Hedge Fund Prediction: Rampant Inflation Will Ruin the Democrats | Paradigm Press

The working-class family has typically been on the Democrat side, often because the Democrat Party tends to say, we’re going to help you out. We’re going to give you this. That hasn’t worked out. Things have not worked out well for the average family in middle America just trying to survive. Hi everyone, welcome back to the Paradigm Press YouTube channel. My name is Sean Ring. I am the editor of The Root Awakening and I am here today with the one and only Zach Scheidt who has been writing for the Jim Rickards franchise forever now and has many valuable contributions.

Zach, how are you today? I’m doing well. How are you? I’m fine. Thank you. You’re safe to be here. I’m glad you’re here too. It’s good to see you again. It’s always nice to get the face-to-face amongst the editors. What’s going on in the world? What’s top of mind for you right now? Because you write about a whole bunch of things. There’s a lot moving right now, especially this year as we’re heading into the election season. There’s a lot of stuff going on in the economy. There’s stuff going on geopolitically. I would say that the number one thing that I’m focused on right now is inflation because it affects so many other areas of the market.

Inflation is not coming down as easily as we would have expected. It’s still a major concern and it affects different people in different ways. It affects different families in different ways. It affects businesses in different ways too. There’s a lot of interesting dynamics with the way it works. I don’t think it’s always a bad thing for us as investors because there are ways to actually profit from it. But you have to look at things very critically and understand how the different pieces are moving. To use the analogy, how do these puzzle pieces fit together to make an overall picture? I do think that inflation is a major force that is driving many other trends in the market right now.

The toothpaste kind of got out of the tube. I guess in 2021, we had this massive hiking cycle in 2022. We thought the story was over. It’s still not over, is it? It’s still not over. If it were over, it would still be bad. Let me explain that. When you have high levels of inflation like we had, 7%, 8%, 9%, prices are moving up fast. Everybody’s scared. Everybody’s having to pay more for everything. It’s a really bad deal. Let’s say that we were successful in bringing inflation back down. Let’s say that inflation today was 2%.

It’s not, but let’s say that it was. Does that make everything better? No, it doesn’t because prices already moved up. They’re here and now they’re still moving up. They’re just moving up at a slower rate, but it still means that families are having a hard time paying for gas. They’re having a hard time heating their homes. They’re having a hard time paying for groceries. They’re having a hard time going out to eat and celebrating somebody’s birthday. The list goes on and on and on. Even if inflation were back to normal levels, it would still be tough, but inflation isn’t back to normal levels.

It’s above what we usually see printed in the CPI or the PPI. If you look at what actual families are spending, it’s still very high and it’s high relative to wage increases as well. Even though people are getting paid more, they’re not getting paid more enough to make up for higher inflation levels. The other thing that I would say is that inflation affects different families in different ways. For middle class and lower income families who are working hard to put food on the table for their families and to put a roof over their head, inflation hurts those families much worse because the things that they have to buy cost more and they don’t have that extra buffer or whatever to be able to spend on other things.

Inflation hits them really hard. Also, they’re not in a place to be able to protect themselves against inflation the way the market is. If you own a home or if you own real estate investments, if you are involved in the stock market right now, you’re actually making money on one side of the ledger. You might have some challenges with inflation, but the fact that your home is now worth twice what it was six years ago or five years ago depending on what market you live in, the fact that your investment portfolio is worth twice what it was three or four years ago, that helps offset this problem with inflation.

But if you don’t have those assets, if you don’t have the ability to fight back against inflation, then you’re just getting hurt, you’re just getting clobbered and you’re not having the benefits that come along with it. It’s really interesting to think about which families are hurt, which families are able to protect themselves, and then where do those families spend money because then that affects which stocks are going to be moving higher and which ones are just going to be hurt because their constituents or the customers that maybe this retail company sells to, their customers can’t afford to buy their stuff anymore.

So there’s winners and losers all over the place. Right. Why don’t we mention some really interesting things there? But I think it would be really beneficial for the layman to hear, you know, in very plain English, like why are central bankers setting 2% inflation targets? Why are they so afraid of deflation? Oh, wow. Deflation is a challenge because deflation happens when the economy is weak. So deflation is the technical term is that prices are actually going down. And that would sound like a really good thing for most families. But typically deflation happens when there’s less economic activity, when people don’t want to buy something and the price moves lower, right? If you have, if nobody wants to buy a house that’s, you know, on this river, because there’s going to be flooding, then all of a sudden, the price for that house goes has to go lower and lower and lower until somebody says, okay, fine, I’ll buy it.

And that’s the same, the same thing is true in so many areas of the economy, if there aren’t enough people willing to buy something, then the prices can go down. And that sounds like a good thing. But we have to think about why, why would people not want to buy food? Why would people not want to buy housing or to pay rent? Why would people not want to take a trip? Well, the reason why is because they don’t have money. And it may be because they lost their job. It may be because their company had to give them, you know, a pay cut just to stay in business.

