LMCane said:
H-A I always appreciate your reasoned analysis
but if that is the case- then you are basically claiming there is NO safe haven except for cash (which will be losing value to inflation)
I would be interested to hear your solution to the problem you have artfully explained as to what to do with our portfolios
If we ever enter a structured deleveraging, then cash is the only safe place. Specifically, cash in a safe bank. We would actually be dealing with DEFLATION. Every day that goes by would increase purchasing power as assets fall in price against the dollar.
But if QE is generally successful, whether by the FED or by the banks through stablecoin bank reserve monetization, the next round of inflation would be around the corner, with potential for a wave of hyperinflation due to the extreme levels of debt spiraling. In that case, history shows the first step is a steep selloff in everything that eventually finds a bottom (2007 top took years to bottom, 2020 took months), followed by a V-shaped recovery and eventual blastoff. But I wouldn't want to be in any companies with significant debt, as new inflation means higher interest rates which would crush anyone with debt.
There's also the potential they try yield curve control which would idiotic in my opinion. Coming out of WW2, the only other period debt/GDP was close to where we are now, they did YCC using open market operations to try and peg rates to a low level. Rates bounced around for a while, and then launched into the famous inflation wave of the 70's and 80's, a period that ultimately ended in decades of stagflation and took until the mid 80's for SPX to ultimately break out and reward anything that was held prior to the 70's. But even then, with debt/GDP extremely high thanks to war time spending blowouts, and while the debt was high, the US implemented massive tax hikes, declining military spending, and massive industrial growth that led to budget surpluses. Social security, medicare and medicaid, and other mandatory spending were a tiny fraction of what they are now.
Trump is absolutely trying to usher in the kinds of policies that we performed back then, except he's not raising taxes and not decreasing military spending. He's also hamstrung with the social program spending and a congress that refuses to cut more than a single hair on an 80's hair metal singer's head. So AI and manufacturing led productivity booms have pretty much no chance of even slowing the spending. There will be no surplus at the same time that there will be no increased taxes. Tariffs aren't going to get us to a surplus. So if they try YCC, the bond market is absolutely going to call their bluff. I don't see stagflation as the outcome this time.
