The Federal Reserve (“the Fed”) in each of its recent meeting releases has called the inflation we are now experiencing “transitory.” The result of the reopening of America post Covid-19 and supply chain disruptions with everyone attempting to purchase product all at once in a “just in time” inventory system that adjusted to the lack of demand in 2020 and now is having trouble getting back up to full capacity on the re-open.
Our take is that the Fed is actually correct this time (as much as we hate to admit it). If there was lasting inflation in the economy, we would see it in the velocity of M-2 money, where money is changing hands from one person to another. As you can see in the St. Louis Fed chart below, the velocity of money is still trending lower.
If inflation was truly present, we would see rising use of credit. However, the Wall Street Journal reported on May 11th that “Americans are paying down their credit-card debt at levels not seen in years.”
Finally, is investment manager Kathy Woods of ARK investment Management. She says U.S. Set Up for 'Massive' Deflation!
We believe the current inflationary trend is transitory. Much of it is supply chain related and purchasing managers have been ordering double or triple their normal order sizes to get product. Much of these orders will be cancelled when some product comes through the supply chain.
We can already see Wall Street starting to move towards a slower growth and disinflationary stance in the charts as many commodity charts are now looking like they will correct (pull back) and technology and growth stocks appear to be bottoming.
For instance, this chart of the commodity CRB index shows that such prices are now at the historical downtrend line. The price momentum has waned and it starting to roll over.
In our portfolios, we have started to move away from pure commodity plays and back to deflationary assets, like precious metals as it is clear to us that the commodity complex will at least pull back here in a deflationary retreat.
We believe that growth will come in slower than anticipated over the next few quarters on a comparative quarter over quarter basis. There will be more saber rattling about large tax increases by Washington and this will create a deflationary push back to growth stocks and away from value and commodities.
Interest rates (i.e., yields) will again move sideways to down as it becomes clear that the inflation we have experienced, for the most part, was transitory.
We believe you could see sideways to down markets in those names now doing well. We are not sure how far this weakness could extend, but it’s possible the whole market takes a breather.
Weakening growth will spur further intervention by Washington and increased asset purchases by the Fed. This will help keep market stabilized and moving upward, but at what long-term impact?
The next step we believe is that Americans and developed market consumers go back to life as normal. However, lurking out there some time down the road is the fact that consumers do become more confident and start spending. Maybe it because they finally start to make higher wages, which is inflationary.
This spending begets spending and the velocity of money starts to turn upward. It is here where the Fed and other Central Banks now need to be careful as we could see not just inflation at that time, but hyperinflation because of a stimulus and easy money now prevalent in the markets.
We obviously don’t know the timing of that latter phase, or if it will even happen. However, we do know that the market will continue to have periods of inflation and then deflation as it did in prior cycles. The easy money of the past 30-40 years is done, over. The same old 60% stock and 40% bond portfolio is going to struggle at times in this new cycle.
So, let me leave you with a question?
Is your advisor going to be able to navigate what I just laid out without losing you money?
If the answer is “no,” how about scheduling a time to talk about your investment assets?
It’s March and that means basketball. This year is a bit odd in that the entire NCAA Men’s Basketball tournament is being played in Indiana and to make matters worse my alma mater, Indiana University, isn’t even in the tournament.
However, a record nine Big Ten teams made the final 64 so all should be ok, right? Not exactly!
Either these nine teams were grossly over rated, or the Big Ten teams had the worst seedings possible or both. Eight of the nine teams were beating in the first two rounds. Thankfully, Michigan came back to win against LSU, and we have at least one representative of the Big Ten in the final sixteen. Now folks that is embarrassing!
So, in my embarrassment, not just for the Big Ten but for my now long-suffering Hoosiers, I set to work to figure out what was wrong with Big Ten Basketball.
How could so many strong teams be eliminated so quickly?
My unscientific conclusion after watching several games was that the Big Ten lacked 3-point shooters and was too focused on the inside 2-point game.
Here is how the game has changed, according to Teamrankings.com, the average team shoots 37.7% from 3-point range while only 33.47% from 2-point range. Why on earth if those stat lines are true would you ever shoot a 2-point shot again?
Now we know why? If all you shot was 3-point shots defenses would adjust and cut it off completely. However, the 3-point shot opens up the lanes and the middle of the court. This allows the centers and forwards to dominate inside at an even higher shooting average. One works to help the other!
So, what does this have to do with wealth management?
Answer – a lot!
We have 3-point shots in finance that have better odds than shorter 2-point shots just like in NCAA Basketball. The clearest are the following:
I am sure this is just the tip of the iceberg as far as odds go, but their what come to mind immediately!
Let me know if you can think of any other 3-point shots in personal finances that defy the odds!
(Tampa, FL) InTrust Advisors, Inc. is pleased to announce Keith Hruby, MSF, AAMS® as the newest member of our team.
According to Jeff Diercks, the Founder and Managing Director of InTrust Advisors, "Keith brings valuable experience having served affluent families across the country. Keith brings a comprehensive understanding of tax and investment planning and how they relate to developing a holistic, effective financial plan."
Mr. Diercks said further that "Keith has 10 years of experience working with affluent families and business owners providing specialized counseling in the areas of cash flow management, retirement planning, stock options and employee benefits, insurance, investments, income taxation and charitable planning."
Keith began his career as a commissioned officer in nuclear submarines following his graduation from the United States Naval Academy. His military tours took him all over the world, including two deployments to the Western Pacific, a tour in Naples, Italy on the staff of the Commander, U.S. SIXTH Fleet, and a tour in Yokosuka, Japan on the staff of Commander, U.S. SEVENTH Fleet. He later was recalled to active duty to teach Finance and Economics at the U.S. Naval Academy, his Alma Mater. Keith was a Financial Advisor with Raymond James prior to joining InTrust Advisors.
Keith’s unique skill set will enhance firm initiatives in helping clients maximize after-tax income through wise tax and investment planning. His passion is structuring charitable giving in order to minimize taxation of assets and maximize the impact to non-profit organizations.
InTrust Advisors is a boutique multi-family office located in Tampa, Florida that works to remove the burden of planning and day-to-day management of complex tax, investment and estate structures for high net worth families nationally.