Central banks are getting their wish.
For nearly a decade, central bankers have been waging a war on deflation.
Deflation is when prices for everyday goods and services fall. It sounds like a good thing. After all, who doesn’t love saving money?
But central bankers don’t view deflation like we do. They see it as a sign of a weak economy.
That’s why they’ve “printed” more than $12 trillion since 2008. It’s why they’ve cut interest rates more than 670 times.
These radical measures were supposed to stimulate the economy. They were supposed to produce inflation, the opposite of deflation.
We got neither.
• The United States is growing at the slowest pace since World War II…
And we’ve had almost no inflation since the financial crisis.
The Consumer Price Index (CPI), the U.S. government’s favorite way to measure inflation, has averaged just 1.4% since 2009. That’s half its historical average of 3.5%.
It’s the same story in other major economies.
Europe and Japan are both growing at the slowest pace in decades. And inflation has been practically nonexistent in both economies.
• You might find this hard to believe…
After all, it sure feels like prices have risen a lot faster than 1.4% per year.
More importantly, inflation isn’t a side effect of money printing like most people think. Money printing is inflation. Casey Research founder Doug Casey explains:
Inflation…is one of the most misused words; few even think about its actual meaning. What is inflation? “Well, that’s prices going up.” No, it’s not. To say that is to confuse cause and effect. Inflation is an increase in the money supply. You inflate when the money supply is increased by more than real wealth increases.
In other words, it was never a question of if we would get inflation. It was a question of when.
Now, we’ll be the first to say we thought inflation would be much higher than it is today. But there’s a good reason why inflation has been so muted.
You see, central banks don’t just hand out money to people when they “print it.” They put it in the banking system.
Over time, the banks lend out this money. That’s how it enters the “real” economy.
Eventually, you end up with a lot more money chasing the same number of goods and services. Everyday prices start to rise…like we’re seeing today.
• Inflation is starting to take off…
Last month, the official U.S. inflation rate hit 2.1%.
That might not sound like much. But that’s three times as much inflation as we had in 2015.
Inflation is picking up in other major economies, too.
Consumer prices in the eurozone, which is made up of 19 European countries, jumped 1.8% last month. That’s up from a 1.1% increase in December. It’s now at the highest rate in almost four years.
This is likely just the beginning…
• Factory costs are soaring…
Last week, U.K.-based IHS Markit’s monthly Purchasing Managers’ Index (PMI) hit its highest level since 1992. This index measures how fast input prices are rising at factories in the United Kingdom.
In China and Europe, factory costs are rising at the fastest level since 2011. The U.S. gauge just hit the highest level since September 2014.
This is a huge deal.
Factories are near the top of the global supply chain. They turn raw iron ore into metal beams…copper into plumbing parts…silicon into smartphones.
Right now, factory costs are surging because commodity prices have taken off. According to Bloomberg, U.S. industrial commodity prices jumped 3.3% in December. That’s the biggest annual spike in almost five years.
If factory costs keep rising, companies will have no choice but to raise prices. This means we could all soon start paying a lot more for finished goods.
• Most investors didn’t see this coming…
Since the financial crisis, investors have been worried about deflation, not inflation.
That’s because the government told us that prices were barely rising.
But it really shouldn’t surprise anyone that inflation is racing higher. Doug explains:
Today, inflation seems to come from out of nowhere, like a freak storm. No cause. Unless it’s blamed on the butcher, or the baker, or an evil oil company. Nobody ever thinks it’s a central bank—the Fed in the U.S.—that actually creates more money, and causes inflation.
There’s just one problem.
We don’t expect a little inflation. We expect a lot of it. That’s what happens when central banks flood their economies with paper money they created out of thin air.
• The good news is that there’s still time to protect yourself from inflation…
You can get started by owning hard assets.
Hard assets are things with tangible value. Copper, aluminum, and gold are a few examples.
The trouble with most hard assets is that they need a healthy economy to do well. But not gold.
Unlike copper or aluminum, gold isn’t an industrial metal. It’s money. It’s preserved wealth for thousands of years…even through history’s worst financial crises.
But that’s not the only reason we like gold…
• Gold is dirt cheap right now…
It’s trading for about 40% less than its all-time high.
So now’s a good time to buy physical gold if you haven’t already. We encourage most investors to put 10% to 15% of their wealth in gold. This small position in gold could offset huge losses if stocks crash like they did in 2008.
Once you own enough gold for protection, you can speculate on higher gold prices.
Gold stocks are the best way to do this. That’s because gold stocks are leveraged to the price of gold.
A 10% jump in the price of gold can cause some gold stocks to jump 20%, 30%, or even 40%.
If you’ve been wanting to buy gold stocks, we encourage you to watch this brand-new presentation first. In it, International Speculator editor Louis James talks about an incredible gold mine that he just got back from. There, he saw a gold vein that was as thick as his thigh. He’s never seen anything like this in his career.
You can learn more about Louis’ rare find by watching this brand-new video.
Just don’t wait too long. Word about this massive deposit is spreading quickly. In fact, this stock has spiked 12% since Louis’ presentation went live last Wednesday. Click here to take advantage of this opportunity today.
Chart of the Day
Louis’ readers made a killing last year.
Today’s chart shows the performance of the International Speculator portfolio last year. You can see it gained 72%. It beat the S&P 500 nearly 7-to-1. It beat the S&P/TSX Venture Composite Index (TSX-V) by 27%. The TSX-V tracks small resource companies like the ones Louis recommends in International Speculator.
We didn’t feature this chart to brag. We’re sharing it because it shows the kinds of returns that small resource stocks can deliver in a bull market.
Now, a lot of people might see this chart and think they missed the opportunity of a lifetime. But Louis expects precious metals to “have a better year than 2016—potentially much better.”
The best way to take advantage of higher precious metals prices is to own gold and silver stocks. You can learn about one of Louis’ top speculations by watching this brand-new video.
Delray Beach, Florida
February 6, 2017
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