Ep 23: Inflation - Separating the Turkey from the Stuffing

Episode Description

As Thanksgiving looms on the horizon, join Big Bo (a.k.a. Jason Blumstein, CFAⓇ), on a special journey where he blends the festive spirit with financial savvy.

In this episode, we delve into how inflation is impacting our Thanksgiving celebrations and wallets. We'll unravel some common myths about inflation protection and offer real, practical advice that goes beyond the headlines.

🔥 Hot Topics This Episode:

  • Thanksgiving Traditions and Trends: A light-hearted look at how inflation is changing our holiday tables.
  • Inflation Myths Debunked: Cutting through the noise to help uncover what really works in protecting your finances.
  • Investment Insights: How to strategically navigate these inflationary times with smarter investment choices.

🏈 And for my fellow sports enthusiasts, we're taking a playful detour to explore some of the most unbreakable records in sports history.

Whether you're a financial guru, a sports fan, or just looking for some engaging Thanksgiving banter, this episode has a little something for everyone. So, grab your headphones, and let's get into it!

👉 Listen now and get ready to tackle inflation with knowledge and a bit of humor.

Hope you enjoy the $how!

Episode 23 Key Takeaways:

  • 00:00 Will your Thanksgiving dinner be more expensive this year? 
  • 04:07 Why real estate doesn't protect against inflation like you might think
  • 08:03 What many advisors ignore about TIPS
  • 11:17 Busting myths about the link between commodities and inflation
  • 16:15 How to protect yourself against inflation 
  • 23:02 Bo Know$: The most unbreakable records in sports

Episode Transcript

With Thanksgiving just around the corner, a lot of us are starting to plan our Thanksgiving Day feasts. With me being a major foodie, I love Thanksgiving. Now, I'm not a major fan of turkey, but I did get into brining it a few years back, which I will say is a huge upgrade.

But, recently, I've been making smoked brisket since most of my family doesn't like turkey. And I've added a few more arsenals to my Thanksgiving Day meal in making pecan and pumpkin pie, two of my favorites. Every year, it seems, new reports come out about how expensive your Thanksgiving meal will be.

This year, there is some good news and some bad news. Let's start with the good news. The good news is that turkeys this year are supposed to be 13 percent cheaper than they were in 2022. The bad news is that the rest of the food and groceries in general continue to get more expensive. Up slightly, about 2.4 percent from last year.

It's a trend that American consumers are all too familiar with lately. Inflation has been a hot topic. Of course, it $hows up in the headlines every day. But more importantly, we feel the effects of inflation in our day-to-day lives. Trips to the grocery store feel like they require a second mortgage.

Drive-thru meals carry the same cost as fine dining meals used to. The cost of everyday living continues to tick higher and higher day by day. And for many Americans, trying to fight inflation feels like a lost cause. Since 2021, when inflation started to move up and rear its ugly head, prices as a whole, as measured by CPI, the Consumer Price Index, are up 18%.

Though recently CPI has cooled being up only 2 percent on an annualized basis since June this year. As an advisor and as the founder of Julius Wealth Advisors, I see the effects of inflation on families firsthand, and it concerns me. But what concerns me more is how other members of the financial world try to take advantage of inflation by presenting flimsy solutions that don't actually help people.

Every day, I hear the financial community as a whole, or media talking heads, talking about a new way of quote-unquote fighting inflation. And to be honest with you, most of these ways are the equivalent of Thanksgiving stuffing. A pure filler that might look nice on your table, but you don't really need it.

So today on episode 23 of the Big Bo $how, “Inflation - Separating the Turkey from the Stuffing” we're going to bust a few of these most common myths about protecting your portfolio against inflation. Including why some of the most popular advice is so misguided and what to do for your portfolio instead.

So let's sit back, relax, and welcome to episode 23 of the Big Bo $how.

Alright, let's get after episode 23 of The Big Bo $how. Inflation separating the turkey from the stuffing. So let's talk about the stuffing, or three common inflation protection strategies and why they fall short. You see, counting ways to protect against inflation has become so trendy recently for a simple reason.

Inflation has been a problem. In June 2022, Core CPI, a commonly used measure of inflation, peaked at roughly 9%, the highest number in 40 years. Since then, inflation has cooled off a bit, but is still causing a lot of pain for U.S. consumers. and investors alike. Throughout my career, I have heard three main quote-unquote strategies that have been touted for protecting against inflation time and time again.

