Broker Check

A quick note on inflation

November 10, 2021

"Inflation is transitory"

If I hear that regurgitated one more time, I'm going to lose my lunch, right here in my office. What exactly does transitory mean anyway?  Of course, specificity has never been a politician's strong suit.  

While, I've said it before, and again will emphasize, I have ZERO ability forecast what will happen in the future.  There are no facts about the future.

However, I am highly skeptical of inflation being only "transitory".  Why you ask?

Simple - Look at this chart:  


 Households have been aggressively deleveraging (i.e. paying off debt) since the 2008 Great Recession, and they collectively have NEVER had this much cash/assets on hand.  

If there is one thing I know about the American consumer, it's the fact that they LOVE to spend.  With so much cash sitting in consumer's hands and supply chains currently bottlenecked, what do you think will happen when the supply chain issues get resolved?  You think these cash rich consumers are going to sit on their hands and not spend? 

While I don't know what lies ahead for inflation, history tells me that whenever you have too much cash chasing to few goods, the fuse of the inflation dynamite stick has been lit.