Last Wednesday, I participated in an interesting discussion on CNBC’s Closing Bell regarding what I consider to be the most “unloved” investment. Most continue to scratch their heads as to why they haven’t cratered with the trillions of the dollars our Fed has created over the past few years. But there are bigger stories at play.
For years, most have thought that inflation would really kick into high gear, but that certainly hasn’t happened. You may have seen it at the pump or at the grocery store, but those are considered “transitional” and easily cured with higher prices. Think about it. The higher the price goes for a certain good, the more likely we are to cut back and/or find a substitute. I am a big chicken eater, but if the price of chicken doubled, tripled or quadrupled, guess what, I would find something else to eat like turkey.
That may be all well and good for chicken, but what about heating my house with oil? Aren’t I stuck? After crude oil skyrocketed to $147 in 2008, alternatives really started to sprout up. Americans dramatically cut back on miles driven and oil used at home. They also started purchasing wood burning and pellet stoves, solar panels and geo-thermal systems. In most cases, there are always ways!
Anyway, I digress. Since 2007, I have believed that our biggest enemy would be and is deflation, not inflation. During the credit crisis, trillions and trillions were “vaporized”. Remember all those alphabet soup products that banks were inundated with? CMOs, CLOs, CDOs, SIVs. The ones that were AA and AAA but really were junk? Think of all that money that went away! Although the Fed has created trillions, it hasn’t come close to replacing the money that was lost.
Wages are a component of inflation and wage growth has been essentially non existent. And the elephant in the room, housing? That’s the largest component of inflation and it would be very tough to argue that housing prices are and have been on the rise. So in my opinion, we are in need of a little, controllable inflation.
So I think I uncovered a good future topic. Enjoy the video.