Investors need to be aware that inflation damage compounds over time. We have undergone a secular change, and inflation will continue to move up over the medium term.
Inflation has slowed from its 9.1% high in June 2022, but it has reaccelerated to 3.5% from the 3.0% low in June 2023.
If you had $1,000,000 in cash in March 2021, the purchasing power of that would only be $848,445.
Federal government spending is out of control, which has continued to fuel inflation. Driven by increasing interest expenses and spending, we expect a $2 trillion deficit for 2024.
The Fed has been complicit. The balance sheet ballooned from $872 billion before the 2008 financial crisis to $8.9 trillion in April 2022. QT has made a dent, but it still sits at $7.4 trillion.
Nominal GDP, 10-year and 30-year Treasury yield generally move in tandem. Currently, interest rates are below what we would expect.
Own assets that will do well in an inflationary environment.
Stocks should do well. We like oil and gold stocks in particular, as they are well-positioned from a supply-and-demand perspective and are undervalued by the market.
We are avoiding any bond over 5 years in maturity. Inflation eats away at the value over time, and as rates go up, the nominal price of the bond is destroyed.
Cash-like instruments like CDs and T-Bills with under 1-year maturity are also a good choice.
