SHTF: Revisiting Our Advice from 2020
Inflation numbers might lead to a flight to other asset classes. Buckle up.
DMing with a Twitter friend yesterday — we were both trying to make sense of the January 5th #BitcoinCrash — and it sounds like the “Stock Market” (I used quotes so you can imagine a conspiracy theorist using air quotes right before they say something about Bilderburg or Bretton Woods or “The Government”) was down yesterday. I was oblivious to that news; such is the nature of the modern Crypto Trader. (Or at least such is the nature of me.)
The only Stock Market attention I pay in The Year of Our Lord 2022 is whatever I randomly hear on the all-news station near me; and I often wonder what the average listener does with that news. “The Dow is up 200 points, the S&P down 15 points.” Again, not incredibly actionable.
But the Crypto Market is one that I’m studying diligently and it brings me to the point of this missive. (Or is it a “screed?”)
It’s Gonna Hit the Fan
We’re days, or months, or years away from everything collapsing. Or we’re not, and it will continue apace, this untamed growth of all broader markets, including crypto. It depends on a few rather interesting economic indicators that You’re Bloody Well Right I pay attention to. So I want to mark one date on your calendar, give you a couple things to look for, and then send you to the SHTF posts from the Metacoin blog. Sound fair? Let’s begin.
January 12, 2022
This is when the CPI comes out. From this, they’ll calculate the inflation rate.
This is the last measurement from 2021; that’s worth noting because they’ll switch the basket of goods for the measurements in 2022 and you had to know that The Government will try to game the data so it doesn’t look as bad as it actually is.
This chart is our answer to another chart that was making the rounds; in the more-nefarious chart that was promulgated by a CNBC talking head or two, the US was ranked near the bottom because other countries had much lower inflation rates; kinda like a Top 25 in sports where the USA was “also receiving votes.”
But 6.8 percent sucks, it sucks even more because it marked the eighth straight month of “transitory inflation,” which is defined as anything that the talking heads and government yahoos want it to be. (It *was* the eighth straight month of inflation north of 4 percent; and in only one month did the year-over-year figure drop.)
(Chart from our friends at TradingEconomics.com.)
Because this is a look-back number (January 12 will be the figure for the month of December 2021), we’re going to see a possible convergence of human psychology and data craziness.
In mid-December (the 10th to be exact), when the last figures for the month of November came out, Americans probably fell into a couple categories:
Those who were going about their business and Christmas shopping, while noticing that groceries are a little more expensive;
Those who paid very little attention (or the Beltway Elitist Psaki-types, who had all their shopping done for them);
Those who started to wonder what the heck was going on and maybe bought a few more canned goods and some extra ground beef for the freezer;
The Preppers.
95 percent of the people, I’d bet, fall into the top three categories. The top two categories are probably 40 percent each — in case you’re wondering, I’m category three — and 6.8 percent inflation is making a small dent, but not enough of a dent.
What If It’s 6.9 Percent?
The folks at Trading Economics have a consensus number of 6.9 percent for the next data release. If that’s true, in addition to a whole host of “Nice” comments on Twitter, the Average Joe or Jane will start paying attention. Categories 1, 3, and 4 will grow. Category 2 will possibly shrink — we know the Messaging Machine will go into overdrive to offset the Narrative Fail — or, if it doesn’t shrink, there will at least be a change in the types of goods people consume. Less filet, more New York strip; Less prime, more choice.
What If It’s Worse?
Higher than 7 percent and I think we start to see more craziness. Costco shoppers will bulk up on everything. Fast food will be less popular since it will be cheaper to cook at home. And so on.
In any event, psychology will take hold IN THE MONTH OF JANUARY and then, when the look-back figures for January are released in February, more trouble is ahead.
This could spiral. If people start shopping and prepping in the month of February after they learn it was worse in January than they feared, the March numbers (again, looking back) will be worse. And so on.
Time to Look at Assets
When studying Weimar Germany Hyperinflation — highly recommend When Money Dies by Adam Fergusson — it struck me that the pecking order of assets went something like this:
Physical Goods (real estate, machinery, diamonds, etc.) > Precious Metals > Anything That Wasn’t a Deutschmark > Everything Else That Wasn’t Nailed Down > Deutschmarks.
While the world has changed considerably since then, and the US Dollar is ostensibly The Best-Looking Uggo at the Uggo Ball, a future pecking order might look something like this:
Physical Goods (see above) > Crypto Assets (coins, tokens, and (yes) NFTs) > Precious Metals > US Dollars > Other Non-Third World Currency > Third World Currency.
SHTF
It’s been 15 months or so since we explored the SHTF Portfolio on the Metacoin site. (Part Two is here.)
So it’s going to look a little backwards compared to what we say above about a possible pecking order. The idea is to get you thinking at least a little differently about what could be coming down the pike.
At the very least, though, we invite you to set a calendar item for 8:30 a.m. Eastern Time on January 12, 2022. Watch what happens next.
Til next time,
Dave