So deflation typically happens during really weak periods where people are out of jobs and where overall economic activity is lower, which means bad things for the rest of the economy. That’s one side of things. Yeah. Here’s another side of things. Okay. If you’re the government, let’s say that you have trillions of dollars in debt, hypothetically speaking, of course, right? If you have trillions of dollars in debt, and you have inflation, that debt becomes less and less and less of a problem, because inflation means that $17 trillion isn’t really as big of a deal as it might have been 10 years ago.

I mean, we can think about it now. If you look back 50 years ago and you say, what did my grandparents pay for their first house? And they might have paid like $22,000 for a house in a normal neighborhood. And now $22,000 doesn’t even get you a down payment. The same thing is true for debt. You know, $22,000 of debt for a family back then would have been a really big deal. If you’re a family right now, and you have $22,000 of debt in a home, you’re probably doing pretty good. Well, the government is the same way.

They have $17 trillion of debt right now. That’s a really big, scary thing. But if we let inflation- Or twice that. Right. If we let inflation drive the value of the dollar lower, then that level of debt, while nominally it’s still the same number, that number doesn’t mean quite as much. So there’s a perverse incentive for the government, even though they don’t want to say this publicly, there’s a perverse incentive for them to allow inflation to keep going higher because it helps to manage that debt load that our tax and spend policy has really created.

Right. Okay. So let’s go with that. I love your explanation there. Do you think Jay Powell is going to cut for the election, either to goose Biden’s chances or to make it easier for the alleged treasury to start paying some debt down? You know, I actually do not think that we’re going to see an interest rate cut. So we’re at five and a quarter, five and a half. That’s the range that we’re in right now. I don’t think that we have seen enough progress on inflation for Jerome Powell to look himself in the mirror or to look at a camera and say, we’re okay and now I can cut interest rates.

There’s also the whole thing of whether the Fed doesn’t want to appear to be political. We know that everybody in Washington and everybody in this system is political. I don’t think it’s possible. Maybe he’s not a bad guy. Maybe he is. I don’t know. But it’s not possible to really to do his job without having some perspective of politics. And he does not want to cut rates right before the election and make it appear as if he is juicing the economy to help Biden. It’s just very, very difficult for him to make a rational case for cutting interest rates right now with what we’ve seen in inflation, with the way the economy is moving and with the whole political sphere, the way that it is right now.

So that’s my prediction. Of course, people do crazy things. People don’t always follow what maybe is rationally correct. But at this point, it doesn’t look like he’s got a reasonable reason to cut rates between now and the election. That’s fair enough. Let’s go to the elections as we’re talking about that. Trump or Biden or R.F.K. Jr. or what do you think is going to happen in November? I do think Trump is going to win. And I think a big part of it ties back to what we were just talking about with inflation and who inflation hurts, right? Inflation hurts the working class lower income families.

And they’re hurting right now. Now, I don’t get too political in a lot of what I’m doing because I’m looking at markets and I’m trying to figure out where the best opportunities are. And I try not to throw stones too much at either side, but there are certainly some stones that we can throw at both sides from time to time. But right now, I think that it’s clear that the working class family is hurting. And the working class family has typically been on the Democrat side, right? Typically votes in that direction, often because the Democrat party tends to say, we’re going to help you out.

We’re going to give you this. And that hasn’t worked out. Things have not worked out well for the average family in middle America just trying to survive. And so I think it’s very difficult for them to say, you’re doing a great job. I want to put you in office for another four years. And so I do think that just the way that things have progressed, the way that the economy has been mismanaged, the way that we just have this political instability and just things are rancid when it comes to Washington and the way nobody can talk to each other, nobody can negotiate.

I think that backfires on the existing administration and puts Trump in office. And then it’ll be interesting to see how that affects the economy and what opportunities are created for the overall economy. Also, I wanted to say that as far as Biden’s voter base, it’s largely working class, lower income, union-based families. And then it’s the social elite, the very academic, esoteric elite who are going to vote that way because they’re going to vote that way no matter what. Those guys are going to stay with Biden. They’re not going to change because they’re not in touch with what’s going on boots on the ground.

So they’re not going to change based on inflation readings, based on whether they can or can’t afford anything because they can afford anything. But that represents a smaller base. And I do think that Biden’s kind of main base cannot be loyal to him long term because of just the way that things have been going over the last three to four years for them right now. Absolutely. Yeah. What is your favorite play on this? What’s your trade? So I am very interested in gold and silver and they’ve been doing very well because as inflation has risen so much, gold is now in the catch up stage and silver is as well, catch up stage to trading higher because of inflation.

Typically over the long term, gold and silver are great hedges against inflation, which means that if inflation is up by 20% over a five-year period, gold will be up 20% over the five-year period. But it’s not an apples to apples or a direct line. Often when inflation is high, gold will pause for a little while. And sometimes it’s because higher interest rates make it more attractive for people to own bonds instead of gold or something like that. But eventually, gold catches up. And eventually, silver tends to catch up. And they both have a little bit different dynamics depending on their role in the economy.