These three strategies are real estate, TIPS, and commodities. Let's tackle all three, starting with real estate and the results. First, why do people claim real estate is an effective protection against inflation? There are a couple main thoughts and rationales. Number one, real estate is a tangible asset, meaning you can touch it and you can feel it.

That means it has intrinsic value in the form of a physical asset. When the economy is volatile, people often feel better about having physical assets over something that is less tangible, like a stock. However, this is why in my behavioral coaching at Julius Wealth Advisors, I try to get people to think of a stock as owning a piece of a business, a tangible business.

But let's proceed about real estate. The second reason is that real estate typically kicks off some sort of income. The belief here is that landlords can adjust rental prices to rise with the cost of living, which often increases with inflation. Real estate is often touted as a silver bullet to all sorts of investing challenges.

But as with everything, there's something more than meets the eye here. One, yes, real estate is a tangible asset. But that means you must spend money to maintain it. You have upkeep costs, property costs, and other factors that may erode the value of your physical asset. Two, yes, rental income can increase.

But if that's the result of inflation, it's likely that interest rates are also increasing. And as interest rates increase, the value of your property could decrease. Why, you ask? Because the number one tool used to fight inflation by the Fed is raising interest rates, which we have seen, which have gone from 0 to over 5%, the short term Fed funds rate.

And real estate tends to be a very interest-rate-sensitive space. Prices and interest rates tend to be inverted, meaning as interest rates rise, prices go down. Case in point, since March 2022, when the Fed started raising interest rates, the IYR, which is an ETF that tracks publicly traded real estate or REITs, is down 21%, while global equity markets are essentially flat.

And here you see how interest rates go up. The prices of real estate go down given to their highly interest rate-sensitive nature. So let's move on to number two. The second solution I often hear a lot about is TIPS. TIPS stand for Treasury Inflation Protection Securities. We don't need to go into the weeds here.

I'm happy to talk more about the intricacies of people on TIPS. If you want to reach out to me at Julius Wealth Advisors, info@juliuswealth.com . TIPS are essentially a low risk U. S. government-backed bond that has inflation protection baked in. When inflation increases, the principal value of TIPS increases.

When inflation decreases, the principal value of TIPS decreases. Sounds good, right? It is good if you don't ask any other questions. Many people who sell you TIPS as a one-stop solution will sell them exactly like that. All they protect you against inflation, and they won't take the time to explain what's really going on.

While TIPS can provide some form of inflation protection, most people don't understand all the factors that affect them. For instance. TIPS are still bonds and bonds have a concept called duration risk and a key concept of Duration risk is similar to real estate when interest rates go up bonds lose value and if interest rates go down bond prices typically increase in value but like we said before often during inflationary periods interest rates go up, which would mean that prices of bonds, including TIPS, will go down.

There are also more in the weeds concepts with TIPS, including inflation break evens, which is looking at the implied inflation within TIPS and nominal treasury bonds. Those are a little more deeper concepts Which again if anyone wants to reach out I'm happy to talk about that's not to say TIPS are worthless though like most securities they have a time and a place in your portfolio, but simply owning TIPS Will not protect you from your portfolio losing money due to inflation and here's the results Since 2021, when inflation really started to take off, TIP, an ETF that tracks TIPS, Yes, since inflation has started to go up since 2021, TIPS, which are often touted to protect you against inflation, inflation is up 18 percent since the beginning of 2021 and TIPS are down 7 percent bonds as a whole are down 14 percent as measured by the U.S. bond aggregate. So did it protect you relative to? Bonds as a whole? Yes, but as a way to fight inflation, that answer is certainly no.

Alright, so let's move on to the third way that is often touted as fighting inflation. Commodities. Common example of commodities include gold, silver, oil, natural gas. By definition, there's nothing special about a commodity.

That's why it's called a commodity. For our conversation, a commodity is any asset that doesn't kick off cashflow and is subject to the whims of supply and demand, like gold, silver, oil, natural gas, and investors have no control over the whims of supply and demand. Let's look at what happens when you own a commodity like oil.

