Inflation Isn’t Coming Down
Like They Tell the Herd
I’m actually not surprised to see the Baby Boomers willfully piling into cash and bonds just as inflation is raging.
The lure of “getting paid to wait” for the big one, as my personal trainer/day-trader/chart reader millennial investor wannabe keeps telling me is coming, is far too seductive to resist.
I’m going to unpack what I just said because there was something in there:
- Baby Boomers want to buy stocks at generationally-low valuations, so they’re not rushing back in.
Honestly, they’ve seen enough. Bubbles and pops, recessions and implosions, defaults and bailouts… they just want out, and if they can safely earn 6% or 7% with bonds, they will rush to that like moths to flames.
After all, why wouldn’t they?
If Uncle Jerome is telling the American people that inflation is truly coming down, bonds are very cheap.
If you can earn 6% by lending money to Washington or 8%-10% by lending it to world-class real estate institutions, I don’t know many that will say NO to that, but the whole structure rests upon the premise that the FED’s actions have stopped inflation dead in its tracks.
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As we can see here, the public has certainly bought into it. They love bonds, and they seem to think that they’ve cracked the code… they’re getting paid to wait, so they tell their friends, while the landing in stocks happens.
What’s wrong with that, you say?
Well, if inflation has been crushed, beaten, and defeated, theirs is a legendary trade.
Once yields come down, they’ll sell their bonds for way more than purchased. Some will make a fortune by doubling and tripling their money.
On the other hand, if the 10-year bond is going to 4.5% or 5%, because CPI is going back up to 9% or 10%, they’ll lose between 20% and 40%.
Can inflation go up by that much after already seemingly peaking? The answer is an absolute YES.
Supply chains and manufacturing are moving out of China, and that process requires major infrastructure investments, not to mention energy prices (specifically oil) are rallying again because we’re anticipating big conflicts in Ukraine and the Middle East.
Studying Russia, one can’t but fall in love with its culture and its incredible contributions to humankind, but you can’t ignore its bloody wars, either.
I’ve looked at every modern conflict (last 800 years) that Russia has been involved in and their blueprint for winning, and I can tell you the common thread is that Russia’s generals and tacticians throw soldiers into the battlefield until the casualty count reaches 500,000 before considering alternatives.
The most reliable estimates we have point to about 35%-40% of that amount, so the Russians are going to attack in May and June and will be more aggressive than ever.
While I see many Boomers around me hoarding bonds to weather the storm, I can’t follow the herd because the changes I see in the world lead me to believe that America’s debt is about to go in the same trajectory as all other military empires have throughout time – UP.
If that’s the case, the Boomers are buying a dead cat bounce in bonds and will soon realize it.
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