Friday, 12 April 2024

By Nick Hubble Editor, Strategic Intelligence Australia

[5 min read]

Dear Reader,

Oh-uh.

On Wednesday, inflation in the US came in surprisingly high for the third month in a row. This time, it was outright rising.

That’s not supposed to be happening.

The news sent the market into a spin.

The US is not the only country struggling with rising prices.

Australia is, in my view, worse.

The Australian government is harkening back to the age of the Price Justification Tribunal with its attack on supermarkets.

Supposedly, supermarkets have suddenly become greedier. Just as energy companies did in 2023. And resource companies did before that.

It’s only a matter of time before one of your stocks gets targeted in this game of inflationary whack-a-mole.

The eurozone, despite a prolonged recession, still can’t get inflation down to target. What more will it take?

Even in Japan, inflation is back after decades of deflation. The local news is full of company presidents apologising for the first price increases in decades. And it’s not even their fault. The Bank of Japan has been trying to engineer price increases for decades. Now that it’s happened, everyone is surprised.

All of this is a good reminder that governments and central banks are not in control. They just pretend to be.

And even if they were in control, what would the result be? They muck up everything else. Why should their monopoly on money work out any different?

So it’s no surprise that after years of inflation supposedly being too low, it’s now stuck too high.

The real question is, ‘what to do about it?’

No, not what central bankers and politicians should do. What you should do to protect yourself from their constant stream of mistakes.

Can you really escape the government’s insane monetary system? Of course you can! The real question is how and with how much of your assets.

Gold is telling you all about one option – the traditional one. The price is flying as people clamour to protect themselves from the next monetary disaster.

But there may be a better option that didn’t exist the last time we faced this sort of mess…

Might it be time to consider adding some of the alternatives to your wallet…?

Don’t just accept the price of failure

The alternatives I refer to are, of course, cryptocurrencies. Just as Uber and Airbnb cracked the heavily regulated taxi and hotel industry, bitcoin upended money.

But whenever people first consider buying cryptocurrencies, they always focus on the price. It’s a bit depressing, to be honest. The point of bitcoin was to challenge the financial and monetary system, and not to become a speculative mania.

It did this by becoming a viable alternative that competes. Back in 2009, when it was launched, the reason for this was obvious. Banks were failing and governments were printing money. Some governments even imposed capital controls.

I know one Greek who missed out on a scholarship at an Ivy League university because he couldn’t pay the bills. The Greek government prevented his money from leaving the country’s banking system.

People wanted an alternative form of money. One the government didn’t control and which wasn’t at the mercy of the banking system.

And bitcoin gave it to them.

Today, with inflation dominating the news, we have the corollary reason for bitcoin. Instead of bank failures and capital controls, we have rising prices.

But bitcoin’s value rises, unlike the currency we use. That’s because the supply of bitcoin is capped. Central banks explicitly target inflation, which is devaluation, of their currency.

The differences couldn’t be starker. That’s why it’s time to take action. To make your move and take advantage of the options and opportunities which the return of currency competition has created.

You could sit around and wait for the Aussie dollar’s failure to get so bad that you positively need to buy bitcoin. Or you could act now.

Option three is to wait for the quadrennial event which has preceded a surging bitcoin price three times in the past. It’s due this week…

Until next time,

Nick Hubble,
Editor, Strategic Intelligence Australia

Nick Hubble found us at Fat Tail Investment Research in 2010 after a stint inside Wall Street’s most notorious bank, Goldman Sachs, during the 2008 GFC. That’s where he saw the true nature of the investment banking business. Since then, he’s been the editor of the Daily Reckoning Australia and the UK-based Fortune & Freedom and Gold Stock Fortunes.

He’s delighted to work as Investment Director and Editor for Jim Rickards’ Strategic Intelligence Australia. Here he helps turn Jim’s big-picture views into specific actionable advice and ideas for Australian investors.

By Bill Bonner Editor, Fat Tail Daily

[3 min read]

The latest inflation numbers came out yesterday. They tell us inflation is not going away any time soon. And they give us, we think, a preview of the future. LA Times: 

‘Prices outside the volatile food and energy categories rose 0.4% from February to March, the same accelerated pace as in the previous month. Measured from a year earlier, these core prices were up 3.8%, unchanged from the year-over-year rise in February. The Fed closely tracks core prices because they tend to provide a good read of where inflation is headed.’ 

Of course, investors got nervous. AP: 

‘The S&P 500 was 1.2% lower in a wipeout where nine out of 10 stocks in the index fell. The Dow Jones Industrial Average was down 514 points, or 1.3%, as of 11:45 a.m. Eastern time, and the Nasdaq composite was 1.2% lower.’ 

For the benefit of new readers, if there are any, we are a moralistic bunch, here. We believe events follow patterns that have been observed many times in the past. Each generation is warned by the experiences of its ancestors, distilled into moral lessons and given to us in old wives’ tales, proverbs, history, novels, the Bible, etc. (See Dickens, above.) 

And so, inasmuch as the US government habitually spends far more than its tax revenue — with current deficits running about $3.5 million per minute, we suspect misery is afoot.  

Ugly Footprints

The Fed aimed for inflation of 2% per year. That goal never made any real sense, but that’s the corner into which it backed when it painted the floor. And now, the actual inflation rate is 90% above the target. What can it do now? A step in any direction will leave ugly footprints.   

The real rate of consumer price increases is much higher than the CPI numbers suggest. Here’s Charlie Bilello: 

‘A WSJ analysis found that a commonly purchased basket of supermarket goods has increased in price by 36.5% over the past four years (+8.1% per year). This is much higher than the US Government CPI figures which show food price inflation of 25.2% over the last 4 years (+5.8%/year).

‘Meanwhile, average hourly earnings in the US have increased 21% over the past 4 years (+4.9% per year). This is one reason why many Americans, particularly those with lower incomes, feel like they’re falling behind.’ 

And here is Fox News, rubbing it in: 

‘Gas prices have again doubled since Biden took office, despite White House claiming “costs have fallen”.’ 

These higher numbers are reflected in another Fed metric, the ‘Supercore’ inflation measure. CNBC reports: 

‘The supercore gauge...accelerated to a 4.8% pace year over year in March, the highest in eleven months.’ 

Rate cut? How about a rate hike? Former Secretary of the Treasury, Larry Summers suggested it. Bloomberg: 

‘“You have to take seriously the possibility that the next rate move will be upwards rather than downwards,” Summers said...’   

He even referred to ‘the errors the Fed was making in the summer of 2021’, reminding Fed governors how they failed to see inflation coming or do anything about it when they had the chance. 

But where does it leave them now? Stuck in their corner, with persistent inflation...and mounting debt. 

If they raise rates, they risk a major debt crisis. Homeowners, businesses...or the government itself...may not be able to roll over their huge debts. 

If they lower rates, they invite more inflation...forcing them to raise rates even further…or suffer a dizzy spiral of higher and higher prices. 

And yet, they can’t keep things as they are either. Because federal deficits add about $5 billion more each day to the nation’s debt. Day in…day out. More bombs; more patent medicines.  

Each dollar must be financed. Interest must be paid. And each dollar increases the pressure for higher interest rates...increasing the total interest cost...and bringing closer the day of reckoning. 

One way or another, sooner or later, something’s gotta give. 

Misery. 

Regards,

Bill Bonner,
For Fat Tail Daily