Contributed by Doug Walters, Max Berkovich
It’s all about inflation these days. With the jobs market strong, the Fed, and by definition, investors have turned their focus squarely to the topic of rising prices. Investors are consumed with the question of whether or not inflation will be transient. Time will tell, and as we often say, the best thing investors can do is prepare with a well-diversified portfolio. But that is not entirely accurate. Equally important is what investors do not do.
Inflation is, in part, a symptom of the supply constraints brought on by the pandemic. Food and energy costs are up, and these pricing pressures are hard for most to avoid. But inflation is also driven by the many forms of stimulus that have been propping up the economy for nearly two years. Low interest rates, stimulus checks, and enhanced unemployment benefits have all contributed to high demand, for… well… everything. There is inflation everywhere, and some of it is very avoidable.
This week, tickets went on sale to Disney’s new contribution to the Marvel Cinematic Universe series, Spider-Man No Way Home. Demand was off the charts, and scalpers were soon selling $20 to opening night for thousands of dollars. Now that is inflation! And, of course, entirely avoidable if you have the patience to wait one day.
The same excess cash that is buying overpriced movie tickets has created a number of bubbles that have the potential to lead investors astray. Meme stocks like Gamestop and AMC, despite significant declines recently, still have hugely inflated prices. Cryptocurrencies have no fundamental value, are driven purely by speculation, and are therefore massively inflated. NFT art, SPACs, etc… the list goes on. The opportunities for reckless speculation in overinflated assets are endless these days. Anyone concerned about inflation should be doubly concerned about this growing list of shiny objects. Luckily, they are easy to avoid for the disciplined investor.
Current Inflation Rate
The Bureau of Labor Statistics reported on Friday that prices for U.S. consumers jumped 6.8% in November compared with a year earlier.
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