Beat Inflation With This Asset
I had just turned 16 years old and couldn’t wait to get my driver’s license. I had a lot of open road to cover.
Back then, a gallon of gas only cost about a buck and the $20 in my wallet was more than enough to keep my car fueled for a week.
But $20 wouldn’t get you very far today. The national average cost for a gallon of gasoline is currently $2.57.
Inflation is never going to go away. That’s a fact you should get used to. But it can vary. Over the last 12 months the official consumer price index (CPI), a basket of everyday goods used to measure inflation, has shown a 2.1% inflation rate.
I say horse manure.
Source: Deutsche Bank Research
Don’t let the CPI numbers fool you. The government doesn’t accurately reflect the true rate of inflation for some of the most important consumer components — like health care, education and housing — which are skyrocketing.
Commodity prices are also on the rise. The Thomson Reuters CRB index, a broad measure of commodity prices, is at its highest level since April. This is largely thanks to a 10% spike in oil prices in December.
That’s why the inflationary measure I pay the most attention to is M2 money supply. If you are unfamiliar with the idea, please note there are a few different ways we classify money supplies when trying to determine inflation.
M1 is the calculation of money supply that includes cash and checking accounts.
M2 is the calculated money supply that includes all of M1 and easily convertible “near money” — “near money” meaning noncash assets that have high liquidity. Foreign currency and certificates of deposits (CDs) are two examples of near money.
In November, the M2 total money supply (amount of money in circulation) in the U.S. increased from $15.197 billion to $15.324 billion, up by $127 million.
But don’t let those figures fool you. Politicians have done well to dull our sense of scale by throwing around figures in the “billions” and “trillions” like pieces of candy.
But an increase in the money supply of $127 million in one month IS a lot… and even more worrisome…
The truth is M2 has been skyrocketing over the past year.
But since the M1 money supply is what is used to calculate inflation as opposed to M2, we have a misleading 2.1% inflation rate rather than one showing inflation is actually growing faster than that.
That’s because whenever too many dollars are chasing too few goods, inflation comes roaring back.
And I expect the Federal Reserve to create even more money in 2020.
I say that because the makeup of the voting members of the Federal Open Market Committee (FOMC) is changing later this month.
Boston Fed President Eric Rosengren, Kansas City Fed President Esther George, St. Louis Fed President James Bullard and Chicago Fed President Charles Evans will lose their voting privileges and become nonvoting members of the FOMC.
All four voted against some (or all) of the last three rate cuts. These members will be replaced by Minneapolis Fed President Neel Kashkari, Dallas Fed President Robert Kaplan, Philadelphia Fed President Patrick Harker, and Cleveland Fed President Loretta Mester.
All of whom are supporters of the Fed’s current rate cuts and repo actions.
What’s this mean for you?
It means your portfolio needs a heavy dose of hard assets and commodities.
Now, I’m not saying you should rush out and load up on a ton of commodity stocks tomorrow morning.
But make no mistake… Inflation is coming back, and soon. Meaning you could earn big gains with a reasonable allocation of funds into gold and other commodities.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch