Ken Fisher on Crypto, Inflation, AI Bubble and Annuities

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Ken Fisher

The fact to keep an eye on is, does the quantity of money in America, perhaps best measured by M3 and M4, does the quantity of money start growing faster than GDP grows, in a marked way? And it hasn't been. If it does, then you'd see a pick up in inflation; if it doesn't, you wouldn't. That's the way it really works. Every month, I get questions sent in to me. Feel free to do that because I like getting your questions and I like answering them here. This is what we call the Mailbag. And I get these things that are written up in big print so I can see them as I'm talking to you. And I try to give you short answers, which is nearly impossible for me to do, but I'll try. Could you address what are your recommendations on the scuttle about revaluing gold and a pending shift of the current monetary system to digital assets like Bitcoin? Should I be moving my cash accounts to digital currencies? I would say this is all, how do I say this—no, central banks are not going to like this. The monetary system is going to be rigidly resistant to these changes. Whenever we have gold being strong, as it's been over the last few years, basically, you get people thinking that kind of thought about gold. But in reality, crypto is just much too volatile to be able to be used in the basis that its proponents would like it to be. And therefore, the answer to the question is no. If the price of oil goes up, wouldn't that feed into the cost of production and transportation of goods and thus lead to inflation? In the very short term, like a month or two? Yes. In the longer term, No. Let me be real clear about this. People ignorantly and routinely believe many things cause inflation that don't. Inflation is not caused by government spending; Inflation is not caused by the price of oil going up, or the price of anything else going up. Inflation is caused by excess money creation always and everywhere. This has always been true. It is demonstrable. Almost no one wants to believe it. This notion that the price of X goes up, therefore, that pushes the— it's part of the basket of things we have, up—misses the notion that if the quantity of money stays relatively stable, and by that, I mean if the quantity of money grows at about the same rate the GDP is growing, the price of one item going up, depending on what that item is, has a pretty semi-predictable outcome. The thing that's going up in price, could be something like a particular brand of bubble gum, in which case it's really easy to shift to all kinds of other things you would use instead of that bubble gum, and has pretty much no impact on anything other than to make that bubble gum company have problems. On the other hand, something like oil, you really have a hard time doing without its derivatives. You need gasoline; You need to keep your house adequately warm in the winter; You need your air conditioning to work in the summer, in lots of places. And so, it's got what's known as an inelastic demand, meaning that when the price goes up a lot, the consumption of it only goes down a little. And so therefore, people are going to reiterate to the point, but doesn't that then cause inflation? And the answer is no. What it does is it causes what's called substitution. Substitution is the same thing as with the bubble gum, where instead of somebody buying that brand of bubble gum, they could buy five other brands of bubble gum, or they could get something that isn't gum at all. In the case of something with an inelastic demand, like oil, what tends to happen is you do buy a little bit less of the stuff that derives from oil, but only a little bit less. That impacts and strains your budget. And so you tend to buy less in what would otherwise, for you, whatever for you is, less luxury goods. And it brings down the price of luxury goods items. They have a very elastic demand, meaning if the price goes down, people will buy more of them; If the price goes up, you buy a lot less of them. And if you think about that, you can see that if you look at the price this year of the leading luxury brand stocks. You take, for example, LVMH, which is the leading luxury brand company in the world and a truly great company. But when the price of oil goes up, it impacts their product. There's less of their product being bought by people who are stretching to buy luxury goods, and that forces their revenue down, impacts their pricing. That's semi predictable. That's happening as we speak. That's what happens when the price of oil goes up. It just re-shifts what's bought. It doesn't change inflation. The price of this stuff goes up. The price of that stuff goes down. The overall inflation, with a little bit of time, hasn't changed. Yes, in the very short term, people haven't had that time to adapt. But give them a couple of months and the adaption happens. The fact to keep an eye on is, does the quantity of money in America, perhaps best measured by M3 and M4, does the quantity of money start growing faster than GDP grows in a marked way? And it hasn't been. If it does, then you'd see a pick up in inflation; If it doesn't, you wouldn't. That's the way it really works. I told you I couldn't do this really quickly. Should we pay any attention to the Bank of England's recent warning of an AI bubble, overvalued stocks, private credit market in trouble, an oil crisis, etc., considering that they rarely issue such warnings? I'm going to tell you, you should just largely ignore the babble of major central banks, for the most part. I have been an endless critic of central banks and their prophecies almost forever. They know no more about how all this stuff's going to work out than the average fourth grade elementary school class does. They just think they do. And they've got a lot of data, and they got a lot of really smart people who were trained in how things work in ways that they don't really work. If I were you, I would just largely ignore the babble from central banks, Bank of England or no. Oh, I love this one. Do you still hate annuities? You know, hate is such a strong phrase. And, of course, I did coin that phrase. I will just tell you, I would tell anybody, ever, that contemplates buying an annuity. It's really simple: read that darn contract before you do it. Now, mind you, the problem for most people with that is that the contract is not easy to read. And it's got a lot of jargon and it's complicated and is long, and they don't want to do that. But I think, for the most part, before you put money into an annuity, if you read the contract and take the contract seriously, it will convince you of what the annuity actually is, because the annuity is a contract between you and the insurance company. And if you have read the contract in detail, you'll be able to discern what that relationship would actually be, as opposed to what some sales guy might have told you it would be. You know, most people don't like to read contracts. They get a rental car and they sign the rental car agreement, and then they don't even read it. And that contract's not long. But you ought to read the annuity contract before you would ever buy an annuity yourself. And then you can determine for yourself whether you hate annuities or not. Thank you. Thank you for listening to my discussion to our Monthly Mailbag. If you've got questions, send them in. Next month, I'll try to answer them. I always enjoy doing this every month and I hope you've got questions for me. Thank you. Hi, this is Ken Fisher. Subscribe to the Fisher Investment YouTube channel. If you like what you've seen, click the bell to be notified as soon as we publish new videos.