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Investing in an inflationary environment



In the last couple of months, President Biden and Secretary of the Treasury Yellen have each said in press conferences that they are going to fight this surge in inflation by putting more money into the system.

High school economics students know inflation is caused by too much money chasing too few goods caused currently by supply chain disruptions.

President Biden has drawn a check from the Federal government as an employee of taxpayers for 50 years with little to show for it except getting re-elected term after term.

Secretary Yellen has pretty much drawn a career of paychecks from the government as an employee of taxpayers, too, except for paychecks from universities which is the same.

She has served under Presidents Obama and Biden. Not being concerned about inflation in her Senate confirmation hearings for Fed Chairman, she received the smallest margin of votes in Fed Chairman history.

At the end of Yellen’s Fed Chairmanship term, President Trump let her term expire and nominated Jerome Powell to be the next Federal Reserve Board Chairman.

Chairman Powell is an attorney by education. He has worked in the legal field, banking and finance (Dillon Read, The Carlyle Group) and founded his own investment group.

Having been in the real world, Chairman Powell knows how the world works.

In the 1960s, President Johnson fanned the flames of inflation with his “Guns and Butter” financing of our fight in Vietnam.

He promised that the American consumer would not suffer while we fought the Vietnam War.

Government debt was issued to cover wartime expenses. Inflation became so prevalent that President Nixon, in the 1970s, ordered “Price Controls”, i.e., prices were frozen creating a supply chain disruption.

At the same time, the Arab Oil Embargo reared its ugly head from which oil prices and inflation roared ahead.

There were gas shortages and long lines at service stations. Bond yields soared, the stock market plummeted.

President Carter in a less than inspirational fireside chat suggested we turn down our thermostats and wear a sweater like his lovely beige cardigan.

Now with another president, Joe Biden, and his government-employed friends who experienced the 1960s-1970s inflation in charge, no one seems to have a memory.

Will it take another once-in-a-lifetime Fed Chairman like Paul Volcker to stop inflation in its tracks and a once-in-a-lifetime president like Ronald Reagan to kick start voter confidence and the economy?

In an inflationary environment, most investors want to cash out to save the market value of their assets.

Money market funds are paying around 1%. The 10-year treasury is paying near 2%. Both yields are giving up value to 7% inflation.

The best long-term strategy against inflation is a well-diversified stock portfolio of high-quality value and growth companies paying a market or better dividend. Overweight Energy.

Gold is an inflation hedge but most of the time it earns nothing. If you want real estate, if you own your home, you are already invested in real estate. Home prices have risen dramatically recently.

If the Administration and Congress will stop printing money and supply-chain issues are solved as the year progresses, the inflation rate should fall and the stock market should return to a normal rate of growth in line with economic growth.

In spite of our stumbling, bumbling and fumbling elected representatives in Washington, stay invested.

Our country and our people are greater than they are.

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