Dear Reader,
Two years ago, the Fed told us inflation was under control.
This past Friday, Fed Chair Kevin Warsh stood at Jackson Hole and told the market the opposite.
The odds of a September rate hike just jumped from 40% to 60% overnight.
Inside today's issue:
- Warsh at Jackson Hole. What he said, and what the market pretended not to hear.
- M2 at $23 trillion. The money supply number that proves inflation never left.
- The asset that wins either way. Whether they hike or hold, one play stays ahead.
- Gas prices are skyrocketing right now. Here's what to do...
WARSH JUST CHANGED THE GAME
Everyone was priced for rate cuts. Trump was demanding them. Wall Street was modeling them.
Then Warsh went to Jackson Hole.
His exact words: "disinflationary progress has not been sufficient."
Translation: they failed. Inflation is still here. Two years of Fed press conferences, and the job is not done.
Here is the number nobody wants to say out loud: M2 is $23.16 trillion.
The money supply grew $227 billion since May alone. M2 annual growth is running at 5.6%. That is a four-year high.
The Cleveland Fed's own nowcast says core CPI came in at 0.20% month over month in August. That is 2.4% annualized.
You cannot print $23 trillion and have 2% inflation. The math does not care about the Fed's target.
Now Warsh is at odds with the president. Trump wants cheap money. Warsh says inflation is not beaten. One of them will lose.
History says it is almost always the man who wants the cheap money.
There is a data point I want to show you. It tells me exactly where this is heading.
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THE DATA POINT WARSH WON'T MENTION
M2 velocity is sitting at 1.412. Flat. The money is not even circulating faster. It is parked in asset prices. Waiting.
When velocity moves, inflation moves. This is not over.
I have been studying money cycles for 50 years. Every empire that printed its way into trouble tried to fix it with rate hikes. Rome with coin debasement. Weimar. The U.S. in the 1970s.
Three Fed chairs failed before Volcker finally broke inflation. He took rates above 20%. It crushed the economy for two years. It worked.
I am not predicting 20% rates. I am predicting this: a 3.75% rate with $23 trillion in money supply is not fighting inflation. It is jogging behind it.
So what do you do?
The same thing people have done for 5,000 years. You hold assets that governments cannot print.
Gold held above $3,200 through all of this noise. Silver crossed $38 last month. These are not speculation. These are the market's vote on paper money.
The rate hike odds sit at 60% today. If August CPI comes in hot on September 11, watch that number move to 80%.
The dollar gets a short pop when they hike. Then it gives it back. It always does.
Stay in assets with no counterparty risk. Get out of things they can print.
The inflation war is not over. They just admitted it.
To your freedom,
Robert Kiyosaki
Author, Rich Dad Poor Dad
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