Last Thursday, news broke that U.S. inflation clocked in at 7.5% over the last 12 months.
It’s enough to cut the value of your savings in half… in less than 10 years.
That makes inflation the biggest threat to your wealth right now.
So today, we’re turning to renowned commodities investor Dave Forest for insight.
Over at our Strategic Investor advisory, Dave has been helping subscribers pinpoint assets that will outrun inflation… and allow your nest egg to thrive in even the toughest times.
To find out more, watch the video above. It’s where host Tom Beal and I break down the most important market story on our radar for the week.
Editor, The Daily Cut and Legacy Inner Circle
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Tom Beal: Unless you’ve been in a coma, you’ve seen that inflation is real. As a consumer, your dollar isn’t going as far as it used to.
From an investor’s standpoint, what can we do to grow and protect our wealth amidst this spike in inflation?
My name is Tom Beal, host of The Weekly Pulse, where we break down the biggest wealth-growth topic of the week.
I’m here today with the editor of Legacy Inner Circle, Chris Lowe.
Chris, let’s begin today’s conversation about inflation.
Chris Lowe: Tom, inflation affects everybody watching this video.
We’ve been tracking it here at Legacy Research for many months.
As you know, inflation has been getting higher since we’ve exited the worst of the pandemic lockdowns.
But last Thursday, we got news from the Bureau of Labor Statistics that inflation has risen at a 7.5% pace over the last 12 months.
You have to go all the way back to 1982 – when Ronald Reagan was in the White House – to get an inflation reading that high.
I don’t know how you’ve been coping with this, Tom. But I certainly have noticed it over here in Ireland, where I am at the moment.
Tom: I’m noticing my dollars don’t go as far as they used to. Here’s one example…
I like to go on my moped around south Florida. I’ll go from Boca Raton to Deerfield Beach or Delray Beach.
The moped has a little over one gallon capacity. I used to fill it up for $2 just a couple years ago.
Now it’s over $4 – more than double.
I also see it when I fuel my larger vehicles. What used to be a $45 fill-up is now $80-some dollars.
And if I spend $100 dollars in the grocery store, it gets me much less now than it used to.
It reminds me of the old adage, “It’s not what you earn. It’s what you keep.”
I’m still earning roughly the same. But I’m spending more. That’s because – as you said – inflation is kicking in at a level we haven’t seen since Ronald Reagan was in office. It’s pretty wild.
Chris: It’s something our analysts have been spreading the word on.
As you’ll hear today from our commodities investing expert, Dave Forest, that 7.5% headline inflation number obscures a lot of much bigger price rises over the past 12 months.
You mentioned gasoline. It’s up 40% from January 2021 to January 2022.
We’ve been talking about inflation hitting our wallets as consumers. But of course, we also have to deal with inflation as investors.
I talked to Dave about this yesterday at his home in Vancouver.
Let’s go straight to that conversation. Then we’ll pop back and reflect on what he says.
Chris Lowe: We got some interesting news last week. Inflation numbers have ticked up to 7.5% over the past 12 months. That’s the highest level since 1982.
A lot of people are worried about it. What’s your take?
Dave Forest: Well, they should be worried. Like you said, this is a 40-year high in inflation.
We haven’t seen anything like this in a long time. There are some really concerning things when you dig into the number.
Everybody just looked at the 7.5%. That’s the headline number when you put together all the different things that Bureau of Labor measures.
But when you get down to the individual numbers on how fast various goods are rising, there’s some scary stuff.
Chris: What have you been seeing when you dig in?
Dave: If you go into things like gasoline and diesel, they’re rising at 10%… 20%… even 40% in some cases. Electricity rates are over 10%.
This is unprecedented. It’s scary – because those go into everything that we use. Energy’s a huge driver behind all the goods that are shipped anywhere in the world… And those prices are rising out of control.
Chris: You’re well known for being a commodities expert. You’re a trained geologist. You’ve worked a long time in that area. What’s happening with energy prices?
Dave: We’ve pumped so much money into the economy… six trillion dollars in a matter of months – and that’s just in the US. That money is chasing everything.
We can’t just create more of the hard goods and commodities, like oil, coal, and electricity. Not the way we can with, to some degree, iPhones or cars.
Goldman Sachs made an unbelievable statement on the commodities market. Their head of commodities said he has never seen a market like this in his career.
He said, “We are running out of everything… From coal to copper to fertilizer. All of these things are completely gone, everywhere on earth.”
Chris: How is it related to the pandemic and the resulting supply chain problems?
On the one hand, you’ve got rising demand from the government sending out checks to people. On the other, you have the disruptions that the lockdowns cause.
How do you see those two things coming together?
Dave: I think a lot of this price rise isn’t because of supply chain issues. But the supply chain crisis sure isn’t helping.
The other big thing that’s happening is labor inflation.
Prices for wages are going up. People are asking for more money. That’s not helped by the fact that a lot of folks have left the workforce because they got government aid. And they haven’t come back yet.
