system they will shift their investment preferences to items of substance. 

This repositioning of wealth in assets could occur rather rapidly during a period of inflation. If such a revamping of how the wealthy invest takes place it could drastically add to any inflationary trends. In short, some investments would fall like a stone while others soar. Imagine real estate doubling in value while pensions are cut and stocks falter. This dovetails with my theory the Fed should be ecstatic so many people have been willing to invest in intangible assets because it has helped to minimize inflation.

Paid For Hard Assets In Your Possession Are Best

While real estate is normally valued by the amount of income it can generate, this could change. Other factors exist such as replacement cost. The way things are taxed also plays a big part in this game. Another problem  with many hard assets is they often require constant protection from the threat of theft. Regardless, the biggest factor we face is that it can be difficult to get out of the paper promise arena and into real assets. Reality places at risk all those pensions, stock holdings, and dollar signs held in banks and stored on computer files in some cloud.

This issue of perceived value is put under a microscope and comes front and center with the realization many of the promises that have been made cannot be fulfilled. This all flows into what we buy and where we buy it matters. For years much of the wealth people earn has been flowing into paper assets and promises. There is a strong possibility this is not only about to stop but reverse as people realize the fragility of our current system.

When it comes to inflation, it appears the lag effect has begun to catch up to the figures we see. The easy inflation comparisons due to the base effect are coming to an end, now begins the battle of forces that determine the "price of everything."  This is best seen in the service sector which is beginning to impact the Producer Price Index (PPI). This index is a measure of inflation at the wholesale level. It measures the average change over time in the prices domestic producers receive for their output. 

One of the best indicators of where inflation is going is the cost of gasoline and energy in general. The chart below indicates we are likely to see inflation kick back up over the next few months.

This Chart Indicates A Kick-up In Inflation Or Drop In Gas Prices

Many trends tend to go on for years. Still, nothing goes on forever, the overriding issue is what happens when and if there is a "tipping point." Central banks have been able to set interest rates for a long time but logic dictates they are not in a position of ultimate power. The markets have the potential to take the power of setting interest rates away from the Fed and central banks, this would change everything. The central banks are powerful but the markets hold the ultimate power of what happens.

It is important to consider the duration of a recession can be more important than its depth. How the Fed fights a recession also matters. We can expect the government to go into a super spend cycle but how the Fed accommodates this is also a factor in how things play out. It could be argued that consumers are choking on durable goods after the last wave of spending. 

Considering the Fed is in a full-court press to halt inflation many people will miss the validity of this theory. It is important to remember inflation is uneven and supply and demand matter. Many people are praying and hoping for a return to ZERP and easy money. This is what they expect when they talk about Powell being forced to pivot. Some of us more focused on the long-term investment environment believe higher interest rates and inflation are here to stay even if prices occasionally drop before popping higher. 

The MMT, Modern Monetary Theory or, More Money Today has already brought a lot of pent-up demand forward. It has also created a great deal of debt. Our tendency to view things as continuing as they have creates a recency bias that can blind us to future changes. It is normally infinite supply assets and those tied to scarce assets like energy that stay with the real rate or outpace true inflation. This means that while any country printing its own money may not default on its bonds in technical terms it can nominally through currency devaluation. This a real wealth killer.  

 

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

Advancing Time: Pence Is A Putz, Will He Be A Presidential Front R...

Advancing Time: Pence Is A Putz, Will He Be A Presidential Front R...: A while back, an interview at The Family Leadership Summit in Iowa hosted by Tucker Carlson received a fair amount of attention. Mike Pence...

Pence Is A Putz, Will He Be A Presidential Front Runner?

A while back, an interview at The Family Leadership Summit in Iowa hosted by Tucker Carlson received a fair amount of attention. Mike Pence has stepped out as one of the many 2024 Republican Presidential candidates. As the former Vice-President, he may think he has an edge over many lesser-known candidates but this does not guarantee his effort will bear fruit. 

During the interview, Pence was not given a pass and allowed to simply promote his platform but clashed with Carlson on several issues. At times Carlson appeared to, shall we say, laugh in Pence's face. Carlson was not shy when it came to giving the impression many Americans would not accept Pence's view on topics such as the war in Ukraine and voting machines. Part of Pence's problem stemmed from the fact Carlson didn't focus the "fireside chat interview" on family issues which unite the crowd of evangelical Midwesterners, 

Pence's Reelection Was Far From Guaranteed

Other than an unwavering ability to stay on message Pence brings little good to the table. It is possible much of his style flows from his hosting an Indiana radio talk show (1992–99), which he described as “Rush Limbaugh on decaf” and a local Sunday morning TV program (1995–99).  Like many in the media, he locks in and drills home a point of view with an air of authority and conviction acting like it is a fact rather than an opinion.

These views tie into a post that appeared here on AdvancingTime in mid-2019 concerning his influence on President Trump.  It delves into how many of us familiar with Pence viewed him as one of the most divisive and polarizing politicians in America. I explained that when the announcement was made that Trump had put him on his ticket a cheer rang out in the state of Indiana. That cheer was not signaling approval of the choice but was rather a joyous celebration that Indiana would soon be rid of the unpopular Republican Governor who was running an uphill campaign to be re-elected.  

Pence is a putz, even conservative-leaning Indiana did not want him. Many Indiana voters viewed Pence as a shallow stuffed shirt and an opportunist with a history of seeking power. By selecting Pence, these voters felt Trump was selling out to the establishment in an effort to silence the Stop Trump movement at the convention. Taking Pence as his VP legitimized the claims by Trump's detractors that he was a divider that would further polarize the country.

