Hoping For A Less Worse Tragedy

German Producer Price Inflation up 45%

World Bank warns of devastating recession if rates go too high

30 Year Treasury purchased in 2020 now down 40%

Hoping For A Less Worse Tragedy

September  21, 2022

“What is clear in my mind is that uncertainty is a factor not adequately priced into the market. Uncertainty is a factor not adequately priced into the market. And I’m talking about international relations uncertainty, inflation uncertainty, domestic and global recession uncertainty, November election uncertainty. The list goes on and on.” — David McAlvany

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

Well, our guest last week, Dave, Andrew Smithers, he brings 85 years—in fact I think on the 21st he turns 85 years old—but he brings a grand narrative to the stage. When you talk to somebody who’s lived many decades of learning—I’m not talking about just living many decades, but actually many decades of living and learning and writing and testing—there really is a grand narrative. It’s almost like a long play, isn’t it?

David: It is. Somebody last week said, “It’s not just experience, but it’s experience that you’ve reflected on that matters.” And there’s plenty of people with experience who have a hard time still pulling themselves out of a ditch. And if you can figure out how the world works, and then do something with that experience that you’ve reflected on, boy, that’s important. 

Grand themes, he’s got a few. There’s so much in terms of the details, whether it was a conversation last week or the details that we look at every week. A story with a compelling arc is something that is easy to return to when I think of grand themes. How often have you heard it? At times, I think grand themes, like the theme of inflation— It can almost feel like a rehash of a repeat of a tired, heard-it-a-thousand-times tale, but inflation has an arc to it. It is a compelling chronological plot. It’s thickening now in real time, but at certain points can feel like there’s nothing left to be said that hasn’t already been said. 

In theory, inflation is highly problematic. In actuality, it’s both problematic and painful to the individual person. I hope we don’t become desensitized to it, and forget that inflation matters because people do. So when we see inflation, when we see it’s counterpart or colleague devaluation, it may seem to be mathematical, but there’s an ethical component to it as well. And of course there’s a sociological and political component when we think of ramifications that are also attached. I see the epitome of high drama in the inflation arc, in the inflation story. It’s not a mere statistic, whether you’re talking headline or core.

Kevin: Well, and there’s a different way to look at it. I think of it as this thief that just continues to come in and quietly steal and hollow out the meaning of savings, hollow out the meaning of the ability to pay for food. Or you just look at the last 100 years, a loaf of bread was six cents a loaf, Dave, a hundred years ago. Now it’s five or six bucks a loaf. It’s almost 100-fold larger. Why is that? Why do I have to make more and more money every year? You talked about grand themes. Shakespeare, he wrote about some pretty tragic characters like Macbeth. He’s talked about the meaninglessness of life. Well, inflation does that too, doesn’t it?

David: Sure. And to stitch together the conversations we’ve had with Smithers, going back a few years, take the risk of inflation, which is a temporary small cut, to the catastrophic and inevitable decline of a market going from being overvalued to being undervalued. And this is something that can be back tested and, to a large degree, predicted. Not precisely when, but that it will happen. We have a return to reasonable value in the equities markets. And as far as Smithers is concerned,