A Counter Argument to Inflation

Henrik Zeberg's Views on Deflation, Commodities, and Markets

In this 10-minute article, The X Project will answer these questions:

• I. Why this article now?

• II. What is the Economic Shift Zeberg Sees Coming?

• III. How Does Zeberg Describe the Current Market Vulnerabilities?

• IV. What is the Crux of Current Economic Challenges?

• V. How is China Impacting the Global Economy?

• VI. What Does Zeberg Think About Crypto?

• VII. How Do Central Banks Fit into Zeberg’s Views?

• VIII. What does Zeberg Predict for Commodity Markets?

• IX. What does The X Project Guy have to say?

• X. Why should you care?

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I. Why this article now?

I’ve been thinking I must cover an opposing view to one I have been consistently endorsing and covering: that we have entered an era of persistently higher inflation. I then saw Henrik Zeberg appear on some YouTube channels that I follow, and the titles of the episodes grabbed my attention, so I watched and listened to them:

• Prepare for Deflation As Economy Crashes with Henrik Zeberg on WTFinance (January 24, 2025, with 29,150 views)

• Navigating the Bubble Economy: Insights from Henrik Zeberg on CEO & Market Expert Interviews - triANGLE INVESTOR (January 24, 2025, with 4,717 views)

• Wealthion’s Best Of 2024: Henrik Zeberg on Wealthion (December 31, 2024, with 8,808 views)

• ''Why Henrik Zeberg Is Selling Gold Every Day'' — Henrik Zeberg Gold Price Prediction 2025 on Economy Express (December 30, 2024, with 1,725 views)

• Stocks Poised To Plunge -55% (Or Worse) Soon | Henrik Zeberg on Adam Taggart | Thoughtful Money )December 1, 2024, with 91,619 views)

I don’t follow Henrik Zeberg, but he is a macroeconomist who publishes The Zeberg Report and is the Head Macro Economist at Swissblock. His interviews garnered many views on Thoughtful Money and WTFinance, two channels whose guests I typically respect and often follow.

The X Project exists for people who do not have the time or the interest in The X Project subjects to consume as much content as I do. The X Project curates, summarizes, distills, and synthesizes knowledge & learning at the interseXion of economics, geopolitics, money, interest rates, debts, deficits, energy, commodities, demographics, & markets - helping you know what you need to know.

Below is a summary of the top seven themes from these interviews, plus my additional thoughts and why you should care.

II. What is the Economic Shift Zeberg Sees Coming?

Henrik Zeberg emphasizes that deflation, not inflation, will dominate the immediate economic landscape. Despite prevailing narratives, Zeberg critiques the Federal Reserve’s reliance on lagging indicators like inflation to guide policy decisions. He highlights that deflationary forces, such as weakening consumer demand and credit market vulnerabilities, are already in motion. This parallels patterns observed before the 2008 financial crisis, where a focus on inflation obscured emerging deflationary risks.

Zeberg warns that the Fed’s current hawkish stance could exacerbate economic fragility. He draws historical parallels to 2007 when delayed recognition of economic contraction led to abrupt and reactive monetary easing. He predicts a similar trajectory, with emergency rate cuts likely in 2025 as the economy shifts toward deflationary contraction. This phase will impact asset values, further straining consumers and businesses.

Looking ahead, Zeberg anticipates inflation returning in the mid-term, fueled by fiscal stimulus and structural economic adjustments. He suggests that policymakers and investors must prepare for this whipsaw effect, transitioning from deflationary caution to inflationary hedging strategies.

III. How Does Zeberg Describe the Current Market Vulnerabilities?

Zeberg identifies the "Everything Bubble" as a defining characteristic of the current financial environment. Low interest rates and excessive liquidity have inflated asset prices across sectors, from equities and real estate to cryptocurrencies. He critiques the psychological euphoria driving markets, likening it to past bubbles fueled by speculative optimism.

The "Everything Bubble" is particularly precarious due to its systemic interconnectedness. Zeberg points to the overvaluation of tech stocks, cryptocurrencies, and private equity as prime examples of unsustainable growth. He cautions that these sectors are especially vulnerable to corrections, as their valuations often lack substantive support from underlying fundamentals. The high price-to-earnings ratios in companies like Tesla and Nvidia underscore this fragility.

Zeberg anticipates a sequence of bubble bursts, beginning with equities and spreading across other asset classes. He stresses the importance of recognizing these patterns early to mitigate financial losses. For investors, this means maintaining liquidity and avoiding overexposure to speculative sectors.

IV. What is the Crux of Current Economic Challenges?

Zeberg highlights consumer fragility as a critical factor in understanding economic vulnerability. Rising credit card delinquencies, mortgage stress, and stagnating wages are eroding households' financial stability. Despite robust non-farm payroll (NFP) data, Zeberg questions its accuracy, arguing that it masks underlying weaknesses such as reliance on part-time jobs and declining labor force participation.

Consumer spending, a cornerstone of economic growth, is faltering under high interest rates and inflation. Zeberg warns that this will accelerate economic contraction, particularly as savings buffers deplete. He parallels the pre-recessionary conditions in 2007, where consumer overextension presaged broader economic decline.

Addressing this fragility requires targeted fiscal and monetary policies. However, Zeberg criticizes policymakers' lack of foresight, emphasizing the need for proactive measures to support households before economic contraction deepens.

V. How is China Impacting the Global Economy?

Zeberg underscores China’s role in driving global deflationary pressures. The country’s massive real estate bubble and declining industrial output are creating a "train wreck in slow motion." He warns that China’s economic slowdown will have cascading effects on global trade and growth, particularly for economies heavily reliant on exports to China, such as Germany.

China’s export-driven strategy exacerbates the deflationary ripple effects, flooding global markets with low-cost goods. This undercuts industries in developed economies, leading to industrial decline and job losses. Zeberg cites the 30% reduction in chemical production in the UK as a stark example of this dynamic.

Zeberg stresses the importance of monitoring China’s economic trajectory, as its challenges will significantly influence global markets. For investors, this means staying vigilant about sectors and regions exposed to Chinese demand and supply chains.

VI. What Does Zeberg Think About Crypto?

Zeberg predicts a divergence between cryptocurrency markets and traditional equities. While he acknowledges the speculative nature of cryptocurrencies, he argues that their detachment from traditional economic fundamentals could allow them to rally even as equity markets decline. He forecasts Bitcoin reaching $123,000 in the next cycle, driven by liquidity and speculative fervor.

However, Zeberg tempers his optimism with caution, warning that the crypto market remains highly volatile and susceptible to regulatory and economic shocks. He parallels historical bubbles, emphasizing that most cryptocurrencies will fail, leaving only a few with lasting value.

Zeberg advises investors to take a balanced approach: participate in crypto rallies while remaining prepared for sharp corrections. He underscores the importance of distinguishing between speculative opportunities and long-term investments.

That concludes Section VI. I have hit a new paid subscriber threshold, so you must now be a paid subscriber to view the last four sections:

• VII. How Do Central Banks Fit into Zeberg’s Views?

• VIII. What does Zeberg Predict for Commodity Markets?

• IX. What does The X Project Guy have to say?

• X. Why should you care?

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VII. How Do Central Banks Fit into Zeberg’s Views?