Another Market Maven Warns on Inflation — Here's What to Do

Written by Jason Simpkins
Posted October 22, 2021

You know my stance on inflation by this point. 

I've been on this tip for almost two years now. 

When the government said it didn't exist, I said it did

When the Fed said it was transitory, I said it wasn't

But now, more and more analysts and investors are coming over to my side. 

The latest: Paul Tudor Jones, the billionaire hedge fund manager who predicted and profited from the 1987 stock market crash.

“I think to me the number one issue facing Main Street investors is inflation, and it’s pretty clear to me that inflation is not transitory,” Jones said on CNBC’s “Squawk Box” Wednesday. “It’s probably the single biggest threat to certainly financial markets and I think to society just in general.”

He added: “Inflation can be much worse than what we fear.”

Indeed. Again, this is exactly what I've been warning about for more than a year now. 

And before Jones came on board it was Michael Burry, the “Big Short” investor who cashed in big-time by betting against subprime mortgages before the Great Recession.

“The U.S. government is inviting inflation with its MMT-tinged policies,” he tweeted in February. “Brisk Debt/GDP, M2 increases while retail sales, PMI stage V recovery. Trillions more stimulus & re-opening to boost demand as employee and supply chain costs skyrocket.”

Michael Burry Inflation Tweet

Well, things have only gotten worse since then. 

Consumer prices rose another 5.4% in September. Supply chain issues are worsening, leaving shelves across the country barren. And labor shortages persist despite cuts to unemployment benefits and new incentives offered by employers.

Meanwhile, the Labor Department’s latest monthly survey showed 10.4 million job openings in August and 4.3 million people quitting their jobs. That's the highest quit rate on records dating back to December 2000.

No wonder many of the analysts who gobbled up the schlock policymakers spoon fed them months ago are suddenly coming around. 

Big money managers are now hoarding cash as inflation concerns rise, having cashed out of bonds.

The average cash balance for respondents to Bank of America’s most recent Global Fund Manager Survey was 4.7%, the highest it’s been in a year. 

“Boom” expectations have slipped to 61% from 66%, while “stagflation” expectations rose 14 percentage points to 34%. The gap between “transitory” and “permanent” inflation narrowed to 20 percentage points from 41 percentage points in September, according to Yahoo Finance.

Suddenly, everyone is a lot more gun-shy. 

So what's an investor to do?

I've got a few ideas...

The first is obviously gold, which is the traditional inflationary hedge. It peaked over $2,000 per ounce last November before bottoming out at $1,684 in April.

People were really buying into the whole “transitory” thing back then. Then the summer hit, along with reality, and the price shot back above $1,900. Today gold is hovering around $1,775. That makes it a good buying opportunity in my opinion, because I'm confident prices will shoot to new highs if/when inflation panic really sets in. 

In fact, since we're on the subject of billionaire investors, John Paulson (who also made a killing betting against the U.S. housing market) recently increased his stake in a gold project I've been following in my Wall Street's Proving Ground investment letter. That stock is at its lowest point in years and could shoot drastically higher. 

Crypto is another good place to look. Cryptocurrencies are more volatile, and thus riskier than gold, but they've also got the attention and backing of younger, bolder investors. 

Proshares even just launched an ETF that tracks Bitcoin futures. Of course, that's rather high now, with Bitcoin having hit a fresh record. 

You better believe inflation had something to do with that. 

As with gold, I have a crypto play in my WSPG portfolio, and that's up 50% since I recommended it in June. 

And you can get the full details on both these companies (plus a third) in my in-depth inflation report.

I'd encourage you to check that out, if you haven't already.

Fight on,

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Jason Simpkins

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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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