Pence May Be Just A Shallow Opportunist

Apparently, Pence has decided the way to move forward in the polls is by stabbing the man who chose him as the VP in the back. A big part of Pence's message is framing the 2024 election as a fight for the future of conservatism. Pence is calling on fellow Republicans to reject the “siren song of populism” championed by former President Donald Trump and his followers. Pence said, “Should the new populism of the right seize and guide our party, the Republican Party we’ve long known will cease to exist and the fate of American freedom would be in doubt.”

While the Pence campaign has been struggling to build momentum since its launch that does not mean he has no chance. Voters have proven they are capable of making bad choices. Ironically my claim that Pence is a putz almost galvanizes his position as the Republican's Presidential front runner. Sadly but true, My history of being very very wrong or very very right leaves little room in the middle. When Biden entered the Democratic primary I was silly enough to post an article about him having little or no chance of ever becoming President. That article haunts me. It also stands as a monument to how Yogi Berra had it right when he said, "It's tough to make predictions, especially about the future." 

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

Advancing Time: Subsidies Corrupt Economies, China, A Cautionary Tale

Advancing Time: Subsidies Corrupt Economies, China, A Cautionary Tale: China's economy is in trouble. After seeing a video claiming much of China's Electric Vehicle industry was built on subsidies that...

Subsidies Corrupt Economies, China, A Cautionary Tale

China's economy is in trouble. After seeing a video claiming much of China's Electric Vehicle industry was built on subsidies that are now gone, I'm forced to ponder the legacy of these policies. It showed a factory in Chongqing, China, where a huge number of clean energy vans sit abandoned, covered in a thick layer of dust. This rendered their original appearances unrecognizable. Recently, aerial footage has also surfaced of vast grassy fields in Hangzhou littered with thousands of clean energy vehicles. This brings into question how this occurred.

Subsidies are more direct and worse than creating incentives or giving encouragement. Subsidies are a transfer of wealth. Without a doubt, many "false booms" are the result of scams created through subsidies. While it could be argued subsidies have moved the production and innovation in the EV industry forward, it brings up other issues.  A huge question is whether this has created a situation where other governments have strayed down the same wrong path in an effort to spur growth. This possibility should not be discounted. Consider for a moment that maybe EVs are not the answer to a more sustainable world.

The immense waste and the environmental problems and pollution resulting from improperly placed subsidies and regulations should be addressed. The big problem China now faces is that advanced economies are complex. When they start to shut down reversing the trend becomes difficult due to contagion. It is hard to build a machine when even a few parts are unavailable. This means the trend in China will not be easy to reverse.

China is now seeing the result of subsidies backfiring and the toll of reverse leverage is devastating both investors and its economy. After looking at the mess China has made out of building ghost cities, we must turn our attention to population control and demographics. China's poorly thought-out policies on these subjects feed into its current problems. The ramifications we are seeing play out are often referred to as unintended consequences. This is something we see far too much of.

China Has Been Demolishing A Large Number Of Unfinished Buildings

China can no longer hide its growing problem of misallocating capital. This is coming back to haunt them. This is why many economists tout capitalism as the best economic system, it has proven to be more responsive to demand than planned economies which tend to go off track. The magnitude of China's problems is seen when viewing an ABC News In-depth piece covering the demolition of a huge number of large unfinished residential buildings in China.  This has revealed two issues, first, China was building residential buildings for "expanding future generations" that simply do not exist. The second was this resulted in rampant speculation driving prices through the roof. Now those prices are plummeting. 

So, let's circle back to the question of whether this has created a situation where other governments have strayed down the same wrong path. Just because another government does something does not mean it would be good for us. Big governments are stupid and big companies are predatory. The thing they have in common is both want more control and power. In truth, we are the underdog in this ongoing struggle for control of our lives. This results in subsidies that tend to corrupt the direction capitalism takes if left alone. Unfortunately, the government is influenced by big company lobbyists that bend regulations strongly in their favor often at the expense of society at large. 

The energy sector and important decisions about our future have been hijacked by this trend. An example of how twisted things have become can be seen on America's roadways. Today millions of drivers zip down the road, the only occupant in oversized four-door trucks that get poor gas mileage. This is the answer lobbyists for the big auto companies and politicians arrived at to sidestep America's fuel efficiency standards enacted to save gas. Still, considering the political climate, China is crazy if it thinks the EU or America will throw open their borders to import Chinese-made cars. Both have their own auto industries to protect. 

Subsidies have led to many preposterous decisions, these include replacing all our current vehicles with EVs. It has resulted in America dropping tariffs on solar panels from China and spending billions of taxpayer dollars on them with the goal of rapidly reaching clean energy goals. even the rise of Amazon and its negative impact on the environment with its delivery to your door and high rate of returns or simply throw-away mentality falls into this category. Without subsidies such as the USPS delivering at a discount, even on Sundays and holidays, Amazon would not have become the giant force and destroyer of businesses it is today.

The energy sector and important decisions about our future have been hijacked by subsidies and regulations that have little basis. This trend does not bode well for creating a more productive future. China is growing proof that once a deep-seated fear of the future becomes ingrained in society people lose faith in the government's ability to turn things around. this is a lesson America learned during the Great Depression. One of the answers to forming better policies that benefit society is not to subsidize the projects of big businesses and politicians at the expense of organically grown solutions to our problems.

 

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

Advancing Time: Colonel Macgregor's View Of Ukrainian War Is Pure ...

Advancing Time: Colonel Macgregor's View Of Ukrainian War Is Pure ...: The war in Ukraine is an issue I have avoided writing about for a while mainly because it is so difficult to get true information about wha...