DEFLATION Coming Soon To A Theater Near You!

Stephanie Pomboy is the founder of a macro research firm called MacroMavens, and she was on this Wealthion Podcast recently, and it was so interesting I had to blog about it!

I was fascinated by her insistence that we face DEFLATION as early as next year because everyone is talking about how entrenched INFLATION is – because of climbing input costs, energy prices and labor costs, among other things.

She is a data wonk like no other too, so she makes a very strong case.

Here are a few takeaways:

1. Q3 growth predictions have been plummeting, and we will likely see another quarter of negative growth.
2. Consumer spending drives inflation, and it too is plummeting; it was expected to grow by 3.1% in this quarter but that prediction is down to 0.4% (and could go lower).
3. Fed is overtightening/raising rates too much. This is because the Fed is determined to kill off inflation even if it has to destroy the economy. And – it can’t “pivot” (return to lowering rates & Quantitative Easing) like everyone expects because it will lose its credibility if it does.
4. Stocks are likely to correct downward much further because profits are way down and the economy will slow much more because of the Fed’s excessive tightening.
5. CPI/Consumer Spending closely correlates to the stock market/net worth. As stocks tank, so will consumer spending and so will the CPI.
6. Households lost $6 TRILLION in wealth in Q2 alone, and that has already resulted in plummeting consumer spending.
7. CPI lags net worth drops by about a year.
8. Inflation was 5.6% in the summer of 2008, but it dropped to -2.1% (negative) by the summer of 2009 (she expects to see this effect again).
9. The labor shortage will quickly turn into a huge labor surplus and employees will return to the office en masse because employers will have the power to make them.
10. Inflation will return with a vengeance at some point because the Fed will be forced to print more money to cover pension shortfalls – along with entitlements, more giveaways (like student loan bailouts) and other budgetary shortfalls.
11. She suggests holding a ton of cash because there will be many bargains in the stock market.
12. She loves gold/hard assets because she is certain the U.S. dollar will be significantly devalued at some point.

I want to add that Macro Analyst, Alf Peccatiello (whose name came up in the above podcast) also made a very strong case for a recession and deflation or disinflation (at least) when he shared this tweet – pointing out that we are currently seeing the fastest slowdown in credit creation in 20 years!

Conclusions:

1. We are going to see a doozy of a recession.
2. We will likely see rates fall (a lot) sooner than many people believe (so today’s buyers who are concerned about high rates will likely be able to refi).
3. Houses, as hard assets, remain excellent hedges against long-term inflation – which seems inevitable.

Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167