The economy is returning to a 1970s era of higher inflation, potentially reaching double digits, said Mark Skousen, editor-in-chief of Forecasts & Strategies. Speaking to David Lin, anchor for Kitco News, Skousen’s comments come as CPI data released Tuesday showed 5.4% annual inflation in June.
Well, inflation data continues to spook investors in worry. Many. We're here to discuss the outlook for the economy as well as which assets are best to protect yourself against a rising inflationary environment. Joining me today is none other than mark scows and esteemed economist editor of the forecast and strategies.
Newsletter mark. Welcome. Good to be back, David, uh, inflation is coming back for sure. And, uh, this is one that I predicted, there were a lot of skeptics out there, especially the establishment economists who are saying, oh, this is just a temporary, uh, debt, uh, rally or. Uh, rise in inflation, it'll go back down.
And so far, the data seems to indicate that, uh, there is definitely, uh, a major, uh, you know, finally the federal reserve is getting its wish, which was to, uh, uh, th their inflation target of raising it to two and a half percent is being achieved and, and exceeded because one of the things that about inflation.
Is that it's not predictable and it's not steady. It is a very, uh, unpredictable, volatile, uh, factor that you can't really control. The government has a hard time controlling it. Inflation. That is price inflation. Well, mark you're right in the sense that the fed has had more than its fill of inflation over the last couple of months.
In fact, it's been two or three times in a row. Now that CPI has more than that doubled the Fed's inflationary target of 2%. Now the question is how long this can last. What's your outlook? Do you think prices well mean revert downward or do you think 5% and above is here to stay? I think production will increase.
The supply chain will respond. I mean, for example, a rental cars right now are going for $200 a day, sometimes a thousand dollars a day. And that's because the rental car companies sold all their car cars last year, and now we're having to rebuy them. And there's a chip shortage show that's causing, uh, the supply of automobiles, uh, limited.
And the price is going higher. Uh, I think that will be rectified in the next year or two. Uh, but the government has been so expansionary in their, uh, policies, uh, both monetary and fiscal policy. Uh, they're increasing demand. They're providing all kinds of money at very low interest rates. And that's finally having effect.
Uh, also people are getting all kinds of unemployment compensation. They're not going back to work. Uh, that is a problem as well. So you put that all together and it's creating an environment that's highly inflationary. I'm predicting a return to the seventies. Inflationary environment for, for actually even stagflation for awhile.
So mark seventies had double digit inflation. What's going to get us there at this time. If you think we're going to return to that era. So one word originally was the energy crisis. Uh, we had two huge shortage of energy and you had Peck raising prices, tremendously and oil prices. And that's possible. It happened.
I mean, oil is already up to $75 a barrel. So energy is rising. Sharply could be a big factor in pushing. Great shop, whether it's food shortages, uh, there's all kinds of events that could occur that CA that would cause double digit inflation. And, uh, boy want to change considering, uh, that we faced a period of deflation or disinflation that has lasted for many years.
So there are a lot of these. Uh, outlying factors, black Swan advance that could occur that would drive. This is higher. And, uh, uh, you know, we had the pandemic, uh, that caused the federal reserve to expand the money supply dramatically. The money supply went up 26% last year, if there are crashes for example, but that's going to cause prices to rise dramatically.
So there's factors. That are unpredictable and that could play a role in pushing us back up to double digit inflation. I'm not predicting it. I'm just saying there are these black Swan events that could occur. Let me just show two charts here before we move on. The first one shows in red core inflation, and this is a courtesy of Bianco research.
I've pulled this off of Twitter and what they've done here is they've taken. Uh, CPI, except they've analyzed it on a six month basis. So on a six month annualized change basis, when you can see is that we're actually a record levels. Since the seventies 6.17% is their reading on this chart. Let's go to the next chart record level since the seventies, this one shows headline CPI.
So if you just change the, uh, the way you measure inflation, well, not the way you measure inflation, but the way you will. Instead of a 12 month basis, a six month annualized change basis, you can see that inflation is actually already at record levels. So my question is mark, what's going to happen to, um, what's going to happen to a lot of these, a lot of these prices for everyday items that have gone up.
