A Note About Inflation

A note about inflation.

For quite a few years now, some experts have predicted great inflation due to the easy money policies of the Fed since the Great Recession. For example, Larry Kudlow, President Trump’s recently appointed Director of the National Economic Council said the following in response to a question during an interview published in Townhall.com on May 5, 2009:

Interviewer: In the long run, shouldn’t we be terrified by the prospect – or the near certainty – of serious inflation because of all that money being pumped into the economy?
Kudlow: No doubt about it. It’s down the road – you’re talking about maybe two years.

That was nine years ago. And, Kudlow was not alone in confidently predicting imminent “serious inflation”.

Recently, I did a quick study of inflation during the past 30, 20 and 10 years (1988 to 2018). The details can be found here. The summary follows:

US inflation for the past 30 years has averaged 2.57% per year.
US inflation for the past 20 years has averaged 2.16% per year.
US inflation for the past 10 years has averaged 1.62% per year.

Some of the same experts who were sure that serious inflation was just around the corner also advocated that investors purchase gold. Why? Because the value of gold skyrockets during periods of high inflation. Why? Because it is shiny.

My point? Predictions, especially about the future, are hard. (Thanks to Yogi Berra for succinctly stating an obvious truth.) There are so many factors. And, all else is never equal. Having too much trust in experts may not be the smartest approach. Years ago I read a book with the title, “Winning the Loser’s Game“, by Charles Ellis. His premise was that in some sporting events the secret to winning is merely to not lose. That is to say that in some endeavors, like investing you win by avoiding costly mistakes. For investors, placing too much confidence in any single prediction could be a costly mistake. Hence, we diversify because our expectations may be incorrect.


Investment reports are posted.

If you are an investment client of Financial Planning Associates, Inc., your preliminary 1st quarter reports have been posted to your secure web portal. During the 1st quarter, our clients’ average total return was +0.07%. During the same period, the total return of the S&P500 was -0.76%, and the Dow30 was -1.96%. Final reports will replace the preliminary reports after March inflation information becomes available.

Note: The calculation used to determine our clients’ aggregate returns is called the internal rate of return. It is cash flow specific and is net of all fees and expenses. It represents the average return experienced by our investment clients, from the most conservative to the least conservative who were invested during any portion of the period. Typically, our younger clients experience returns greater than the aggregate, while our most conservative investors experience results that are lower. Investment return information is provided by Morningstar using GIPS standards.


Schwab mailing info.

Sometimes our clients need to send checks or documents to Charles Schwab and Company. The mailing address can be easily found on our website. Just click the “Clients” link from the main menu, and choose “Schwab Mailing Addresses” from the drop-down menu.


KBS

Some of our clients own commercial real estate properties offered by KBS Capital Markets Group. These illiquid holdings tend to generate periodic tender offers from other investors whose purpose is to provide liquidity, but at a substantial “haircut” from the estimated present value of the properties. Our practice has always been to understand our client’s situation well enough to determine whether illiquidity in a particular case might be a problem and if it would be to not recommend illiquid investments. Therefore, for our clients, the tender offers are not attractive.

PS. KBS properties are located in many cities (and countries). We have clients located in the vicinities of St. Louis, Dallas, Charlotte, Phoenix, and Houston. For those of you who are interested in seeing some of the KBS properties in your area, you can do so by clicking this link.


Fee-Based, or Fee-Only?

The CFP Board has recently adopted amendments to the Code of Ethics and Practice Standards which removes ambiguity concerning the terms Fee-Based and Fee-Only. When the changes become effective, in October of next year CFP professionals, and their firms will be prohibited from using the term Fee-Based in a way which suggests that they are Fee-Only. This is a good change because consumers of financial advice are sometimes misled by the term Fee-Based.


And finally…

If you haven’t seen this I think you’ll be surprised at what these two robots are able to do. Alvin and Heidi Toffler in their books about future changes spoke of the vast effects of GNR – genetics, nanotechnology, and robotics. This short video shows some impressive robotic capabilities. Click below.


PS. Recently I enjoyed reading “Augmented: Life in the Smart Lane”, by Brett King. In this book, Mr. King discusses some likely disruptions in the way we live, work and interact as a result of ongoing improvements in artificial intelligence, experience design, smart infrastructure, and health tech. I recommend it.

 

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