Stagflation is here

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Stagflation courtesy of the Houthis (kinda…)

Warnings of stagflation have been popping up for the best part of 3 years now.

The chip shortage and shipping shortage that took hold of our economies in the wake of the lockdowns.

The Evergreen ship blocking the Suez canal and sending naval traffic back round the horn of Africa.

The War in Ukraine and subsequent sanctions fired between East and West, and the energy price explosion that we saw across Europe as a result of those sanctions.

And even the slow demise of US soft power across the Arab world, leading to an expansion in BRICS, and Saudi Arabia’s aim to usurp American hegemony, with aid from Russia and China of all states.

To follow that came the political nightmare that is Israel and Palestine, and it all keeps piling on top.

But now we’ve found ourselves with a new crisis, threatening to cause inflationary pressures around the world, and it is of course the Houthi’s and their naval blockade of the Red Sea.

Now I’m not claiming that this issue will last for years, frankly it won’t.

Really, we are waiting for the US, likely with a few key allies like the UK, and maybe even Saudi Arabia to launch sufficiently destructive strikes against the Houthi’s in Yemen.

This may not necessarily seem like its on the radar now, the strikes we have seen have been rather tame.

But if history teaches us anything, we ought to have learnt that American’s don’t like it when foreign powers threaten their boats (as we saw in Pearl Harbour).

So you might be forgiven for thinking that as this issue will likely find itself solved, that there is no long term issue.

The problem with this line of thinking, is that for the entirety of the last 4 years we have seen this pattern emerge.

A new shock that sends prices higher, and threatens our economies.

It proves to be a greater threat than originally thought, and so our governments act to try and reduce its impact.

Our governments succeed (after a fair amount of failing) and things can finally go back to normal…

At which point the next crisis emerges, and we suffer further prices spikes and geo-political strife.

This is all leading to textbook Stagflation as I spoke about on Stoic Finance months and years ago, and we ought to be worried.

The US Economy repeats the 70s

Similarities between the US today and the beginning of stagflation can not be lost unless we bury our heads in the sand.

Geo-political strife, volatile oil prices, and now a seemingly “booming” economy to hide all our woes.

A strangely booming economy, with the fastest US GDP expansion taking place over the last 4 years since 1975, the onset of the original stagflationary period.

The last time we saw stagflation it took more than a decade to get out of it.

The risk is unique, stagflation requires politicians who are willing to sacrifice themselves out of a job, something we all know is a rare occasion on the best of the days.

Should stagflation well and truly take hold, cash will be decimated, and stone cold real assets are what will rise from the ashes.

Anything that can be inflated away will be, and after a decade of rate hikes followed by rate cuts, stimulus checks and elections, we will hopefully finally find ourselves a new Paul Volcker who can set things straight once more.

If you’ve missed Stoic Finance and the updates I used to make so frequently for you on YouTube…

Fear not, because the videos are coming back, and for good!

In just a few short days, I’ll be giving you all the latest updates, along with much more depth on my predictions for this stagflationary spate we seem to be walking towards.

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Stay Stoic,

Max