‘The Inflation Illusion’ – And Why I’m Betting On Deflation Going Forward

Last year – when the COVID-19 pandemic hit – both the Federal Reserve and the U.S. government began aggressively easing. (Via borrowing and printing trillions at a pace never seen before).

And – since then – the mainstream financial media’s constantly pushed headlines about pro-longed inflation.

Well – a year later – and the inflation scare has only grown...

For instance: many have highlighted the recent core-consumer price index (aka the core-CPI – a measure for consumer prices minus food-energy) which had its largest yearly increase in decades.

Or that higher commodity prices have caused global shipping rates – like the Baltic Dry Index (a measure of the cost for moving raw materials) to soar.

And on and on.

Such news has only reinforced the market’s prevailing bias that there is an inflationary wave coming.

So – what’s the issue?

Well – I’m skeptical of the crowd’s forecasts. And believe that the inflation trade is greatly overcrowded (putting investors in a fragile position).

Don’t forget – both the mainstream financial media and global central bankers have grossly underestimated how difficult it is to get inflation going in the ‘age of surpluses’ (aka the globalization and technology era) which began in the mid-1970s.

And – just like previous cycles – I believe that they’re discounting this fact again. . .

Thus – I believe that this is just a temporary spurt of inflation (driven by supply-chain issues, base effects, and the economy re-opening). And that the long-term deflationary trend is still more likely to continue than not.

Let me explain. . .

First off: the surge in consumer prices was driven by just a few cyclical areas.

According to Guggenheim Investments – the sharp increase in the recent core-CPI was largely due to just a handful of categories. All of which were directly linked to the economy re-opening.

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