Today we’re going to reprint a commentary from our favorite economist Brian Wesbury, the Chief Economist for the First Trust group of Investments. He echoes many of our thoughts, and we thought you might appreciate it in his own words.

Inflation is not dead. It is not gone. It has not been tamed. We know it seems like it, especially after the past few decades which generated in many an “inflation-complacency” that feels justified. After all, following the 2008 Financial Panic, many predicted Quantitative Easing would cause hyper-inflation.

When the Fed boosted the Monetary Base by more than $3 trillion dollars during Quantitative Easing 1, 2 & 3, and the federal budget moved to a huge deficit, gold and silver commercials proliferated. So did predictions of a collapsing dollar.

But inflation never came. Since the end of the 2008-09 financial panic, the Consumer Price Index has increased by an average of just 1.7% per year, falling short of the Fed’s (conjectural) 2% target. So, what happened?

The answer: Boosting the monetary base is not the same as boosting the amount of money circulating in the economy. Milton Friedman taught us to watch the M2 measure of the money supply.

During the first period of QE, from 2008 to 2016, the Fed bought trillions of dollars of bonds, but also increased bank regulation and capital requirements. As a result, banks ended up holding excess reserves and the money supply remained calm, with M2 growing, on average, about 6% per year, similar to the growth rate in the 1990s.

During the 2020 COVID-induced round of Fed money printing, instead of using QE to put reserves in the banking system, the Fed financed government programs to fund loans to businesses and direct payments to individuals. As a result, M2 has grown 26.3% in the past year, the fastest annual growth we can find in US history, and roughly double the pace of M2 growth the US experienced during the 1970s.

According to those who believe in Modern Monetary Theory – which isn’t modern, and is just vaguely a theory – the US can increase real output enough to absorb it. In other words, they say that while inflation is “too much money chasing too few goods” – they expect the output of goods to increase enough to keep inflation low.

We find this impossible to believe. In fact, we think many are living in denial. Inflation is already on the rise. In the past six months, the Consumer Price Index is up 3.6% at an annual rate and if it rises a modest 0.2% per month between January and May, it will be up 3.4% over 12 months. Part of this is because COVID shutdowns led to weak inflation in early 2020, but we expect inflation to move higher in 2021.

But, in addition to M2 growth, incomes and savings have increased, while production has not. Demand is exceeding supply. All personal income combined – wages & salaries, employee benefits, small business income, rents, interest, dividends, and transfer payments – was up 6.3% in 2020 versus 2019. Total after-tax income was up 7.2% in 2020, the most for any year since 2000.

Combined, Americans saved about $2.9 trillion in 2020, more than doubling the previous record high of $1.2 trillion in 2018. As of the third quarter of 2020, the amount Americans held in checking accounts, savings accounts, time deposits, and money market funds was up $2.8 trillion from the year prior. Add another $1.9 trillion in federal government stimulus spending (borrowing from the future, to spend today) and the US is awash in cash, much of which is funded by Washington’s money printing.

Unfortunately, in spite of a strong recovery in output, industrial production is 3.3% below pre-COVID levels, while real GDP is 2.5% below. In other words, demand is OK, it’s supply that’s still hurting – a perfect recipe for inflation.

We can see the impact of this affecting markets. The 10-year Treasury yield has risen from roughly 0.6% in May 2020 to 1.2% today. The gap between the yield on the normal 10-year Treasury Note and the inflation-adjusted 10-year Treasury Note suggests investors expect an annual average increase of 2.2% in the consumer price index (CPI) in the next ten years, and those expectations are rising.

Bitcoin, while we doubt it will ever be real money, hit a record high today reflecting fears of lost dollar purchasing power. Commodity prices continue to surge.

All this money printing threatens to eventually create a sugar high in equities. We aren’t there yet, but markets are floating on a sea of new money. In fact, it’s more like a tsunami! Inflation hedges (real estate, commodities, materials companies) will do well. Traditional fixed income (long-term bonds) is at risk. The return of inflation because of misguided policy choices is a very real threat to the long-term health of the US economy.

Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/8/2021

This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

Ron’s Market Minute — Immunity?

Not a typical topic for us, but stay with us, you’ll see how it relates to you and your portfolio.

