July 20, 2021
Trish Regan here…
I don’t say this often. But I hate that I’m right (about this).
I’ve been pounding the table since early 2021… warning America about a massive risk to our economy – inflation.
And this will wreak havoc on more than just your grocery bill next week… If you have $100,000 nestled away for retirement, that money might not cut it in five years.
As an investor and a saver, you have to protect yourself and be aware of this reality and the future probability. Prices will continue to rise…
Today, we’re turning it over to our retirement expert, former Wall Street banker Dr. David “Doc” Eifrig, who details the No. 1 worry for retirees, and how to protect yourself.
This Is the Biggest Concern for Retirees
Despite a recovering economy and a bull market, lots of you are worried.
I don’t blame you. It takes years to build up a nest egg that will last you through retirement. And it can take just a few weeks to watch it get cut in half.
We’re in a market boom right now. That means a bust is sure to be right around the corner. Plenty of folks wrote to me recently and asked how retirees should handle the coming Melt Down.
But surprisingly, that wasn’t the No. 1 concern…
When it comes to retirement, it turns out that folks are more worried about the looming threat of inflation.
Inflation reduces purchasing power. For retirees, your health care becomes more expensive, as well as your housing costs and even your groceries. Simply put, a dollar won’t buy as much as it used to before a surge in inflation. And that means you run the risk of outliving your money.
It’s scary to think of. No one wants to be forced back to work when they should be on a beach sipping Mai Tais.
As an example of how inflation can crush retirees, take a couple with $1 million saved for retirement. They expect to spend $50,000 a year on expenses and trips to see their children and grandchildren. Let’s assume they earn 3% on their money in safe bonds.
Now, if there is 3% annual inflation, that $1 million would last for 20 years. But if inflation rose to, say, 12% a year… that $1 million would run out in 11 years and nine months. In this scenario, returning to work becomes a real possibility.
Now, 12% inflation is unlikely. But you get the point. Even an inflation rate of 4% or 5% can reduce the amount of time you can live on your nest egg.
And Stansberry Research subscribers aren’t the only ones worried about inflation…
Given the trillions in spending that our government has been pumping out lately, inflation is the latest buzzword. Flooding the economy with all that cash will definitely lead to more dollars chasing the same goods… and that means rising prices.
In April, investors got a wake-up call when the core Consumer Price Index (“CPI”) rose 0.9% month over month – an annualized rate of 11%. The core CPI is a key measure of inflation, and it’s what economists tend to focus on because it strips out volatile food and energy prices.
As you can see, it was the biggest monthly change in years…
Raising interest rates is one way to cool inflation. When rates are higher, consumers tend to save more and spend less because they can earn higher returns on their savings.
But the Federal Reserve has been adamant that it will not raise interest rates any time soon – likely not until 2023. And that’s why a lot of folks think inflation can run pretty high over the next few years.
Options traders are betting on it. The chart below shows the option-implied probability of inflation over the next five years.
In March of last year, folks weren’t worried about inflation. They thought it would be under 1%. But today, markets are implying there’s a 29% chance of inflation being above 3% over the next five years. It’s near the highest reading over the past decade.
We track inflation each month in my income-focused newsletter Income Intelligence. Instead of just focusing on the core CPI, for example, we look at a number of inflation indicators – from commodity prices to real-world prices, like the price of a bike at Walmart.
We’re showing that 16 of our indicators are flashing “inflation,” and that’s one of the highest readings we’ve ever had.
Now, this month’s readings clearly reflect large “base effects.” For instance, in June of last year, oil sat below $40, clearly due to pandemic-related shutdowns. That makes the 58% increase in gasoline prices, the 93% jump in oil, and the wild 370% rise in shipping rates “transitory.”
However, it’s obvious there’s also still an underlying rise in inflation.
So whether you like it or not, inflation is going to be an issue, and retirees should be concerned about it.
It’s not Tesla, Ford, Nikola, or any name you know. Get the full story on this $4 stock set up to profit due to the supercharged electric vehicle market.
But no one is immune to this economic disaster…
People often think of “hyperinflation” as just an extension of higher levels of inflation. But it’s not.
It’s an outright collapse of the trust and faith in a currency.
When a country crumbles under the weight of its debt obligations, the rules of commerce break down. History is rife with stories about societies that collapsed under the weight of their debts.
