Ken Fisher on Inflation, Bear Markets, The End of Pennies and More – December 2025

Transcript:

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Naj Srinivas

Hello and welcome to the Fisher Investments Market Insights podcast, where we discuss our firm's latest thinking on global capital markets and current events.

I’m Naj Srinivas, Executive Vice President of Corporate Communications here at the firm. Today, we’ll hear from founder, Executive Chairman and Co-Chief Investment Officer of Fisher Investments, Ken Fisher.

In this episode of Market Insights, Ken answers some common listener questions to help you better understand the world of finance and investing.

But before we dive in, I'd like to ask you a favor. Recommend our podcast and rate it wherever you listen. In just a few minutes, you can help make this valuable information available to even more people. Thanks so much for your help, in advance.

With that, let's dig in with this month’s Ken Fisher mailbag. Enjoy.

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Ken Fisher

So every month I get questions sent in to me and call outs to bring to you and try to answer as best I can in a hurry. I'm not very good at the hurry part. Sometimes I just bog myself down, babbling about things that I tend to think require more attention.

So the first one this month is how should we invest, during an inflationary period? I'm just going to tell you. You know what inflation is, although most people don't. They say they do, but they don't. Inflation is a debasing of the value of our money by creating more of it than we create in goods and services. It doesn't come from anything else. It comes from debasing the value of our security to excess money creation by the central banks. That's what it comes from. That excess money creation goes down different channels at different times, and it always comes back to the quantity of money. It's a debasing of the value of the money.

But the effect over time and when I say this, you know, it's just going to annoy some people. The most consistent way to do well during an inflationary period is to own stocks. Stocks have a higher long-term return than the other things that people think of as inflation hedges. Some of which correlate positively with stocks and some of which don't. But the fact is, stocks are a price and the price gets inflated too. If you take periods like the inflation that we saw that started in 2022, in the aftermath of Covid. Initially, stocks were falling during 2022, but if you suffered all of that decline, by the time you had gotten through 2023, you'd made up for it plus the inflation. And in 2024, surpassed it.

Now, mind you, gold is thought often as an inflationary hedge, but it has far, far, far longer periods and many more of them where it does not respond to inflation. The one that's the most legendary, the gold bugs refused to face and accept is that from 1980 to 2008, gold first fell, then wiggled wildly and couldn't get back up to its 1980 price for 28 years, over a quarter of a century. And during that whole time period, there was inflation. Some years more, some years less. But it never hedged any of that inflation in a long period of inflation. But oh, by the way if you own stock during that period, you did fine. Does that mean you do fine with stock all the time. No, stocks have bear markets. You probably heard that. Stocks are volatile. You probably heard that. All of that's true. But investing in stocks is the best way to overcome inflation, it’s really simple.

Stocks price includes inflation. It isn't perfectly precise in timing, but it always ends up occurring. It always ends up covering inflation. Eventually, in not too long. That’s number one. I told you I talked too long and you think that was doing quickly. I rarely can.

How do you know where the bottom is in a bear market scenario? Do you only know that you're past a bottom when you've seen several weeks of consistent gains? How do you gauge that? You got about three questions here. So first, do you only know that you're past the bottom when you've seen several weeks of consistent gains? Heaven forbid, no. The fact is that in a bear market, you get a lot of volatility on the way down. You get several weeks of false rally within bear markets. And that kind of thinking prior price action, doesn't help you at all. I will give you one basic pattern about not all, but most bear markets. With most bear markets, they start off very gently. The reason why is the great humiliator, the market wants to fool people into thinking it's another buying opportunity within a bull market ahead. So there's enough people throwing money into the market hoping that they're catching another opportunity. And then it builds speed and goes down.

As a rule, not a perfect rule, but a pretty good rule, a pretty good heuristic. The first two thirds of the time in a bear market, time, only constitute about one third of the percentage drop of the bear market, and the last one third of it, constitute about two thirds of the drop.

