Tom’s Inflation Prediction Is Here and It’s Running Hot

MAMARONECK, NEW YORK – Inflation is running…

The latest Consumer Price Index (CPI) figure came out this morning. It showed prices for goods and services have risen 6.2% in the last 12 months.

This is the chart of inflation going back three decades…

What does this mean for investors? More below. But first…

Three Generations Under One Small Roof

Greetings from Mamaroneck, New York…

My family and I are a hobo family. We have no home and no possessions.

We just drift from place to place… sleeping in hotels, Airbnb’s, and campsites… living out of a suitcase… and educating our children “on the fly,” using whatever resources we can find around us.

We’re currently “camping” in my father’s one-bedroom apartment in the suburbs of New York City for a couple of months.

We haven’t spent much time with my father in the past five years (due to traveling, my mother’s health, Covid, etc.), so we were overdue for a good catch-up session with him.

It was good timing, too. My father has cancer, and he’s in the middle of a multi-month chemo and radiation treatment. So we’re able to give him some support with that.

With six of us living in this small apartment, it’s a tight squeeze. But we like it like that because it’s so intimate. We eat together, sleep together, play together, work together, read together, and watch TV together.

We’re always together… three generations under one small roof.

Here are the boys today. They’re listening to an audiobook together on the balcony…

And here’s Grandpa doing a puzzle with Penny…

Our Simple Thesis

Back to inflation…

Ever since we started writing these Postcards over two years ago, we’ve predicted inflation was coming. (I define inflation as a loss in the purchasing power of the dollar and other international paper currencies.)

The U.S. government is broke. And the only way it’ll be able to continue functioning is if it can pay back the money it owes in watered-down dollars.

We’ve been calling this a “soft default” (as opposed to a hard default, where the government simply defaults on its obligations).

The key to making this strategy work, we said, would be the devaluation of the purchasing power of the dollar. Or, said another way, the stimulation of inflation.

“Inflate or die,” we called it.

And besides, for months, the Federal Reserve was telling us it was going to stimulate inflation, and then let it run hot. So all we had to do was listen to the Fed and take it at its word.

And now, here we are.

The “global synchronized currency devaluation,” as we call it, is beginning. (The 6.2% rise in the CPI reported today means the dollar lost 6.2% of its purchasing power over the last 12 months.)

What happens next?

More of the same. This trend still has years – decades, even – to run. The fun part will be watching the feds try to control it…

They don’t want the dollar to depreciate either too fast or too slow, lest they spark off any stampedes from nervous bond holders.

Our position remains the same.

We’re unwaveringly bullish on gold and silver… As well as cheap, hard-money proxies, like basic materials and hard-asset infrastructure plays. (Gold is up 2% today, to five-month highs.)

And we’re staying away from the major stock market averages… As well as from bonds, which have become “certificates of confiscation” again. (That’s what bonds were called during the great inflation of the 1970s.)

– Tom Dyson

P.S. Paradoxically, Kate and I did buy some bonds yesterday… Series I Savings Bonds from the Treasury. We bought the maximum allocation we could for our family (10,000 per person). Series I Savings Bonds are inflation-protected bonds. Because the CPI is running so hot right now, they’re yielding 7.12%.

There’s no risk to our principle. But the cash is locked up for the next 12 months. And if we cash out any time in the first five years, we get penalized three months’ worth of interest.

The only real risk is that inflation collapses and our capital is stuck at the Treasury earning zero percent interest rates. That capital was sitting in our checking account earning nothing anyway, so it’s a risk we’re willing to take…

Like what you’re reading? Send your thoughts to [email protected].

Education is on a reader’s mind today – including Tom’s boarding school upbringing and the Dysons’ homeschooling journey…

Reader comment: Following your Postcards has certainly been an education and a delight. I, too, went to private school, only I was a day student and only was there for grades 9-12. I, too, hated being in that setting, but now, a lifetime later, see how solid the foundation of knowledge I gleaned from that education.

I found the studies hard and rigorous, but the athletic opportunities were better than in public school – thus a trade-off. Perhaps the best learning opportunities came from outside the classroom as my father taught me gun safety and how to shoot; also fishing, photography and woodcraft. My mother taught me the value of reading, volunteering, humility, and treating others as I would want to be treated.

We only had a few trips as a family, but it prepared me for many international trips as an adult. As my husband and I raised our sons, we traveled as a family every year for vacation and those are the trips our adult sons talk about today.

No doubt, your learning travels are valuable and are teaching your children lessons that build confidence, respect for others, team cognizance, and a fine value system. Thanks for sharing your thoughts, your financial knowledge, and your travels.

Meanwhile, another reader appreciates Tom’s views on gold…

Reader comment: I love reading your daily blog just before I turn out the light. Your firm belief in “gold” and your reasons for “stepping aside” are spot-on! Love that you love your family and how you all are so open and sharing. I have written before (when you were in Japan) and I read the mailbag with a smile!

And finally, more praise for Penny’s do-it-yourself Halloween costume…

Reader comment: I like Penny’s costume; it’s creative and not a waste of money. Kids can be cruel, but she had her Grandpa and family there to support her. Hats off to you all.

Reader comment: I think Penny’s costume is very creative for a child. It is such a treat to see a costume designed by a child with guidance – if necessary from a parent. It is so seldom in today’s world that you see a child with the freedom to use their imagination and get the necessary support. Keep up the good work.

Reader comment: My husband and I loved Penny’s costume. How unique and creative! You two are doing such a great job to teach your children how to think outside of a box. We think it is one of the most valuable skills to have in this rapidly changing world. Your parenting style is truly inspiring!

Tom’s note: As always, thanks for writing in! Please keep your messages coming at [email protected], and I’ll try to answer as many questions as I can in a future Friday mailbag edition.