With this post already set to go, I ran across this interesting chart late in the weekend and thought it worth adding- looks like others are interested in at least the Inflation answer: 2004 to current Google Trends Searches –
Blue = Inflation Searches
Red = Deflation
Yellow = Recession
Ok, back to our regularly schedule Post!
n spring of 2020 during the beginning of the countrywide lockdown‘s we had the opportunity to attend a conference that we had never chosen to do before due to logistics, cost, and length of the conference (7-10 days). John Mauldin SIC Strategic Investor Conference, after 18 years of consecutive conferences Mauldin shifted last year’s and this year’s conference to virtual and we were happy attendees.
The conference this year lasted a total of two weeks and had 45 speakers of which about 35 were Capital Market related with the other 10 being macro-economic or specific industry such as doctors.
Views: Number One From the Conference – Go Away FOMC – You Have Stayed Too Long
View number one and shared by every market related expert, the federal reserve is overstaying their welcome and should immediately stop asset purchases and begin talking about increasing rates. The main reason for these shared views are because asset levels have become inflated across almost all assets according to the experts and be continued purchases are no longer necessary given that capital markets are orderly.
Number Two – Inflation Is Coming – Via Jim Bianco
View number two shared by approximately 75% to 80% of the Capital Market Professionals were there will be some type of inflation. About half of the professionals felt like inflation would indeed be transition, which is what Jerome Powell (FOMC President) and the federal reserve are saying the other half felt like by the FED continuing to purchase assets a change from the long deflationary era of the last four decades to a longer-term inflationary era over the next several decades is ahead.
None of the pro inflation experts predicted runaway inflation that we had in the 70s but the most aggressive inflationary person that we heard was Jim Bianco of Bianco research. In one of many slides, Bianco pointed to the rise of the 10 Year Treasury, below and a belief it would continue to rise.
10 Year US Treasury Yield
Number Three – No Inflation, Back to Slow Grow – Via Lacy Hunt
View number three, shared by the remaining market experts emphatically, there will be no inflation and we will return to a slow growth environment similar to what we had coming out of the financial setback of 2007 -2009.
The most emphatic believer of this deflationary trend was Lacey Hunt who oddly enough shared the stage with the aforementioned Jim Bianco, and has been an expert in the capital markets for 40 years.
Mr. Hunt‘s main beliefs on why deflation will continue are the debt occurring by the afore mentioned FED asset purchase and ageing demographics.
So what are we do with all of this information and where does that leave us?
With such dissenting opinions it’s clear that someone will be wrong and things never work out exactly like people think, so some may be correct in a portion of their view an incorrect and another.
If Bianco is correct and inflation occurs and remains this would lead to substantial pressure on long duration assets such as the value of real estate, low earning but fast growing equities, long bonds such as the 30 year treasury and higher borrowing costs across the board. This would be a dramatic change from the last four decades and more rhyming of the late 70’s, but again not to the extreme.
If Hunt is correct, this will be a continuation of what we have seen over the prior four decades. Lower long term rates, lower borrowing costs, continued slower economic growth, lower expected earnings and continued upward pressure(tailwind) on the above mentioned longer duration assets.
The good news in monitoring each of the various forecasts we have easy to read and follow economic numbers such as the CPI and the level of interest rates, as well as federal reserve speakers talk in public venues.
In closing all of professionals believe most asset prices were elevated. High asset prices are not a direct reason for them to come down, and elevated asset prices can be grown into, like the 13-year-old growing quickly into the 15-year-old clothes. But high asset prices demand discipline and care as increased volatility is likely.
Have a Great “Inflation Deflation Tug Of War” Day!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor prior to investing!
Background
The is the vocal portion of J.K. Financial, Inc. a Dallas Texas Based Fee Only Total Wealth Financial Planning Firm. Founded by John Kvale, a Dallas Texas Fee only Financial Planner and Total Wealth Manager.
$treet-¢ents 
Inflation is Coming, No it Isn’t Deflation Is On the Way??? From John Mauldin‘s SIC – Strategic Investor Conference – Jim Bianco and Lacy Hunt
Break In : Interesting Google Trends
With this post already set to go, I ran across this interesting chart late in the weekend and thought it worth adding- looks like others are interested in at least the Inflation answer: 2004 to current Google Trends Searches –
Ok, back to our regularly schedule Post!
n spring of 2020 during the beginning of the countrywide lockdown‘s we had the opportunity to attend a conference that we had never chosen to do before due to logistics, cost, and length of the conference (7-10 days). John Mauldin SIC Strategic Investor Conference, after 18 years of consecutive conferences Mauldin shifted last year’s and this year’s conference to virtual and we were happy attendees.
The conference this year lasted a total of two weeks and had 45 speakers of which about 35 were Capital Market related with the other 10 being macro-economic or specific industry such as doctors.
Views: Number One From the Conference – Go Away FOMC – You Have Stayed Too Long
View number one and shared by every market related expert, the federal reserve is overstaying their welcome and should immediately stop asset purchases and begin talking about increasing rates. The main reason for these shared views are because asset levels have become inflated across almost all assets according to the experts and be continued purchases are no longer necessary given that capital markets are orderly.
Number Two – Inflation Is Coming – Via Jim Bianco
View number two shared by approximately 75% to 80% of the Capital Market Professionals were there will be some type of inflation. About half of the professionals felt like inflation would indeed be transition, which is what Jerome Powell (FOMC President) and the federal reserve are saying the other half felt like by the FED continuing to purchase assets a change from the long deflationary era of the last four decades to a longer-term inflationary era over the next several decades is ahead.
None of the pro inflation experts predicted runaway inflation that we had in the 70s but the most aggressive inflationary person that we heard was Jim Bianco of Bianco research. In one of many slides, Bianco pointed to the rise of the 10 Year Treasury, below and a belief it would continue to rise.
Number Three – No Inflation, Back to Slow Grow – Via Lacy Hunt
View number three, shared by the remaining market experts emphatically, there will be no inflation and we will return to a slow growth environment similar to what we had coming out of the financial setback of 2007 -2009.
The most emphatic believer of this deflationary trend was Lacey Hunt who oddly enough shared the stage with the aforementioned Jim Bianco, and has been an expert in the capital markets for 40 years.
Mr. Hunt‘s main beliefs on why deflation will continue are the debt occurring by the afore mentioned FED asset purchase and ageing demographics.
So what are we do with all of this information and where does that leave us?
With such dissenting opinions it’s clear that someone will be wrong and things never work out exactly like people think, so some may be correct in a portion of their view an incorrect and another.
If Bianco is correct and inflation occurs and remains this would lead to substantial pressure on long duration assets such as the value of real estate, low earning but fast growing equities, long bonds such as the 30 year treasury and higher borrowing costs across the board. This would be a dramatic change from the last four decades and more rhyming of the late 70’s, but again not to the extreme.
If Hunt is correct, this will be a continuation of what we have seen over the prior four decades. Lower long term rates, lower borrowing costs, continued slower economic growth, lower expected earnings and continued upward pressure(tailwind) on the above mentioned longer duration assets.
The good news in monitoring each of the various forecasts we have easy to read and follow economic numbers such as the CPI and the level of interest rates, as well as federal reserve speakers talk in public venues.
In closing all of professionals believe most asset prices were elevated. High asset prices are not a direct reason for them to come down, and elevated asset prices can be grown into, like the 13-year-old growing quickly into the 15-year-old clothes. But high asset prices demand discipline and care as increased volatility is likely.
Have a Great “Inflation Deflation Tug Of War” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents
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