Son of Stagflation: How Gold Can Help You Defeat This 21st Century Monster

Surely times have been complicated. It used to be the reason the economy went sour due to too much deflation. Or too much inflation. Comparatively speaking, these two have always been predictable financial predators who, if not easy prey, were relatively beatable.

Then came the 1970s and the rise of a terrifying new beast: stagflation. It joined the worst of inflation with the worst of stagnation to haunt us between 1973 and 1980. For the most part after that, the creature moved away, never to be (officially) seen again.

Until 2008. Now, apparently, there is a “Son of Stagflation” coming of age that could last a long time, tormenting us with its particularly unnerving attacks.

Imagine the American economy strapped to a gurney in Dr. Frankenstein’s laboratory. That is stagflation. He’s got bloated legs, stunted arms, a scary head and a bit of both, and, oh yeah, a really bad disposition.

Fortunately for us, the gold bullets can still kill him.

The inflationary part of stagflation

Here is the definition from Wikipedia: “Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time.”

What makes stagflation so strange is that, as mentioned, we’re used to seeing one or the other, inflation or stagnation, an overheated economy or something icy. Clearly, what we’re witnessing today includes disturbing parts of both, plus another unexpected factor. Analyst Robert J. Samuelson wrote, stagflation “meant the simultaneous occurrence of high inflation, high unemployment, and slow economic growth; but its defining characteristic was the persistence of this poisonous combination over long periods of time.”

Some analysts question our state of stagflation. news week he wrote that “the situation in which we find ourselves is nowhere near stagflation.” That’s because “the consumer price index is rising at an annual rate of 3 percent, compared to 13 percent in 1979.” Of course… The CPI numbers were pretty staid in 1979, meant to report the actual rate of inflation.

Today’s statistics cannot make such a claim as they have been bureaucratically deceived until they are now just a laughable caricature of reality. At an annual rate of 3%? Hey, even at an annual rate of 5.6% (the latest official figure)? Who will believe that? The receipts you get at the grocery store and gas station give you all the statistics you need on the subject.

Is there anything pizza can’t do?

Even our beloved pizza can shed some light. According to a story by MSNBC’s Al Olson, “Pizza makers have seen their cheese costs soar this year from $1.30 a pound to $1.76 a pound. Worse yet, the flour used to make the dough has gone from $3 to $7 a bushel to $25 a bushel in less than a year.

So let’s see… $1.30 to $1.76 a pound for that pizza cheese represents an initial 35% increase in cost. And, let’s be generous here, going from $7 to $25 for pizza flour represents a mind-blowing 257% price increase. Average the two and you get a 146% increase.

Where does that leave us? For one thing, government CPI statistics tell us that we are experiencing an annual inflation rate of 5.6% which is barely breaking a sweat. On the other hand, the hand holding that slice of pizza tells us that we are experiencing inflation that is rising 146% and even higher in some industries.

Who are you going to believe? Washington? Golden pizza?

The stagnant part of stagflation: “Retail follows rooftops.”

So while inflation is practically boiling, no one is buying anything. Here is an indicator of the San Francisco Chronicle: “Sales at stores open at least a year, known as same-store sales, fell a record 2.4 percent in April, the worst since the International Council of Shopping Centers began counting monthly figures in 1970 “.

There is more…

o New home sales sank 36% in the first half of 2008.
o Edmunds reports that new vehicle sales are down 14.4% from August of the prior year; Ford reported an impressive 28% drop.
o Sales of commercial real estate in the US have plummeted by 70 percent.
o Home Depot sales fell 5.4%.
o Old Navy is down 20%, Kohl’s is down 10%, JC Penny is down 6.5%, Target is down 6.1% and Walmart is down 4.6%; 813 women’s fashion stores, recorded an annual profit 28% lower than the last time it was calculated.
o Book sales fell 7.1% in June.
o Sales of albums, according to BillboardThey are down 11%.
o Magazine sales fell 6.3%.
o Cell phone sales fell 13% in the second quarter.
o For its part, the unemployment rate reached a four-year rate of 5.7%.

The old saying in retail development, “retail follows rooftops” is never more obvious than it is today. And if real estate is miserable, what goes on under those roofs isn’t so great either. The Commerce Department reported that personal income fell 0.7 percent in July, the biggest drop in nearly three years and a much larger decline than expected.

So, in a nutshell, that’s what’s going on. No one is buying anything and prices keep going up. Son of Stagflation is laughing at his evil, a bit of a laugh.

Do you have gold bullets?

We all know about silver bullets and werewolves, right? Well, the good news is that those gold and silver bullets will work just as well in Son of Stagflation.

Gold is, of course, known as an antidote to inflation. There is an old maxim that in 1900 an ounce of gold could buy a good men’s suit in London (gold was worth around $20 an ounce back then) and you can still buy a good suit today. of men in London for that same ounce. of gold.

Here’s the point, though: what kind of suit can you buy today with that $20 in real dollars, not gold? A bathing suit? Maybe at Kmart, if it’s a Blue Light special.

Has gold reacted to this latest round of insane inflation? No not yet. But give it a little more time. Many analysts believe that it is more than primed and ready to go; think of a rubber band stretched to the limit.

Then there is the uncertainty that the “stagnant” part of stagflation gives us. Fortunately, uncertainty is the perfect setting for gold. Why? Because we tend to trust gold, we trust it, we understand that it cannot be printed by the Federal Reserve, wasted by politicians, or diluted by bankers. We know that it has never been among the countless coins that have ended up in the dustbin of history.

Stuart Schweitzer, global market strategist at JP Morgan, noted that gold is “an asset that people want to have as protection against risks that they can’t really analyze and control. That risk has increased.”

That says everything. Son of stagflation, beware.