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It’s rare in our distractively-busy culture for the common American to engage macroeconomic issues, but rapidly rising prices driven by highly inflationary policy are a present and notable exception. Engaging the public discourse on inflation, and knowing how to effectively overcome it, however, seldom marry, so let’s investigate why that is.

It’s fascinating to ask people what causes inflation because the answer is super simple, and no one knows the answer. No one knows the answer because the definition has been changed to hide the cause. Inflation is properly defined as “an arbitrary increase in currency units without a corresponding increase in the supply of goods and services”. As you might expect, more dollars chasing the same goods causes prices to rise, a primary effect. Today’s money conjurers have people believing inflation is defined as “rising prices”, so that the cause can be blamed on other things. Properly defined, we’re ready to consider inflation’s rotten fruit.

The arbitrary creation of currency units, or inflation:

• Steals from the lower and middle classes by devaluing the currency they heavily depend on, always rendering them poorer.

• Enriches the wealthy by causing the risk assets they own to rise, which is disproportionate to their cost of living, which is comparatively small.

• Taxes all users of the currency dishonestly, since the government never has to say it’s raising taxes (on everyone).

• Results in divergently rising prices.

• Invigorates speculation and risk-taking leading to widespread malinvestment and asset bubbles, which are followed by systemic crashes; then it rinses and repeats.

• Causes fixed income and cash savings vehicles to lose purchasing power.

• Threatens the society in which the compromised currency prevails.

Many people understand the above, and yet fail to reflect it in their financial lives. I believe this is the result of a) financial illiteracy, since Americans are not educated on financial matters at home or in school, and b) fear is stronger than greed, and they try to hide in all the wrong places. Astute responses to a highly inflationary environment are:

• Make more money. Whether this means working longer, harder or smarter, extra income is very helpful in maintaining a net positive cash flow in your home.

• Spend less money. It has the same effect as more income (but on the other side of the ledger).

• Invest in quality assets. Focus on capital efficient companies with consistently high free cash flow and strong pricing power.

• Place a high priority on investments paying dividends and rents, especially those able to consistently increase the payouts. Income your investments earn is income you won’t have to.

• Maintain an exit strategy on all trades to protect your capital from the occasional systemic crash, and don’t let these busts deter you from decisively returning to the above assets when prices stabilize.

• Own some classic inflation (hard asset) hedges.

In closing, it’s important to distinguish inflation from hyperinflation, which is the widespread loss of confidence in, followed by the widespread abandonment of, a compromised currency. The former is objective policy action; the latter is a subjective response to that action. The former causes a rise in prices; the latter involves the total breakdown of a society. The former is sin; the latter is judgment on that sin.

Think about it, and I hope this information empowers and blesses your family. I’m sorry for the length this week, after many shortenings, it’s still too long! Shaun .

“The best way to destroy the capitalist (free-enterprise) system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.” ~Vladimir Levin

“A false balance is an abomination to the Lord, but a just weight in his delight.” ~Proverbs 11:1

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

 All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Time has shown the common-most ‘top priority’ among elite investors globally has nothing to do with buying securities or building investment portfolios, and everything to do with the protection of capital and knowing when to sell. Mountaineers ascending grades too steep to arrest a ‘slip-n-fall’ often attach to a fixed rope, so when things go wrong they can live to climb another day. While numerous and varied investment strategies prove successful at increasing investment values, retaining capital when things go wrong is the single indispensable factor in surviving to invest another day. Mark Twain went bankrupt late in life by doubling down on failed ventures instead of abandoning them, learning by mistake the critical importance of the ‘exit plan’ to the multi-generational retention of capital wealth.

I was fascinated by a recent webinar in which three profoundly successful investors each shared their very different approaches to investing, the systems being so dissimilar apologies were offered at every exchange to temper strongly held but opposing views! Yet the one commonly practiced principle by the three was to have an ‘exit plan’ for every equity ‘trade’ at the time of purchase. What is an ‘exit plan’, how do the basic strategies work, and which are right for you?

Wall Street promotes the idea “time in the market”, not “timing the market”, is what produces reliable and lasting wealth, but Wall Street profits on the widely-held belief, and offers no comfort to the casualty investor when the delusion recurrently vaporizes. Here are some key practices that will save you from becoming a statistic:

• A ‘Forever Stock’ holding involves the purchase of capital efficient, industry-dominating, dividend-paying, dividend-increasing companies at attractive valuations. All other stock purchases constitute a trade, and all trades must involve an exit plan Day 1.

• Never fall in love with a holding of any kind. If you don’t understand this principle, read the book of Hosea. Nothing in this world is worthy of your confidence but GOD alone.

