Note to reader: Even mainstream outlets like MarketWatch are pointing to the obvious. In a prolonged period of price inflation, income generating assets of all kinds move up higher as inflationary phenomena outweigh higher interest rates and bond yields. To my readers, none of what this article contemplates should come as any surprise. Moreover, none of these circumstances were by happenstance. COVID provided all the means necessary to redirect the nation towards its denouement and the Great Reset.
With regards to this persistent price inflation, I suspect bond yields and interest rates will remain higher for longer than most are willing to contemplate. This elevated yield curve is going to unleash this described economic darwinism and only the best prepared and strongest will survive this decade.
Moreover, inflation is running higher than official data and the 10-year UST yield is basically yielding at or below true price inflation. Thus, we we still find ourselves in a situation where bond holders and the Federal Reserve are subsidizing the cost of money. Despite higher bond yields, monetary policy is still dovish as asset prices across the board continue to reward owners.
Inflation here to stay? U.S. could face unstable inflation in next decade, top investment pro says.
The Federal Reserve might be able to wrestle inflation down to its 2% annual goal, but it’s going to have a hard time keeping it there.
By Jeffry Bartash
Matt Eagan of Loomis Sayles says Fed might get inflation down to 2%, but not for long
The Federal Reserve might be able to wrestle inflation down to its 2% annual target, but it’s going to have a hard time keeping it there.
That’s one of the themes behind the investment decisions of Loomis Sayles, a 98-year-old investment-management firm based on Boston.
Or as Matt Eagan calls it, “unstable inflation.” Eagan is portfolio manager and co-head of the full discretion team at Loomis Sayles.
Eagan said the world has changed dramatically since the pandemic. He’s skeptical the Fed will be able to reduce annual inflation to the low 2% or less level that prevailed in the decade before 2020.
“I think those days are over for the next decade or so, I would guess,” he said in an interview with MarketWatch.
Economic darwnism
After several years of high inflation, Eagan contends, consumers and companies may have gotten used to an environment of higher prices and higher inflation — in effect, ”economic darwinism.”
Workers are asking for bigger salaries or raises, for example, and businesses are constantly to raise prices.
The elevated inflation readings early this year, along with robust employment gains and steady consumer spending, might be a sign of how hard it will be get rid of what is called “the last mile of inflation,” he said.
The consumer price index rose sharply in January and February to push the yearly rate of inflation to 3.2% — well above the Fed’s 2% target. The last mile involves getting the inflation rate down to 2%.
The persistence of inflationary pressures is why Eagan was surprised that the Fed on Wednesday stuck to its prior forecast of three interest-rate reductions in 2024. He though the central bank would scale back its plans
“I thought they would go down to two rate hikes this year and just say, the data is a bit more resilient than we expected,” he said. “But they are wedded to this soft-landing scenario.”
Stable inflation era over?
The Fed’s bigger challenge, even if it gets inflation to 2%, will be keeping it there, Eagan said.
The reason: The U.S. and the rest of the world is facing the most inflationary environment in decades.
Start with demographics.
The U.S. and other Western industrial countries — even China — are facing declining populations that will result in a persistent shortage of labor. Tight labor markets in turn will keep upward pressure on wages as businesses compete for workers.
The era of global free trade, meanwhile, is taking a backseat to security concerns in the wake of the Russian war on Ukraine and Western tensions with China after the pandemic.
“Security issue globally are trumping trade economics’” Eagan said. “The tension between the U.S. and China are making everyone worried about security, and that’s expensive.”
Growing government deficits are also tinder for inflation. The U.S. has been running trillion-dollar deficits since the pandemic and the national debt is expected to continue to grow by leaps and bounds.
The greening of the economy is another potential inflation accelerator.
Eagan said the U.S. would need to spend trillions of dollars to modernize its electric grid and feed the insatiable appetite of emerging technologies such as artificial intelligence. Lots of older, valuable assets such as coal- or gas-fired could also get stranded.
”That’s a huge investment,” he said.
Higher rates for longer
For the most part, there is nothing the Fed can do about any of this.
“There are a lot of supply-side challenges that I don’t think the Fed can handle through normal monetary policy,” Eagan said.
What could upset his theme of higher inflation? A productivity miracle triggered by a revolution in artificial intelligence. But Eagan is not counting on it.
So what will inflation look like then.
“I think the Fed will allow [inflation] to run above in a range,” he said. “I think that range is below 3%, probably closer to 2.5% or lower.”
The only way the Fed could keep inflation at 2% or so, he said, is by driving up unemployment and collapsing the economy. He doesn’t think the Fed has the stomach for it.
“I think they are going to be forced to accept they won’t be able to get back to their target” in the long run.
If Eagan is right, interest rates are also going to remain higher for longer. A huge flood of new Treasury bonds to fund the growing U.S. budget deficits will also add to the upward pressure on rates.
“A 3% inflation vs a 2% inflation world is a big difference in Treasury markets,” he said.