Now, the exception to that is what I would view as flash bear markets. These bear markets that come and go so fast that they technically qualify as a bear market, but they last almost no time at all. They're like an oversized correction. A real bear market is associated with a classic business cycle recession, and they last more than a year, sometimes two or three, and follow that pattern that I describe. The flash corrections are over so fast there's not much you need to worry about doing about them anyway.

Example. The most classic example in modern history is the Covid bear market. Which was really just a matter of weeks. Fell out of nowhere fast, got down to a drop big enough, if I remember right, maybe I don't, was down fully 35% at its bottom. But there was just days there and did that in just a couple of weeks. And then came back and within another few weeks after that, maybe five of them or so, you're back up to where you were and wouldn’t have thought of as a bear market. It’s too fast, too early to do something about it, unless you think you're the best darn trader in the world, which I know you aren't.

Therefore, what I want you to see is, other than the flash bear markets. Let me step back for a moment. Bear market is technically defined as an extended drop of more than 20%. Not a drop of 20% or less, which is ten to 20 is thought of as a correction. Less than ten is thought of as noise volatility and 20% or more is thought of as a bear market.

So in some ways those definitions are definition for that real meaning, because the difference between a drop of 19%, 21% is insignificant and often could be within one part of one day's trading. Even though the 21% would end up being categorized as a bear market, the 19% wouldn't. You get the notion of detailing the definition without actual functionality.

But if you think of a real bear market associated with a business cycle recession, you're talking about something that's longer than a year, could be as long as three years. That’s on the long side. But one to two and follow that pattern. So one thing you're looking for is the part that's gone gently, and then the first two thirds making up about a third of the drop, and then the last one third in time having a steep downhill. And then what you're looking for is an overwhelming degree to which people are pessimistic, pessimistic, pessimistic and think it's different this time and won't come back. The history around bear market bottoms is people just think, we are in for bad times ahead and there's no getting around it. That's the best news you could possibly ever hear.

Does the Supreme Court's tariff case pose a risk to markets? In the short term maybe it's volatility depending on what they decide to do with the tariff announcement when they come to their ruling. But there's no way to know that. So there's certainly volatility that they create in the longer term though and then longer term markets will adjust to it.

What is the impact of some retailers no longer accepting cash and the end of the penny? Well there's no significance really at all to the end of the penny. It’s pretty penny handed to even think about that. When you get right down to it, if you think about things like this kind of stuff, you could pay for a lot of stuff you know, with the smartphone. You could pay for it with a credit card. You can pay for it other ways. But once you make your payments digital, it just is more efficient than the process of having green bills and parsing out $1 bills and that cost them money, of course, could cost them money also to run credit card and all that, but it's an efficient and less costly process. So the answer is, is there an impact? This is just the evolution of technology, which in some ways is no different when you get right down to it than the transition of people going from horse drawn carts to trains once upon a time, to automobiles and flying in airplanes. It's just all about what the technology renders.

Thank you for listening to these questions. Send in more questions. Next month I'll try to answer some. I always appreciate it. I always enjoy it and I look forward to seeing you next month. Thank you.

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Naj Srinivas
That was Ken Fisher answering listener questions as part of his monthly mailbag. Thanks to Ken for sharing his insights with us.

If you want to learn more about the topics discussed today, you can visit the episode page of our website, Fisher Investments.com. You'll find a link to that in the show description. While you’re on our website, you can also subscribe to our weekly digest, which rounds up our latest commentary and delivers it right to your inbox every week. And if you have questions about investing or capital markets that we can cover in a future episode of Market Insights, email us at marketinsights@fi.com.

We'd love to hear from you, and we'll answer as many questions as we can in a future episode.

Until then, I'm Naj Srinivas. Thanks for tuning in.

Disclosure:
Investing in securities involves the risk of loss. Past performance is no guarantee of future returns. The content of this podcast represents the opinions and viewpoints of Fisher Investments and should not be regarded as personal investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis, or reconsideration. Copyright Fisher Investments.