The Deflation to Inflation Playbook

0

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!

0

Leave a Reply

Please Login as a Paid Member as a Paid Member to comment
  Subscribe  
Notify of

The Latest From Epsilon Theory

Join Us. No, Really.

By Rusty Guinn | February 25, 2020

The Fall of Wuhan

By Ben Hunt | February 24, 2020

Kitchen Sink It

By Rusty Guinn | February 20, 2020

Thanksgiving

By Rusty Guinn | February 19, 2020

ET Live! – 2.18.2020

By Rusty Guinn | February 18, 2020

Love in the Time of COVID-19

By Ben Hunt | February 17, 2020

The Industrially Necessary Doctor Tedros

By Ben Hunt | February 16, 2020

Options

By Rusty Guinn | February 12, 2020

Body Count

By Ben Hunt | February 10, 2020

We Hanged Our Harps Upon the Willows

By Rusty Guinn | February 10, 2020
DISCLOSURES

This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.

Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.