When Alexander the Great died, Babylon’s market economy was crippled.
In the wake of Alexander’s death, commodity prices surged. Wool prices doubled, and barley prices rose more than 10 times over. Alexander’s riches of conquest didn’t bring wealth to his kingdom. Instead, an influx of silver led to an increase in the money supply. More silver meant silver was cheaper. And the cost of everyday items rose in concert. This spiraling inflation lasted for at least a decade – cutting the value of Babylon’s currency in half.
This wasn’t the world’s first inflation disaster… and it definitely wasn’t the last.
The most famous case of inflation and national currency collapse in history is that of Germany’s Weimar Republic in the early 1900’s.
Over a period of about 10 years, the German mark eventually became worth one-million-millionth of its former self, surging from an exchange rate of 4.2 marks per U.S. dollar in 1919 to 4.2 trillion marks per U.S. dollar just four years later.
To outsiders, it was obvious Germany was destroying its currency. But locals simply held on, in a state of confusion and denial… even as inflation exploded exponentially.
As a German woman told Nobel and Pulitzer prize-winning writer Pearl Buck:
We used to say, “The dollar is going up again,” while in reality the dollar remained stable but our mark was falling. But… we could hardly say our mark was falling since in figures it was constantly going up – and so were the prices – and this was much more visible than the realization that the value of our money was going down… It all seemed just madness, and it made the people mad.
Economic historian Adam Fergusson explained why in his book When Money Dies:
It was the natural reaction of most Germans, or Austrians, or Hungarians – indeed, as for any victims of inflation – to assume not so much that their money was falling in value as that the goods which it bought were becoming more expensive in absolute terms.
And this is exactly what’s happening in America right now.
Unfortunately, the sad truth is most Americans will do the exact same thing Germans, Hungarians, and Austrians did with their soon-to-be-worthless currencies, even after the dollar has been devalued for the umpteenth time…
They will cling to their increasingly worthless money, rather than preparing for what’s to come.
Inflation has plagued savers and wage earners since the invention of currency and the market economy. Any income investor, retiree, or business owner should know the fear of rising prices. The higher prices go, the less you can buy with your nest egg.
The Federal Reserve spends a lot of time trying to either tamp down or boost inflation. The unfortunate truth is… almost no one fully understands inflation. (Not even so-called “experts.”)
Three years ago, I warned readers we’d see higher inflation within the next three to five years. And now, it’s here.
This past March, I wrote:
Today, I think all the conditions are in place for inflation to rise…
To be clear, I’m not predicting hyperinflation – the phenomenon by which runaway prices render a currency worthless. But I do see inflation heading from today’s 1.4% level toward 3.5% or 4%.
That may not seem like much, but it adds up…
The difference between 1% inflation and 4% inflation is significant. Due to the power of compounding, a $100 weekly grocery bill turns into $110 over 10 years at 1% inflation… or $148 at 4%. If you spread that across all your daily costs, retirement gets a lot more expensive.
What’s more, the expectations for inflation will drive investment returns. When you expect inflation, you position yourself differently than you would if you expect deflation.
I’ve spent the last few years educating readers on inflation because I know that with an understanding of inflation, you can protect yourself and your family.
Right now, you need to do three things: Ditch inflation-exposed assets. Find inflation-protected assets. And prepare for uncertainty… Rising prices can lead to panic, distrust, and disruption in our society and government.
We are living in a dangerous financial time… And the biggest risk right now is doing nothing. You can’t rely on anyone else or the government to save you. Click here to learn what you can today.
I’m not sure if you remember books, America, but it’s what people used to sink their faces into to avoid dealing with family and strangers. Our editor-in-chief, P.J. O’Rourke, has written a few in his time, and he’s re-releasing his bestselling Eat the Rich, complete with a new chapter to take on the absurdity of 2021 economics. And as an American Consequences subscriber, you can have access to the newly released edition for free! Claim Your Copy Now.
P.S. Doc and I are clearly on the same page about inflation. Have you watched his most recent video? He talks about the crazy prices right now for housing, rental cars, you name it…
Few Americans seem to realize the repercussions of the $11 trillion being pumped into the U.S. financial system in the past 18 months. Doc explains what’s coming next, and what you can do to prepare. Get up to speed by clicking here.
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Publisher, American Consequences
With Editorial Staff
July 20, 2021