Monday Market Update – December 13

Forefront’s Monday Market Update

9/11 and inflation

Everyone I know will forever remember exactly where they were on the morning of September 11th, 2001. I remember what I was wearing that day, and even what I ate for breakfast oddly enough.

A terrorist attack that would shape the lives of my generation, and every generation after. The immediate impacts on our lives were clear, but 20+ years later, as the world argues over the cause of inflation, no one wants to look at anything but the past 18 months. That’s wrong, and doing a disservice to investors everywhere.


I am writing about one factor in the overall cause of inflation, this does not mean it is the ONLY factor. It just happens to be severely overlooked as the media, and politicians try and blame whomever and whatever will make their side, or their news program seem like it’s winning.

The USA was in the middle of the dot com bubble bursting when 9/11 occurred. Global markets understandably sold off. Six days later Fed Chairman Alan Greenspan cut interest rates, and by the time 2004 rolled around, the Fed Funds rate was at around 1%.

At this point we all know, lower rates means it is easier to borrow money, and borrow is what Americans did.

Low rates fueled a debt bubble that grew uncontrollably. Although rates were rising from 2004-2007 Americans were still borrowing. Once the mortgage and debt bubble burst, interest rates plummeted and were near 0% by the end of 2008.

The media hype right now is that we are seeing our highest inflation number since 1982, which sounds scary and makes people want to keep watching or reading. They forget to tell you that inflation for the first 9 months of 2008 was skyrocketing, topping out at 5.60% in July of that year. We saw nearly 3% inflation numbers in July of 2018, so seeing inflation jump, is not something new. Having it in our faces 24 hours a day via news, social media etc. is new.

In 2008, during the housing and jobs crisis, an entire generation of kids were graduating high school and college, and being told there are no jobs, go take out student loans at these ridiculously low rates and get better educated. So, we did, and it has led to a student loan crisis.

Common Denominator 

The common theme throughout all of these events, is low interest rates. When the Federal Reserve makes it incredibly easy and cheap to borrow money, people and businesses will borrow money. In the beginning they will use that money to hire new employees, invest in equipment, renovate their kitchens and bathrooms, and overall add value to their hard assets. As time goes on, they will continue to spend, driving the price of goods up. This will cause inflation.

The rhetoric we are sold is that wage growth, and overall asset value growth should offset the inflation but that isn’t realistic when wages have been stagnant for a very long period of time and if you have low wages, odds are you don’t have a ton of disposable income to be investing to grow your wealth.

Now what? 

I wanted to write about this, not because it is THE reason for inflation, but low interest rates for the better part of 2 decades will make a very meaningful difference in economic factors, such as inflation over time.

The Fed Chairman using a term “transitory” and then saying we should retire the word, was a pretty good indication to corporations that they could ALL raise their prices without worrying about competitive disadvantages to others.

What is clear is that inflation is here to stay, and those paralyzed by the fear that the 24-hour news cycle prides itself on instilling will be hurt in the long run. Make adjustments to your wealth accumulation plan or wealth distribution plan.

Work with your CFP® to understand the impacts inflation will have on you, and your family, depending on where you are in your plan. Whether you are in the accumulation or distribution phase, making adjustments to your plan to keep up with the changing landscape is the only thing you have control over. Stop blaming one thing, or person, for the rising price of goods. This was going to be an issue at some point as soon we dropped rates in 2001, and was made worse when we dropped rates in 2008 to help prop up failing assets.

So What?

So how does this impact all of you?

  • Stop looking and blaming short term events for causing what has been coming for a long time.
  • Anger and fear can paralyze you. No one is to blame for inflation, time to plan for it to be here for a while.


Stock market calendar this week:

None scheduled
6:00 AM NFIB small-business index
8:30 AM Producer price index
8:30 AM Retail sales
8:30 AM Retail sales excluding autos
8:30 AM Import price index
8:30 AM Import price index excluding fuels
8:30 AM Empire State manufacturing index
10:00 AM NAHB home builders’ index
10:00 AM Business inventories (revision)
10:00 AM Inventory-sales ratio (revision)
2:00 PM Federal Reserve FOMC announcement
2:30 PM Jerome Powell press conference
8:30 AM Initial jobless claims (regular state program)
8:30 AM Continuing jobless claims (regular state program)
8:30 AM Building permits (SAAR)
8:30 AM Housing starts (SAAR)
8:30 AM Philadelphia Fed manufacturing index
9:15 AM Industrial production index
9:15 AM Capacity utilization
9:45 AM Markit manufacturing PMI (flash)
9:45 AM Markit services PMI (flash)
None scheduled

Most anticipated earnings for this week: