424: Richard Duncan: U.S. Strong China in Trouble

I have been asked by many to give my opinion on where the economy is headed and what to do.

I have been reluctant to do so because I am not an economist and I do not want to give investment advice.

However, I do think I owe it to you to let you know where my head is and what I am doing based on these thoughts.

Last week and this week’s podcast have convinced me that rates are going to fall significantly over the next 6 months. Why? Because I think that inflation, as measured by CPI is going to fall off of a cliff.

I don’t even consider this a prediction frankly. I think it’s already written in stone.

Why? Because 70 percent of CPI is based on rent increases and the variables used to calculate this number are 6 months behind.

The recent CPI of 3.1 per cent used 6 per cent rent increases to get to that number. Anyone in the multifamily space will tell you what’s wrong. The rents are flat. We see it every day and all of the data available to us real estate operators show flat rent growth.

Knowing this, all you need to do is ask yourself what this lagging indicator will show six months from now. Whatever happens between now and then doesn’t matter. That lagging indicator will reflect what is the reality today. And if the rents are where I believe they truly are, CPI will be below two.

A CPI below two along with a slowing economy will result in a swift response from the Federal Reserve to cut rates to avoid deflation..traditionally the Fed’s worst fear.

So, if I’m right, rates will come down and anyone making big decisions today based on the assumption that rates will remain stable or go higher is making a mistake. In other words, my opinion is to make sure you are not selling from a position of weakness. Hold on to what you own.

This week’s interview with Richard Duncan furthered my convictions of the inevitability of falling rates. It also painted a picture of China that looked a lot more like Japan in the 1990s.

The economy and the world are changing quickly. Make sure to listen to this week’s episode of the Wealth Formula Podcast to keep up!

Show Notes:

06:38 What’s Been Going On With Inflation and Rates Cut?

11:21 Indicators That the Fed Uses to Measure Inflation

15:27 Will the Fed Become Hawkish now?

21:33 Why the U.S. Economy Has Been So Strong

28:31 The Economic Crisis in China

42:41 What Can China Do to Stabilize Their Economy?

48:17 Implications for the Rest of the World