Personal Wealth Management / Expert Commentary
Fisher Investments Founder, Ken Fisher, Shares His Perspective on Inflation
Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses his current views on inflation. Ken says there are many differing opinions for the root cause of high inflation this year—such as rising energy prices associated with the tragic Ukraine war, supply chain disruption and stimulus following COVID-19 related lockdowns. However, Ken believes inflation is likely to decelerate moving forward, a potentially positive surprise that could help lift stocks.
He says indicators such as Treasury Inflation Protected Securities (TIPS) and long-term bond yields suggest inflation is likely to be somewhat transitory. He explains that relatively lower energy prices, easing supply chain disruptions and declining shipping rates and global commodity prices should help temper inflationary pressures.
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Ken Fisher: So intuitively you know that inflation has been top of mind for so many people, too much of 2022. And sometimes people think about it this way, that way, the other way. And what I've been want to say more recently is, hey, have fun, pick your own inflation adventure. The fact is, some people see it caused by this, some people see it caused by that. Let's talk about some of those for just a few minutes.
Some people see it as an effect of rising energy prices, and they then sometimes will conflate that with rising energy prices amplified by the dislocations associated with the Ukraine war, tragic that it is.
But in fact, overall, energy prices are down quite a bit from their peak. In April, oil down approximately a third.
Natural gas, not so, and particularly not so in parts of Western Europe tied most particularly to the wrong presumption that Germany would make, that the pipeline, natural gas pipeline from Russia, would provide them trusted capability, which is obviously proven false, as it's obvious in every which way but loose that Putin can't be trusted for anything.
But if energy prices are down off their peak from earlier in the year, then energy can't be driving inflation now hugely. Energy prices are now below where they actually were when the Ukraine war started, at least oil-related in particular.
Then you've got fears of supply chain disruptions. But supply chain disruptions have been steadily unwinding and things like shipping rates are down. Commodity prices are down globally, some exceptions, yes, but globally. Some of the great traditional inflation hedge concepts
are down, like the price of gold. Gold of course is below where it was several years ago. So, it can't be reflected in that.
And then you get this concern, which is perfectly logical concern, that because of all the things that happened with COVID and the stimulus supposed fiscal and or more particularly monetary money creation by the central banks to try to overcome the lockdown fears associated with COVID—which at the time I tell you the lockdowns were largely wrongheaded relative to almost everything—and attempt to create money to offset a lockdown is about as ridiculous you can get. I don't know how you're going to get money creation to offset lockdowns. But be that as it may, we didn't need to do all that, but the central banks did that, so it is what it is. And so, fear is that's driving inflation.
But today, if we look at broad monetary measures domestically and globally, they're actually now at very reasonable levels. And so that can't be driving future inflation. When we look at so called TIPS, treasury inflation protected securities, they're not showing sustained inflation ahead. Long-term bond prices aren't nearly consistent with the inflation levels that we see around the world, again implying inflation as being somewhat transitory, pick your timing period.
I don't want to pick your timing period. I don't really know. I don't think these things can be predicted that precisely. I also don't believe, and I've never believed, that indexes of inflation are very accurate.
So I think it's cute, funny, a little bit sad, that on a period like in early September when the August inflation numbers came in three-tenths of a percent higher than people expected that that was deemed to have great significance because the consumer price index numbers aren't that accurate. Regardless, to begin with this is like trying to get some level of precision out of an instrument that basically is pretty much a blunt instrument.
Is inflation up this year? Markedly, yes. Can you measure it in these very fine gradations by these indexes which were constructed by the government years ago with very bizarre updates? No, you can't.
And so, reacting to these things is really sentiment reacting to sentiment. And what I would say is, and I will make this point, I'll hang myself on this one, inflation is transitory. It's just a question of what transitory means.
With money creation very moderate now, with supply chain problems largely behind us, with overall commodity prices having broadly peaked, there's lots of evidence that a downturn in the inflation rate should be ahead.
And what I want you to think about is what that implies for the future as that reality finally dawns on people on a broad scale, which is that which they've been fretting about all year long, not all year long, but most of the year, maybe they should feel good about when it goes away.
Thank you very much for listening to me.
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A Series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.
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