Hoogland: Last chance to benefit from a new rise in prices?

Fear of new interest rate hikes has suddenly returned to the market, as producer prices in the US are rising sharply. According to Jack Hoogland, however, investors are looking at the wrong risk: in his view, the dominant factor will not be inflation, but an approaching recession. This could push central banks back toward stimulus and prove favorable for gold, silver and other commodities.

The temporary fear of interest rate hikes as a result of rising inflation has suddenly flared up again since last week. This can be seen in a stronger dollar, rising government bond yields and falling commodity prices. 

One important cause of this fear can be seen in the tweet below. Producer prices in the US were no less than 6% higher last month than a year earlier.

The big question, however, is to what extent companies can, want to or dare to pass on these higher costs to consumers.

Consumer confidence at a record low

Because in the image below, we can see that consumer confidence in the US has fallen to its lowest level ever.

At the same time, the American consumer is also very negative about the economic situation and about his own financial situation.

Real incomes are falling

And that is not surprising, because in the image below we can see that the real income of the average American has been falling since last month.

Falling real incomes mean, by definition, that consumers are coming under increasing financial pressure and will have to start cutting back.

Payment delinquencies in the US are historically high

Meanwhile, in the tweet below, we can see that a rapidly growing number of Americans were already in serious trouble in March.

Delinquencies on credit card, auto and student loans had already risen to historically high levels by the end of March.

Rising fear of recession

Looking at the three images above, it is fair to say that the American consumer is under severe pressure. Companies that raise their prices in these circumstances will therefore immediately face a significant drop in revenue.

This means that corporate profits, one way or another, are on the verge of falling very sharply. As a result, a rapidly growing number of companies will start doing what we see in the tweet below.

They are cutting costs and laying people off, leading to negative economic growth and rising unemployment. 

Our conviction is therefore that fear of rising inflation will be definitively overtaken by fear of recession in the coming weeks. As a result, central banks will not raise interest rates, but will feel compelled to provide stimulus instead.

Last chance to benefit fully from the coming rally

If prices correct further next week, this will very likely be the last chance to benefit fully from the very sharp rise that follows.

Last week, I already showed you how rapidly the global amount of paper money in circulation is already rising. That increase will only accelerate in the period ahead. This will create highly favorable conditions for, among others, gold, silver, copper and uranium.

Jack Hoogland worked at the American bank Citigroup in Amsterdam, Düsseldorf, Madrid and Brussels as a Financial Analyst, Risk Manager and Finance Director. Jack has been following the financial markets since the late 1980s and, after the financial crisis, increasingly shifted his focus to macroeconomics and the financial system. Read more from Jack Hoogland.