Ken Fisher Discusses Inflation Interest Rates and Supply Chain Challenges

Title screen appears, “Ken Fisher Discusses Inflation, Interest Rates and Supply Chain Challenges”

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A man appears on the screen wearing a navy suit, sitting in an office in front of a fireplace.

He begins to speak.

A banner identifies him as Ken Fisher, Executive Chairman and Co-Chief Investment Officer, Fisher Investments.

Ken Fisher doing hand gestures time to time explaining.

Ken Fisher: So relative to economics and markets, I don't think there's currently a topic that's getting more ink and attention and airtime than inflation, interest rates, supply chain and all of that. And in reality, I always comeback to some basic principles. One of them is in markets, markets pre-price, all widely known information which includes opinions about the widely known information.

Ken Fisher: And markets aren't perfect and of course we have volatility, but overall markets are pretty good. And when I say capital markets, I mean capital markets fairly broadly at figuring this stuff out and pre-pricing it while the people keep yak, yakking about it. There's almost no exceptions to that. The market in the short-term is a voting machine as Ben Graham famously said, but in the long-term it's a weighing machine.

Ken Fisher: And we've had enough concern about inflation now, long enough being a big thing this year in a big way and I want to be real careful before I go further on this. If you talk to one side of the political spectrum or the other, there is a lot charged on this topic. But the fact is that markets don't care and ignore all that political charge except for maybe as it relates to politics but as it relates to markets, I'm just going to make a simple statement.

Ken Fisher: If there was a big, long wave of inflation ahead, long bonds around the world would have already priced it. Now let me point out first in this, that money flows globally, has for a really long time. US long bonds compete with Japanese long bonds, European long bonds, money flows globally. Long-term interest rates tend to correlate around the world. They move at the same time, not perfectly, but pretty perfectly.

Ken Fisher: We've had all this talk and for example in America off the bottom on long rates we've had an increase of about not quite three tenths of 1%. In Japan, we've had an increase of 6/100ths.When you look at the moves upward, they've been small. -I'll come back talk about that in a minute a different way. But first I want you to see that if there was a huge wave of inflation ahead, the long bond would have already priced it, domestically and around the world. Secondarily, while the recent print on inflation was a big number, 7% year over year, the monthly numbers, month after month, have actually been down now for several months. Core inflation rate as opposed to the extremities is actually less than half that. And I believe, but may be wrong, that when you get toward the end of this year, we will have seen inflation move away to be a non-topic and not terribly important or as big as people thought because if it was the long bond would have already had a bigger move. Long-term bonds would have fallen, long-term rates would have gone up.

Ken Fisher: Why? Because long-term lenders will not part with their money over the longer term if they're going to get back steeply depreciated money by inflation without having been compensated for that through higher interest rates. It's a pretty simple concept. It's a concept people forget, which is look to see is the market doing what everybody says it would. Now that gets to the next point, which is in markets it's always good to think like a contrarian. And the consensus right now on inflation being big ahead and long rates rising a lot in the future this year, is very strong and that in and of itself should make you very skeptical. There's very few voices against the notion that inflation is big and important right now and likely to get more so.

Ken Fisher: On long rates in America, I already mentioned that they've been up about 30 basis points off the load, three tenths of 1%. We have a very long history of interest rates short and long. And we know when the central bank, US Federal Reserve, and for that matter foreign central banks have for the first time in a business cycle kicked up short rates to try to tighten so called monetary policy. What you can say very simply is that when that's happened, long rates have risen. A little before that happened, typically 20-30 basis points, two to three tenths of 1%. And then after that, maybe on average another 10 or 20 basis points, one tenths of 1%, two tenths of 1%. And then not after that. After that, twelve months later they're falling. And that's regardless of whether there have been subsequent interest rate hikes or not.

Ken Fisher: And I say that because fundamentally I believe, and I've always believed, that central banks and the US Federal Reserve in particular are much more reactors than they are, causers what they do isn't insignificant, but it's less important than everything else that's going on around. And what's going on around that has made inflation become what it is, is the supply chain bottlenecks that you've heard about abundantly. And they come simply from the fact that in the aftermath of COVID and the lockdowns and around the world, off and on and changing governmental restrictions about what can be done and can't be done, capacity has been shut down and then started to be brought back up.

Ken Fisher: That process in different categories across the industrial spectrum has clearly made it hard to put together complicated things whether it's things that come from electronics and semiconductors or other than energy in Europe, almost anything else. We are in the process of unravelling that. Capacity in most categories is coming back some areas naturally faster than others, which is what you'd expect. If you look at prices, some of them, like lumber, peaked, came back down, have risen again some, but are still well below where they were, let's say in September, October. Iron ore, same way.

Ken Fisher: The fact of the matter is, as more capacity comes on, these things will take care of themselves. The supply chain bottlenecks come also partly, as you've all read and heard from problems in shipping. But shipping prices have actually already peaked and are markedly lower than they were, let's say, in October. All of this will in the 2022 rectify itself. At exactly what pace I couldn't tell you. But it will. And as that happens, markets will pre-price that and move on. And the inflation effect and on interest rates, short and long term, will be less troublesome than people expect. Thank you for listening to me.

Ken Fisher finished talking, and a white screen appears with a title “Fisher Investments” underneath it is the red YouTube subscribe Button.

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 Investments 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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