This comes as the annual PCE price index unexpectedly ticked up to 2.9%, and the 12-month core PCE, which excludes volatile energy and food, rose to 3%. The measurement is the Federal Reserve’s preferred inflation indicator because it reflects a comprehensive dataset and has its weights updated more frequently than the alternative, the consumer price index (CPI).
Of course, this is not good for an administration that is demanding the US central bank lower interest rates. With a better-than-expected jobs report and inflation remaining elevated, the appetite for reducing the benchmark policy rate by a quarter point in March is limited.
One way to shield from the barrage of uncertainty is to own assets.
Sitting on Your Assets
In a December 2023 appearance on CNBC, billionaire investor Ron Baron delivered one of the most important television interviews for the average person. Espousing one of the iniquities of the current financial system, Baron proffered massive blows to the problems of fiat money:
“Whenever you have a war, you have a pandemic, you have to have inflation. The government has to pay for it. Then when you come out of it, they have to pay it back. The way they pay it back is not by paying down any debt, they pay it back by making your money worth less.
“The way we think about things is that inflation is going to reduce the value of your money in half about every 14 or 15 years, by four or 5% a year of inflation. That’s my whole lifetime.”
This is enlightening for people who did not study Econ 101 – or read Milton Friedman’s Free to Choose or Money Mischief books – but it was also an eye-opener for Americans who have worked and slaved for yearsy. Financial experts talk about compound interest, but what about cumulative inflation? Even if inflation goes up by 2% every 12 months, multiply that by 40 years, and you realize that half of your working life was wasted to inflation.
While some might be tossing away their dollars and cents on frivolous items, others might be doing the right thing, mainly automatically setting aside 10% of their incomes in a savings account, which offers a paltry return of a quarter per month. The reality, however, is that current financial conditions are not set up for savers but rather investors.
Since the year 2000, the purchasing power of the US dollar been eroded by 49.2%. In this span, the blue-chip Dow Jones Industrial Average has soared more than 300%, an ounce of gold has rocketed 1,600%, and the median home price has tripled. The Federal Reserve has destroyed the greenback so much that it has become vital to own tangible stuff.
If the so-called anti-America trade accelerates and more dollars are repatriated, the post-2020 Great Inflation period will be a cakewalk.
Economists, meanwhile, have recently noted a growing K-shaped trend in the economy, particularly in consumption. This is when the upper arm is doing well while the lower arm struggles to make ends meet. The University of Michigan’s preliminary February Consumer Sentiment Index spotlighted a compelling finding: Asset owners have a stronger view of the economy than others.
“A sizable month-to-month increase in sentiment for the largest stockholders was fully offset by a decline among consumers without stock holdings,” Joanne Hsu, director of consumer surveys at the University of Michigan, said in the report. “Similar divergences were seen across income and education, where higher-income or college educated consumers exhibited increases in sentiment while lower-income or less-educated counterparts did not.”
It is estimated that approximately 40% of Americans today are not invested in the US stock market. The Trump Accounts can be a solution for young people today, as they immediately give an advantage that other generations did not have. If the past is prologue, the $1,000 seed money can eventually flourish and potentially outpace inflation, offering Generation Alpha kids a nest egg before they finish their seventh baby bottle of the day and throw their first tantrum.
Blowing Bubbles
It has been said that cash is king. Warren Buffett’s Berkshire Hathaway is sitting on a record $350 billion cash pile, mainly in the form of short-term Treasury securities. Americans are looking at $7 trillion on the sidelines. For Buffett, this is a signal that the market is in the mother of all bubbles. For the average Joe, it is a comforting feeling to receive 2% to 4% in guaranteed returns.
Perhaps when the Fed-induced bubble pops, cash holders will be laughing and ready to deploy their stockpile, buying the dip. Until then, owning assets will be the key to surviving and thriving.
