Inflation Becomes Popular Topic in Mainstream Media - The History

Much is being written about inflation in today’s news. I suspect its interpretation may not be very well understood for many reasons. The biggest reason is there has not been inflation in the United States in more than 40 years.

"Inflation acts as a gigantic corporate tapeworm. That tapeworm preemptively consumes its requisite daily diet of investment dollars regardless of the health of the host organism. Regardless of a company's profits, it has to spend more on receivables, inventory, and fixed assets to simply equal the unit volume of the previous year." - Warren Buffet (May 2021 in an article by Market Insider).

Inflation Cycle

It is true that inflation rates were very high in the early 1980’s. But beginning in the early 80’s rates gradually declined and continued to do so until very recently. 

At Curran we have studied inflation rates going back many 100’s of years and the evidence is conclusive. Inflation and disinflation occur over very long cycles. We define long cycles to be at least 15 years. Historically, the inflation cycle following the disinflation cycle has a life approximately 30% longer than the disinflation cycle. If that were to be the case now, the inflation would extend until about 2073.

Inflation is insidious and interminable. It does not come and go. It digs in and does not let go. It never entirely goes away until it finally gives way to disinflation.

The inflation cycle that began in 1965 rose from 1.28% from the previous year. The first year of the inflation was 1.59% but when it ended in 1981 it had gradually risen to 10.33%. In spite of some people’s “fond” memoires of their 12%-13% CD’s, they were the “fools gold” in their time. After inflation they were equal to little more than 2%.

Bull and Bear Market

We wrote in 2008 “Get ready for a great bull run in stocks”.  It has been a truly great bull market for stocks. More importantly it is still very much a great bull market. Now we are saying get ready for a great bear market in bonds fueled by a long cycle of inflation. 

Please click on the link to read a very pertinent article from the Wall Street Journal on inflation and what we can learn from history.

If history is our guide, I would argue Curran is not forecasting. We can learn from history or we can be ignorant of it. In the world of investing ignoring history can prove to be very costly.