What to Do About High Inflation

Just keep buying… [TradeSmith Daily]( What to Do About High Inflation By Michael Salvatore, Editor, TradeSmith Daily Inflation is still high… and it doesn’t really matter. Now, before you think I have my head in the sand, let me explain. Just yesterday morning, the Consumer Price Index came in at 0.4% month over month and 3.7% year over year, both slightly higher than expected. This follows an also slightly hotter than expected Producer Price Index report on Wednesday. And the second month of overhot readings in a row. Higher oil prices are mostly to blame for this one, as fuel costs trickle through everything in the economy. But in general, why is inflation taking so long to slow down? Frankly, there’s just a LOT more money sloshing around in the system than there was a few years ago. To be exact, it’s about $5.5 trillion more, or an increase of about 35% from February 2020. This chart of the M2 Money Supply — an estimate of all the readily available dollars in the economy — shows it: Federal Reserve of St. Louis The Federal Reserve has been working to wean this off and get inflation under control. M2 is down by just over $1 trillion since the peak in early 2022. But the shock of the pandemic, and the much higher amount of money still in the system, means we’re likely to face “high inflation” for a while. Should the Fed remain fixed to its 2% target, we can be almost certain of it. There’s not much we can do about this as consumers. Prices will be what they will be. So a much more useful question to answer is what we should do as investors… RECOMMENDED LINK [Quant Legends: “Your Final Chance to Make Incredible Gains on A.I.”]( In a time-sensitive presentation, two quant legends say the A.I. bull market isn’t over... not even close. But they also say this is the final warning – we may never see another opportunity like this again. [Watch their urgent briefing here...]( Just Keep Buying If you wanted a more complex answer than “just keep buying stocks,” I’m sorry to disappoint you. But regardless of whether we’re in times of high inflation or low inflation, bull markets or bear markets, war or peace or anything in between… you simply can’t go wrong with “just keep buying.” Skeptical? All we need to confirm that is a long-term comparison of inflation and stock prices. According to Bureau of Labor Statistics data, the average annual rise in the Consumer Price Index for the last 100 years is… drumroll… 3%. Yes, that’s a full 50% higher than the Federal Reserve’s apparently unrealistic goal of 2%. Here’s what it looks like over time. Bureau of Labor Statistics With that in mind… inflation’s actually not all that “high” relative to its long-term average. It’s about 23% higher than usual. Well, high or not, inflation is bad for the guy trying to save all his money by stuffing his pillowcases with green paper. But you’re probably not that guy… You’re an investor. And because you have money invested in the market, you’re almost always a step ahead of inflation. Just look at the long-term annual returns of the S&P 500 for comfort. That’s been 10.5% on average, more than 3 times the rate of inflation, since 1923. If you took $100 and bought the S&P 500 every month and reinvested all dividends, your return would be over $2 million. OfficialData.org Meanwhile your weird pillowcase friend, who’s been diligently putting $100 into his pillowcase every month for 100 years, has saved just $120,000 and lost a whole lot of purchasing power. That market return is through depressions and recessions… two World Wars…and even periods where inflation did outpace the rate of stock market gains. In the end, none of that mattered. Consistently investing your money mitigated nearly all of the threat of inflation in the long run. This might sound obvious to someone who’s been investing for a long time, but I’m sharing this for a good reason… RECOMMENDED LINK [Can This A.I. "Brain" Predict Earnings Announcements?]( Want to capture the massive short-term gains that happen around earnings announcements? Two of the world’s premier earnings experts have developed a $5.4 million A.I. “brain” with the power to predict earnings BEFORE those numbers go public. Main Street just got a massive advantage over Wall Street. [Go here now to see it]( Don’t Get Caught in the Chop There’s been a lot of handwringing about inflation these days. When the CPI numbers came out Thursday, stocks dropped like a stone right after the open. The fear is that the Federal Reserve will keep rates higher for longer, and maybe even raise them again at the end of November, because of this data. If you get concerned about things like that, I get it. Nobody wants to open their brokerage account and see red, especially after it’s been nonstop chop for the past couple months. Nonetheless, I encourage you to take the long view… Over the long arc of market history, assets rise in value faster than inflation. That’s just a fact. And while there’s no guarantee that’ll continue to be the case for the next 100 years, the odds are heavily stacked in your favor. And if we see poor or even negative returns in stocks for the next several years, there are plenty of ways to make up for that. Taking advantage of higher interest rates and capturing yields on risk-free Treasuries is just one such way. My point to all of this is to talk any potential worried investors off the ledge. We should not fret about the things we can’t control — inflation data — and instead focus on the things we can — our investment strategy. If we do that, the lower prices we’re seeing today start to look more like a blessing than a curse. I, personally, just added quite a sum to all my favorite long-term stock holdings. It made me feel a LOT better about the last couple months. Try doing something similar and see how you feel. To your health and wealth, Michael Salvatore Editor, TradeSmith Daily P.S. For all the traders who are either loving or hating the morning headline whiplash, I have to point you over to [the Swan brothers at Derby City Insights](. This Sunday, they’re sending out the first edition of their weekly Earnings Season Scorecard to their subscribers. It has data on [all the stocks they believe you must trade]( over the next several weeks to get an edge on this market. Their earnings strategy is a testament to how far AI has come in such a short time. See, the Swan brothers use AI to crawl the web for social media posts about publicly traded companies, aggregating that data into [actionable trading signals](. Turns out, the way folks feel about one stock or another has a big impact on how those stocks perform each quarterly earnings season. Andy and Landon Swan explain it in great detail in [this video](. I highly encourage you check it out before earnings season kicks off in earnest with the big techs next week. And look out for tomorrow’s TradeSmith Daily, where I’ll share a conversation I had with Andy Swan about this same strategy. Get Instant Access Click to read these free reports and automatically sign up for research throughout the week. [25 Doomed Blue Chip Stocks]( [3 Stocks That Could Triple This Year]( [Download now on the Apple Store]( [Get It On Google Play]( [Customer Support: 866.385.2076](tel:+866-385-2076) | support@tradesmith.com [Request Customer Service](mailto:support@tradesmith.com) ©TradeSmith, LLC. All Rights Reserved. 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