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The McAlvany Weekly Commentary

with David McAlvany and Kevin Orrick

Don’t Like The Inflation Number? Change The Math

January 11, 2022

“What do we do for an encore? Well, the encore comes tail end of the year, and now you’ve got the one-two punch of monetary policy largesse, fiscal policy largesse, and inflation statistics that would scare the whiskers off a cat. In the context of a declining equity market, you know what it spells to me, it’s like the perfect recipe for gold going to the moon, silver following suit. I think 2022 begins to look really attractive for the metals and it’s been underestimated, very, very underestimated by the US investor.” — David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany. 

You know, you asked me last night. You said, what are your clients talking about? As I go through what we call triangle updates, we basically look at their assets, their gold, their income and growth assets, and their cash. What I’m finding, Dave, is that whatever happened over this last two years, the triangles are becoming very, very cash heavy. The question is becoming very much like it was back in the 1970s. We haven’t really had to worry about a lot of cash being on the right side of that triangle until now. But I remember the 1970s. In the 1970s, you couldn’t keep cash because the inflation rate was so high. I’d like to talk about that today because even the government is expecting a 7% number. But the truth of the matter is, if we were measuring like we did in the late ’70s, it’s really double that. And so, can we cover that after we cover employment numbers and some of the other things?

David: I think what you’re talking about is the demographics of the baby boom generation, who have already, in recent memory, they have this experience of significant loss. I talked to a gentleman just the other day who lost half his net worth in 2008. And you know, that was then. He was in his 50s then. He’s in his 60s now. Being that much closer to retirement, that baby boomer generation, he’s very cautious. Not so interested in taking the risks that he once did. He’s happy to sit in cash, and he looks at the 7% inflation number and says, well, that’s an inconvenience. But I’ll tell you what’s more of an inconvenience.

Kevin: Losing 30 or 40 or 50%. Yeah.

David: Exactly. I think that’s what we’re up against is the psychology of the boomer generation. Now there’s a whole host of folks that are in that category, demographically, who are assuming that they can get out in time. They’re assuming that there’ll be signals, there’ll be signs. There’ll be some sort of a trigger event. There’ll be bad news where they’re able to get out. I think what they perhaps don’t know or have forgotten is that bull markets don’t end on bad news. Bull markets end on the best of news.

Kevin: That’s a great point.

David: That’s one of the reasons why so few people see them, but they end on the best of news. It’s the end at peak euphoria. They end at peak euphoria. Everyone is very positive about prospects in the future. That’s frankly the nature of the bull market that gets you to those peaks. There’s worry, there’s worry, there’s worry. Climbing the wall of worry until the point where there’s reckless abandon, and all of a sudden speculation takes hold. When speculation has taken hold, you see everything as good news. Frankly, it doesn’t even matter if there’s bad news.

Kevin: You’re looking for a reason for good news. You know, let’s just take the employment numbers right now. You couldn’t say that we’re in a recession if you actually looked at what the stated employment numbers are.

David: No,