Update - November 30, 2021

Will Omicron Bust the Inflation Mess?

Everybody’s talking about the omicron variant this week. But they’re missing one very important idea.

This “mutant” variant may just be what saves us from an inflation crisis.

Or, if handled poorly, it could be what throws us into a spiral of out-of-control prices.

Both scenarios can be managed with a prudent strategy like ours.

Here’s how this mutant strain could keep us out of trouble. It is all about bringing equilibrium to the supply-and-demand equation.

Good News

Right now, as we all know, demand is far outstripping supply. After being held back for nearly a year, demand for many items is now at record levels. It’s not surprising. Folks who didn’t need a new car while they were working from home now do. They’re adding to what would be the year’s normal demand.

At the same time, the supply chain can’t keep up. It’s not that anything is broken (although there’s ample proof that silly regulations are holding things back). It’s just that the system is so “efficient” that it can’t handle a sudden slug of demand. It’s designed to run at 100%… not 120%… or even 101%.

If the omicron variant grabs the economy by the heels, demand will slow. And as long as the government doesn’t do any more heavy-handed lockdowns or try to print its way out of the economic slowdown, the pressures creating inflation will abate.

It’ll be a natural solution to a man-made problem.

I’m fairly confident the government learned its lockdown lesson. Your governor won’t make it illegal to go out into the streets anytime soon.

But when it comes to printing money… that’s a lesson Washington will never learn. The calls for additional stimulus measures are only a headline or two away.

If more money printing comes from this latest worry, surging inflation is a certainty. The price increases we’ve seen over the last 10 months would look small in comparison.

So what do you do about it?

Better News

If you’ve been following our playbook… nothing.

As long as we continue to allow the real yield on the 10-year Treasury to dictate our strategy, we are in good shape. As I write, the nominal yield on the benchmark government bond has dipped to 1.42% – the same level we saw on November 9 (just before stocks surged higher).

For some perspective, the rate was below 1% this time last year.

But again, it’s the real yield we’re watching. It subtracts the rate of inflation from the nominal figure. The real yield is at about -1.10% today… 20 basis points lower (more negative) than where it was 12 months ago.

On the whole, it’s quite a bullish sign.

With real yields this low, massive amounts of money will continue to flow into stocks. Again, money goes where it is treated best.

Now, there will be volatility as this mess sorts itself out. The trading action of the last three days proves it. But it’s not a time to sell. Just the opposite.

Time after time, the market has reminded us that whenever real yields are below -1.0%, it’s a great time to buy.

We may get better short-term opportunities. But long-term investors certainly won’t regret buying when rates are this low.

If you’re looking for a good company to buy, let me remind you of the opportunity in Telesat (TSAT). I recently featured it in a special report.

This one, you may recall, just spun itself into a public company after an oddball merger with its former investor Loral Space & Communications.

Telesat is a leader in low earth orbit satellites… a space-based technology with a very bright future. As the industry shakes out and the promised technology becomes reality, Telesat has a very strong chance of being at the center of our communications industry.

A world where cellphones connect directly to satellites is not far away. And when it happens, Telesat will be at the center of it.

As the market has worked to determine the fair price of this newly formed stock, the share price has dipped. At just over $30, shares are a bargain.

Grab some.

The math tells us it’s a great deal.

We’ll keep our eye on things. The next week or two are likely to be volatile. But trust the numbers and the undeniable forces they create.

They’ll lead the way.