#inflation #investing #hedging #cash
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“Now with Mr. Biden’s record, not only are significant tax increase proposals on the radar, but we are experiencing the return of run up inflation“– Paul Ebeling
That means, not Pennies, but a Dollars, today will not buy the same value of goods and services tomorrow and certainly not in 10 yrs time.
While we are reassured by Fed Chairman Powell that the current price increases we are witnessing are are “transitory” many of us, as consumers and in businesses —are sensing that the future will be costly.
When the VirusCasedemic began, there was an extraordinary increase in money supply (M2) during March of Y 2020, with annualized growth accelerating to 23.9% —the fastest rate since World War II.
With all of this money circulating amidst increasing consumer demand, it’s possible that inflation rates may/will Top 9% by yrs end.
In June, the consumer price index (CPI) increased to 5.4% the largest 12 month increase since August 2008. The Fed said it was 3%. The Producer Price Index (PPI) has escalated to 7.3% over the last year. At this pace, over the next 10 or 15 yrs, the value of the Buck would be cut by 50%.
The poor and middle-class are impacted most when inflation surges because prices rise faster than income. As the dollar’s purchasing power is decreased among a growing population, people buy less goods and economic growth can stagnate.
Therefore, it’s critical to find the right strategies and investments for your savings to hedge against inflation.
Companies that require little capital benefit most from inflation whereas businesses requiring heavy machinery, factory equipment are hit with significantly rising costs.
The S&P 500 has a high concentration of fast moving technology businesses and communication services. They account for a 35% stake in the Index.
Both technology and communication services are capital-light businesses, so, theoretically, they should be inflation winners.
To illustrate how equities have been among the best hedges against inflation, let us share this famous case. On 12 December 1980, Apple Inc. (NASDAQ:AAPL) went public at 22/share. Say, you bought one share at the end of the day at 28.
Assuming the company never split its stock price over the years, that same share would be worth 28,000 at the end of August, 2020. That is a 100,000% return on your investment.
Now let’s assume you had stashed that 28 in a cookie jar for 40 yrs instead.
The face value would not have changed when you retrieved those dollars, but the purchasing power would have eroded to $10.00 in Y 1980 terms; that’s represents an approximately 65% depreciation.
Other investments worth examining now include gold, commodities, real estate income which can become valuable during periods of escalating inflation. But remember that these assets are also volatile and may be better for patient, long term holders.
The major assets to avoid now are long term fixed income securities.
Bonds suffer loss of principal during rising rates of inflation because their coupon rate is fixed. If you are holding 50,000 in a 30 yr T-Bond paying 1.5% interest and inflation is 3.5% (a conservative estimate), you are losing 2% a yr which in this example equals $1,000 for each year that this negative spread exists.
This so-called safe investment has major drawbacks during inflationary times and could require you hold the bond to maturity to recover your entire principal investment.
In the end, these escalating inflation worries may be the perfect recipe for exposing the disastrous progressive governance agenda.
As The People see 1 multi trillion spending bill after another in addition to the massive monetary stimulus, it might eventually expose the reality of the government spinning out of control.
“Food and energy prices, the most concerning to the average American, are exempt from the Government’s inflation calculator because they believe their prices can be too volatile or fluctuate wildly.
“The Consumer Price Index (CPI), composed of some 10,000 different items which is the basis of the inflation rate calculator, also excludes income taxes and the prices of investments, such as stocks and bonds.
“To set the record straight, prices rose by 0.9% alone from May 2021 to June 2021, an increase of 0.6% in the index from April 2021 to May 2021. The CPI further increased by 5.4% from June 2020 which is why the government can hide what the “real inflation rate” is which keeps the American consumer falsely believing what inflation isn’t, but the knowledgeable know better,” says LTN economist Bruce WD Barren.
Have a healthy weekend, Keep the Faith!