Midland, Texas, is a city of 142,000 at the heart of the Permian super oil basin. And it’s one of the most thriving cities in America, with 2% unemployment and 14% wage growth.
How insanely prosperous is Midland? Its airport is called Midland International Air and Space Port, one of just 15 commercial spaceports in America.
But Midland has an important warning for Americans about how too much of a good thing can potentially lead to runaway inflation and economic disaster. And I will explain why in a moment.
In recent weeks the banking crisis rocked the financial world and sent stocks soaring in hopes that the inflation dragon is dead.
But in reality, the banking crisis increased the risk of recession in the short-term and potential stagflation (a stagnant economy with high unemployment/recession partnered with inflation) over the long term. This is because it puts the Fed in a catch-22 situation: bailout the banks by money printing or continue to hike interest rates to kill inflation.
Here at Intelligent Income Daily, our mission is help you protect and grow your hard-earned savings and make your financial freedom dreams come true. Not just in good times, but especially bad times like what we’re facing now.
Today, I will show you why the banking crisis could become a perfect storm for the U.S. economy… and share a high-yield option that has been protecting investors from bear markets and inflation for over 50 years.
The Perfect Storm Brewing
The Fed’s favorite measure of inflation, core inflation, is stuck at 4.6%. Worse yet, the Cleveland Fed thinks it will actually go up in the coming months. So in essence, inflation remains almost 1.5 times higher than the Fed’s official 2% goal.
And this is where Midland, Texas – and cities like it – come in.
Phoenix, Atlanta, Midland, and those around Washington D.C are seeing inflation of almost 10%. Why? Because their workers are enjoying 12% to 14% wage growth.
This sounds great on paper. But here’s why it’s actually a bad thing…
Companies in these cities have to raise prices by double digits to protect their profitability.
One-bedroom apartments in Midland are now more expensive than in Dallas or Houston, with rental growth of 18% in the last year.
In other words, wage-price increases in these cities create inflation almost twice as high as in the rest of the country.
What’s occurring in these cities are symptoms of a much deeper issue. They’re signs that stagnation is just around the corner if we don’t do everything necessary to kill inflation soon.
If some of the most prosperous cities in the country with unemployment as low as 2% are already seeing this inflation spike, we are already well on our way to the stagflation hell of 1970s.
In the 1970s, inflation hit 15% and prices doubled over the course of the decade.
Think homes are unaffordable now? In the 1970s, mortgage rates were three times higher.
The stock market was cut in half twice – within just four years.
We had two severe recessions, out of four total recessions in just 12 years.
And the stock market was flat for 13 years.
To avoid repeating this, it’s important for the Fed to kill inflation now rather than give the market what it says it wants.
Our choices are a mild recession today or a potential stagflation hell, losing us a decade of growth.
If the banking crisis causes the Fed to pivot before it kills inflation, we will return to the 1970s stagflation hell scenario.
Fear of this stagflation hell scenario is what’s pushing the Fed to hike rates to 5% and keeping them there for the rest of the year.
Inflation is being driven primarily by services and wages right now. Even if we get a recession in the 2nd half of the year (partially due to the banking crisis) inflation isn’t likely to fall back to 2%.
Some economists expect inflation to bottom at 3% in early 2024 and then start climbing again if the Fed cuts rates and prints money (its usual method of fighting recessions).
This is the stagflation hell scenario that Société Générale and UBS warned about last year.
If the Fed pivots too early by cutting back on interest rates and starting to print money to save banks, it could send inflation to 11% or even 12% by late 2027.
This is what happened during the 1970s. The Fed hiked interest rates and then cut back and started printing money again, then hiked interest rates again for a short period. It did this three times, making the situation much worse.
The only way to beat inflation as high as 11% to 12% would be for the Fed to raise rates to double-digits and cause a severe recession.
If you think 2022 was a bad year for stocks and bonds, it’s nothing compared to the hell that might be coming if the Fed uses the banking crisis as an excuse to stop fighting inflation now.
So how do you protect your wealth in times like these?
How To Protect Your Wealth from Inflation and Bear Markets
I’m about to show you one of the most important charts you’ll ever see.
It shows every bear market since 1980 and how a strategy called managed futures performed in comparison to the S&P 500.
In the 1970s, when stagflation was running riot, managed futures soared 630% (or 22% per year).
The average bear market of the last 43 years saw a 23% decline in the stock market. Managed futures averaged a 43% gain during those troubled times.
In the 2022 stagflation bear market, the worst year for bonds in U.S. history, they soared 45% while the S&P fell as much as 28%.
So regardless of what the Fed does about inflation or what kind of conditions they might throw us into… We’ll always have a plan to protect your profits.
If you’ve never considered managed futures for your portfolio, consider this your sign to get started. Catch up on my previous article breaking them down here.
There are lots of managed futures ETFs and mutual funds you can choose from. And we’ve selected a five-star rated one for subscribers to our Fortress Portfolio.
Analyst, Intelligent Income Daily