The fact that central banks around the world continue to engage in absolutely massive amounts of stimulus has sparked concerns around inflation taking hold in a post–WWII type of scenario. I don’t think we’re headed for a Weimar-Republic-type of scenario yet, and I’ll describe why in this article.
Japan and Europe are two massive economic areas that have been printing money for decades and have also tinkered with negative interest rates on a relatively massive scale.
The fact that inflation has not taken hold, to me, indicates that we could actually be in the midst of a deflationary spiral, with central banks trying to get ahead of this. Former Bank of Canada Governor Stephen Poloz has indicated this in previous comments, calling out deflation as a greater risk than inflation today.
I think we could be a few years away from seeing any sort of material inflation take hold, given the inflation ceiling I think the coronavirus has provided.
That said, I do think we’re just kicking the can down the road, and ultimately, we could end up with some serious inflation eight to 10 years from now when things settle down.
I think the long-term impacts of this pandemic are not properly being priced in currently, and therefore I remain highly skeptical of this stock market recovery. In the meantime, buying gold and other inflation hedges while it is cheap could be a great way to defend oneself from this future headwind.
Invest wisely, my friends.
