Do you think we are heading towards runaway inflation? If so, how should I prepare financially?
Dear Inflation Fears,
Any commentary on the state of the economy is like commenting on the water level in a river—it is an ever-changing dynamic. So, whatever is said is likely to be wrong within minutes, hours, or, certainly, days. In spite of this, general trends and specific directional observations may prove helpful.
Since inflation is on everyone’s mind, allow me to paraphrase Shakespeare’s character, Hamlet: “Inflation or No Inflation? That is the question.”
While economists and central bankers prefer a low level of controlled inflation, it is a very difficult scenario to achieve. Needed to create economic growth, inflation can negatively impact other areas, like the federal debt. Managing inflation requires the precision of a brain surgeon operating aboard a ship that is rocking back and forth in a stormy sea.
One thing I have learned about investing in public securities (stocks and bonds) is how emotion drives value from one day to another. Stocks drop with fear and danger, rise with optimism, and rotate with foreseeable trends. Investors shift in anticipation of economic winds. As Wayne Gretzky famously said, they are attempting to “skate to where the puck will be.”
The best way to answer your question is to give you the three prevailing viewpoints from very capable, professional investors. Here is the general spectrum on the topic of inflation: Yes, it is coming and fast; No, it is under control by the Fed; and It could go either way.
Inflation and/or Hyperinflation is Coming
Dr. Michael J. Burry – Investor, Hedge Fund Manager, Physician; featured in The Big Short
A recent article explains that Dr. Michael Burry, in his recent tweets, spoke of current modern monetary theory policies with a quickly growing debt-to-GDP ratio along with more stimulus and the re-opening of the economy. He said, “…employee and supply chain costs (will) skyrocket.” He expects a market crash within months.
Warren Buffet – CEO of Berkshire Hathaway; considered one of the most successful investors in the world
In a current YouTube video, Buffet says, “The best businesses that will perform the best are the ones that require little capital investment to facilitate inflationary growth and that have strong positions that allow them to increase prices with inflation.”
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SOURCE: Crown.org, Chuck Bentley