Evasive Action
Evasive Action
John Lim | November 23, 2020
DEAR FAMILY, you know I don’t typically give unsolicited investment advice. But today, I’m breaking that rule, because I don’t want you to get hurt financially.
I can’t promise that, by following my advice, you’ll be better off in the short run. But I firmly believe that you’ll be better off in the long run, by which I mean in the next five to 10 years. Please take this letter for what it is, simply a warning and food for thought. Ultimately, you must make your own decision.
This is perhaps my most controversial suggestion, so let me explain. Over the past decade, and especially this year, there’s been extreme money printing by the Federal Reserve in the form of QE, or quantitative easing.
Take a look at this chart, which represents how much money the Fed has printed. Next, check out this graph of U.S. money supply, particularly the far right end of the curve. On top of this, the Fed recently made a substantial change in policy. It’s now targeting average inflation of at least 2%, which means we may see higher inflation in the future to compensate for the recent far lower inflation rate.
The bottom line: Inflation is a greater risk today than ever before in my investing career. While there’s no guarantee that inflation will spiral out of control, think of gold as insurance for your portfolio. Normally, Treasury Inflation Protected Securities, often known simply as TIPS, would also serve as an inflation hedge. But their yields are currently negative, which is not terribly attractive, though they would certainly provide some protection if inflation spiked higher.
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