4 percent inflation is the new normal; These assets protect against coming stagflation - Adrian Day
The Federal Reserve is "living in clown cuckoo land," said Adrian Day, referring to the Fed's inflation projections. "They're saying by the end of this year, 3.7 percent [inflation]? This is farcical."
Day, Chairman and CEO of Adrian Day Asset Management, said that it is too late for the Federal Reserve to control inflation, and that a return to 2 percent inflation will not happen "for the foreseeable future." He explained, "If [the Fed] gets inflation down from 8.5 to 5 or 4 percent… they'll declare victory at that point. Forget 2 percent."
Day spoke with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News, at the PDAC Convention in Toronto. He went on to forecast that the U.S. economy would undergo a period of stagflation.
The Fed's 'Fantasy'
Although Day claimed that Fed Chairman Jerome Powell would follow through with his tightening promises, he said that eventually Powell would buckle under pressure.
"If we see unemployment go up dramatically, this Fed and Powell will choose employment over inflation," Day remarked.
He added that the Fed's talk of 2 percent inflation within a few years is "fantasy."
"They simply cannot bring inflation down, to a reasonable level, without causing a recession," Day said. "… The only thing that will prevent a recession at this point is the [Biden] administration and Congress doing more unfunded spending, more modern monetary theory, which the Fed will go along with, which means we're boosting inflation again."
Day dismissed claims that inflation is due to supply-chain issues and the war in Ukraine. "This stuff about Russia, it's a total misunderstanding of what inflation is… Inflation is caused by excess money creation," he explained. "So if you have supply chain issues, you have a war in Russia… that means oil prices go up… but that's not inflation. Because if you have a stable money supply, then as the oil price goes up, other prices go down to offset it."
When asked why the Fed is wrong about inflation, Day responded, "The Fed has over 400 Phds in economics working at the Eccles Building… The vast majority of them have spent their entire lives in the Fed, so closeted that they've never had to make a real decision. If you run a business and interest rates move up, you have to make a decision… The people at the Fed don't have to. They're all working on theory."
Stagflation Assets
Day predicted a stagflation would befall the U.S. economy. A stagflation is a recession along with high inflation. The last time this happened to the U.S. was in the 1970s.
Day suggested that investors should protect themselves with physical gold, gold stocks, energy, and other commodities. He added that he does not like ETFs.
"I don't like gold ETFs because you're buying a little bit of everything," he explained. "The good, the bad and the ugly."