The primary concern and biggest navigational deterrent for winter mountaineers is generally a high wind speed. At 70 MPH it becomes questionable as to whether the climber or the wind is in control, at 80 MPH all doubt is removed, and at 100+ MPH the climber is “belly down” and crawling for survival with plummeting prospects for success. It’s notable that other climber “concerns”, like flying snow and ice, physical weakness, and plunging core temperatures are usually direct implications of high winds. Inflation is one of the most influential factors with an equivalent influence over the global economy and asset prices. The early indication is that the 20% reduction in global oil shipments caused by the closing of the Strait of Hormuz may cause higher oil prices to persist into the second half of this year, which may directly impact price inflation economy wide.
Consider the implications of rising inflation:
- Higher interest rates: Central banks (like the Federal Reserve) often raise rates to fight inflation, increasing borrowing costs for businesses and consumers. This reduces investment, hiring, and spending—dragging down economic activity and stock valuations.
- Lower corporate profits: Rising input costs (wages, materials, energy) squeeze profit margins, especially if companies can’t fully pass costs on to customers.
- Reduced consumer purchasing power: Inflation erodes real incomes, so households buy less, weakening demand for goods and services.
- Valuation compression: Higher inflation and rates increase discount rates used in stock valuation models, lowering the present value of future earnings—especially hurting growth stocks.
- Increased uncertainty: Volatile inflation makes it harder for businesses to plan pricing, investment, and expansion, often leading to delayed decisions and slower growth.
- Weaker consumer and business confidence: Persistent inflation can reduce confidence, causing more cautious spending and investment behavior.
- Debt burden stress: Higher rates tied to inflation increase interest payments for companies and households with variable or new debt, raising default risks.
- Currency instability: Inflation can weaken a country’s currency, increasing import costs and creating additional economic strain.
- Policy tightening risk: Aggressive anti-inflation policies can overshoot, potentially triggering recessions or financial market disruptions.
Also consider how the following strategies may help you oppose “belly down” levels of monetary destruction caused by insidious inflation:
- Reprioritize essentials in your budget, like housing, groceries and insurance, while pulling back on discretionary spending, like subscriptions, dining out, impulse spending, and vacationing.
- Reprioritize present income, like work-based compensation, negotiating a raise, increasing specialization in high demand areas, and interest and dividends on invested capital. Understand inflation tends to prioritize a dollar today (dividends) over the promise of a dollar tomorrow (growth).
- Shore up the emergency fund to the equivalent of 6-9 months of total annual household spending and place it in a high yield savings account or Treasury Money Market account.
- Invest in assets that have a built-in inflation protection, like Treasury Inflation-Protected Securities (TIPS), and that have historically performed well during periods of high inflation, like Real Estate and other Real Assets.
- Manage debt as you might a pet scorpion: cage it, starve it, and if it hisses at you, exterminate it! Avoid consumer debt, high interest variable debt, and lock in a lower fixed interest rate before inflation raises rates.
- Manage the timing of spending thoughtfully by pre-purchasing durable goods, while delaying discretionary items that may drop in price later.
Battle inflation as you would a 100+ MPH wind at 14,000 feet, get to the work at hand, and may God bless your inflation-fighting efforts! Shaun
“He who earns wages does so to put them into a bag with holes” ~Haggai 1:6
“A quart of wheat or three quarts of barley will cost a full day’s pay” ~Revelation 6:6
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