We're talking about things like Lumberg walk commodities, they've come down. Okay. Lumber prices have come down. So raw commodity, some of them have normalized, but what about things like restaurant prices, for instance, You know, if consumers are already paying 20% extra, what's the incentive for a restaurant to lower the prices back down to pre pandemic levels.
Yeah. Uh, restaurants, uh, I think it's all demand driven. Uh, people have more money in their pockets. They've gotten from the federal government from low interest rates from higher wages. Corporate profits are near all time highs. There's a lot of factors increasing demands. So I don't see restaurant prices declining at all.
If anything they'll go up, but noticing your charts, there's tremendous volatility. Uh, this is why you can't really control inflation there's ups and downs that go on and it's based on black Swan events, whether it's an energy crisis. Or a food shortage or what have you. So, uh, you have to, you have to look at the underlining trend in the seventies and underlining trend was up since the 1980s till now the trend was down.
And so we'll just have to see if that's really the bottom. I, I think it is. We've all tried to predict the bottom and interest rates and, and CPI for some time. Well, okay. So if prices of everyday items and discretionary items like restaurants, spending, um, leisure, if these things you are not going to go back down, like you said, mark, are you concerned that household discretion income could be shrunk at the end of the day?
Well, discretionary spending power, not income because that's just income after taxes, but discretionary spending power. Do you think that could be shrunk? And if so, what would happen to the economic recovery? Well, I think it's still, uh, even though prices are riding and so forth, income is rising at a faster pace.
And so you have to look at real income, real assets are rising. And so, uh, I don't think that that is a problem for sure. Let's talk about investments. Now, this is an interesting chart. Let's take a look at this third chart. It shows inflation expectations broken down by age. This is courtesy of the New York fed.
They've done a survey of over 1300 households and they've they were able to break down inflation expectations by three age cohorts under 40. The red line for you is 60 and 60. And over interestingly enough, the younger cohort under 40 at the lowest inflation expectations at 2.9 points. And it increases with age.
What was your initial expectation when I showed you this chart? I think that young people don't have a, uh, a sense of history at all. They're thinking that we've lived in this period of deflation that has lasted long period of time. Older people remember the 1970s and thinking that maybe inflation is coming back on a stronger basis.
That's my initial response. I'm really not sure how to interpret a discharge, except that all factors, all ages think that inflation or expectations are rising. I think one way to interpret this chart, besides what you've just commented on is the fact that different age cohorts may have different investment objectives given their inflationary outlook.
For example, if I were a younger person and assuming I don't think inflation is a concern, I wouldn't be buying inflation hedges. I think that, uh, there, who knows what young people are buying. I mean, they're buying these meme stocks, so they there's no rational behavior bias. You're you're, you're a professor at, uh, you're a professor at Chapman college.
So you, you you're, you're in this unique situation. Your, your newsletter subscribers are presumably people older than, you know, college graduates, but you've also worked with people in college too. So what, what are the differences in investing attitudes between the younger people you've come across and the older people you've worked with?
Younger people tend to be more speculative and their attitudes, and that's why they'll play them. The meme, stocks, uh, and, uh, technologies and pre IPO's and, uh, penny stocks. Uh, they're interested in a lot of different investments while the older people are more interested in the more traditional.
Dividend paying investments that will give them a good longterm return and are actually prefer stability rather than the volatility that you get. The younger people engage in with, uh, the technology stocks. Yeah. And that sort of thing. I do think that, uh, one of the biggest disappointments, uh, in this era of input rising inflation is that the precious metals have not responded that they, they normally do.
Uh, and even Bitcoin is. It is kind of struggling at this point. Uh, one wonders what's going on here. Uh, I've actually favored the technology stocks. We have a very big position in technology stocks, and I did do an historical background and found in the 1970s. The NASDAQ stocks doubled and then doubled again, the Dow traditional stocks went nowhere for 10 years or for a decade, but, uh, the small stocks and the technology stocks did really well.
So I'm really focusing on that right now. With the technology find XLK, which is probably the best performing of the technology funds. The arc innovation fund is not a R K K is not down as well. So, uh, and XLK has done well because it has its two biggest positions are apple and Microsoft and both of them have been.
Uh, technology leaders in this bull market, it's interest seeing how you commented that a younger people like the technology sector. Yeah. You yourself are heavily positioned. Maybe you're, you're still in your twenties at heart mark, who knows, but, uh, uh, you're right. Technology sectors, uh, the technology sector has done very well in the past, especially during periods of inflation.