• Run with your winners and cut your losers. Appreciating stocks tend to continue appreciating, and vice-versa. Give leash to your winners and maintain a cold and distasteful low tolerance for losers.

• Take a ‘free ride’ on every 100% winner by promptly removing the original investment amount. Never make an exception to this rule.

• Investigate and use Stop-loss orders on all equity trades, stocks, ETF’s and mutual funds alike, or make sure the person managing your critical retirement capital is doing so on your behalf, at all times and with strict discipline.

• Never trust your personal insight or instinct to tell you when to sell. The counter-intuitive stock market, coupled with your vulnerable emotions, will betray and punish you ruthlessly.

• Enjoy, and be thankful for the financial freedom these principles will afford you, and teach them to your children.

Think about it, Shaun.

“In all toil there is profit, but mere talk tends only to poverty” ~Proverbs 14:23

“The sluggard does not plow in autumn; he will seek at harvest and have nothing.” ~Proverbs 20:4

“The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty” ~Proverbs 21:5

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Retirement planning and income investing professional, David “Doc” Eifrig, of Stansberry Research, has been warning near-term retirees, “The deck is stacked against you”.¹ What are the converging hazards to the planned ‘2020’s retirement’, and what solutions may avert disaster?

Many retirees dread the humiliation of running out of money and having to return to work or move in with their kids late in life, yet according to The World Economic Forum, most retired Americans will outlive savings by an average of 8-10 years.²  Converting to an exclusively unearned income while in debt, failure to accumulate sufficient retirement capital, neglecting to factor inflation into the planning, and loose spending in early retirement years are common pitfalls retirees stumble into, but various external threats are now aligned to endanger even those avoiding the common hazards.

The greatest threats to a planned retirement in the next few years are:

• High Inflation. How can retirees overcome higher than expected expenses without earned income? The indications are high inflation is here to stay, and its potential damage is unlimited.

• High costs for Long Term Care present the second most threatening financial risk, particularly for the independent spouse.

• Tax hikes are a mathematical certainty following an era of reckless government spending, and are the end goal of the coming issuance of a central bank digital currency (CBDC).

• Financial planners using Monte Carlo Simulation understand how devastating an early retirement bear market can be to a retiree’s drawdown rate, yet a significant bear market may be lurking.

• Negative real interest rates neuter fixed income yields and force retirees into riskier securities to battle the aforementioned threats. This magnifies the effect of an early retirement bear market, which can alone decimate even the best-laid plans.

The most effective solutions for these perils include:

• A net positive cash flow (net income exceeds total living expenses) is most critical at all times. It is achieved by frugality, fiscal discipline, and various passive income sources (like rental, charter-economy, or increasing annuity income).

• Avoid big voluntary outlays in retirement. Buying homes and making loans to children can do quick, irreversible damage to your retirement. Do these things before relinquishing earned income.

• Learning to maintain your home can save thousands annually.

• Buying certified, pre-owned vehicles saves thousands on every purchase.  

• Mitigate catastrophic risks. Married couples in the upper-middle class should have some Long-Term Care protection. Avoid being caught with a high percentage of your retirement capital in ‘yet to be taxed’ accounts. Avoid excessive cash savings and own ‘dividend aristocrat’ stocks to fight inflation. Have an exit plan on equity trades to offset the bear market.

• Have an ample emergency fund for unexpected bills, but quickly replenish it from the positive cash flow following outlays.

• Consider whether a tiny investment of your retirement capital in mega-technology trends, like those mentioned here, would be appropriate.

• If you are blessed with sufficient retirement cash flow, dollar cost average into a great stock fund for the first dozen years of your retirement, to help pay for the second dozen years of your retirement.

• Be thankful for your success, and generous with others in need!

Think about it, and I hope these suggestions are a blessing to you. Shaun

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2

“A good man leaves an inheritance to his children’s children.” ~Proverbs 13:22

“God loves a cheerful giver” ~2Corinthians 9:7

1 Daily Wealth Premium, by David “Doc” Eifrig, “Conventional Wisdom Won’t Save Your Retirement”, October 1, 2021

2 Daily Wealth Premium, by David “Doc” Eifrig, “Don’t Fall Into The Retirement Nightmare”, September 3, 2021

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions, and it may not achieve its investment objective.

