3 Ways to Prepare for the Inflationary Cycle of 2024 and 2025
If you have enough patience to buy at specific moments, you stand to gain a lot
Let's go back a couple of years and remember how J. Powell repeatedly stated that inflation was "transitory." We heard this statement countless times for several months.
At Asymmetric Finance, we argued that he was mistaken. We had experienced the largest liquidity injection in history, which meant that the impending inflation would not be transitory. And indeed, we began to witness how the price of lumber tripled, how commodities skyrocketed, and how many people couldn't afford basic goods.
Life became more expensive, and there wasn't much that could be done about it.
This resulted in the highest inflation in the past 40 years. For many of us, this was unprecedented. As a result, the Federal Reserve (Fed) and other central banks, such as those in Europe and the UK, took action and started raising interest rates.
As always, these actions distort the economy and affect middle and low-income families, exacerbating the social divide between the rich and the poor.
What will happen from now on? A few weeks ago, the Fed announced that they expected to implement a couple of additional interest rate hikes. From our perspective, this action doesn't make much sense, as the current inflation stands at 2.46%.
Regardless of what the Fed does, it appears that our indicator, which we presented a few months ago, continues to hold true.
If our indicator keeps working as expected, it's highly likely that we'll approach near-zero inflation, or even deflation. This would lead the Fed and other central banks to halt or even reduce the interest rate hikes.
Precisely, this action would stimulate the economy and keep us in a clear cycle of economic growth during the next year, as we have discussed in all these articles:
It's evident what we stated several months ago (in November), when we affirmed that cryptocurrencies and the markets had reached their lowest point and would begin to grow significantly from that moment.
It's not that we are gurus; rather, we understand macroeconomics. The markets are completely distorted, and if you have enough patience to buy at specific moments, you stand to gain a lot. We firmly believe that in approximately 40 weeks, the indices will tend to rise due to simple factors such as the decrease in interest rates we just mentioned and the reintroduction of liquidity into the markets.
That's why we are investing in indices like the S&P 500.
We are in a very similar cycle to the 1970s when we experienced several inflation peaks, and we believe this is a highly plausible possibility. As seen in the graph below, we went from 2% to 12.5% inflation in just two years, only to retrace the same path in another two years.
Now, we have gone from 0% to 9% inflation in just 2 and a half years, and we are seeing how we are returning to previous levels at a similar pace.
This means that the second peak will be even worse than the first.
Today, we are going to share three ways to prepare for the next two years and what we consider appropriate for the near future. Additionally, we will share our portfolio with you.