Brandy Auterson:
It’s now time for, 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you, Brandy. Appreciate it.
Brandy Auterson:
So not surprisingly, the price increases we saw unfold throughout 2021 seemed to be spilling over into 2022, and remain and a focal point for investors. Now, as these price pressures continue, what do you think is the most important thing for investors to be considering?
David Nelson:
Well, even though there’s been massive media coverage, as far as discussing, as far as inflation numbers at 7%, which is just hard to fathom, we still think it hasn’t really hit home, as far as for many individuals. The chart that I brought along today, I think will be a nice visual as far as to help folks understand, as far as how this all comes together. And the blue line, what we’re illustrating here, and the blue line is where I guess I want people to start is illustrating the inflation and it’s going back to the sixties. And what we see as far as on this chart is a huge spike towards the left hand side, and specifically, that’s 1982, where things peaked. That was about the beginning of my career, as far as in this line of work. We had interest rates running at 14, 15, 16% during that window. And it was really, really tough times to say the least.
David Nelson:
After that, if we move to the right, we see that inflation’s been running at one to 3%, give or take, for much of the last 10, 15 years. And the red line, which is illustrating the 10 year government bond, is basically running pretty much in sync with that. And again, from the perspective of the investing public, it’s been higher than inflation the bulk of the time, which is probably pretty obvious that, that’s what people would want, as far as a little extra yield up and above inflation. However, if you go to the far right that we have circled there, we see that this enormous spike that we have, as far as an inflation and yet the 10 year bond is still running at 1.75%. This is a bizarre period of time, as far as that we’ve really never seen anything like this before.
Announcer:
Okay. So if this dynamic isn’t likely to persist, what are some of the ways we could see it resolve?
Brandy Auterson:
So from a purely technical perspective, there’s only really three things that can take place. First of which inflation retreats. Number two, you have bond yields that rise. At 7% on the inflation number today, it’s hard to imagine a seven or 8% bond yield. So I doubt that that’s going to happen. And then the final one, the number three would be, some combination of the two. The government wants the interest rates to stay low, because again, this is the cost of borrowing money is very much tied to the 10 year here. So this is really, really important that we keep a close eye on this.
Announcer:
If you missed any of our discussion, we’ll make it available for you on ourquadcities.com.