A few nights ago, I was at home without the TV on, no music playing, and not reading anything. One could say I was doing nothing. As I sat there, Katie walked in and asked me what I was doing. While not an answer, I did ask her what she heard, and her response was nothing. That was exactly why I was sitting there, I heard nothing. The house was quiet, the kids were asleep, the dishes were finished, everything was quiet, there was silence.
As with most things, one could classify silence as both good and bad. A crying baby finally falling asleep is good silence, while a five-year-old playing and suddenly becoming silent, you may be a bit worried. Simon and Garfunkel’s ‘The Sound of Silence’, depending on who you ask, both good and bad. Screeching sounds coming from your car brakes, not good, but replaced with new silent brakes very good.
I think you get the picture; silence has the potential for good and bad.
One such silence has been called the silent killer which could be another name for inflation. Anyone who has purchased anything from gas to groceries to clothes over the past few months has certainly seen an increase in costs. Inflation as reported on Wednesday by the Labor Department, rose 6.2% from a year earlier. Nobody knows how long this higher level of inflation will continue, however, there is a belief that sometime in 2022, we may start to see the rate of price increases slow. The recent passage and ongoing negotiation concerning various spending bills in Washington will certainly have the potential to impact the inflation outlook as well.
Recently, we have started to see an increase in the number of commercials we see for companies selling gold and have also received a few questions. While the conversation about gold versus stocks as an inflation hedge can be quite long, there are a few points to keep in mind.
Data can be manipulated for any investment to fit a narrative. Gold, just as any other investment, needs to have a purpose for either being in a portfolio or physically held if possible. You should not just buy gold to buy gold. One’s time horizon needs to be known as research completed at Duke University has shown gold to retain its purchasing power with a very long-time horizon, meaning over 100 years. Over much shorter periods, its real, or inflation-adjusted, price fluctuates no less than any other asset. Finally, for those individuals who are currently selling gold on TV or online, if they truly believed that gold was the answer, why are they selling it for US Dollars?
So, what does inflation mean for you and your financial future? As you may recall, in each of our Regular Progress Meetings as well as our calls in between these meetings, there is traditionally one common topic, cash flow. Simply put, cash flow is money coming in versus money going out. Taken a step further, we want to know where and for how long money will be coming in or going out of one’s finances. This information is the backbone of our planning as we want to create a plan where you will try to not only never run out of money and retain purchasing power, but also have the potential for your money to go to the people or organizations you care about.
Inflation is a complex topic, and this forum is not the best way to discuss it. During our next Regular Progress Meeting or call we most certainly will discuss inflation in more depth and show you specifically what we are doing to manage your portfolio in the current inflationary environment.
While there is a potential cause for concern due to inflation, we are still seeing an economy strengthen with continued improving COVID-19 trends. The economy grew with a 2.0% increase in gross domestic product [GDP] for the third quarter which was well below the second-quarter’s 6.7% growth rate. This growth rate was below forecasts with the belief that the COVID-19 Delta variant caused much of the slowing. Looking to the fourth quarter and the holiday season, healthy consumers with the desire to spend could push the economy to grow higher. As you have heard us comment in the past, approximately two-thirds of the economy is built upon consumer spending.
For those who have recently visited big box stores, you have probably seen some empty shelves. These shelves are a direct result of the current supply chain disruption. Goods are taking longer to get to us and costing more than they did in the past. But over the past few weeks, we have seen some signs that the worst of the supply issues may be ending. Although these issues lasted longer than most expected, the bottlenecks should continue to work their way out of the system over the coming months and provide relief—something consumers are sure to appreciate.
Looking to earnings, third-quarter S&P 500 Index earnings have been extremely strong once again, with more than 80% of companies beating estimates (FactSet) and earnings up nearly 40% from 2020 levels.
As we look to the remainder of the year, November has been historically the best month of the year for stocks, with the usually strong December right after that. Following the brief pullback in September, October was a strong month. Since October was a strong month, it has the potential for the normal end of the year Santa Claus rally to be slightly subdued.
These last two months of the year will go by quickly, as this time of year is always busy. May you and your family have a wonderful Thanksgiving and we will talk to you soon.
Chris