To investors,

Inflation has been one of the most important determining factors for financial returns over the last 5 years. I expect that it will be the single most important thing over the next decade as well.

We are going to get the latest CPI report later today, but before we dig into that I want to give some context that is worth understanding.

First, everyone focuses on the CPI number that measures year-over-year growth of inflation. The average consumer doesn’t care about this number because it is not indicative of what the consumer feels in their life day-to-day. To understand the real impact to the consumer we must look at the cumulative inflation metric.

This cumulative measurement is showing an increase of more than 21% in consumer goods from 2020 till today.

Economists like to claim victory when the year-over-year number is dropping, but consumers know prices never come back down. Grocery bills stay high and so does any other consumer good that saw prices increase in the last 5 years.

Inflation doesn’t only hurt the consumer. Investors can see their real returns diminish when inflation pushes higher. Bloomberg’s Market Daily team sounded the alarm this morning by writing:

“US equities are actually on track for their second-worst performance over the past 25 years when adjusting returns for inflation. That’s according to Deutsche Bank’s famous study on market gains over the nine quarter centuries since 1800.

In fact, the nearly 5% yearly advance is so modest, it puts the asset class on track to underperform gold for the first time ever over this quarter-century timeframe, while precious metal, copper and wheat are among the top performers.”

Why does this matter now? Why should investors pay attention to the current inflation environment?

Today’s CPI report is expected to come in at 2.6%, which is an increase from the 2.4% that was reported last month. This increase in inflation would signal the Fed’s challenge with claiming victory on the inflation fight at the moment. You don’t get a trophy if inflation is 30% higher than your started target of 2% inflation.

In addition, critics of incoming President Donald Trump’s economic policies worry that his proposed plan could help to reignite inflation to higher levels. If this was to happen, Trump’s plan could be the gasoline on top of an inflation fire that is already burning.

The good news is that inflation can be solved, regardless of how bad it is. Dr. Eli David points to Argentina as a great example — “In under a year, Javier Milei reduced Argentina's inflation from 25% to under 3%. This is what happens when you aggressively and mercilessly cut public sector spending. Elon Musk will do the same to the US.”

So the big hope for consumers and investors is that Trump’s administration can simultaneously spur economic growth with pro-business policies, while aggressively cutting government spending.

We heard promises on the campaign trail from him on both fronts. Yesterday Trump acted on one important promise — he nominated Vivek Ramaswamy and Elon Musk to lead the newly created Department of Government Efficiency (DOGE). The promise of the organization is to ruthlessly slash government waste and force the political class to more intelligently spend taxpayer dollars.

If you are looking for concrete plans of action, Elon tweeted last night “all actions of the Department of Government Efficiency will be posted online for maximum transparency. Anytime the public thinks we are cutting something important or not cutting something wasteful, just let us know! We will also have a leaderboard for most insanely dumb spending of your tax dollars. This will be both extremely tragic and extremely entertaining.”

Elon is right on one thing — based on the early decisions, the new administration is going to be entertaining. We will see how effective they can be.

America is in a precarious position. We need to spur economic growth and prevent inflation from returning. Cut government spending, increase private sector production. The balancing act is difficult. But it looks like the new administration is going to take their best shot at achieving success.

Regardless of who you voted for, all Americans should rally around the administration to do our best to have them succeed. It is time to build.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

Anthony & Polina Pompliano Discuss Bitcoin To $100,000 and Various Current Events Affecting The Economy

Polina Pompliano, Author of ‘Hidden Genius’ and Founder of The Profile, and Anthony Pompliano, Author of ‘How To Live An Extraordinary Life’ and CEO of Professional Capital Management, discuss bitcoin hitting all-time highs, where it is heading, Elon Musk, Trump tax cuts, balancing the budget, Kamala Harris campaign spending, Gary Gensler, and regulatory environment.

Enjoy!

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