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The Free Market Will Slay Inflation Long Before the Fed Does

My 11-year-old son ran up to me last night, distraught. He had a party planned at school the next day… and he was supposed to bring the candy… 

It’s 9 at night. My wife is playing soccer with her moms’ team. And I can’t leave the house without an adult available to watch my 3-year-old daughter. 

No problem.

I grab my phone, open the Rappi app (the South American version of DoorDash or Uber Eats), and within the hour some guy on a motorcycle was dropping off the bags of candy at my building in Lima.

Total cost of the candy? 

Including the rushed delivery and all of the assorted markups and middleman mouths to feed, a whopping $6… U.S. 

Competitive capitalism truly is amazing. 

I really have no idea how anyone in that supply chain turned a profit at that price. But that’s the beauty of it. Competition among retailers and the assorted delivery services drives prices lower while simultaneously delivering better service. 

It’s the most efficient – the only efficient – system man has ever devised. 

In fact, it’s so efficient that I’d argue it actually wasn’t devised by man. The “invisible hand” that directs the market economy, which Adam Smith wrote about in his book Wealth of Nations, was interpreted as being the hand of God.

I shouldn’t overly romanticize the Rappi economy, though… 

I lost count ages ago of the number of motorcycle delivery boys I’ve nearly run over in my car, and they add an extra layer of chaos to an already frenetic city. 

But hey, I can get anything I want in less than an hour. I can reasonably believe that if I needed enriched uranium to build a nuclear bomb in my garage, there would be some guy on a motorcycle delivering it in a lead box within an hour.  

Back in the Northern Hemisphere, retail juggernaut Target (TGT) delivered abysmal quarterly results earlier this week. 

Capitalism Shining in the U.S.

Target management’s comments were essentially unchanged from every other quarterly earnings call for the past two years. Stung by stubbornly high inflation, Target’s shoppers have been cutting back on higher-margin discretionary purchases like clothes, electronics, and small appliances and have redirected their stretched dollars to basic necessities. 

Now this is where capitalism shines.

I don’t pretend for a minute that Target – or any other retailer – cares about you or me. But they do care about turning a profit. And in pursuit of that profit, they are incentivized to provide the best products at the cheapest cost. 

Target sees that its customers are hurting financially. So, it announced on Monday that it is immediately slashing its prices on more than 1,500 common items, including basic necessities like butter and laundry detergent. They also plan to drop the prices of another 5,000 items over the summer. 

To give specific examples, Target mentioned that a box of Clorox wipes would drop from $5.79 to $4.99 and a pound of butter would fall from $3.99 to $3.79.

Now, does a 20-cent price cut on a stick of butter undo two years of brutal inflation that has seen most prices rise 20% to 30%?


Not even close.  

It’s a start, though. 

And Walmart (WMT) is already ahead of most competitors on this score. As a result, it’s seeing the number of feet walking through its store steadily increase. Yet, even this behemoth – a company’s who’s stock I call “The Rich Man’s Super Currency” – is slashing prices. 

In the middle of the month, it rolled back prices on nearly 7,000 items in its stores.

We can’t trust the Federal Reserve to fix inflation. These are the bumbling idiots who caused it to begin with, in concert with their collaborators in Congress. To the extent we get relief, it’s going to be the private sector that delivers it.

That’s why I seek out Rich Man’s Super Currency companies to share with Freeport Investor members (paid subscribers can log in here). And it’s why you should do the same. 

To life, liberty, and the pursuit of wealth.

P.S. We currently hold seven Rich Man’s Super Currency stocks in our Freeport Investor model portfolio (paid subscribers can view that here). These are companies that met several criteria I consider before recommending. To learn more, watch this video.

P.P.S. I’m reading a lot in the media about how the actions of Target and Walmart and others are deflationary. That’s not wrong, per se, but it misses the larger picture. Yes, moves by retailers to cut prices on some basic staples helps in the fight against inflation. And we’ll take what we can get. But this is a tug-o-war, and on the other side of the rope you have a Congress running some of the largest peacetime deficits in history and the retirement of the Baby Boomers exacerbating an inflationary labor shortage.

This is why I consider stagflation to be the far greater threat… which is why that was the theme of my latest issue of The Freeport Investor.