How many times have you heard the term, "In the good ole days"? I fondly remember my grandfather saying, "In the good ole days, a Pepsi was a nickel". Come to think of it, I can remember when they were a quarter. There were many a Saturday morning I would walk up and down Mimosa Street in Finley Tennessee collecting empties. Once I got five, I could walk to Rubel Dee's Grocery for a Big Red from the stand up cooler... ahhhhh... the good ole days! With inflation approaching double digits, many people today are talking about the good ole days with only a year in mind.
Inflation is here and some are even calling it hyper-inflation. I can not say that I disagree with them. On Tuesday, April 12th, 2022, CNBC reported, "Consumer prices rose 8.5% in March, slightly hotter than expected and the highest since 1981". On a side note, In the eighties, many here in northwest Tennessee lost farms, homes and business' due to rapidly increasing interest rates that drove property values down.
Besides gas, food, clothing, utilities, etc... One of the larger purchases that has my attention is the housing market. If you have not noticed, prices are, well, ridiculous. Much of this is supply chain inflation which has now morphed into demand side inflation. I recently had a conversation with a client where she said, "We have to buy today because prices and interest rates keep going up.". Demand side inflation can go on for some time but eventually an individual's budget catches up. Consider these two scenarios where the only input that is different is the interest rate.
Scenario 1: $350,000 house with 20% down and a 3.75% 30 year mortgage. Monthly payment excluding insurance and taxes: $1,296.72
Scenario 2: $350,000 house with 20% down and a 5.25% 30 year mortgage. Monthly payment excluding insurance and taxes: $1.546.17 -source: loancalculator.com
Combine that monthly increase with the aforementioned increase in food, energy, gas, clothing, etc... and you can see how we could see a slow down by the consumer soon. If the consumer slows down, what happens to the economy and thus the stock market? What about the Fed and those rising interest rates... What does that do to the price of bonds? And again, what happens when implied growth and income from an asset does not keep up with the cost of owning that asset (interest rates)?
We are certainly in a tough position concerning inflation and how long it may last and at what rate. Most recently, client's are beginning to see it in their portfolios as both stocks AND bonds have performed negatively for the year thus far. I've also had more than a few calls with some "interesting" suggestions to consider adding to their portfolios. However, sometimes the obvious is, well, just too obvious and usually adds more risk than return. You must also consider taxes, liquidity and "the spread" when looking at alternative asset classes that do not correlate with stocks or bonds.
IF inflation and the effects of inflation on your purchasing power and/or portfolio are keeping you up at night, please call Kim to set an appointment. Let's look at the makeup of your overall net worth and see if we need to make adjustments or add investments that go up in inflationary environments. On the flip side, we do not want to step out onto any limbs that we don't need to.
To set an appointment, Kim can be reached at 731-285-0097 from 8 am - 3 PM M - F.
Lastly, If there is a financial topic that you think people like yourself would like to know more about, please let me know. You can email me at firstname.lastname@example.org.
Until next time... Cheers!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.