Inflation Backfiring

On the commute in this morning I was reading one of my favorite investment newsletters - The High Tech Strategist by Fred Hickey. It is a worthwhile monthly publication and affordable to the average retail investor, not just institutions.

One of the interesting points he made, which ties to my current puzzlement regarding the recent surge in the stock market, is that we are experiencing inflation. Sure it is not in consumer goods prices. In fact, there may be a case we are experiencing deflation in consumer goods. But we are seeing inflation within other asset prices, see commodities, like gold and oil, as well as, stocks.

When money is dumped on the global economy at the rate the various global printing presses have been running, it is logical to see and fear inflation. A cynic might say our government's plan is to inflate our way out of all the debt we've piled on. But we are not seeing it in consumer prices because of job losses and wage deflation.

This phenomena has the exact opposite effect the Administration desires. It makes the rich richer and the poor poorer. The wealthy have assets that can benefit from the inflation while the poor do not. Therefore, in a time of asset inflation, the gap widens.

Maybe the US should check its misguided fiscal policy before clamoring for higher taxes on the wealthy and limits on pay. When you bow to populism without taking the outcomes into account, bigger problems can ensue.

-2outof4