Inflation seems to be a concern nowadays. I recently read that 77% of Americans polled fear rising inflation due to recent Fed policy and the massive printing of money that has taken place with the stimmies. President Biden seems to be prepping another round or two of stimulus and infrastructure spending as well. With all this money being printed, it really shouldn't surprise anyone that many are starting to fear (panic) inflation.
Going back the last 15-20 years when I started following the markets, I remember 2005 was the first year of noticeable inflation "panic" (pre-2008 banking crisis of course). The year 2005 showed us relatively high inflation which the federal gov't presented at 3.39%. That was the official figure, if you're old enough you may remember that 2005 gave us massive inflation due to Hurricane Katrina and a huge rise in oil and gas prices. Oddly, the 3.39% doesn't seem that bad but we did see gas prices surge from 2.00 to 3.00 a gallon. Many economists don't agree or trust the federal government's official numbers and therefore calculate their own figures. One of those economists is Walter Williams of Shadowstats and his published inflation numbers tend to seem a bit more accurate (for 2005 his method pointed to 8% inflation).
Now in 2005, the Dow finished negative at about -1% even though we had very high inflation. Its still widely believed that stocks are still a good hedge against inflation because, in theory, a company’s revenue and earnings should grow at the same rate as inflation. But history shows this isn't always the case.
Regardless, inflation fears will probably cause people to flee cash and get into other assets, whether its the stock market, bitcoin, or real estate. I'm betting on the fed's planned inflation of causing at least some pump cycles into the Dow and Nasdaq in 2021. I think inflation could be okay for this market, but if we get a case of stagflation (high inflation combined with high unemployment) in the next year, then gold will be the play for me. We'll see.
