The Federal Reserve — and most Americans — don’t realize that we have parallel economies in the United States. There’s the financial economy (which I might also call the “fantasy” economy). Then there’s the real economy that has a direct effect on daily life for you and me.
The financial economy represented by the Fed, the banks, and the stock market does not reflect real-world valuations — that is, true intrinsic worth. It is instead a house of cards where the value of an asset is determined by clicks of a mouse on a computer, not in the reality of producing something useful and valuable. It was created by the Federal Reserve to avoid deflation, with the unfortunate consequence of creating a constant flow of bubbles in asset markets.
“To critics who warn that pumping trillions of dollars into the economy in a short period is bound to drive up inflation, today’s central bankers point to stagnant consumer prices and say, ‘Look, Ma, no inflation.’ But this ignores the fact that when money is nominally free, strange things happen, and today record-low rates are fueling an unprecedented bout of inflation across asset prices,” wrote Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management.
Further, consumer prices aren’t stagnant. Go buy a sheet of plywood from your local home improvement store. It’ll cost you three times what it did a few months ago.
Inflation by itself is not so painful if your income is keeping pace. But for most American workers and producers, it’s not. That’s what stagflation is all about — rising prices and stagnant wages.
Stagflation is coming. A retreat in the share prices of stocks will inevitably happen. No one can say how or how long it will last… and remember that when a stock begins to perform poorly while in the Dow (think Kodak) the financial engineers behind the stock exchanges simply toss it out for a better-performing one, and the Dow continues to rise. Even a 50 percent crash wouldn’t last because the market-makers wouldn’t allow it.
However, there is evidence we may have the encroaching squeeze of stagflation ahead. Therefore you should prepare for it now by getting your financial house in order. Here are some things you should be doing to get ready.
- Investments: Realign your stock portfolio to favor consumer staple, utility, and healthcare stocks. Even in hard times, there are some things people have to have. Stocks in these sectors also tend to pay higher dividends, which help offset inflation. Gold has traditionally been an effective inflation hedge and rental properties can be profitable because you can raise rents as inflation climbs. Bonds are iffy and savings accounts are the worst investments in a stagflation scenario.
- Home: If you’re renting, this might be one of the only times you would want to lock in debt… if you can find a home to buy. Prices are rising, but interest rates are exceedingly low. Be sure to get a fixed-rate mortgage that will not go up if interest rates climb.
- Transportation: Buy, don’t lease a car. But insist on a fixed-rate auto loan… or pay cash. As inflation heats up, lease rates will climb. Keep the car for at least 6 years or more and skip the rising cost of new cars.
- Debt: Pay off all credit cards as soon as you can and keep them at zero balance each month to avoid rising interest charged by the banksters. The rates on credit cards will go astronomical as the virus casedemic pushes people away from cash and over to using cards exclusively.
There are more than enough reasons to take personal measures to retain a certain level of freedom in your financial affairs by converting a portion of your wealth into non-paper assets like gold and silver bullion coins and bars, jewelry, precious gems, art and antiques or other hard assets. Of these, gold and silver bullion requires the least amount of specialized knowledge.
Of course, you’ll have to provide storage and security for these hard asset valuables. You may want to consider offshore non-bank storage to get your goods as far from U.S. government hands as is legally permissible, both to protect privacy and to protect against seizure or even confiscation.
Be sure to abide by all U.S. and international laws when considering offshore storage for your valuables. Bob Livingston Alerts in no way advocates illegal activities. You also want to do due diligence on the integrity of the storage institution you choose and the political stability of the country where they operate.
Bob Livingston
