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It's time to worry about Stagflation, not Deflation

|Includes: TBT, ProShares Ultra Bloomberg Crude Oil ETF (UCO)

The experts have it wrong again.  Stagflation of the 1970's variety is on the way; textbook- described deflation of the 1930's (or Japanese deflation of the 1990's) ain't.  The Quantitative Easing of the last 18 months has averted a major deflationary crisis. Period.  Corporate profits have recovered prodigiously and have proven that the US economy can generate major self-sustaining profit without the usual consumer spending gusto. High unemployment and the debt-ridden average American is the new normal. . A lot of the jobs created over the last 10 years have been permanently replaced by good ole information technology and multiple iphone-like applications and internet commerce.  Bricks & Mortar are truly threatened, especially in undesirable geographies.  This is good for corporate profits; bad for employment. Expect persistent double digit unemployment numbers for the next growth cycle.  Growth will be slow (a combination of underconsumption, overcapacity, nowhere to invest= slow growth), but profits will be high.

Slow growth with lots of cash on the sideline will spark inflation in areas that count: food, health care, public transportation, fuel, desirable city center real estate, and everything else that people want and need. With lots  of cash on the sideline, but few productive places to park it, rent seeking behavior will lead to speculative price increases in baskets of goods that count and are desirable and this will spiral out of control into a major inflation risk. Granted, interest rates will be raised by the FED, but the beast will take another full, nasty recession to tame. 

Just a thought.


Disclosure: UCO, TBT