Cheap Money and Inflation

January 13, 2020

My Dear Reader,

The stock market will do what does stock market wants to do. In the first 2 weeks of the new decade the Dow has been down by 200 and up into the 60s.  Obviously some of it has to do with International uncertainty- especially with the affected areas holding so much oil. But at the end of the final quarter of 2019 and the start of 2020, The Fed announced that there would be no change in the prime rate. Of course this means that money will continue to be cheap for the foreseeable future, I don’t know if it will ever change during our lifetime. Because of this, I would expect to see Construction continue in the booming Southern States as debt becomes less and less of a fear of the younger Generations. That could be an article in of itself, but I can’t help but be worried about one thing that Simon black brought up a few months ago. In one of his articles on inflation, Simon described sharp increase in the cost of raw materials. 

“Airlines are paying 40% more for jet fuel than they were a year ago. Manufacturing companies are paying 8% more for aluminum and 38% more for steel than a year ago… and they’re dealing with a 10% tariff on Chinese goods. Paint company Sherwin-Williams increased prices in its stores as much as 6% last month”

So while money may be cheap in the early 2020s for Real Estate, the actual cost of getting into the most profitable game may sharply increase. This is due in part to the cost of raw materials, and also in hot markets like Nashville and soon-to-be Alabama land will be more and more expensive. Naturally as this happens, you’ll see more and more investment in the stock market as it’s much cheaper way of attempting to gain a rate of return. But with inflation as rampant as it is, I’m not so sure a right of return especially if it’s at a qualified plan will be able to cover a tax liability and inflation erosion. That leaves us with precious metals and private reserve strategy as the best way to deal with this bull market. I am honestly not sure how long it will be until it turns into a bear. Happy Monday! 

To your Creation and Potential,

Kevin Prendiville