Pro Perspectives 6/2/20

June 2, 2020

With $11 trillion of global deficit spending in response to the pandemic, and trillions of dollars of new money creation from global central banks, we've talked a lot about the wave of inflation that's coming (possibly very hot inflation). 

Let's take a look at some related charts …

Let's start with wages/income, which is rising (thanks to hazard/essential worker pay increases and Federal unemployment subsidies).

On Friday the month-over-month change on personal income for the month of April was +10.5%.  Here's how that looks on a chart relative to the past twenty years … 

With this, the savings rate reported on Friday showed a spike to a record 33%.
So, cash is being explicitly devalued by policymakers, yet people are sitting on the highest levels of savings on record.  Cash is the worst place to be

We’ve yet to see the impact of this excess money that’s sloshing around the economy in everyday consumer products — but it’s coming (i.e. higher prices).  

Where is inflation showing up now – the early warning signals?

> Gold —  Cash has already been devalued against gold by about 13% since the Fed started its Pandemic response on the evening of March 15th (two and half months ago). 

> Stocks — Cash has been devalued against stocks by about 14% since the Fed’s first response. 

> Bitcoin — It takes 74% more dollars to buy a bitcoin than it did just two and a half months ago.  

> Real Estate — The median home price is up 6.5% since the Fed’s initial response. 

In the post-Global Financial Crisis economy, cash was king.  In the post-Pandemic economy, hard assets will be king.