By now I am sure you’ve heard the news…
The government’s preferred inflation metric, the Consumer Price Index (CPI) is now up 9.1% from June 2021 to June 2022. For the second month in a row, it’s the highest increase in 40 years.
Even month-over-month, the CPI is up 1.3%. For reference, in June 2019, the monthly CPI increase was 0.0%. This quarter of April – June 2022 had higher consumer price inflation than any year between 2012-2019.
Here is the monthly chart from the Bureau of Labor Statistics.
Interest rates will continue to rise. The Federal Reserve is (for now) taking a stance against inflation. In other words, the Fed is attempting to prevent the US Dollar from collapsing.
The Fed’s current goal is to fight consumer price increases, so they are raising rates to curb demand for goods and decrease spending.
In a nutshell, this will force us into a recession, which will lead to a decline in asset prices.
Your stocks will go down. Bond prices will go down. Your 401(k) will go down. Employers will layoff employees. Public companies will stop buyback programs and cut dividends.
Times will be tough. It sounds scary, and it is scary to those that are not prepared. But this is what we have been preparing for.
We’ve been building multiple streams of income.
We’ve been acquiring real, hard assets.
Check out the chart below from Bloomberg on how different asset classes have performed through June 16th of this year.
Do you notice anything special about which assets dropped and which did not?
The assets that are doing well are tangible, real items that people need and can use. Paper assets are getting crushed by the Fed’s actions.
Now, real estate is not on this chart — and some markets and types of real estate may even be down year to date — but price is not the only reason to invest in real estate, which I’ll share about another time.
Even if real estate takes a dip, that is what we want, and quite frankly, what we need.
This recession will create buying opportunities. This is a time to get excited, not scared.
Warren Buffet says, “Be fearful when others are greedy, and greedy when others are fearful.”
Here’s why we’re entering a time to be greedy.
The Fed’s policies may send us into a recession, but what do you expect to happen after that?
Think about it.
After we are forced into a recession, the Fed will cut rates again. “Stimulus programs” will be created to encourage Americans to spend again. Asset prices will recover, and we will be back in the cycle again.
Andrew Brenner, head of international fixed income at National Alliance Securities, states:
“The higher inflation means the Fed’s got to act more aggressively. The Fed acting more aggressively means recession risk is [at a] higher probability and [a] higher probability of recession lowers rates.”
As history has shown us, asset prices will recover after going down. Any dip in the markets is ultimately temporary.
So we are positioning ourselves to be prepared when the opportunity arises. Ambition Capital would love to help you do the same. If you want to take control of you and your family’s financial future, schedule a call.
We would love to help you achieve your goals.
