Are We Done with Inflation?

No.

Source: rz.xyt NFT gallery

“I don’t think we can yet be confident that we’re not going to see a real acceleration of inflation at some point down the road.” -Lawrence Summers, former US Treasury Secretary, Aug. 4, 2023 | Source: Bloomberg via Yahoo! Finance

Larry, my man, you needn’t look down the road to see when inflation will return. It’s already back.

Sure, CPI inflation is down to 3%, but asset price inflation is currently a very real thing and this will have implications.

Asset Price Inflation

Let’s look at charts of the ETFs that track the major indices.

The DIA, which tracks the Dow Jones Industrial Average

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The SPY, the ETF which tracks the S&P 500

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The QQQ, which tracks the NASDAQ

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What do all of these charts have in common? They illustrate that these indices/ETFs are all almost back at all-time highs.

Bitcoin (BTC)

And while an asset like Bitcoin (BTC) is a ways off from its all-time highs (when measured in USD), it’s still up almost 100% this year.

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Money Market Funds and High-Interest Savings Accounts

Plus, while major indices/ETFs are approaching all-time highs and Bitcoin (BTC) is rebounding, you can also get about 5% on your money in a money market fund or a high interest savings account.

2023: Up Only

All of this points to the fact that, since the beginning of 2023, you’ve benefited from placing your money in almost any investment vehicle.

What happens when people have more money on paper? They feel more comfortable spending, which, in turn, increases CPI inflation.

Waves of Inflation

In the very broken fiat regime under which we currently live, inflation comes in waves (great article). And toward the crests of these waves, people spend, which again, impacts prices in the real world.

Here’s an oversimplified version of what this looks like:

Print money/monetize debt —> Asset price inflation —> CPI Inflation —> Fed Tightens and Breaks Some Stuff —> Too much stuff breaks —> Print money/monetize debt (recent examples: “New $2 Trillion Fund for Banks Will Protect Your Money, Too” (Yahoo! Finance) (on the BTFP program), “Federal Debt Explodes by $1 trillion since Deal Suspending Limit Became Law” (Fox News), “US Treasury Boosts Quarterly Borrowing Estimate to $1 Trillion” (Bloomberg) —> Asset price inflation —> etc.

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So, texting time you hear a bureaucrat or talking head discussing how inflation might return, keep in mind that it’s already back in some form.

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In the following section, I’ll discuss how I’m positioned as we approach this peak in asset price inflation, and I’ll also revisit COIN as an investment after Coinbase’s recent earnings report beat estimates.