Inflation Is Good For the Economy

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What I wanted to talk about is that we are here at records we are at highs on the S&P and the DOW, but still one of the things that dominates my conversations has been what can go wrong and I I've talked about this before on this podcast and it does seem to me that there isn't a willingness for people to center their thoughts on fear than there is on optimism and so I've really put a lot of thought into this and I'm wondering kind of why that is why do we tend to go to what will go wrong versus what will go right not just with money but I think just in life and in terms and so specifically when I get down to the money part of it I've been thinking about this.

I really think that a lot of the fear-based information that we get on or what could go wrong with these markets that is what cells in the news so if you wanted in know people been on CNBC and talked to those but if you want to get on CNBC you do need to say something that will get attention I think the market is going to crash by 30% that's going to get attention well why get attention is you know I believe that we should continue to invest expect to get a 7 to 8% return reinvest your dividends that's not going to work that's boring people don't want to let tune into that and so but that's the positive so I do think that a lot of the negative press is what 10 we tend to glom to what we tend to hear more of what it gets clicked on more on the Internet.

So what we're seeing clicked on the Internet talked about the most right now is inflation so inflation is simply the cost of goods going up and I have done some talk some podcast on this and one of the things that you've heard me say on the podcast is I really wish we could re-frame the whole conversation around inflation because what I said then and still will say today notest.

I'm using the word modest inflation is good inflation and I think we've been trained from financial classes from economic classes to think that inflation is bad and it's just not true let's break it down to the beginning all inflation is remember going back to high school supply and demand when there is more demand than supply it's going to create inflation so if there are more people wanting to buy widgets than there are widgets for sale the price of widgets will go up we're seeing that with real estate right now there are more people wanting to buy a home than there are homes available so you see prices in real estate go up inflation does not equal bubble inflation does not equal mania it can and it’s flat is usually the first part of it but just because you have inflation doesn't mean there's a bubble and just because you have inflation doesn't mean that there's mania so housing prices are going up it's another housing bubble no that's just where we happen to be in this part of the economic cycle.

So what I'm going to talk about more is why we're seeing the inflation and how does it affect people So what kind of got me started on this is I did have a client that called that he pays attention to a lot of this to a lot of the news and what you're seeing a lot of in the news or people Hawking gold and you going to buy gold you going to buy gold going to buy gold and he wanted to take it all of his money out of stocks and buy gold and I want to argue with him I told him my opinion but I'm not going to argue it and so he said that's what he wanted to do and because commodity prices are up so kind of looking just where we are today like lumber the price of lumber as you've heard is up a lot it's 104% so it's doubled the price of lumber and by the way it's down from the ties by 40% so it's gone up a lot natural gas is doubled but 98% crude oil from the lows from the lows from royal this year is up 81% all of the farming or the agriculture related commodities or up corn coffee soybeans that's all up around 50 to 65% cotton sugar and wheat 35 to 45 ish then in the metals copper which by the way goes in a lot of infrastructure is up 63% silver is a 45% you'd think go it would be up a lot too don't you it's not it's a point 1% it's just not there's hasn't been a lot of demand for gold and so we are seeing a little bit of inflation you should be seeing it when you go to the gas pump you should be seeing it when you go to the grocery store so we're seeing more of it because there are more people chasing less supplies in the market.

Well let's talk about why that is I think there was a really good explanation as to why that is so we're coming out of this pandemic so when we're in this pandemic it was much less so here in Houston than it was in other cities people I'm going to speak in a hole or locked down there was not a lot of spending unless it was on Amazon he had to deliver so there were certain areas that did well so if there's not a lot of spending there's not going to be any inflation there is no demand there so there is no inflation what the government was doing was giving us money giving us money giving us money in the form of this stimulus checks things of that nature and so we saw more money in bank accounts on average than we've ever seen before in our history so you had all this money coming in the unemployment rate reached a peak I just it was just under 15% I think 14.8 is kind of what we've been seeing and that was in May of this year so then we get to the end.

I'm not ready to call at the end of Covid but you know what I'm saying we're in the latter innings of this game and all of a sudden people say I going to get out of house I'm getting out of here I'm going to spend money just like we've been saying they were going to do and Lord have mercy have they been spending money it has been incredible how much that people are going out in their spending so we're seeing corporate earnings go up and go up and go up guys business is good.