It means several things most of them not good for investors and those living off their nest egg.
On almost every measure the CPI print for August was worse than expected.
Price increases year-over-year:
Fuel oil: 68.8%
Gasoline: 25.6%
Electricity: 15.8%
Food at home: 13.5%
Transportation: 11.3%
New cars: 10.1%
Overall CPI: 8.3%
Food away from home: 8.0%
Used cars: 7.8%
Shelter: 6.2%
Investors and markets had been anticipating inflation turning down so the Fed could stop raising interest rates and stop quantitative easing. Prices had increased recently the last few days.
Instead, when reality sets in interest rates are up more, bondholders and stockholders are losing ground again leading to more losses and pushing any recovery back to old values farther into the future.
It likely means the Fed will have to raise rates more than expected and push the economy into recession if that hasn’t already happened. More than likely corporate earnings will be impacted negatively over the next couple quarters putting more downward pressure on values and portfolios.
We reacted to what we saw happening and exited stock positions and bond positions both on January 4th and on February 4th and have been in stable assets since. We have talked to investors that have 12-15% losses on the low end and 25-40% on the high side our clients have avoided.
But what to do now if you have not taken any protective action.
You must ask yourself if you see anything on the horizon where:
1. The Fed would stimulate lower interest rates the way they did before and print another $6 trillion.
2. Or, that the world and US economy would do so well that stocks and bonds would go back to new highs anytime soon.
Ask yourself what damage to your portfolio could you sustain over the next five years and still be OK or should you aggressively look for alternatives, ways to protect yourself, and ways to take advantage of future lower prices on great businesses.
Institutions, many times called “smart money” have bought a record amount of protection preparing for declining markets. Three times what they did in 2008. What should you do?
There are a few great ways to protect and preserve now, while being ready to take advantage of a recovery when it happens. Call and we will discuss the most appropriate course of action for you.
Join us Friday, September 16th at 1:30 p.m. for a Market Forum, for a detailed discussion and to answer your questions.
All my best,
