Market Vizion: Inflation vs. Deflation

Will Coronavirus Result in Economic Deflation?

I've had a couple of questions on inflation versus deflation and with economic activity and purchasing kind of going off a cliff here the last two months, with the worst 60 day drop in history on a percentage basis. It's bad. I think it's going to be a rather quick comeback, but boy, the last two months of data is really bad.

That being said, there's been questions about, "Hey, does this run us into kind of a deflationary spiral?" I don't think so.

The reality is that governments, politicians, borrow money by deficit spending today. The only way they get away with that for any length of time is by making sure that there is inflation. You borrow a billion dollars today and you get 3% inflation for 30 years until you have to refund it or repay it. (Or refinance it - let's admit what they really do.)

The reality is 3% over 30 years means 30 years from now, it's only costing them 10 cents on the dollar to repay the billion dollars you borrowed today. That's how they get away with that. Regarding any kind of a deflationary spiral, we think that the Fed and other federal resources would step in to stop that. Now, they'll also try to do away with or curb runaway inflation, but they won't put up with deflation at all.

Keeping an Eye on the Banks and Mortgages

We're still watching the canaries in the coal mine, and we're seeing some stabilization of some gentle rising rate now with bank loan numbers and mortgage notes. We're hopeful that those assets are going to stabilize and continue to increase in value over the course of the next four to eight weeks.

Hopeful and Hope-filled for Reopening

We are also moving towards a hopeful reopening. I was down the Jersey shore last weekend for a few days. Crowds on the beach, crowds on the boardwalk, the food on the boardwalk is open. We're starting to see people who love each other together, and because we haven't seen each other in a long time, come up to each other on the boardwalk and say, "Hey, it's great to see you, but I'm not going to shake your hand." People being responsible, social distancing, that kind of thing. That completely makes sense.

When people are inside stores, we're seeing lots of masks. Most big box stores are requiring that. There is going to be kind of a new normal as we see this. We're seeing some of these fits and starts and speed bumps, and some of the States being a little more conservative. It's just the way this is going to go. Right? We've got to be patient, but hope-filled and hopeful.

Have More Questions?

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