What’s Inflation

Inflation is caused by too much money without enough products or services to spend it on.

The quotes below from Yuval Noah Harari, author of several successful books including “Homo Deus: A History of Tomorrow” and “Sapiens: A Brief History of Humankind” can help us understand inflation.

Sapiens rule the world because only they can weave an intersubjective web of meaning: a web of laws, forces, entities and places that exist purely in their common imagination. This web allows humans alone to organise crusades, socialist revolutions and human rights movements.”

“Fiction isn’t bad. It is vital. Without commonly accepted stories about things like money, states or corporations, no complex human society can function.

“Money is the most universal and most efficient system of mutual trust ever devised.”

Society needs money.  Money makes it possible for us to buy and sell without bartering.  Money gives us a “medium of exchange,” which allows our complex global, economic system to function.

Money acts as a way to put tangible, universal value on commodities and services.  It helps us compare the value of one thing with another.  Money gives us a “unit of value,” which allows us to make decisions about purchases and investments.

Money needs trust.

With trust, money provides a way to store wealth — to preserve current purchasing power for spending at a later date.

Money must be “real and rare” to have this trust.  Only money created by real production can be real money that survives inflation, because rarity creates trust.

Money must be universal in value and acceptable to everyone, portable, divisible, uniform in quality, durable, safe and rare.

This is why gold has lasted as a form of money.  This precious metal has all of the qualities required of money.  Yet if you compare gravel to gold, you will see that gravel also has most of these qualities, except rarity.  Gravel is so common the temptation would be to just pick it up on the road, rather than work for it.

Money must offer an incentive to work and apply discipline.  Rarity creates this incentive.

Reducing the quality of rarity creates inflation.  When a government reduces the rarity of its money, the action destroys the money’s value.

Because almost all money is issued and controlled by governments, its rarity is at risk, so money is only a temporary store of value… but it is not a solid asset.

Why didn’t we see inflation after the super stimulus  of money after the 2008 recession?  

There is always something we do not know.  This is my first golden rule of investing.  That rule was certainly proven when my expectations of inflation when the US dumped billions of support into the monetary system during the 2009 ‘quantitative easing’ but did not create inflation.

Was everything I thought I know about money wrong?

I don’t think so.  Inflation was avoided in part, I believe, due to a technology bump.  The growth in use of the cell phone, internet and sophisticated algorithms changed our ways of life and boosted productivity enough to create alternate demands that absorbed the extra money that governments had spread around.

In addition super hot stock markets absorbed a lot of the extra monetary supply as well.

ENR Asset Management CEO Eric Roseman looked at the potential for inflation.

ENR is one of the very few SEC registered investment advisors that can help US investors bank and hold assets with non US banks. (1)

Eric wrote:  “Central Bank printing and Government fiscal spending almost assure an inflationary episode.

Don’t Bet on Repeat of 2009-2019 Central Bank.

Outcome of Soaring Assets and Low Inflation.

No two economic outcomes are ever the same. Following the near collapse of the banking system in the fall of 2008 following the demise of Lehman Brothers, the subsequent combined unorthodox monetary stimulus and asset purchases (dubbed ‘quantitative easing’) by central banks eventually halted the destruction of credit and deflation that almost ruined the world economy.

Many shrewd investors, hard-money advocates and monetarists all warned of an impending inflationary boom as a result of the trillions of dollars minted by central banks post-2008 – myself included. It was inconceivable that inflation wouldn’t eventually rear its ugly head at some point because the Federal Reserve has ‘gone off the deep end’ printing bundles of cash along with the world’s other major central banks.

But it didn’t happen.

To this day, central banks in the G20 economies can’t grow inflation to meet their annual targets; in short, there’s an inflation deficit. This is currently the lowest cumulative ten-year inflation period since the 1930s (see second chart).

enr asset mgt

The Federal Reserve’s balance sheet is exploding, growing by about $3 trillion since mid-March and now totaling more than $7 trillion (see above chart).

It could conceivably exceed $10 trillion by year end, as the central bank buys corporate bonds, municipal securities and makes loans to medium-sized businesses while purchasing $80 billion of Treasuries and $40 billion of agency mortgage-backed securities (MBS) each month. This would be more than double the peak that the Fed’s balance sheet reached after the 2008-09 financial crisis.

Since the start of 2020, the Fed’s balance-sheet has expanded by a massive $3 trillion to 33% of gross domestic product compared to 19% as of December 31, 2019.

According Tim Congdon at the Institute of International Monetary Research at the University of Buckingham in the United Kingdom, growth in the broadest measure of money supply has broken all modern peace times American records, up by 25.5% in the 12 months ending May 31.

According to hard-money advocate and editor of the widely acclaimed, Grant’s Interest Rate Observer, Jim Grant claims ‘The record of the crises of the past 20 years, beginning with the post-millennium dotcom crash, is one of lower and lower interest rates, and of greater and more aggressive bond-buying.’

enr asset mgt

Indeed, global fiscal and monetary support has been nothing less than stunning.