While an arbitrary increase in the money supply is the primary impetus for rising prices, there are other catalysts. Supply chain disruptions caused by the Covid19 lockdown and sudden economic re-opening is causing consumers to pay more and wait longer for virtually all imported goods. Loaded container ships sit idle outside major ports due to vaccine mandate regulations and a shortage of workers, both issues affecting prices. A shortage of container ships causes further delay, and many return to China empty or slightly loaded, the natural result of America’s exported manufacturing industry. It’s notable the USA/China trade imbalance, roused by the Trump Trade War, is inspiring China to seek new trading partners. Dependence on a less interested supplier is bad enough, but China also controls the global supply chain for raw materials, from which everything is made, and commodity prices are rising noticeably.

A return to free market-based interest rates would expediently correct the rising price problem, as Paul Volker demonstrated, but with the U.S. government, numerous municipalities, and 25% of all corporations in the U.S. burdened by an excessive debt load, don’t count on the Fed allowing it. Setting a limit on the creation of new currency units that is consistent with economic growth would kill the life-blood of rising prices, but due to the fact it would set interest rates ablaze, we must also rule it out. Absent the moral courage to enact these solutions, price increases are likely here to stay, which means we must find our own solutions.

These are some ways to fight price increases:

• Maximize positive cash flow by running a tight family budget, then save & invest more to pay for tomorrow’s higher prices

• Consider The Alpha Strategy for all purchases (contact the office for a free e-copy)

• Don’t relinquish earned income without serious consideration

• Avoid big positions in low or non-income producing investments, like cash and speculative growth stocks

• Focus on income and dividend investments, especially those able to raise prices with inflation, and are capital efficient

• Own some inflation hedges (REIT’s, MLP’s, commodities, gold)

• Consider utilizing the Charter Economy

Think about it. Shaun

“A nickel ain’t worth a dime anymore” ~Yogi Berra

“You shall do no wrong in judgment, in measures of length or weight or quantity.” Leviticus 19:35

1 John Williams’ Shadow Government Statistics, Inflation 1990-Based, 10/14/2021

http://www.shadowstats.com/alternate_data/inflation-charts

2 American Consequences, “The Incredible Shrinking Dollar”, 10/13/2021

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

These are some of the disruptive trends that should be on the radar of investors today. Think about it, Shaun.

1      https://howmuch.net/articles/trade-timelapse-usa-china

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

This week I would like to offer a self-correction on a particular thought conveyed in the last blog, or perhaps better articulate the point, and offer some final thoughts on this important and emerging subject.

First, certain points regarding inflationary deleveraging must be reiterated:

•  Excessively indebted societies must periodically deleverage bad debt to avoid an otherwise certain social and economic downfall.

• The two deleveraging options available to central planners are inflation and deflation.

• Inflationary deleveraging involves controlling a high inflation rate while keeping real interest rates negative over a long period, such that nominal economic growth outpaces government debt, thereby lowering the debt/GDP ratio.

• Inflationary deleveraging is the Fed’s clear choice.

• The Fed has limited real control over the U.S. economy and financial markets but gets participants to do its bidding by controlling the narrative.

• The Fed’s narrative involves talking up the economy, talking down inflation, talking up stocks and other “risk assets”, talking down gold and other dollar alternatives, talking up taxes, talking down interest rates (that’s a lot of talking!).

• The Fed’s attempt to deleverage America’s bad debt through inflation has a small probability of success, requires the market to swallow the narrative long-term, and will have many unintended consequences, most notably the impoverishment of the middle class.

Last blog I inferred “the Fed’s inflation policy results in persistently high asset prices, commonly referred to as “The Wealth Effect”, but in reality it is “The Illusion of Wealth Effect”, which recently played out in Venezuela, as the cost of living outpaces asset appreciation”. A more accurate assessment is ‘in reality it may at any moment become’, “The Illusion of Wealth Effect”. This is a better statement and an important clarification in the argument because in America the rate of consumer price increases has not yet surpassed the growth rate of “risk assets”. My sincere apology for the misstatement, and this, of course, leaves one unanswered question.

Is inflationary deleveraging worth the risks of increasing America’s distribution of wealth, impoverishing her middle class, having to endure repeated systemic crises due to the weight of trying to carry a mountain of bad corporate debt, risking the global reserve currency status of the dollar, and risking the credibility of the dollar itself? You be the judge.

Think about it. Shaun

Did you know the ridges on quarters and dimes, originally 90% silver, were put there to prevent our government from cutting and melting the edges of coins to arbitrarily create additional currency units? Do you know what other nation’s government very famously did this?

“You have sown much, and harvested little. You eat, but you never have enough; you drink, but you never have your fill. You clothe yourselves, but no one is warm. And he who earns wages does so to put them into a bag with holes. “Thus says the Lord of hosts: Consider your ways.”

~Haggai 1:6-7

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.