The US has admittedly been the target of a lot of criticism during the ongoing pandemic, but at the same time its vaccine rollout has (so far) been the envy of the world. Operation Warp Speed eliminated many of the bureaucratic hurdles to approval (FDA) and resulted in a vaccine delivered in record time. Since then, the speed of distribution has been increasing with a current 1.5 million Americans being vaccinated daily. That should put us easily on pace to quite easily beat the administrations’ goal of 100 million doses in 100 days. Altogether about 44 million doses have been administered with about 10 million people having received the (recommended) two doses to offer 90% effectiveness. That’s about 34 million, or about 10% of the population with some level of immunity.

Perhaps you (like most of us) had never heard of herd-immunity before 2020. Now many are more familiar with the term which represents a hypothetical percentage of the population that needs pre-existing immunity through antibodies for transmission to break down. Scientists say that the threshold seems to be about 70% of the population, so by a vaccine-based measure we’re about 1/7th of the way.  

That appears to us to be an incomplete picture as it only considers vaccine doses!  In addition, we know that prior infection from the virus generates an immune response and we know that immunity seems to be long-lasting. Now, recent studies have proven that immunity lasts 3-6 months and that is probably understated.  There are (presently) 100 million confirmed cases of COVID-19 worldwide, but only 47 confirmed cases of reinfection.  As the pandemic has been with us for about a year and reinfections are still extremely rare, I will suggest that antibodies from prior infection will be an important part toward the country reaching herd immunity. 

Stay with me here. How many people in our country have had COVID-19? Officially, positive tests amount to 26.9 million (the COVID Tracking Project). This number however, leaves out a really big chunk of the population who have had the virus and never got an ‘official’ test that shows up in the national count. The CDC estimates that we only find about one fourth of the infections, meaning that more than 100 million Americans have perhaps been infected during the past year and now have antibodies.

So, to do the math, if we include official positive tests, estimated additional infections, and add in the vaccine doses we get roughly 40% of the population currently with antibodies. And THAT takes us over halfway to the 70% goal. If we project vaccinations forward at the current level, that would mean we may get the rest of the way to national herd immunity by mid to late April.

So, while this is far from painstakingly officially accurate, it’s a much better (if I do say so myself!) measure than just looking at vaccine doses when estimating where we are in the fight against this horrid virus. Plus, recent data shows daily cases down by 57% and hospitalizations down by 36% since the peak. Perhaps we may already be reaching a point where preexisting immunity is contributing to reduce the rate of transmission.

How does this affect YOU and me? The positive slant is that it means we may be able to significantly decrease the pandemic restrictions that are still the largest impediment to a faster recovery than many expect. This morning AZ state website announced that people who have had both shots of the vaccine within the prior 3 months are NOT required to quarantine when coming into contact with someone who has the virus. Add to that the $2.5 trillion that has been socked into checking savings account while people have been waiting to feel safe to go out, shop, eat, and travel, and we believe there can be a good case for a tsunami of pent-up spending about to be released on the us economy. You can guess the logical effect on your portfolio.

Stay positive. Immunity to Covid-19 may be closer than you think.


Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk


This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners for use with advisory clients only and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation. Information in this commentary is the sole opinion of Denk Strategic Wealth Partners. Past performance is no guarantee of future returns. All market related investments involve various types of risk, which include but are not restricted to, credit risk, interest rate risk, volatility, going concern risk, and market risk.

The Update provides information of a general nature regarding legislative or other developments. None of the information contained herein is intended as legal advice or opinions relative to specific matters, facts, situations or issues. Additional facts, information or future developments may affect the subjects addressed in this document. You should consult with an attorney, accountant or DSWP planner about your particular circumstances before acting on any of this information because it may not be applicable to your situation.

Lincoln Financial Securities and Denk Strategic Wealth Partners and their representatives do not offer tax advice. Please see your tax professional regarding your individual needs.

*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.

Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

Please see Denk Strategic Wealth Partners’ Client Relationship Summary here for succinct information about the relationships and services DSWP offers to retail investors, related fees and costs, specified conflicts of interest, standards of conduct, and disciplinary history, among other matters.

LFS’ Regulation Best Interest Disclosure Document, which describes LFS’ broker-dealer services, and other client disclosure documents can be found here <>.

Past performance is not a guarantee of future returns.