When labor prices start rising, it makes everything go up across the board.
Chris: Here in Ireland where I live, the unions are asking for a 5% pay rise.
Business owners are saying, “If we start raising wages, there’s going to be even more money chasing the same amounts of goods and services.” Constraining goods and services causes that inflation cycle to set in.
Is that what will happen if those wages go up?
Dave: Absolutely. If inflation’s running at 7.5%, those workers are going to need more than 5% just to stay on the treadmill.
So you can bet those demands are going to go up.
The business owners are absolutely right. If you start paying people that much more, all that money keeps chasing all the same things. And prices for everything go up.
We haven’t seen labor price inflation like this since the 1980s. It’s completely outside most investors’ experience.
Even when we pumped trillions of dollars into the economy in 2008, we didn’t see labor price inflation like we have now.
Chris: How should investors be thinking about this situation?
Dave: I would urge people to go beyond just reading the headlines about inflation.
Go to the Bureau of Labor Statistics website. You can click on their full release, and actually look sector by sector at the gains in each one.
If we consider that inflation’s running about 7.5% on average, an investor has to look for things that are beating that. And those opportunities do exist.
We talked about things like electricity, oil, and even coal. I’m not suggesting you run out and invest in coal.
But let’s say you’ve got a play on electricity… It’s running at about 10% inflation right now. This means that an electricity provider is making money faster than their input costs are rising.
So, you’re actually investing in a business that stands to benefit from this inflationary environment.
Here’s the scary thing: when you dig into those numbers, most sectors that investors concentrate on are not beating inflation.
Look at healthcare. Look at tech. They’re running maybe 3% or 4% inflation. So they’re not making money faster than their input costs are going up. This means they’re going to be making less money in the future.
Nobody talked about this, but that’s probably why Facebook took such a big dive. Facebook, or Meta as it’s called now, is actually an advertising company. They make almost all their revenue in advertising.
Advertising does inflate – as there’s more money in the world, prices for advertising do go up. But not that fast.
This year’s forecast is for the advertising sector to have 4.4% inflation.
Meta is making most of its money from advertising. When their input costs are going up 7.5%, that means they’re losing 3.1%.
People are now realizing that these businesses are going to have a tough time in this environment.
So, you’ve got to be looking for things that are going to beat that figure of 7.5% inflation.
They are out there if you look carefully.
Chris: There you have it, Tom. Dave has taken us through his thoughts on some of the sectors that are beating inflation… and some of the sectors that are just falling behind, in terms of inflation.
Dave is not very keen on healthcare at the moment. That’s because the amount it’s charging its customers is not going up as much as its input costs.
It’s the same for technology stocks. Dave linked the big crash in Facebook shares to the inflation story. That’s an idea I haven’t heard before.
Dave is saying something we’ve said before here at The Weekly Pulse…
When inflation is rising, you want to own hard assets. Energy-producing commodities – like coal, oil, and natural gas – retain their value as inflation is rising… because they’re scarce.
Unlike the dollar – which is being printed at a rate that we haven’t seen in our lifetimes – things like coal and oil cannot be printed. The government can’t simply create them.
Scarce assets hold their value when money is in abundance. That’s a simple way to think of it.
One way you could play the hard asset story in the energy sector is with the Invesco DB Energy ETF. The ticker symbol for that is DBE.
That holds a basket of commonly traded energy commodities, such as crude oil, natural gas and coal. That’s just one idea for your portfolio, if you’re worried about inflation.
Tom: Here’s what I love about being a part of Legacy Research Group and hearing from experts like Dave – and all the other amazing experts that you bring to our attention…
Regardless of what’s happening in the world, there are ways to grow and protect your wealth. It’s so comforting to be plugged into the experts you bring to my awareness.
I don’t need to tap into the mainstream media, which has everyone frenzied and fearful and scared.
By following the Legacy experts’ advice as Chris brings it to my attention, I can remain calm, cool, and collected in any storm, and continue to grow and protect my wealth.
I’m feeling much more stable, much less fearful, thanks to the guidance from you and the other experts, Chris. Thank you for that.
I’m looking forward to continuing these conversations every week… and hopefully helping The Weekly Pulse viewers feel the same way.
Chris: Tom, I should have pointed out earlier that Dave is a trained geologist.
He’s traveled around the world for more than 20 years, hunting for some of the resources we discussed in that video.
When you say the word “experts,” I think it’s important to point out for newer viewers that Dave isn’t some desk jockey reading Bloomberg and making up opinions.
He has been plugged into the natural resource industry for over 20 years.
As a trained geologist, he’s actually been out in the field all over the world, in places like Myanmar and Colombia.
So yes, he brings the expertise of someone who’s been plugged into this sector for a long time. It’s an important point you made there, Tom.
And we’ll be hearing more from the other experts in the group over the coming weeks.
Tom: Awesome. Thank you for bringing that to our attention. Look forward to talking with you soon.
Chris: Thanks, Tom.
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