Things we need vs Things we want

March 2, 2018

Since the beginning of February stock & bond market participants have been spooked by the prospects of inflation and the impact it could have on investment returns. Last week's "Chart of the Week" examined the longer-term trend in inflation measurements. The conclusion was yes it is trending higher, but overall it is still below the Fed's target rate. The bigger problem, however is the places we have seen inflation.

 

John Mauldin's Thoughts from the Frontline last week examined the components of inflation and the impact this could have on our future. When I saw this week's Chart of the Week, the first thing that popped into my mind was a phrase I've used many times in seminars when discussing inflation -- Things we need vs Things we want.

The real problem here is the things we need have skyrocketed in price while the "stuff" we enjoy buying, but do not necessarily need have plummeted. Worse, we've "exported inflation" by outsourcing the manufacture and the raw materials from other countries to help keep prices lower. The side effect of this has been lower personal income and fewer jobs. When you combine this with the high costs of things we couldn't outsource to other countries, you can see why the economic growth during this recovery has been the worst on record.

 

I'm not advocating for protectionist policies, but we do have to understand the impact 40 years of outsourcing has had on our country and our ability to support a rapidly aging population that has promised themselves significant public & private pension plans. One reason the markets have dropped the last few days is the understanding of how a trade war could cause immediate inflation in everything, which could quickly offset any impact the tax cuts may have had on the economy.

 

There are no easy solutions. We can't instantly go back to making everything in America, but we also cannot continue to have other countries able to import their cheap products into our country. However, all those calling for everything to be made in America have to realize prices could double if companies had to support American's much higher standard of living, benefit packages, & work week restrictions. Any solution to this problem will be painful and there are many risks as we've seen this week in the market that bad policy could derail any positives other policies have generated.

 

All of this makes me again thankful for our wide range of investment options on our TCA Platform. We can offer diversification of strategies, managers, time horizons, and asset classes all in a single account. Having this kind of flexibility will be the only way to survive what is sure to be a painful adjustment to a more balanced economy.

Please reload

Featured Posts

Investment Grade Junk

September 11, 2019

1/10
Please reload

Recent Posts

November 13, 2019

November 6, 2019

October 10, 2019

September 26, 2019

Please reload

Connect
  • LinkedIn Social Icon
  • Twitter Social Icon
  • Facebook Social Icon
  • RSS Social Icon

Related Posts

Please reload

This site is for INFORMATIONAL PURPOSES ONLY.  The comments and posts published in the SEM Trader's Blog ARE NOT investment recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.  CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute

Investing in the stock or bond markets involves risk and may not be suitable for all investors. Before making any investment decisions you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists you could sustain a loss of some or all of your initial investment and therefore you should not invest money you cannot afford to lose. You should be aware of all the risks associated with your investments and seek advice from an independent financial advisor if you have any doubts. All investments involve risk including those managed by SEM Wealth Management.

Opinions expressed at www.stratequity.com, www.semwealth.com and semtradersblog.com or the previous Trader's Blog site are those of the individual authors and do not necessarily represent the opinion of SEM Wealth Management or its management. Any opinions, news, research, analysis, prices or other information contained on this website, by SEM, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. SEM will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

 

The use of this website constitutes acceptance of our user agreement. Past performance is NOT indicative of future results.

***Anywhere performance of SEM's Investment Models is used, please refer to our Performance Snapshot  which contains details of the performance calculations for each of our investment models.***

 

There is no representation made as to the future results of SEM’s programs or if they will be profitable.

For additional information on the author and SEM Wealth Management, please see our DISCLOSURE DOCUMENT (ADV Part 2).