What is Stagflation vs Recession?

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

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Transcript:

Easan Arulanantham:

What is stagflation? Versus a recession?

Tom Vaughan:


Okay, start with recession, maybe it’s easier to kind of go. A recession is a contraction in the economy. And it’s defined by two quarters of gross domestic product so that they measure the overall economic growth under something called GDP gross domestic product. And it’s a big number, and it’s a huge thing. But how much does it grow on a percentage basis, quarter over quarter, and even year over year, and, and a recession is where two quarters are negative, right? So the economy is contracting and going the wrong direction. In a recession, you normally do not have inflation, because the economy is slowing down. And if anything, you know, you might have more chance for deflation, where prices are dropping faster than people want. And so that’s a recession. That’s what most people are talking about as a possibility. But there is a pretty good sized group people talking about the possibility of stagflation coming up. Last time, we really had stagflation was in the late 70s, and early 80s. And that that is where you have slow growth of gross domestic product, or negative growth of gross domestic product, which would be like a recession, but you can also have just slow growth really low. And you still have inflation. So even though it’s not growing very fast, or even shrinking in terms of the economy, inflation still coming in, right. And so I mean, one of the things that’s pretty obvious, that causes something like that, oil prices, just go Go, go, go go.

Theoretically, that should drop when the overall economies all start to slow down. But there can be supply side issues, where there just not enough oil coming out to even meet this slightly lower demand. And it still brings the price up. And so when you see, you know, food, and energy is a big piece of the Consumer Price Index, certainly the part that’s really moving the most right now. And so that that’s where you can have stagflation. And we do kind of have those potential issues coming at us, if you think about it, food, we’re having trouble with wheat getting out of, you know, Ukraine. And so that could create a scenario where the price of food is going up, even if the economy started to slow down to a pretty low level or even contract. And of course, Russia could cut back on oil, or Europe could try to cut back on their use of that oil. And, and, and so going over to other places really jacked up the price, because now they’re bidding, hey, we don’t want Russian oil, we want this other oil. And so they’re, you know, bidding the price up. And so, you know, obviously, one of the things that can happen there is Saudi Arabia could step in, they have said that they would be willing to step in and replace Russia and loss of oil. So you know, we’ll see how that plays out. But those are scenarios that can cause that stagflation still have prices going up, even though the economy is very slow, growing or shrinking. And that’s a tough scenario, because generally speaking, wages aren’t doing well there. Stagflation is often associated as as, as as a recession is with higher unemployment. And so higher unemployment, the police don’t have the leverage, like they do now, please have leverage right now. To openings for every one person looking for a job gives leverage to that one person, you know, theoretically, and so, you know, wages aren’t growing, but your costs are going up. That’s That’s what that’s basically the misery index. Right. So that that’s what, that’s what we’re gonna see how this all plays out. It’s a pretty tricky road that Ron right now. So we’ll see how this goes.

Easan Arulanantham:

That’s the difference is one of the major issues with Stagflation is that the Fed kind of runs out tools, because if you raise interest rates, you’re causing more and more unemployment. Yeah. And so you can’t control the standards inflation with just raising rates.


Tom Vaughan:

That’s right. And that’s exactly right. And at least in the 70s, and 80s. You know, the parts that with oil, because OPEC basically did a restriction and created this big problem. And, yeah, there’s there’s only so many tools that the Federal Reserve has. And so theoretically, there might be more interest in trying to do stimulus to get jobs going or what have you. But of course, you do that you get higher inflation still. So personally, just my Outlook, I think we just need to live with some inflation here at a little bit higher level. They’re determined, at least in their words to get back down to 2%. I think it ought to be slower glide path to get They’re maybe get down to four for a while and then three and trying to get down to two even by the end of next year. That’s going to be really interesting to see it’s going to take quite a few things happening the right direction or for that to happen. So, but, you know, we’ll see how this plays out.

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

By participating in any of these live streams, you agree that any questions submitted by you might be used by us in the future on this YouTube channel. We will not share your personal information.

If you have questions, please write to us at: asktom@talkmoneywithtom.com.

  • MoneyGuidePro®
  • Advent Software/Black Diamond Reporting
  • Riskalyze, Inc.
  • thinkpipes®
  • Right Capital
  • YCharts, Inc.