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Counter-Intuitive Inflation – Conclusion

This is an excerpt from Counter-Intuitive Inflation. We’ll be posting sections over the first two weeks of October.

Conclusion:

Right now, the Federal Reserve is doing the right thing. Inflation is a long-term problem, and sticky services inflation combined with rising energy prices mean the disinflation story is dead for now. Raising interest rates is the correct move. Chairman Powell can’t control Congressional spending so he’s using the tools available to him. Congress is going to want/need to monetize an additional $2 trillion of excess spending a year plus, we’ve just seen $400 billion of interest expense become $1 trillion. As higher rates make their way into the average borrowing cost of the government, and as the government takes on additional debt at current borrowing rates, interest expense could trend towards $2 trillion a year.

These are real obligations, and very large ones. Powell’s interest rate hikes are both the correct move and will create more inflation as the government has to monetize more interest expense on $33 trillion of debt which is growing quickly. As I write this, Deep Knowledge Investing remains well-hedged against the kind of inflation and currency debasement that we will continue to experience in the future. Premium subscribers are invited to reference our Current Recommendations page where we outline our hedging strategy. For those of you who have the same concerns we do and want some help protecting your portfolio, please reach out at IR@DeepKnowledgeInvesting.com. We can help.

 

Information contained in this report is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied and DKI makes no representation as to the completeness, timeliness or accuracy of the information contained therein or with regard to the results to be obtained from its use.  The provision of the information contained in the Services shall not be deemed to obligate DKI to provide updated or similar information in the future except to the extent it may be required to do so. 

The information we provide is publicly available; our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion are precisely that and are subject to change. DKI, affiliates of DKI or its principal or others associated with DKI may have, take or sell positions in securities of companies about which we write. 

Our opinions are not advice that investment in a company’s securities is suitable for any particular investor. Each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose. 

In no event shall DKI be liable for any costs, liabilities, losses, expenses (including, but not limited to, attorneys’ fees), damages of any kind, including direct, indirect, punitive, incidental, special or consequential damages, or for any trading losses arising from or attributable to the use of this report. 

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