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Blackbeard Research Report: Inflation will be Anything but Transitory

Tom welcomes Blackbeard of Blackbeard Research Report to the show.

Blackbeard brings us numerous long-term ratio charts that outline his thesis on inflation. He makes a compelling case for why inflation will not be transitory. Inflation is always and everywhere since there is a finite amount of currency at any time competing for goods and services. These assets and services are always competing to capture part of the available currency. The CPI is borderline fraudulent and doesn’t properly consider input costs. Inflation is partially a result of volatility in these costs.

Volatility in prices creates winners and losers depending on when people buy products and services. Today, financial assets have captured too much of the currency in circulation. This capture creates shortages in capital for other parts of the economy like commodities and industry.

He compares the PPI/CPI ratio over the last 100 years and notes that industrial costs are rapidly rising while consumer prices will need time to catch up. People often don’t recognize inflation until after it’s happened.

The academics on the Fed’s board don’t really understand how inflation works in practice. Inflation is a reduction in the expected future benefit of money. People think their investments are going up but inflation will negatively be affecting their returns.

Inflation is likely to be persistent and he argues that energy input costs are rising and will affect all commodities. Rising energy costs should impact the cost of mining gold and put pressure on the gold price.

Lastly, he examines several commodity futures charts and notes that there is potential for even higher copper prices. The chart for steel is extremely dramatic and one would expect serious ramifications from this commodity alone.

When you weigh the abundance of data in his presentation it’s really hard to imagine an environment where inflation does not move considerably higher. Tom notes, “It’s likely gold and commodities turn to capture some of the excess currency supply. It’s so clear that a rebalancing needs to happen and a reversion is very likely.”

Time Stamp References:
0:00 – Introduction
0:38 – His Inflationary Thesis
9:32 – Equity Excesses
13:40 – 100 Years of Data
16:05 – Inflation Persistence?
22:56 – Fed Academics
28:03 – Currency to GDP
31:25 – GDP/PPI & Gold
36:32 – Lumber & Volatility
38:40 – Core CPI/CPI
46:00 – Real Yields & Gold
51:22 – PPI/Industrial Production
52:50 – Spot Crude/Currency
55:27 – Gold Vs PPI/CPI
57:56 – Lumber Futures
59:58 – Copper Chart
1:01:25 – Steel Chart
1:08:27 – Supply/Demand Issues
1:09:56 – Aluminum Futures & Coal
1:12:35 – Uranium Chart
1:16:30 – Nickel Futures
1:18:19 – Wrap Up

Talking Points From This Episode

  • Blackbeard’s non-transitory inflation thesis in thirty charts.
  • Capital mis-allocation into equities and the lack of development in industry and mining.
  • Commodity costs and the why rising input costs will spill over to the CPI.

Guest Links

Blackbeard Research Report uses an iterative research process incorporating macroeconomic themes, company-specific analysis, and technical analysis. He believes investor biases make markets extremely inefficient, and he uses fundamental/macro aspects to identify where underappreciated value may exist while overlaying technical analysis to better understand when the market may be ready to respect those findings. His background in finance dates back to 2009, and he is a CFA Charterholder.

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