Stagflation Is Here! High Prices & Falling Growth: What Will It Mean For Markets? | Adam Taggart

Stagflation is here and that’s bad news for regular folks like us AND the markets AND the overall economy. What is stagflation?

For those not quite sure what the term means: stagflation is when, at the same time, we experience severe inflation but a stagnating economy.

OK, so where to from here?

Well, here’s where things get tricky.

Normally, with an economic slowdown, central banks would want to stimulate the economy by dropping interest rates or adding liquidity to the system by expanding their balance sheet (which is a fancy way of saying ‘buying assets’)

But they can’t do that now. Inflation is already running hot in ways that are pinching household budgets and corporate profits. More stimulus will simply exacerbate that, and the public will increasingly put pressure on politicians to tame inflation.

Of course, the way for central banks to tame inflation is to taper or tighten, which is exactly what you DON’T want to do during an economic slowdown because you simply make it worse. And with so many companies now levered to the hilt, a recession or god-forbid interest rate hikes would kill a lot of them. That of course leads to job layoffs, company closures, loss of tax receipts, etc.

So the Federal Reserve is stuck between a rock and hard place here. On one hand, it can keep inflating and eventually household spending drops, corporate profits buckle, asset prices eventually fall, and angry voters throw out the incumbents at the next election.

On the other hand, the Fed can taper or tighten and crash the system quickly. That also results in lower household spending, lower corporate profits, falling asset prices and angry voters.

So whichever path it picks, the Fed is going to lose.

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There’s no doubt that it's a very challenging time right now for the average investor. Above and beyond the recent economic impacts of COVID, the new era of record low interest rates, runaway US debt and US deficits, and trillions of dollars in monetary and fiscal stimulus stimulus has changed the rules of investing by dangerously distorting the Dow index, the S&P 500, and nearly all other asset prices. Can prices keep rising, or is there a painful reckoning ahead?

Let us help you prepare your portfolio just in case the future brings one or more of the following: inflation, deflation, a bull market, a bear market, a market correction, a stock market crash, a real estate bubble, a real estate crash, an economic boom, a recession, a depression, or another global financial crisis.

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