The Deflation to Inflation Playbook


First things first, we published what I think is an important note last Friday, “A New Road to Serfdom,” which I’ve included as a PDF attachment, as well.  

Here’s the skinny: Today there is a global political effort to convey vast new powers to central banks in order to “fight” climate change. In truth, however, this effort is not about climate change, any more than it could be about any number of significant dangers. This effort is about narrative. This effort is about power. It is an effort that must be resisted, especially if you believe (as I do) in the reality of anthropogenic climate change and the severe threat it poses to human society.

Second, and relatedly, I think that the use of central banks to monetize vast new fiscal spending programs in every developed nation on Earth – under the guise of CB-financed Green Bonds for left-leaning governments and CB-financed Infrastructure Bonds for right-leaning governments – is the biggest economic story of, not just the next year, but the next decade. This is how the Fourth Horseman of the Investment Apocalypse – inflation – rides into town, and it will challenge everything we think we know about investing and asset allocation.

We still have time. Deflationary shocks like the Wuhan coronavirus will rear their deadly head from time to time, pushing us temporarily back into the slowing global growth narrative (and reality). More importantly, there is still no narrative missionary, no political entrepreneur, yet willing to turn the world on its head and say that inflation is here … and that it’s a good thing. But in an MMT world we’re getting close to that. Most importantly for the question of time, shifting to an inflationary regime isn’t going to feel so bad for months at a time. As the old country song goes, falling feels like flying … for a little while.

But ultimately this is the source of the next great reset, both politically and economically. It won’t take the form of a “crash” or a “great recession” … that’s the last war. This is the next war, and we’re going to need a new strategy – a new playbook – to get through it intact.

To that end, we’re revamping the ET Pro subscription service (or at least my contribution in these emails and analysis) to focus directly on that challenge. I think you’ll find ET Pro more focused as a result, more instrumental and direct in its efforts. I really intend this to be the construction of an investment playbook, with offensive and defensive plays – some general purpose, some situational – built around a coherent minimax regret asset allocation strategy for a deflationary regime in transition to an inflationary regime.

We’ll wrap up the construction of this playbook at the Epsilon Theory Forum this October in San Antonio, where we will have a full day dedicated exclusively to ET Pro subscribers. Stay tuned for details!


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