Why’s the Swamp Lying About Real Inflation?
What’s that thing called when prices are consistently on the rise?
Oh, yeah… inflation!
Inflation has been called the “silent assassin of savings” because it erodes the purchasing power of savings deposits and causes the values of bonds to decline.
And guess what? The Jack the Ripper of your hard-earned savings is lurking on Main Street again!
Inflation rates — including the “core” rate, which excludes volatile food and energy prices — are now above the Federal Reserve’s official 2% target rate, and climbing fast.
I’m very skeptical about the government’s “official” inflation numbers, and you should be too.
One of the main reasons I say this is because of the huge incentive the government has to keep the official inflation numbers low in order to reduce the cost-of-living increases for Social Security.
In 2017, the government paid out over $1 TRILLION in Social Security benefits, so even small changes in the way inflation is calculated can cost Washington billions of dollars, which is money they don’t have.
Source: American Enterprise Institute
In fact, there’s ample evidence that inflation is running at a much hotter pace than the government wants you to believe.
In particular, costs of college, health care and housing have been skyrocketing but barely show up in the official inflation numbers.
My point is that income investing is more dangerous today than it has been at any point during the three-decade-long bull market that bond investors have enjoyed. That’s all over now.
Bonds, especially long-term government bonds, will be one of the worst investments you can own in the years ahead.
What if you need income? What should you own? An inflationary backdrop, while harmful for fixed-income investors, can be very profitable for stocks, as firms often increase the prices of their products as underlying costs start to expand.
The result is higher corporate earnings and therefore higher stock prices, which is exactly what is happening this year:
- First quarter 2018: In the last quarter of last year, the S&P 500 companies earned $26.96 of profits, but that grew to $32.81 in the first quarter of 2018, a whopping 21.7% increase
- Second quarter 2018: According to Merrill Lynch, S&P 500 earnings will grow another 20%, the highest quarterly growth rate in seven years.
We were spoiled by the nearly daily ascent of stock prices last year, and 2018 has been uncomfortably volatile at times, but the stock market is still the best place for you to park your money.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch