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Could Inflation Become a Threat?

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Insights and Market Perspectives

Could Inflation Become a Threat?

Author: Greg Valliere

July 10, 2020

WE LISTEN CAREFULLY to questions from savvy retail investors, who have their fingers on the pulse of the economy. Many of them — citing the surge in the price of gold to nearly $2,000 per ounce — feel that a threat of higher inflation has been underestimated by policymakers.

OUR REACTION IS THAT FEDERAL RESERVE Chairman Jerome Powell would be pleased to see a pickup of inflation, which has consistently failed to meet Fed goals for the past decade. Powell, like many central bankers, still worries about deflation.

THE MAIN ARGUMENT WE GET FROM INVESTORS is that the enormous amount of fiscal and monetary stimulus since the pandemic began has already created a speculative bubble in the stock market, which is counting on the Fed to stay accommodative for years to come (Powell has virtually guaranteed it).

AND WHEN IT COMES TO CONGRESS, the sky’s the limit on spending. The stimulus this year has exceeded $3 trillion, with at least another $1 trillion coming by ealy August, and perhaps more after that.

TREASURY SECRETARY STEVEN MNUCHIN said yesterday that another bill is starting to take shape; it almost certainly will contain another round of relief checks, plus major aid to state and local governments. Nancy Pelosi’s response to Mnuchin’s suggestion that the next bill will cost $1 trillion: that’s not enough, she said.

THE DEMOCRATS HAVE CLIMBED ABOARD THE SPENDING BANDWAGON: Former Vice President Joe Biden yesterday listed several new programs the Democrats will embrace, with not a word on how they would be paid for. The Biden price tag could be several trillion dollars.

OUR CONCERN isn’t in the short-run; the economy has hit a wall because of the Covid-19 spike in Sunbelt states. But in the long-term, once there’s a vaccine, will Washington turn off the spigots? It may be exceedingly difficult to raise interest rates and cut spending, once consumers and the markets get used to all the stimulus.

SO WE’RE TELLING CLIENTS WHO FEAR INFLATION that the real threat isn’t this year or 2021 — it’s later. But some clients think inflation could come sooner, and they’re buying more gold. Inflation expectations have crept higher, which makes us worry that this could become a self-fulfilling prophecy.
* * * * *
A WIN FOR TRUMP, A WIN FOR BIDEN YESTERDAY —

RUNNING OUT THE CLOCK: Donald Trump reacted angrily yesterday morning as the Supreme Court — and his two judicial appointees — ruled that he’s not invulnerable to subpoenas.

THEN IT SUNK IN: Trump can run out the clock this fall, he won’t have to
release his taxes and other financial records before the November election, as lower
courts deliberate. Trump dodged a crisis, no question.

BIDEN GETS THE JUMP: White House officials have stalled, inexplicably, over new
proposals to bring jobs back to the U.S. — so Joe Biden, not looking very sleepy,
took advantage. His sweeping “Buy America” plan, relying on federal procurement to wean the country away from China and other exporters, may make Rust Belt voters forget about his support for free trade deals.

THE IRONY is that as Biden and Trump bring jobs back to the U.S., products
will be manufactured by employees here who will make far more money than workers in emerging countries — still another reason to worry about inflation, as consumers used to cheap imports may have to pay more for those products in the next few years.


The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

©2021 AGF Management Limited. All rights reserved.

Written by

Greg Valliere

Greg Valliere

Chief U.S. Policy Strategist

AGF Investments

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