It's funny because we don't consider technology as an inflation hedge. Would you, would you dare to use that term? When, uh, when, uh, when describing technology stocks, it's not something you normally think of, uh, in terms of, uh, inflation, hedge, uh, we're just looking at the, at what is actually happening. And, uh, while the, uh, you know, NASDAQ is hitting new highs.
Uh, gold and silver are trending, especially the mining companies have been trending downward. Bitcoin has not done particularly well recently. And look, technology companies can handle inflation a lot better than a traditional retail type of positions because they can tenured to do their breakthrough technologies, even with inflation, as long as it doesn't get out of hand.
So that's why. They, they, they are much more versatile in what they can wait, what, the way they handle the influx. Well, I guess again, uh, you, you kind of addressed this already, but I guess the risk of course is, uh, the possibility of wages not outpacing the rate of inflation. In that case, people would spend less money on Amazon, on apple purchases, so on and so forth.
In that case, I think technology sectors with the technology companies would realize a reduction in revenue, but they're not. Put, I don't know if that's the case or not. We're talking about real revolution that we haven't really fully played through in the entire cycle. Uh, Amazon is still expanding, uh, their, their technology and, and how they're cutting costs.
Uh, you look at the chip makers and how they have a supply shortage right now. So they're engaged in and a lot of new changes and so forth. You look at zoom, you look at Netflix, you look at all of the things that you it's really hard to predict what they're going to be doing. Uh, several years from now.
So I wouldn't, I wouldn't count them out at all. All right. So you favor the technology sector at this time. And finally, mark, let's talk about freedom Fest. It's coming up. Tell us about it fast for the first time we've moved out of Vegas. We're in South Dakota, the land of the free and the home of the brave we're meeting in rapid city, near Mount Rushmore.
Uh, we have almost a 2,500 people who are coming, uh, next week, July 21st to the 24th. Uh, people go to freedom fest.com. They can read and still make reservations and, and join us. Uh, it's it's just an intellectual feast in the middle of nowhere, practically. Uh, And we're going to be talking philosophy, history, science and technology, uh, uh, healthy living.
Our theme is healthy, wealthy and wise. We have the Anthem film festivals, 10th anniversary. We have a financial conference and, uh, it's, it's really going to be a fun event. And I know Kitco TV is going to be their Newsmax. C-SPAN, there's a lot of media coverage. Uh, we're we're looking forward to getting together.
Uh, and enjoying our freedom for the first time in a year. So, uh, we hope to see, uh, see a lot of the viewers coming there and, uh, it's, it's really going to be a lot of fun vis a few headliners, uh, names just to tease us a bit. Yes, we have Dr. Drew, uh, on, uh, healthy living. We have John Mackey, the CEO of whole foods markets.
We have Hershey ele, uh, I in Hershey, Ellie, who's a former Muslim talking about the middle east. We have Steve Moore and John fund and Grover Norquist talking about supply side economics. One of our fun things we're going to do is our breakout sessions and debates are really good. Our mock trial is going to be on the pandemic was, was the pandemic severe enough to justify the lockdown.
And we have a rich mock trial is always one of our more popular events. And we ha we also, uh, have a question what four economists belong on Mount Rushmore. Uh, and even the question on the four presidents that we currently have on Mount Rushmore, are they really the ones who deserve to be on Mount Rushmore?
So we're going to have a lot of fun debates and discussions on that issue. So anyway, again, if people go to freedom fest.com, our full agenda is posted there. Uh, we're, we're hoping to see a governor Noem, uh, welcome. And, uh, it's, it's just going to be a tremendous opportunity for people to, uh, to learn from each other to network, to socialize and celebrate Liberty or what's left.
Well, excellent. Uh, unfortunately I can't be there myself. I am in Canada for now, but our editor and chief Michelle McCorey will be there to cover the event. I'm very much looking forward to it. Best of luck. It's going to be a great event. Great show. Thank you so much for coming on the show. My pleasure.
Thank you, David. Thank you for watching Keiko news. I'm David Linn. Don't forget to subscribe to our YouTube channel and follow me on Twitter at David Lynn underscore TV.
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