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Inflation Fears & Market Realities With Mark Biller

MoneyWise

Christian talk radio with Rob West

May 24, 2021

With the Fed increasing the money supply and massive government stimulus spending the economy is showing signs of inflation. Investors are rightly concerned about it, but is the fear really warranted? There are many reasons to be wary of inflation but there’s at least one factor that should keep investors from hitting the panic button. Investing expert Mark Biller joins us to talk about that. Then it’s your calls at 800-525-7000. There are really two things driving the inflation concern. First, any time the Government does anything new that looks like money-printing, people get concerned. Over the last year we’ve seen unprecedented borrowing and plenty of new programs where the government has been sending multiple checks directly to citizens and so forth. Plus, the Federal Reserve has been literally creating more money - last year the money supply increased a whopping 24%, which was the largest ever in the 150 years of data on that series. So, we can clearly check the box on the theoretical side of higher inflation. Add to that the fact that people are clearly seeing higher prices in a lot of things they buy. Whether it’s food, lumber, used cars - a lot of prices have been rising, and some of those price increases - like lumber - have been pretty incredible. So, this inflation fear is understandable, because if we’ve really entered a new inflationary regime, there are significant implications for the way investors should construct their portfolios. There are two big schools of thought about today’s inflation. One is that this is the beginning of a new, higher-inflation regime. This camp says the money printing plus the increased borrowing and government spending are going to reverse the lower-inflation trend that has been in place for 40 years and send inflation higher. The other view is that we are seeing inflation right now, but today’s inflation is mainly due to the shutdown and supply-chain disruptions, which will be short-lived. As the world economy gets back on its feet, these disruptions will smooth out and the factors that have been keeping inflation low for the past four decades will reassert themselves. There are three big deflationary factors working against higher inflation: 1) high levels of global debt, 2) aging demographics, and 3) the continual increase in more and better technology. Nothing has changed in terms of Debt, Demographics, or Technology that would indicate a change from lower inflation to rising inflation. There’s probably no bigger issue facing investors and a lot of that comes down to the huge allocations many investors have to bonds. If we’ve truly entered a new era of higher inflation, bonds are going to struggle. There’s no way to sugarcoat that - higher inflation means higher interest rates, which means falling bond prices. The good news is that stocks and real estate - two investment classes that a lot of people have exposure to through their retirement plans and their homes - tend to hold their value pretty well when inflation rises. For those who want more inflation protection in their portfolios, one really easy way to get it is to invest in commodities. There are several of these available - the one we added to SMI’s model portfolios at the end of last year has the ticker symbol DBC. There’s also an inflation beneficiaries ETF with the ticker INFL that is an easy way to add some more inflation protection to a portfolio. Mark Biller, executive editor at Sound Mind Investing, has been our guest today. You can read his detailed article, Balancing Inflation Fears With Market Realities, at SoundMindInvesting.org. Here are a couple of questions we answered from our callers on today’s program: --How do you use an HAS account to maximize retirement savings? --What does universal insurance cover? Ask your questions at (800) 525-7000 or email them to [email protected] Visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, purchase books, and even download free, helpful resources like the MoneyWise app. Like and Follow us on Facebook at MoneyWise Media for videos and the very latest discussion! Remember that it’s your prayerful and financial support that keeps MoneyWise on the air. Help us continue this outreach by clicking the Donate tab at the top of the page.

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