So, how do you cook your turkey? This year my sister-in-law and family are joining us for Thanksgiving. They have traditionally fried their turkey and offered to do so for our gathering. That was fine with me – I have had fried turkey only once, but it was tasty. I do have to admit that of all things Thanksgiving, the turkey is not high on my priority list, but it is for my brother-in-law and he was happy to fry away (and doing so clears our oven for other adventures), so that is what we will do this year.
I was explaining this to a client last week who is also a fan of the fried turkey. He, however, was trying something new this year – partly because it is fun to try something new, and partly because the peanut oil he uses to fry the turkey has become expensive. The day after we met, The Wall Street Journal ran an article about the high cost of cooking oil. Inflation is everywhere we look.
The latest reading of the consumer price index (CPI) came in at 6.2 percent, which is the highest rate of inflation in 31 years. It is not going to go away until the policy causing it goes away: That means interest rates have to be allowed to go up, and government must get spending under control. Those things were hard enough to accomplish in 1980, when people may have had political differences but at least agreed that facts are facts, and everyone has to live with the facts whether they like them or not.
Inflation is a fact, and it is impacting everything from the cost of travel to the Thanksgiving dinner itself. The people impacted the most are those who were already barely making it inside their budget. The unmistakable lesson of the government policy of the 1960’s was that it caused the malaise of the 1970’s. These fundamental relationships do not change; the only thing that has changed is that in our modern economy everything happens more quickly. In both periods we had policy designed to stimulate economic demand, with policy simultaneously aggressively attacking those who created supply. This combination has always produced horrible results everywhere and every time it has been tried.
What is an investor to do? The good news is that over the long haul, stocks are the best hedge against inflation. Who really gets hurt is the saver. Stable value options inside of retirement plans are now providing annualized investment results of approximately 2 percent; that is safe in that there will be no market volatility. However, with inflation now more than 6 percent, this means that same saver is losing 4 percent of purchasing power every year. That kind of annual bleeding will wreck many risk-averse savers.
There is more than one risk in investing, and it is often the less obvious ones that are actually the most dangerous.
Still, it is Thanksgiving, and even in a year with high prices there is still much for which to be thankful. In keeping with our tradition, here is my list:
I am thankful…
~ that my in-laws are paying for the cooking oil;
~ that we will be having a normal Thanksgiving in our home;
~ that the other schools in the ACC are really bad at football, thus Wake Forest made it to the top ten for the first time in school history;
~ that Wake Forest is currently undefeated in basketball while Carolina has already lost two games;
~ for my children, who are growing and learning in real – not virtual – classrooms;
~ for my family, immediate and extended;
~ for all of my friends; and
~ for Mama’s pumpkin cheesecake and my loose-fitting pants, which make enjoyment of said cheesecake possible.
~ Finally, I am thankful for you, our clients and friends. Your trust in Iron Capital is our greatest asset, and we value it every day of the year.
Chuck Osborne, CFA