If you’re old enough to remember watching Sanford & Son with Redd Foxx, you’ll recall one of the late comedian’s signature bits on the show was to clutch his chest and say, ” This is the big one. You hear that, Elizabeth? I’m coming to join you, honey.”
That joke comes to mind for John Johnston when he thinks about the recent burst of inflation.
The Economic Advisor at Davis Rea Investment Counsel thinks a lot of economists and investors could be clutching their chests if higher prices continue to be as persistent as they’ve been for a longer period than expected.
That could portend sooner than planned interest rate hikes by the Federal Reserve, which would cause slower economic growth and lower profits for corporations.
Here are some telling inflation charts preceded by some stats on previous bouts of inflation and how stocks performed, along with some commentary about not buying fear-based narratives that are being sold in various quarters.
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Bespoke Investment Group conducted some research on previous periods of high inflation and the affect on stocks, and came up with this summation:
The streak in the early 1950s ended up lasting just over a year (13 months) while the streak in the early 1990s ended at seven months.
“At six months, the current streak still ranks at the short end of the spectrum relative to prior streaks, so bulls don’t need to panic yet.
But the longer we see these elevated readings, the more of a headwind it will likely become for equities.”
And here’s an excerpt from a piece by Jason Zweig, columnist with The Wall Street Journal:
“Inflation.
Few words strike more fear into investors’ hearts, and for good reason. By eating away at the purchasing power of your assets, inflation is the nemesis of every investor.
Everywhere you turn nowadays, someone is peddling protection: Gold! Bitcoin! Value stocks! Energy stocks! Commodities!
And no wonder: After years of quiescence, inflation has surged, hitting 5.4% year over year in September. With interest rates near zero and governments spending trillions, more of the same seems as unavoidable as nightfall.
Before you overhaul your portfolio, however, you should bear these basic truths in mind:
Fear is a good investing philosophy only for the people who sell it.
The more Wall Street agrees that a forecast is inevitable, the more likely the future is to repudiate it. And you’re probably already better protected against a decline in purchasing power than you might realize.”
Now on to the charts assembled by Johnston for a recent Davis Rea Investment Committee meeting, which look at various inflation data points and expectations for higher prices:
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