Mike Larson – Market Reactions To The 3 I’s – Inflation, Invasion, and Interest Rates
Mike Larson, Editor of The Safe Money Report, joins us to outline the primary forces acting on the markets through the lens of the 3 I’s: Inflation, Invasion, and Interest Rates. We start off probing the fiscal and monetary source of inflation, and how the pandemic supply shocks and invasion of Ukraine by Russia have only accentuated an inflationary picture that was already trending higher. Mike makes the point that the real inflation people are faced with is actually much higher than the government produced 7.9% CPI reading, and that the sanctions against Russia have only pressured some raw commodities like oil, natural gas, base metals, wheat, and fertilizer to even higher levels.
Next we shift over to discussing the Fed rate hiking cycle kicking off, but noted just how far the central bank was behind the curve at this point, and that their 25 basis point hike, and even a series of them, in the face of higher far higher inflation percentages will still keep real rates very negative for some time to come. Mike points out that the Fed monetary policy, and government fiscal policy definitely overstayed their welcome and overplayed their hand, and now with an environment of stagflation, similar to the 1970s in many respects, and a flattened yield curve, they are at risk of triggering a market dislocation as their hawkish policy unfolds, or worse a recession.
We wrap up with a discussion on which kind of assets investors can turn to ride out the coming financial turbulence. Mike has been advising readers of his Safe Money report to reduce general equity positions in speculative growth and tech sectors, increase their cash allocation, and to position in real hard assets in the precious metals and commodities and energy space, as well as build of basket of recession resistant dividend paying defensive income producing stocks.