Thoughts From the Frontline, Inflation

6 posts tagged with “Inflation”.

Collateral Damage

December 31, 2011

"Whoever cannot seek the unforeseen sees nothing for the known way is an impasse."
― Heraclitus, Fragments

Which path will we take? If we could only grow our way out of our sovereign debt problems. But growing debt creates even more problems if not dealt with, making it even more difficult to deal with; yet getting the debt and deficit under control brings its own form of pain. As I keep pointing out, there are no easy choices left. Some countries must choose between difficult and very bad, and others are faced with either disaster or calamity. Greece simply gets to choose what it wants to be the cause of a depression. Long and slow or fast and deep? Choose wisely.

It's that time of year when we start thinking about what the next may hold for us. I am reading and thinking a great deal about my annual forecast issue next week, taking some time off from my usual Friday missive; so this week we look at what I think is one of the best pieces of analysis I have read in the past few months. It is from a private letter for the Boston Consulting Group, and Dan Stelter graciously allowed me to let my friends read it.

Follow this thinking carefully and then think through their outline of what a country would have to do to leave the euro, which starts at the subhead entitled "What if… ?". Then ask yourself what do you need to do. The short answer from me is that you need to consider more what you already own rather than what you should buy.

At the end of the letter is a link to an in-depth review of what scenarios businesses should be considering, but it will also work for individual investors. Now, let me turn it over to Dan and David.

The “Miracle” of Compound Inflation

April 22, 2011

Albert Einstein is famously quoted as saying, “Compound interest is the eighth wonder of the world.” And compounding is indeed the topic of this week’s shorter than usual letter, but compounding not of interest but of inflation. As you might expect, I am giving a great deal of thought as to how we get out of our current financial dilemma of too much debt and deficits that are far too high. While I will use US data for our illustration, the principles are the same for any country.

The Cure for High Prices

April 16, 2011

Today we once again think about the inflation/deflation debate, turn our eyes to Europe and the very interesting election happening there this Sunday, and speculate a little about what could derail the US economy.

But first, a quick note to Conversations subscribers. We have just posted a new conversation I did with Rich Karlgaard (Forbes publisher) and Andy Kessler. A found it fascinating to talk with two rational optimists who live in Silicon Valley and have watched the scene there for a very long time. I will soon be doing two more Conversations, the first with Neil Howe (The Fourth Turning, and one of the most astute experts on demographics) and the second with Albert Edwards and Dylan Grice of the Global Economics desk at Societe Generale and two of my all-time favorite thinkers.

For new readers, Conversations with John Mauldin is a subscription service where I sit down and talk with interesting people and let you listen in. You can learn more at If you want to subscribe or renew, use the code conv and get a 25% discount, plus access to all the previous conversations, plus a recent piece with George Friedman of Stratfor. Now, let’s jump into today’s letter.

The Curve in the Road

April 8, 2011

TWO roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

– Robert Frost

“I shall be telling this with a sigh,” and it is with a sigh that I write about the twisting, uncertain roads of inflation and deflation. Long-time readers know I have made hard arguments for first deflation and then inflation in the US. But the data says the Fed is not seeing around the bend in the inflationary road all that well. Their signs are not giving them warning, and they are in danger of falling behind the curve. This week’s letter is a thought game in which we entertain the possibility of rising inflation in the US. (It will print a little longer, as there are a lot of charts!)

Quickly, Endgame is doing well, and I want to thank those of you who have read the book and given me feedback. I appreciate it. You can read the reviews at . And now to this week’s letter.

Inflation and Hyperinflation

March 11, 2011

Bankruptcies of governments have, on the whole, done less harm to mankind than their ability to raise loans.

—R. H. Tawney, Religion and the Rise of Capitalism, 1926

By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

—John Maynard Keynes, Economic Consequences of Peace

Unemployed men took one or two rucksacks and went from peasant to peasant. They even took the train to favorable locations to get foodstuffs illegally which they sold afterwards in the town at three or fourfold the prices they had paid themselves. First the peasants were happy about the great amount of paper money which rained into their houses for their eggs and butter. . . . However, when they came to town with their full briefcases to buy goods, they discovered to their chagrin that, whereas they had only asked for a fivefold price for their produce, the prices for scythe, hammer and cauldron, which they wanted to buy, had risen by a factor of 50.

