Cost Push Inflation
The following is an excerpt from commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, February 6, 2017.
The reason we are looking at this today is because of how the Trump Bump is causing input prices to jump higher already, evidenced in the most recent (December) US ISM numbers, showing the biggest jump since 2011. And this trend will most likely continue with the excitement Trump has created with 'making America great again', where even foreign governments are joining the party, which will continue to strengthen employment conditions (already apparent), raising the specter of rapidly rising cost-push inflation. So its understandable precious metals are stirring again, where it appears like inflation, pressure is building for increasing prices.
That said, and in spite of the jobs Trump is destined to create (see here) from his admirable efforts, unfortunately the drag of an over-indebted economy is expected to produce stagflation at best, or if The Donald (and Fed) wants to pull all the stops, some degree of hyperinflation at worse. Therein, if Trump sees his efforts failing as time goes by, again, with the economy continuing to stagnate besides his efforts, America, and the rest of the world, could be looking at a great deal more cost-push inflation in the future if he assigns the Fed the job of fixing the problem. After all, The Donald is a delegator; so such thinking is not a stretch.
So the thing one needs to understand (and watch for) at this point, is how Trump, and the Fed, is going to react if the data continues to stagnate. If history is an indication, and my bet, is he will continue to push his agenda - recovery or bust. And if he is able to populate the Fed with a new list of doves by next February, or sooner, when Yellen will be leaving (he will not reappoint her), the dye could be cast, and off we go towards some degree of hyperinflation. What's more, we now have direct evidenced this is the case with Trump's rolling back of Dodd-Frank on Friday, which in his own words is a priority initiative for his administration.
Unbeknown to most, this directive is not necessarily another 'giveaway' for bankers/Wall Street, but is primarily aimed at freeing up credit for the American people. That's right; Trump is going to force the banks to slash lending standards and make credit available to just about anybody who wants it, potentially making the 2008 bubble look like child's play. And while his heart might be in the right place, the end result will be disastrous, first inviting shades of the Venezuelan experience (hyperinflation) to America, and then darker shades of the 'dirty thirties' as a result, making owning gold (and silver) a 'financial necessity'. (i.e. it already is.)
Such as it is then, please; don't be confused about what happened on Friday in the Oval Office. This was not Trump licking the bankers' boots as usual these days for an American President, even though it might look that way. The letter Trump sent the Fed the same day proves this. No - this was The Donald telling the bankers they better get their act together and start lending money to the plebs - or they will be fired. I'm not kidding - that's what's happening here. So again, what this is telling you, is owning gold and silver are no longer 'optional diversification points' in one's portfolio, it's telling you precious metals are a 'necessity', and should form a meaningful role in wealth preservation. (i.e. because you are about to be assaulted.)
Right now, those that don't understand the above, view owning gold as a 'risky asset' that is 'foreign' to both themselves and their financial advisors. And silver, which is even 'stranger' than gold to most, if one were to own it, where would you store it - it's so bulky and heavy? So when it is bought, most opt for the paper, further fueling the Western derivatives derived intervention, with COMEX at center. And of course the price never goes up. It was $17 back in the 70's and it's still stuck there. What kind of an idiot would play in this game anyway? So it's not hard to understand why this nightmare has gone on for so long.
But this could be about to change (the possibility is real I can assure you), which would take the chart huggers by surprise. Yes, I am a chart hugger too, however I am also a trained economist, and I can tell you categorically that if Trump mobilizes the banks in the States to 'loosen up' credit standards in his attempt to 'make America great again' at any cost, cost-push inflation, and then hyperinflation, will begin to price the unprepared out of the economy in fairly short order. So the bears may not want to short the market just yet, because as was the case on Friday, stocks could continue to rise 'unexplainably' under such policies, even if the shorts have already been squeezed out.
That's all for today folks. If you want to see the charts, observations, and conclusions that go along with them from this commentary, please visit our site at treasurechests.info and subscribe.
You will not regret it.