No one likes corrections, and many investors are downright afraid of them. No one likes seeing the value of what they own going down, even if deep down they know it is temporary. This is the market risk that many investors just do not want to experience. However, there is another risk which is less obvious but far more serious: failing to grow your money at the rate of inflation.
Little things make big things happen, but some details are more important. To the market, the mere idea of oil in the future made a difference, while the detail on timing did not.
It isn’t just Simone Biles who feels the pressure of unrealistic expectations lately: Second-quarter GDP reported on Thursday this week. The expectation was for 8.5 percent, which had already come down from more than 9 percent; yet the economy actually grew at 6.5 percent according to the first reading of GDP. That is a full two-point deduction, which is a little more than simply “not sticking the landing” – this is a huge disappointment. Or is it?
Inflation is a stranger to many. I wrote an article in 2011 about how hard it was to actually have inflation…yet here we are. Why has inflation suddenly returned, and what can we, as investors, do about it?
Wednesday the Consumer Price Index (CPI) came out +4.2 percent over the past year. Thursday morning the Producer Price Index (PPI), which measures wholesale inflation, was announced to be 6.2 percent. More concerning is the reaction of Richard Clarida, the Federal Reserve vice-chair, who said he was, “surprised.”
