Inflation Not Bad Yet & Download Our New App

By February 16, 2018The Friday Brief

The markets are settling down now as price data for January, mostly in, shows that fears of rapid inflation were largely overblown. Price increases, both at the consumer level and the producer level show, while rising, are not so out of control to warrant the two trillion dollar decline just witnessed in stock prices.

This past Wednesday, the government reported that consumer inflation was up 0.5%, while core inflation (more volatile food and energy removed) confirmed the strength, up 0.3%. Producer prices also rose in January by 0.4%. Today’s Import and Export prices reinforced the growing trend with a higher-than-expected 1% and 0.8% rise in import and export prices, respectively.

Glass Half Empty – Half Full

Unchecked inflation is clearly a destructive force in any economy. It thwarts investment as interest rates rise, it plays havoc with the capital markets as investors lose confidence in intangible assets like stocks and bonds favoring instead tangible assets like gold, real estate, and commodities. But these gains prove short-lived, if the economy falters.

The ‘half-full’ perspective may be the better way to view current inflation. Inflation, like rising blood pressure when we get up from a rest, might simply be the sign of an economy waking from a prolonged nap – a ten-year nap.

Some inflation is a good thing. Rising prices, within limits just like blood pressure, indicate a healthy growing economy. The Federal Reserve’s target for inflation is 2%, yet the US economy has struggled for the past decade, as demonstrated by the WSJ chart below, to maintain 2% core inflation.

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In fact, according to the WSJ, US inflation hasn’t hit the Fed’s target of 2% in 66 of the past 68 months. That’s about to change. How far prices will rise is a question on many investors’ minds. But with January’s numbers in, calm for now, has replaced the panic we saw earlier.

Another huge question on investors’ minds is what corporations will do with their windfall profits thanks in large part to last year’s tax cuts. Will they invest the money in plant, equipment, technology, and people, or will they pay larger dividends and bonuses at the top?

The numbers so far, according to Birynyi Associates, overwhelmingly favor stockholders rather than workers. Some $171 billion in stock buybacks have occurred already in this new year compared to the $76 billion at the same point last year. Workers, on the other hand, have received about $6 billion in pay raises.

Stock buybacks and dividends are the low-hanging fruit, easy ways for CEOs to boost their share prices. We will have to wait and see if they take the bigger gambles to actually invest in growth and productivity to meet rising global challenges. My bet is they are already doing so. Time will tell.

It is reasonable to expect inflation to rise from here. It is also reasonable to expect the Federal Reserve will continue their program of tightening the money supply by raising interest rates to stem the strength of inflation. The concern is that they raise them too fast, choking off the recent signs of growth. We will follow this unfolding story for you.

Clients, Please Try Our New App

We are excited to announce our new app available for Apple and Android devices that puts your Beacon portal in the palm of your hand. Get a quick overview of your household using the new tablet or phone dashboard.

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Quickly produce reports, view documents,

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and contact your service team easier than ever before.  You can even schedule an appointment!

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To get the app, go to the Apple or Android store and search for WealthView. Download and on sign in you will be asked to enter our portal code beaconwc (not case sensitive) and your current portal credentials (email and password). If you wish, you can enable touch id for faster log-ins.

Please let us know how you like it and come see us soon.

 

 

 

 

Author Sam Bass Jr.

Sam founded Beacon Wealthcare in 1998. He has thirty five years' experience investing money for his clients. In 2006 he changed the focus of his firm from asset/return to a client/goal-centered and adopted state-of-the-art planning and management systems to deliver the best fully integrated planning service available. Sam holds a BA in English Literature from Hampden-Sydney College, 1975 and an MBA from Wake Forest University, 1981. He concentrated in International Finance, and did research for an International Finance textbook which included a summer at the London School of Economics. He is married to Sharon, a talented pleinAir oil painter, They enjoy being with their three children, their spouses, and five beautiful grandchildren as often as they can. Sam loves Jesus, sailing, cycling, and writing.

More posts by Sam Bass Jr.

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