—Stefan Zweig, The World of Yesterday, 1941

I have had a lot of questions about my thoughts on inflation and hyperinflation of late, especially in the new “Ask Mauldin” section on Unfortunately, the answer is not short and simple. The good news is that my new book has an entire chapter on inflation and hyperinflation, and today, as I fly to La Jolla (more below), I give you that chapter as this week’s letter. The letter will print a little long, as there are a lot of charts. Hopefully it will encourage you to want to read the rest of the book!

Please note, my co-author (Jonathon Tepper) and I have different views on the subject, for different countries. In some, we consider high (or worse) inflation a serious prospect. In others the opposite is true. There is no one size fits all. And of course our best estimates today are based solely on the facts as we know them – if the facts change, so will our opinions. When we wrote this chapter late last year, it was not obvious that the Fed would purchase 100% of the US debt. We currently assume that will stop. If it does not, then the lessons of this chapter are more important than we would like them to be. Inflation and hyperinflation are choices made by humans. That means there is an element of uncertainty, when logic would dictate there should not be. And also, we start off the chapter a little tongue in cheek (we are NOT really recommending inflation as an answer to debt!).

Endgame got up to #2 on Amazon yesterday (#1 non-fiction). Thanks to all you faithful readers who bought the book, whether there or at your local bookstores. Maybe this weekend, those of you who procrastinated will help us get to #1! And if you are going to buy some extra books for clients, family, or friends go ahead and do it now! No more procrastination! Go to and get clicking!

I just bought the book myself (really!) on Kindle. I need it on my IPad for reference. It works great! And we are #1 on Kindle! OK, I will only be this aggressive for another month or so, then it’s back into regular e-letter mode, but cut me some slack – books are a big deal for my generation. And I think this one adds some important insights to the national conversations that must be had around the world. Now, let’s jump into the chapter on inflation.

A Random Walk Around the Frontlines

February 19, 2011

I am on yet another plane and writing, and I’ll finish this letter in Phoenix. As I start, I am not sure of a theme for this week’s letter, so (with a tip of the hat to my friend Burton Malkiel, who I will see at Rob Arnott’s conference in a few months), today we do a Random Walk Around the Frontlines, surveying what’s going on in the world. We’ll start with the Fed and interest rates, look at inflation, and see how far we get. And I might get a little controversial, but long-time readers know that is not all that unusual.

But first, I want you to mark your calendars for April 28-30, when I will host, along with my partners at Altegris Investments, what I think will be the single best investment conference of the year. It will be the 8th annual Strategic Investment Conference in La Jolla. Let me give you the Killer’s Row line-up of speakers, in alphabetical order. Martin Barnes (Bank Credit Analyst), Marc Faber, Niall Ferguson (author and Harvard Professor), George Friedman of Stratfor, Louis-Vincent Gave (of GaveKal), Neil Howe (the Fourth Turning), Paul McCulley (if he ever surfaces from his fishing vacation), David Rosenberg, Dr. Gary Shilling, Jon Sundt (of Altegris), and of course, your humble analyst. I mean, really. Most conferences have one or two top-tier headliners. We have nothing but the best. These guys are all great speakers, but getting them on panels together? Way cool. Plus some of the best hedge fund managers (personal opinion) show up to give you their thoughts. And maybe a surprise last-minute guest or two. If this conference lineup were a baseball team, they would sweep the World Series. Oh, and the best part? Your fellow conference attendees. The interaction among them is what truly makes this conference the best.

We (well actually, Altegris) will soon start sending out invitations, but you can register today at Sadly, the conference is limited to accredited investors with a net worth of more than $2 million, as there are funds presenting that require that minimum (and some even more). Those are the rules we have to live with, whether I like them nor not (I don’t, as long-time readers know). But we follow them religiously.

Every year the conference sells out. Every year some of you wait to the last minute, thinking we can “always take one more.” We can’t. There is a limit to the space. If you have attended in the past, call your Altegris representative and make sure you get on the list. Do not procrastinate.

Now more than ever you need to consider the place for alternative investing in your portfolio. I work with partners around the world for both accredited and non-accredited investors. If you would like to know more, then go to and click on The Mauldin Circle, register there, and someone will call you. Seriously, the teams at Altegris (for US accredited investors), CMG (for those with net worth less than $2 million in the US), ARP (Europe), and others have some very innovative and interesting funds and managers on their platforms that really deserve a look. Even if you can’t make the conference, your portfolio will thank you for finding some alternative investments that make sense in these times. Now, to the letter.