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Peering out my window, I wonder what could happen a few months hence in terms of real-world inflation.
You see my concern is two-fold. I help my clients invest their money in a way that takes advantage of the economic and cyclical trends. But I also help them prepare to spend their money in a way that makes sense. On the one hand I like it when the cost of donuts goes up because we can simply invest in donuts and make a tidy profit. However, my clients like to also eat donuts and that means their dollars don't go as far. By the way, this is in no way a recommendation to invest in donuts. It's a metaphor, Einstein.
Predicting future prices is difficult. But recent inflation numbers show a strong trend towards rising prices in certain sectors of our economy. My question is, what would have to happen between now and May of 2022 to get the following numbers:
- Gold at $3300 per ounce
- Gas at $6 a gallon
- Core Price Index (CPI) increase of 6%
- 10 year Treasury of 3.3%
- A Dozen Donuts at $13.20
First, we'd have to have a low supply of goods. That's possible if we shut the economy down and certain industries closed up shop for a year in 2020. On second thought, that happened. Anecdotally, a friend of mine is a vitamin manufacturer. He can't get aspartic acid because his supplier in Asia went out of business. It'll be weeks before supply can be brought back up to meet demand. The rapid slow down of the economy was easy, compared to jump-starting the supply chain for many of the finished products we enjoy. This shut down happened in many sectors of our economy.
Second, we'd need massive pent-up demand for energy. American runs on energy. Caloric and fossil. Anecdotally, I'm flying to Key West next week. Luckily, we live in Florida, so we're allowed to leave our homes and travel freely intrastate. We bought our tickets before the spike in gas prices. However, good luck finding reasonably priced accommodations. Apparently, the entire United States had the same idea. Don't worry, we found a cute AirBnB, but I digress. The world runs on energy. Caloric and fossil. Groceries and gas. A year ago, I was buying steak for $9 a pound at the big box wholesale store. Now it’s $15. Like me, people have not spent their money and their ready to deploy their mountains of cash for a scarcity of goods.
Eventually, everyone will say what Ray Dalio was saying (incorrectly) in 2019, "Cash is Trash!" Money will find its way into gold, gas and other commodities. The problem is that my retiree clients aren't going to see their Social Security checks rise at 6% a year, even though caloric and fossil fuel is going up.
So gold at $3300 per ounce, gas at $6 a gallon and donuts at $13.20 a dozen is not only possible, but probable. Are you ready?
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