My hockey team, the Black Aces of the Red Bank Armory's Men's League won our first summer league game of the season last night. A 3-0 shut-out by our great goalie, pictured to the right in one of his saves against Wayne Gretzky. (not really of course, but if any of the Devils are reading this give us a call so we can help your families grow your wealth too)
We have a bunch of middle aged men - married or divorced with school aged children - in the league and on my team. There are lawyers, IT professionals, marketing gurus, medical technicians, doctors and contractors. I am the only stock market guy. Most of the guys think of me as a "hedge fund" guy - so I am lower than an ant to them right about now - but of course I try to correct them and remind them that I am a Family Financial Advisor who believes in the power of compounding stocks of the Great Companies over a life-time. In other words, I advise families like theirs. OK - some are a little wealthier but that is simply because they are second or third generation wealthy already.
My cap asked me last night - when will we see the inflation? I told him I think we are already seeing a reflation as the Chinese in particular begin hoarding materials and other commodities in expectation of price increases. That is all you need for inflation in the future - people need to change behavior now because they expect prices to go higher.
The Chinese are not your average consumers though. They are motivated by their huge dollar holdings. Therefore, much of the Chinese hoarding could be simply their hedge against the exploding US budget deficits and the Fed's monetization of that debt. (The Fed buys the debt the US government issues, thereby creating money at of thin air - or "printing more dollars") More supply of anything without the commensurate demand means that price will have to fall - the Chinese do not want to be caught with devalued dollars and a need to buy commodities and materials with those dollars.
That's a long way of saying that I believe big-time inflation is on the way, but not until US and European capacity utilization begins to move up, and rigidities in wage contracts make their way into more and more jobs in the US.
For instance, if the government allows the Employee Free Choice Act to become law, which will make it difficult for say WalMart to avoid union contracts along with the rules and fixed wage rates associated therewith. (By the way: WSJ reported this AM that WalMart will be hiring 22,000 new workers in the coming weeks). Most think that Congress will not pass the provisions of this anti-growth law that call for the potential elimination of secret ballots for employees - that's good. What's bad is that the concession to the unions will probably be effective government wage controls by forcing through the force of a law, Federal arbitration within a short period of time after negotiations start.
This coupled with runaway government deficits and more dollars out there means that when aggregate demand comes back, consumers and businesses will, like the Chinese, anticipate inflation which will cause inflation like we have not seen in the U.S. since the 70's.
My hockey captain is prescient. He called the calamity in September - he kept telling me that something ain't right. And now he sees inflation - he's right unless we get major policy reversals by Congress and the President, which are not likely.
See my next post on what you and your family should do about it.
BERK
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