Monday, November 14, 2016

Not so fast inflationistas.

One month ago today I called the dollar strengthening into a Trump election.

"I've always thought the dollar (could) go much higher. Watching the dollar is the only way I was able to spot the oil collapse. And while the dollar right now is stronger than it's been in 10 years - around the year 2000 the dollar was quite a bit stronger. In the 120.00 range. Here. That;s only 16 years ago,

I think if Trump wins we could get a very strong dollar indeed. Not necessarily because of him - because the rest of the world is really having wild currency fluctuations. That makes our dollar stronger. Then the stronger dollar starts reinforcing a safety trend putting more pressure on the dollar to be yet stronger because more people buy it causing a shortage and making the dollar stronger." Original post.

Deflationary pressures have been quite muted lately because the dollar has basically traded sideways for the past year. However, a monkey wrench has just been thrown into the mix. Trump. The dollar is now at it's January's highs. But unlike in January where it completely fell apart right after - I don't believe that will happen this time. Chart.

No one knows how high the dollar will get, but I think it could potentially get to 120.0 range. In the summer of 2014 the dollar was at .80.  Gas was around 3.50 a gallon. A 20 cent rise in the dollar then shaved off roughly a dollar off gas prices. So, if the dollar rises another potential 20 cents, you could expect the same thing to happen. Right now the dollar is 100.01. 

I do think inflation will start to run hot under a Trump administration. And all that printed money will start to see the light of day. Just not yet. Obama was the most anti business President in history, and a lot of us have dealt with that in unconventional ways. It's going to take a little while for that scar to heal and we feel confident enough to not hide every dollar you could in the back yard. (I mean that figuratively-ish)

I also think that the Fed will raise rates in December as a final ~fuck you~. The rise in the dollar and the rise in interest rates will make things kinda shitty for at least the first half of next year. If the dollar keeps rising - emerging markets will buy less things from us because they have to buy oil in dollars. This causes them to have less money for other stuff.  Our companies will make less money and everyone will scream.

It will not be hard to start inflation at all though. We are at the point where too much money will be chasing too few products. We have to few products, all we need is a little confidence, and that money will start sloshing around. But it won't happen tomorrow. I think everyone  is getting a little head of themselves.

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