I’m half Greek, half German. As a kid, I remember my German grandmother telling me tales of her life under the Weimar Republic, when inflation was so bad, a loaf of bread cost 200,000 million German marks. In 1914, the exchange rate of the mark to the U.S. dollar was about 4.2 to one. Nine years later, it was 4.2 trillion to one.

Last year in the U.S., I heard pundits on cable news warning that U.S. inflation was approaching Weimar levels. Thursday’s inflation report underscores the mendacity of those arguments, which were prevalent in the lead up to the 2022 midterms. Let’s look at the real story about inflation, and why it’s time to rethink your inflation strategy.

The Labor Department reported Thursday that the consumer price index (CPI) in December posted its biggest monthly decline since early in the COVID outbreak.

The headline CPI declined 0.1% for the month, in line with consensus estimates. That represented the largest month-over-month decrease since April 2020, during the nadir of pandemic lockdowns. Headline CPI rose 6.5% from a year ago, the smallest annual increase since October 2021.

Core CPI (excluding food and energy) rose 0.3%, also meeting expectations. Core rose 5.7% from a year ago, again in line. The plunge in gasoline prices accounted for most of the monthly decline. The following chart shows inflation’s downward slope:

U.S. stocks jumped on the news, although they wavered throughout the day. By the closing bell Thursday, the main U.S. stock indices had racked up the following gains for the day:

• DJIA: +0.64%
• S&P 500: +0.34%
• NASDAQ: +0.64%
• Russell 2000: +1.74%

The tech-heavy NASDAQ notched its fifth straight day of gains. Wall Street simply doesn’t believe the Federal Reserve’s insistence that the central bank will stay aggressive for longer. We’ll see if this optimism over interest rates is prescient, or delusional.

It’s possible that Fed Chair Jerome Powell and his minions can execute a “soft landing,” a term that means quelling inflation by raising rates but without tanking the economy. History shows that such feats are rare.

Regardless, it seems that the bear market, while still with us, has bottomed and we’ve seen the worst of equity valuation declines. It also seems that we’ve seen the worst of inflation.

The inflation demagogues…

Many people (especially partisan politicians) don’t understand how dramatically the narrative of “runaway inflation” had collapsed before Thursday’s CPI report.

The sharp drop in the prices of raw materials and the easing of supply chain bottlenecks have alleviated inflation. Retail gasoline prices, which have been plunging, got a lot more news coverage when they were rising. The media’s negative bias has been on full display.

Stagflation warnings have been made, despite the evidence, by fiscal scolds who habitually use inflation as a political club for ideological reasons (e.g., all government spending is bad).

However, even though the “transitory” school of inflation proved wrong, there have been no signs of inflation getting entrenched over the long term, which would be necessary to support the stagflation scenario.

Thursday’s CPI report underscores these facts. Trotting out the boogeyman of hyper-inflation has been unwarranted and in most cases purposely deceitful.

The “election deniers” in the 118th Congress also are economy deniers. They portray the economy as a basket case (it isn’t) and inflation as out of control (Thursday’s CPI data reminded us that it’s not).

As an investor, you need to deal with reality, not false narratives. Inflation is coming down. Make your trading decisions accordingly. If you increased your exposure to inflation hedges from 2020 to 2022, you’ve done well. But now you need to pivot to more cyclical, growth-oriented plays. Some of the best choices are undervalued right now.

A smart bet for 2023…

An undervalued growth sector that’s poised to take off this year is marijuana. That’s right…marijuana.

Despite the increasing legalization of marijuana in 2022 and the prospect that restrictions will get further lifted in 2023 and beyond, many intrinsically sound cannabis investments have gotten caught in the downdraft of the overall bear market. Pot stocks are on the launching pad, ready to blast off.

That’s why I’ve launched a premium trading service called Marijuana Profit Alert. My publication covers news and trends in the marijuana and psychedelics industry. I also speak on a regular basis with industry insiders, whether they’re on Capitol Hill or in corporate suites or on Wall Street.

I crunch a lot of data, put it through my proprietary screening system, and provide specific, actionable advice on the best investments in the marijuana and psychedelics sectors. In my portfolio of holdings, I strive to strike the right balance between risk and reward.

To learn more about Marijuana Profit Alert and my specific money-making trades, click this URL

John Persinos is the editorial director of Investing Daily.

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