Ed Butowsky, Managing Partner of Chapwood Capital Investment Management, joins the Willis Report on Fox Business to discuss concerns over stagflation in the US economy.
While the Fed keeps stating that there is no inflation, yet prices for just about everything are skyrocketing. If this keeps continuing we be aware of how stagflation can impact our economy.
What is stagflation? When an economic condition exists exhibiting stagnant or negative growth, combined with rising inflation and furthermore high unemployment.
The last time the term stagflation was used in relation to the US economy was back in the 70s and it did not settle well, so why should it now. There are various ways to deal with inflation or deflation by themselves respectively; however, when dealing with stagflation as we are seeing the US economy enter into this is the worst economic situation.
Why does the Fed not acknowledge that there is inflation? As Ed points out, the government uses the Consumer Price Index (CPI) to determine inflation. This number is determined by various factors most of which are not representative of goods that are purchased on a daily, weekly, or monthly basis – like groceries. Hence the reason the Fed determines there is no apparent inflation, but as every American knows and realizes every day now the cost of living has gone up 6%=7% year over year while their salaries, if they have been lucky enough to have a job, has not increased to help ease that increase.
In addition the Fed is pinpointing the rising costs of goods, food and oil for example, from tension in the Middle East and rising demand for goods around the globe. In many interviews of the Fed they do not speak of the “quantitative easing” (printing more money for the economy) that is occurring. As the Fed is printing more money it is devaluing the dollar and making the price of goods rise significantly.
The bottom line is investors need to be aware of the pitfalls in an economy going through stagflation. Ed points out that you should review your portfolio with your advisor and identify investments in your portfolio that will cause you to loose purchasing power. Such an example would be fixed income investments that are interest rate sensitive. Investments that should be evaluated by you and your advisor are investments like equities. While many equity stocks will be adjusting 6-9 months out for cost of oil and such, it’s important to look at equity stocks that help produce things in demand like metals, food, and other commodity producers. More importantly strive to cut any debt that you may have and stay away from incurring any debt during this time. Re-evaluate your families budgets and take into account not what is happening and the cost of things now, but adjust for the rising cost of goods in 1-3 years from now. What you buy today as consumables will cost more in 1-3 years from now so be mindful of this.
Disclaimer: This information is provided as general information only. It is not intended as professional and/or financial advice nor does any information on this webpage constitute any kind offering of securities. Consult your financial advisor.
A word about Ed Butowsky:
Ed Butowsky is the managing partner of Chapwood Investment Management and is an internationally recognized expert in the investment wealth management industry. Ed is also a frequent guest on other networks such as CNN, NBC, ABC, Fox News, Fox Business, and Bloomberg to name a few.
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