Time to buy more Au. I’ll be watching this country to see how it fares with a gold backed currency. I believe the real reason that Moammar Quaddafi was killed by NATO was that the ECB and Fed could not allow a gold backed pan African currency to be created. That was one of MQs aims. Zimbabwe will be an intere sting study. https://www.aljazeera.com/news/2024/4/5/zimbabwe-introduces-new-gold-backed-currency-to-tackle-inflation
Good evening,
I am one of the 5 readers you mention. In 2018 timeframe I bought for the first time, some amounts of physical gold and silver.
My thought for silver was that it has, to my knowledge, also been a source of transferable wealth throughout the centuries just as gold has done. My question is “Why only gold if silver has also been used as real money over the centuries”?
I think silver has done better than platinum in the last couple of years. Platinum just has not gone anywhere above 1,000 an ounce. Once it reaches that level then Pt comes right back down.
Aside from automotive use, Pd and Ag are used in the defense industry. They are essential for recovering tritium. I can’t say more but the info is out there. What that does for value I have no idea but thought I would add this to the mix. Or how does that fit into the catalytic converter theft incentive?
I think you are 1000% correct. Stocks and real estate have proven to be the best investments in these prolifigate fiscal times. Gold is great for a small portion of one’s wealth for insurance.
I have suspicions that this bridge collapse is deliberate sabotage to cause major shipping disruptions. It was interesting how the lights on this freighter flickered on and off before crashing into the bridge. It is also interesting how the whole bridge just collapsed instead of that section that got hit.
This was designed to hit the coal producing regions of Pennsylvania and West Virginia as much of that coal comes out of the Baltimore port.
Yes, that’s a big Oh $*IT! I can imagine the economic fallout from this will be huge. If we thought prices on everything were high just wait. The day after the disaster Biden says the Fed will pay for the repairs. Boom. Just like that. The bridge just went through some renovations too? Were counterfeit Chinese materials used and were parts failing? Could this in part be Jewish lightening? They suspect dirty fuel caused the ship engines to die. No one changed the fuel filter? Maintenance contract for ships has sunk to a new third world low? Way too many questions.
Apparently large amounts of coal are exported from here to China and India. Then of course containers coming in full of stuff made by the energy produced from that coal. Are we in for another covid like crisis where store shelves become empty? It’s only been a couple of days but I have a bad feeling about this.
Donald Trump is playing a role for the synagogue of Satan. Note the recent payoff of 4 billion he got from his social media deal. He may be allowed to become president to fulfill their goals.
Remember that Donald Trump is not Jesus Christ nor is he a man of God.
Thomas,
I know from one of my posts in the past and your subsequent response, that you have your reservations about the cryptocurrency market bc it does not produce regular cashflow income in the way that rentals or dividend stocks do. However, I am reiterating my prior opinion because we are witnessing the beginning of another bull market in crypto and we have seen, and will continue to see, outsized gains that far outperform any other asset class, including real estate. There is no reason why one cannot DCA out of appreciating cryptos every month to generate income. I am posting a Youtube video from Raoul Pal, who I think has the best macro model of what has happened in the financial markets since 2008. While some think that crypto might be preparing us for a (digital) beast system, it’s price appreciation far outperforms anything else and there is no reason why a person cannot trade out of it into fiat after it has gone up by 1000%. There is simply no other asset class that gives the average person the ability to get ahead of the high inflation that is crushing us. At least consider his thesis from this video. Look past his frequent use of the F word. It is not an indication of the value of his content. Cheers.
https://www.youtube.com/watch?
I completely agree that one should invest in things they know and that taxes need to be factored in. I know nothing about real estate. I happened upon crypto 8 yrs ago and it was the one investment class that really stuck. People can certainly lose their shirt very easily in crypto but you have to start somewhere.
I’ll just post an earlier interview that Pal did where he fleshes out his main thesis called the “everything code” for anyone who is interested. I doubt he is aware of the S.O.S or if its long term goals, but his info is useful nonetheless, particularly his analysis of the 3.5 to 4 years cycles we have seen in the crypto markets which is really the key to knowing when to enter the market.
https://www.youtube.com/watch?v=qJ4yb78o
For someone like me who exclusivity depends on my own abilities and such, as I haven’t had a job since 2001, and don’t have other timely revenue streams, I needed to develop predictable income streams that would directly benefit from the Marxist objectives and the massive deficit spending of QE. For instance, look at the diluting down of the Western European whites in the US; endless and “relentless” migrant streaming as Biden says. This makes rental investing a slam dunk for me. As I have gotten older, I have relied more and more on SFR investing. I can’t really afford to take my investment capital and sink a big chuck into BTC as I wouldn’t be making income to live off of. I live solely off my RE income. Capital appreciation is also there, but that’s gravy.
If I had a job, I would have been more bold with BTC, but hindsight is 20/20.
My one reservation is this; BTC moves with equities, and if anyone thinks stocks will tank, I would be careful about BTC until we see stocks tank. I am not saying either will, but if someone holds that thesis, I suspect the BTC train has left the station for this round.
Old rare coins, especially pre 1933 US gold coins and old pre 1964 silver coins in better condition have proven to be sound investments over the years as they have substantially risen in value. However, they don’t produce income and they get taxed at a maximum long term rate of 28% when sold.
Rental Real estate is great for income and lower tax rates as well as appreciation.