The Enduring Link Between Demography and Inflation 08/04/2022

To better understand the driving forces behind today’s inflationary pressures Tim dives into an analysis of age structures and their impact on inflation from the Bank of International Settlements. Their analysis looks at 22 advanced economies from 1870 to 2016 and shines a bright light on what inflationary pressures could be facing the US in the coming decades.

Montana’s Top Workplace program has selected WealthVest, a Bozeman-based financial services marketing, and wholesaling firm, as one of the top places to work in the state for 2022. The state-wide employer recognition program chose 11 companies to receive the distinction from nearly 800 Montana-based companies that were invited to participate.

As a Portfolio Manager or Financial Advisor, losing money in a bear market can be painful, but in my experience, not nearly as agonizing as losing money or even just not participating amid market strength. The latter comes with a feeling of embarrassment and a sense that everyone is making money except for your clients. But as a fiduciary, the number one goal always must be to preserve capital. Warren Buffett once said, “The first rule of an investment is don’t lose money and the second rule of an investment is don’t forget the first rule.”

As anyone who has been a reader of our work knows, we believe that there are several distinct structural forces that will lead to higher long-term inflation. We’ve written about energy underinvestment and declining productivity as contributors to the thesis. This week, we want to throw another factor onto that list and this one is more counter-intuitive than those previously discussed: declining populations. I say counter-intuitive because, like many, I had always looked at the example of Japan as evidence that declining populations would yield declining inflation.

WealthVest Hires former BMO managing director Tim Pierotti as Chief Investment Strategist

WealthVest, a financial services marketing and wholesaling firm, announced today that it has hired former BMO Capital Markets Managing Director Tim Pierotti as its first-ever chief investment strategist.

It’s over. That’s the message from Blackrock’s 2022 Midyear Outlook. The economists and strategists at the world’s largest asset manager with a tidy $10 Trillion of AUM wrote,

Let’s start with what we already knew coming into this week. We knew that financial conditions have gone from historically easy to historically tight in an incredibly short period of time. We knew the Fed isn’t letting off the gas until clear signs emerge that inflation is under control. Don’t forget, that includes wage inflation. While commodities might be breaking down and that helps, the Fed is a long way from seeing the kind of labor market softening they are going to need to start jawboning to the market that they might be pulling up on rate hikes. As evidenced by the yield curve inversion, fear of an imminent recession has trumped fear of runaway inflation.

The most important thing I learned this week (besides never grab hold of a skillet on a 500 degree grill) is that the people arguing that Fed will lose their nerve early and Fed Funds wont get over 3% are going to be wrong. I say that even in the context of observing commodity disinflation and continued leading indicator weakness that suggest we are sliding toward recession and curve inversion. Chairman Powell, Cleveland Fed's Mester as well as the Bank of International Settlements, which issued their annual economic report this week, are all singing from the same hymnal.

WealthVest believes in investing in its employees’ health and wellness and exploring all the great natural areas and activities Montana offers. To encourage our WealthVest employees to get outside and utilize the beautiful Montana summer, we conducted an incentive program.

The Fed will successfully destroy demand. Gasoline prices may not come down meaningfully anytime soon due to the structural supply issues we discussed last week. Job openings may well stay elevated for months to come and consumer spending will continue to benefit from the dwindling stockpile of savings from fiscal stimulus and the vestiges of QE. But in one very important sector of the economy, the Fed's efforts to cool demand are already playing out. That sector is housing (OER/Shelter) which represents roughly 40% of the data that goes into CPI. To state the obvious, interest rates matter to housing and a doubling of long-term interest rates matters a lot.

Tim and Drew go over the outlook of oil and gas markets. For more from Tim Pierotti, WealthVest's Chief Investment Strategist subscribe to our podcast WealthVest: The Weekly Bull and Bear at https://shows.acast.com/the-weekly-bull-and-bear or wherever you listen to your podcasts.

In this installment of WealthVest's Multi-Year Guaranteed Annuity Educational Series, Chad Dokken, National Accounts Manager, walks through the key differences between bank CDs and MYGAs and how financial professionals can help their clients with principal protection, guaranteed growth, and tax deferral using MYGAs.

The Fed will successfully destroy demand. Gasoline prices may not come down meaningfully anytime soon due to the structural supply issues we discussed last week. Job openings may well stay elevated for months to come and consumer spending will continue to benefit from the dwindling stockpile of savings from fiscal stimulus and the vestiges of QE. But in one very important sector of the economy, the Fed's efforts to cool demand are already playing out. That sector is housing (OER/Shelter) which represents roughly 40% of the data that goes into CPI. To state the obvious, interest rates matter to housing and a doubling of long-term interest rates matters a lot.

This week, we focused on trying to better understand the potential durability of higher energy prices.

As a reminder, at WealthVest, we have a long-term view that potential GDP growth is going lower. That means, we see a real GDP growth rate that will average below 2% and an inflation backdrop that will be consistently problematic, quite unlike the grinding decline of inflation over the last four decades. For what it's worth, this is an increasingly non-controversial view among academic economists, but not one that is yet embraced more broadly on Wall Street.

The 10-year Treasury yield rose to its highest level in 11 years yesterday; however, how does this compare to interest rates over last 5000 years?

For the first time since 2019, WealthVest, a financial services marketing and wholesaling firm, was able to bring together its nearly 100 employees and four nationwide wholesaling teams for its in-person national sales meeting in Bozeman this May.

Inflation is a hidden danger in retirement. Considering retirement can last 30-40 years, increasing medical costs, food costs, housing costs and transportation costs can leave retirees far poorer if their savings do not keep pace with inflation. Many retirees depend upon fixed-income investments such as bonds and bond funds during retirement, which are not designed to keep up with inflation as these investments provide fixed coupon payments. The Federal Reserve typically combats high inflationary periods by raising the federal funds rate to ease an overheated economy. Changes in interest rates are one of the most significant factors affecting bond values in the secondary market. A truth of bond and bond fund investing is that when interest rates rise, secondary bond market prices fall.

In this episode of WealthVest: The Weekly Bull & Bear, Tim Pierotti comes back as a guest and discusses the GDP contraction, the job market, the Fed, fiscal policy and the prospect of stagflation.