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We’re Getting Inflation for Christmas

By LINDON, Utah - December 11, 2018 No Comments

'Twas the season before Christmas, and all through the markets, 
Not a stock was rising, not even Berkshire;
Then who should appear but the Fed Chair! 
His dovish remarks meant Christmas was here!

Up went Facebook, now Amazon, now Apple and Netflix! 
Up went Google, and a new FAANG bubble seamed near!
All the speculators on Wall Street rejoiced and proclaimed,
"Do not miss the Santa Claus Rally this year!"

I don't want to sound like Scrooge, but the Santa Claus Rally is a bit of a humbug. Stocks do well in December, but so do precious metals. Even ordinary consumer goods tend to become more expensive during the holidays. Nearly all prices rise in December, so the truth is that we're getting inflation for Christmas. 

It seems natural to think of inflation at Christmas time when you consider your experiences during the holidays. In December, we face higher prices, long lines, and sometimes even empty shelves when popular gift items sell out. What do you think hyperinflation would look like? Prices would definitely be higher. We might see a return to the gas lines of the 1970s. There could even be empty store shelves like they have in Venezuela. 

Even other fiat currencies usually outperform the US dollar in December. This should not be surprising. Whenever we buy the latest electronics from China for Christmas, the dollar falls against the Chinese Yuan. Many of us also travel in December to avoid cold weather, visit family, or just enjoy the holidays. Cruises in the Caribbean can be lots of fun, but they can also reduce the value of the dollar.  

If you want more concrete evidence, then consider the trade deficit and the US dollar index. That deficit is worse than most Americans realize. The US goods trade deficit reached a record high of 77.2 billion dollars in October. The trade deficit is likely to rise even higher during the holidays and push down the dollar. According to Vantage Point Trading, the US dollar index declined an average of 0.8% in December during the last 15 years. The US dollar index shows the value of the dollar against a basket of foreign currencies. 

There is no need to risk your hard-earned money in the stock market hoping for a Santa Claus Rally. Everyone knows Santa comes just once a year. The increasingly apparent problems in the stock market are likely to surface again once the holiday inflation ends. This year, that inflation seems likely to be higher than usual because the Fed is retreating from interest rate hikes. Precious metals and commodities can protect savings from inflation in the long-run. Just remember that your loved ones want gold coins in their stockings rather than lumps of coal. 

'Twas the night before Christmas, and all through the shops,
The prices were up, and to investors it was clear:
We're getting inflation for Christmas this year!
When you invest in gold, you'll have nothing to fear!