I am sure you have noticed; many prices have been going up. It is not just anecdotal evidence, broad measures such as the CPI (consumer price index) and the PPI (producer price index) have measured significant increases too. Will these increases be transitory (short term) as the Federal Reserve believes or will they lead to a continuing spiral? Obviously, no one really knows!
The real question for any investor is: Will it still be profitable to own stocks in an inflationary environment? We know it will not be favorable for bonds, other fixed income instruments and even cash. All of these will lose value. Some stocks, but not all, can benefit from rising prices. Some companies will be able to raise prices and even enhance their margins under the cover of others doing the same. Those companies that cannot, will lose value.
The Bull remembers the inflation during the late 1970’s and early 1980’s. This experience will be instructive as to how to position for any resurgence. Portfolios may need to be adjusted; however, it is still too early to make that commitment. We are watching closely. As always, we will work to make sure that our clients benefit from whatever the outlook. Stay steady my friends.
The Lonely Bull