Morgan Stanley notes that the central banks of the G4 countries – U.S., Japan, Europe and U.K. – will collectively expand their balance sheets by 28% of GDP over this cycle. The equivalent number during the 2008 financial crisis was 7%. And fiscal deficits are surging, too. Across the G4 and China, Morgan Stanley forecasts deficits will hit 17% of GDP in 2020.

Goldman Sachs, in another study, claims virus relief spending has resulted in global debt levels soaring to their highest since WW II to more than 150% of GDP.

The big difference compared to 2008, however, is that this isn’t a banking crisis; today, most of this stimulus is flowing to non-financial corporates and households. Checks are flowing to individuals to keep wage earners solvent or liquid enough to meet short-term debt and spending requirements.

The paragraph above is of utmost importance.   Think about it.  The stimulus of 2008-2009 was given to keep people working.  The current stimulus is to pay people not to work.  This may have a decisive role in the money versus supply balance and be a tipping point for inflation.

That’s happening in the United States, Canada, U.K. and the euro-zone.

Eric goes on to say: With central banks and governments poised to do whatever it takes to keep deflation from accelerating, investors are again wagering on a similar outcome that occurred following the 2008 credit collapse. If the Fed and other central banks are printing much more compared to a decade ago, then stocks and other risky assets have to rise in value.

It’s a guarantee. That’s the prevailing mindset.

Only this time, I think inflation will surprise everyone, including the Fed.

Eric ends the advisory by saying: “Stocks have been in the process of correcting since mid-June following a surge of Covid-19 cases across 31 states and in several nations, including India, Brazil and China. Though the risk of another countrywide lockdown is unlikely in the United States, investors should monitor outcomes as cases explode higher in Texas, Florida, Arizona, California, and other U.S. hotspots that might adversely affect consumption trends.

Regretfully the media is reporting that COVID-19 is again on the rise and Congress is looking at sending the economy more stimulus.

Investments in the stock market have traditionally been the best way to fight inflation.


Coronavirus and the Stock Market Round Two

Coronavirus and the stock market.  Round Two is coming.

This virus and the market faced off in the spring.  The market won.  As the chart below shows, after a huge March 2020 collapse,the DJIA is almost back to its December 2019 level.


The market’s back up, but history suggests that we’ll see volatility in the ten years ahead.

Here is a chart of the Dow Jones Index for the past three decades.  The .dotcom bubble burst just before the beginning of the 2000 decade.


The market then went nowhere from 2000 to 2014.   Finally it started reaching new high levels.

Such decades long sideways movement after a severe correction is nothing new in the stock market.

So everything’s in order… except the pandemic.  The ravages of the coronavirus dramatically increase the unknown and this uncertainty is the greatest purveyor  of weakness that a stock market can have.

Such delays have profound implications for older generations who may need to cash in equities for income.  How do we maximize the return on your savings and investments during this extremely dangerous time?

For the past five years, my strategy, to protect against the next stock market crash and yet gain income and appreciation from rising share prices is to invest in an equally weighted portfolio of the value based country ETFs.

We track 46 stock markets around the world in our Purposeful Investing Course (Pi) to determine which markets offer the best value so we can be in a perfect position to take advantage of stock market corrections all over the world.

Since no one knows what the future will bring, investing in value makes the most long term sense.

Our Purposeful Investing Course (Pi) teaches an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

Sticking to math based stock market value and country ETFs eliminates the need for hours of research aimed at picking specific shares.   Investing in an index is like investing in all the major shares of the market.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pi portfolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

Here is the Pifolio I personally held at the beginning of 2019.  Now I am updating my plan to decide when it’s best to invest more.

70% is diversified into developed markets: Austria, Canada, China, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in emerging markets: Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.

iShares Country ETFs make it easy to invest in each of the good value markets.

The ETFs provide incredible diversification for safety.  For example, the iShares MSCI  Japan (symbol EWJ) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Japan Index which is composed mainly of large cap and small cap stocks traded primarily on the Tokyo Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Japan so an investment in the ETF is an investment in hundreds of different Japanese shares.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

There is an iShares country ETF for almost every market.

You can create your own good value strategy.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.   I call this strategy Purposeful Investing (Pi).  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

You also receive a 100+ page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.

This year I will celebrate my 52nd anniversary of global investing and writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

Those five decades of experience have taught me several incredibly valuable lessons.

The first lesson is that there is always something we do not know.

The second lesson is that stock market booms and busts always eventually return to value.

Third, the only sure way to succeed is to use time not timing.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

A 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of out performance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but during the pandemic to introduce you to this online course  I am knocking $124.50 off the subscription.


Enroll in Pi.  Get the basic training, the 46 market value report and access to all the updates of the past two years.

I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy, diversified investing.

If you are not totally happy, simply let me know in the first two months for a full no fuss full refund.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential. 

Due to the COVID-19 pandemic we have cut the subscription to $174.50.  You save $124.50!

Then because this global recovery is going to take years, we’ll maintain your subscription at just $99 a year rather than $299.  Your subscription will be autorenewed in 2021 at $99, though you can cancel at any time.

Click here to subscribe to Pi at the discounted rate of $174.50

Subscribe to Pi today and you get a year’s subscription to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.



(1) http://enrassetmanagement.com/