Silver has a little bit more economic value because you use silver in some technical and some medical. It can be an industrial metal as well as a professional. So I like gold, I like silver, and I like copper. Because copper, and copper has been on fire lately, copper is used for a lot of industrial production. Copper is used for electric vehicles, which have been pushed very, very hard. Copper is used if you’re going to upgrade your electric grid. Copper is used even for alloys for important metals that are used in infrastructure projects and so forth.

So there’s a lot of demand for copper. And honestly, if we wind up in an economic, a weak economic period, copper could continue to trade higher because what happens when the economy is weak? The government decides we’re going to do stimulus plans, we’re going to build more roads, we’re going to build more bridges, we’re going to build more data centers, we’re going to do whatever we can to help stimulate the economy, which still drives demand for copper. So it’s a really good time for copper. All of that long-winded way of getting to my stock pick, I like Freeport Macmorain.

It’s a good stock, Freeport Macmorain is known for their copper production. And so as the price of copper moves higher, it should help their profits move higher. Here’s something that a lot of people don’t know about Freeport Macmorain. They are copper miners, but you know what else you get out of a copper mine? Silver, a lot of silver and gold as well. And they call these byproducts. There are some miners that mine gold and silver and that’s their primary thing. For Freeport Macmorain, gold and silver are byproducts and they take these out of the ground.

They’re like, gosh, we meant to get copper, we got gold instead. And then they sell the gold and they sell the silver. But often for these individual mines, the operating costs, what it costs them to run the mine, people, the equipment, everything can be paid for with their byproducts. So you sell your gold and you sell your silver, you get enough money to pay for your equipment and your labor. Then all the copper that comes out of the ground is pure profit, goes straight to the bottom line. And so this company is doing well for multiple reasons, but it’s kind of interesting to think that they’re making money, they’re making their profits from the copper that goes straight to the bottom line.

The last thing that I wanted to say about Freeport is their production is very good. They’re pulling this out of the ground, they’ve got very efficient and they’ve been doing this a long time. But the thing to think about is, if the price of copper, the price of gold and the price of silver are all moving higher, what happens to the value of that mine that still has a ton of resources underground? Well, that mine is worth more, even if they never pulled another ounce out, because that mine is almost like a vault that’s holding gold, silver, copper, and the other natural resources that are in there.

And so that mine is worth more. So the stock price can move higher, even if Freeport doesn’t generate more profit. If they kind of take it easy, or if their costs go up a little bit here and there because of inflation, they’re still, the stock represents the company. The company is worth more because they own the mine, and because all the resources in that mine are more valuable now than they were last year, than they were the year before, and they’re continuing for years to come. Just sitting on that gold like Smough the Dragon.

Yeah, exactly. So that’s my pick, and I’m sticking to it. Love it. Okay, great. So we got your view of the election. We got your pick. What book are you reading right now? Ah, okay. So the book that I’m reading right now is called All Weather Trader, and it’s by Tom Basso. Okay. And it’s one that was recommended to me by a friend of mine who’s a hedge fund manager, kind of an emerging manager, and this guy, we had probably an hour and a half conversation on the phone, talking about this book, and it’s like, you’ve got to read it.

Here’s why, here’s why, here’s why, here’s why. Oh, great. And so I picked up the book, and I’ve really been enjoying kind of dissecting some of the different themes in the book. So All Weather Trader is about basically investing in a way that you can make money no matter what’s happening. Right. And Tom Basso is excellent at setting up not just one portfolio, but multiple portfolios of different assets. So maybe gold and silver, technology stocks, medical stocks, and so forth, but also different strategies. So maybe selling put contracts so that you can generate income or covered call contracts, which is just a strategy that I like to use.

It’s a more conservative strategy that generates income, maybe buying out of the money option contracts here and there on specific stocks have the potential to move much higher. It’s a high risk strategy, which you can make some really good money when things hit. And other things like commodity trading and being active in the commodity markets and trying to find trends that are moving higher or lower. And Tom does a good job of talking about all of these different ways that you can invest, the benefits, the risks, and so forth, and then putting them together in a way that like, let’s say that your dividend stocks trade lower because interest rates move higher and people want to move out of dividend stocks.

Okay. So now you’re losing money in this side, but guess what? You’re going to be making a lot of money on this side because maybe your commodity investments are moving higher because inflation, which is causing interest rates to move higher, is driving these commodities higher. And talking about putting all of these pieces together in a way that it’s an all weather trading or an all weather investing portfolio that will do well in any type of market, because you’ve got all of these different risks that are offset by potential gains in other areas.

And there’s a lot of very technical information in that book, just about how much risk and how much reward comes from different sides and how to pair them together. But also a lot of very theoretical and just good things to be chewing on and thinking about in your mind is the way that different markets kind of react to different situations. So I’m loving it. I’m really enjoying it. And it’s, it’s been very insightful for me. Fantastic. Zach, thanks for joining us today. That was absolutely brilliant. Really appreciate it. As usual, everybody, Zach, he writes a lifetime income report and contributes to strategic intelligence every month.

Thank you for joining us. I’m Sean Ring, the editor of The Rude. See you next time. [tr:trw].

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