Growing Concern of Persistent Inflation
October 29, 2021
The onset of the Coronavirus pandemic has accelerated many changes in the US economy. Many have fallen upon financial hardship, and there is a large concern for growing inflation and the weakening purchasing power of the dollar.
Billionaire hedge fund manager and philanthropist Paul Tudor Jones argues that inflation will be a persistent problem for America’s middle class. “I think to me the number one issue facing Main Street investors is inflation, and it’s pretty clear to me that inflation is not transitory. It’s probably the single biggest threat to certainly financial markets and I think to society just in general.”
I think to me the number one issue facing Main Street investors is inflation, and it’s pretty clear to me that inflation is not transitory”
— Paul Tudor Jones
Inflation concerns are growing on Wall Street as well. The Bank of America Fund Managers Survey asked 400 investing professionals what event could have significant consequences. Inflation was overwhelmingly cited as the number one concern, much more than worries over China or the Coronavirus pandemic.
America’s elderly are very concerned about the loss of the value of the dollar. A survey of retirees by Personal Capital and Kiplinger Personal Finance revealed that 77% of respondents cited inflation as a major worry. The next highest cited concerns were health care (74%) and the financial strength of Social Security (71%).
While inflation can spark fear for many investors, there are measures that can be taken to protect your portfolio.
Most financial experts recommend that you save up to 3-6 months of your expenses in liquid cash. After that, your money will lose value over time to inflation. The annual inflation rate for the year ended in September was 5.4%, the average interest rate on a savings account is less than 1%.
Advisors recommend placing the bulk of your portfolio into stocks. While some investors may be tepid to purchase more stocks, they may be losing out on growth opportunities if they wait for inflation to die down.
Jim Cramer of CNBC’s Mad Money is optimistic on stock equities. “With the exception of labor, there are suddenly a lot of bullish pieces in the inflation puzzle. … If you wait for these prices to finally come down, if you wait for the jigsaw puzzle to be completely finished, you’ll end up waiting too long.” This was said after the S&P 500 closed in the green for seven straight days.
If you wait for these prices to finally come down, if you wait for the jigsaw puzzle to be completely finished, you’ll end up waiting too long”
— Jim Cramer
Cramer also believes that we are approaching a historically hot time of the year for stocks, “Remember, seven to 10 days from now begins the most seasonally strong period of the year for the last 23 years, so I would hold onto stocks or pounce on weakness as we are doing for our new investment club.”
Notable investor and founder of Corvex Management, Keith Meister, also is bullish on investing in stocks at the moment. On CNBC, he noted that there have been false positives in the presence of inflation, but believes it will not be a major problem. His advice is to own high quality businesses with strong balance sheets that are certain to grow even with inflation.
For older investors concerned with protecting their portfolio in the short term from a stock market shock, there are multiple moves that can protect their wealth. Treasury Inflation-Protected Securities (TIPS) are a type of treasury security issued by the US government that increase in value with inflation and decrease in value with deflation.
Investment in assets and equities involved in commodities, natural resources, energy and/or real estate are a great way to protect the value of your portfolio. These industries are more recession proof and hold up well to inflation shocks.
Some skeptics are sounding the alarm on inflation. Twitter and Square CEO Jack Dorsey tweeted, “Hyperinflation is going to change everything. It’s happening.”
Dorsey is also an advocate for cryptocurrency and a major investor in Bitcoin. He believes that the current financial industry is predatory and is, “not relevant to today, and they’re certainly not relevant to the future, especially when you consider the entire world.” Dorsey believes crypto can be a solution to potential hyperinflation in the future.
On an individual level, some investment in cryptocurrency can add protection to your portfolio. Paul Tudor Jones believes crypto is worth consideration, “Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment.”
Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment”
— Paul Tudor Jones
Many debate how long term inflation is trending, but it is certain that it will stick around through 2022. While every individual investor has specific needs and appetites for risks, it is important that they invest in their best interests in these inflationary periods.