A quick note to update you on our broader strategy and tactics. When you hear economic news and have any questions – please send over a note, text or call me. Happy to address it or run down the answer. A critical thing you should know – we have a plan and are watching data and using a network of smart people to monitor daily happenings. The short description of the plan is be patient, invest in high yield type approaches and try to keep cash available for investing when there are plus 20% market retreats.
Here is what we know and are is the baseline for our thinking. There is no free lunch has never been better illustrated. Keep giving away money and doing spending bills while the amount of liquidity created via Covid relief is still historically gigantic and then the people you said you were helping get hammered. What is the liquidity in the economy and how is it changing are the key metric to follow if inflation reduction is your desired outcome.
Painful things needed if you want the current 8.5-11% inflation rate to retreat –
- The Fed Reserve is shrinking liquidity by raising all interest rates
- Personal savings are shrinking
- Unemployment expands
- M2 supply of money growth stops and begins to shrink
- Executive Orders and Congressional spending stop
The end of September economic information will tell us whether the Feds raise interest rates .50% or .75%. You are hoping for .75% – because the sooner they get aggressive with inflation the sooner it stops hammering the economy. If the Fed Reserve Bank takes a “soft landing” approach it will lengthen the period of high inflation. Note – this past week the head of the Fed made a speech that inferred he is going to be more aggressive and the markets have retreated. This may seem counterintuitive but that is not bad news – but it is painful to have to walk through the self-imposed economic injury.