Tom’s Thoughts on How Inflation Might Affect the Market
Transcript:
Katie Nealis:
I’m concerned about inflation, when inflation caused the market to go down.
Tom Vaughan:
Yeah, what we call the Goldilocks zone. And so this is something you’ll hear all the time about the economy, where it is growing, you know, not too little, right? Just like Goldilocks, and not too much, right. And so when the when the inflation is moving along, you know, two 3% a year, the economy seems to do quite well, you need inflation, deflation is the worst thing, it’s actually worse than inflation. And we hardly ever get that because every the Federal Reserve and the Treasury freak out every time we get close to that, and start pumping money in, that just shows you how much they think it’s a problem. So what you’re looking at here, in terms of inflation, is just this kind of, you know, up or down piece. So historically, we haven’t had high inflation, you know, kind of that too high, and too high or too high of an economy, really going back to the 70s. And it does cause a lot of volatility. And when you say market going down, when I say market going down, you know, there’s two phases of that one is this kind of 20% or less drop, you know, so that’s pretty common.
That happens all the time. Yes, inflation can make that happen and can make the market drop 5% 10%, especially if it’s in that too high zone, and it make the market drop 80% or 60%, like we saw in 2008. We really haven’t seen that as far as that goes. Because again, it is keep in mind that it is a scenario where the economy is growing too fast. That’s a better scenario than when the economy’s growing too slow. You know, it’s not great. But it’s more manageable. So yeah, I you know, we have some possibilities of that. But one thing to really focus on, if you want to understand inflation is look at the bond market, I specifically look mostly at the 10 year Treasury. And you’ve got a pretty good idea there. There’s a whole group of people very intelligent, looking at every number under the sun. And when rates on that Treasury start to really skyrocket like they did earlier this year, that threat of inflation is sitting out there. And now it’s kind of backed off, right. And so the bond market is telling us right now that inflation might be kind of moderate, which again, would be fine, you know? So that’s, that’s how I’d kind of look at that answer.