The deflationists had another bad day yesterday.
Deflationists argue that inflation doesn’t exist because the Treasury market isn’t acting as if inflation is a problem. They always fail to mention that the Treasury market is ALSO the most manipulated market on the planet. The Fed is currently spending over $1 trillion per year buying these bonds, effectively cornering them.
So why was yesterday a bad day for deflationists?
Because it was revealed that apartment rents are up almost 15% year over year since June. Yes, 15%. This is the highest annual increase since 1993.
By the way, the Bureau of Labor Statistics, which compiles the official inflation data for the U.S. claims “rents or shelter” is in fact only up 2.6% over the same period. As Bill King notes, if CPI accurately reflected the real jump in rent inflation, CPI would be at least 4% higher (north of 9%).
So, while the bond market continues to exist in a manipulated state of fantasy, real people are experiencing real jumps in prices, which is causing real economic damage.
This will eventually lead to catastrophe.
Stocks initially LOVE inflation but that love eventually turns to hate when costs rise so much that they eat into profits.
This was the case during the last real bout of inflation in the 1970s. At that time stocks initially rallied aggressively from mid-1970 to 1974. Then inflation spiraled out of control and the markets crashed some 50%.
This time around will prove no different. We are already beginning to see signs of this in individual stocks.
Consider Clorox (CLRX). The company lost over 11% of its market cap yesterday when it revealed that the company’s cost of products as a percentage of net sales spiked from 53% in 2Q20 to 63% in 2Q21.
The reason for this spike in costs?
CLRX shares erased months’ worth of gains in a single day and are now back to where they were in early 2020, erasing the ENTIRE COVID-19 ramp.
This kind of collapse will be spreading more and more throughout the stock market as inflation roars.
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Chief Market Strategist
Phoenix Capital Research