If oil prices get too high, demand takes a dip. Then the producers of oil who like the higher prices. will supply more oil. Therefore, this will hit prices. Demand's going down, supply's going up. Guess what's gonna happen? Prices are gonna fall. If oil prices drop too much, well, guess what? Demand increases.

Then the oil suppliers, who don't like these lower prices, supply less oil. Cause they want prices to increase. And guess what happens? Increased demand, lower supply, prices increase. Commodities are often sold as the be all and end all of inflation protection. But that's an overly simplistic view that disregards the reality of supply and demand in the market.

When I covered the oil industry for over six years, all the oil CEOs and CFOs that I would talk to had this saying. That the cure for high prices is high prices, and the cure for low prices is low prices. Again, subject to the whims of supply and demand. And here's the results. Since 2021, when inflation really started to take off, the Goldman Sachs Commodity Index Is up a whopping 72%.

And some might be saying, wow, that's great. However, from my experience and what typically takes place and going back to the whims of supply and demand and how high prices are a cure for high prices and low prices are a cure for low prices. People typically get interested in commodities on a backward looking basis.

When inflation is up, they say, Oh, let's own commodities. Well, that's what caused inflation to go up. So when you look at the results of the commodity index post inflation peaking in June of 2022, when it was at a 9 percent rate, the Goldman Sachs commodity index is actually down almost 9.5%

One of the worst-performing asset classes. And you know, what's up, what an equities do at that time. The S&P 500 was up 20 percent and global markets are up 16%. And this demonstrates the nature of commodities and you being subject to the whims of supply and demand and a commodity business. That you have no control over.

Okay. So we spent time busting a few of these myths or stuffing on your Thanksgiving day table about the financial industry's favorite silver bullets for inflation protection. So does that mean nothing works and everything is hopeless? Nope. When we get back, we're going to look at what to invest in instead, and how can you really protect yourself against.

Okay, we're back. Before the break, I promised we'd talk about how you can really try to protect yourself against inflation. You ready? It's simple. Own the best businesses. I miss all the fancy strategies and niche ways to protect your portfolio. The best way that I've found, and statistics have found, to fight inflation is to own the equities, the stocks of high-quality businesses.

To look at some data, the last time the United States experienced inflation like we are seeing today, was between 1970 and 1984. And guess what? The S& P 500 during this time frame was only down during 4 of these 15 years of high inflation. So what does that mean? Inflation doesn't automatically mean you'll have bad investment results.

There's a difference between what you think will happen and what actually occurs. Your brain playing tricks on you. Fight or flight. Owning equities time and time again, is still proven to be one of the best ways to fight against inflation. Let's see what's going on currently. Since 2021, like we said earlier when inflation really started to rear its ugly head, the S&P 500 is up 25 percent on a total return basis and global markets are up 11 percent to get a little more detailed on why you want to own quality businesses and high-quality businesses and why this phenomenon occurs that is contrary to popular belief.

Let's look what high quality can mean. It can mean a lot of things. But when it comes to inflation, investors should be looking at the concept of pricing power. Simply put, pricing power is the ability for a company to influence the price of its products and services in the marketplace. High-quality businesses are excellent at using pricing power to pass through the effects.

Of inflation to everyday consumers, which means their profit margins, which ultimately drives the value of a company typically do not get that affected. For instance, have you ever noticed your coffee at Starbucks getting more and more expensive recently? I, for one, since I moved to the burbs drink Nespresso, I get the little pods.

Since the beginning of 2021, those Nespresso pods. Are up about 25 cents, which is about a 25 percent increase. Has it hurt my demand? No, because Nespresso has pricing power. Your higher costs end up being higher revenues for high-quality businesses that have pricing power. And in this case, Starbucks and Nespresso.

The companies that weather the inflationary storms the best are the high-quality companies that are able to pass through their costs. To the end consumer. Most people get hurt by this spending more on everyday goods, but you can take advantage of it by investing in these companies during inflationary periods.

Owning strong businesses means pricing power. It also means businesses with strong cashflow, high profitability, proven business models, and strong balance sheets. Companies to avoid during these periods. are the ones with the opposite, weak cashflow, low profitability, high debt, etc. We can look at this in a practical way with an example.

Let's say a business costs go up by 8%. What can the business do? Option one, pass the price increases onto the consumer. The risk here is that you see demand. Decrease given the end consumer balks at these high prices. Option two the business can keep the prices the same and take a hit to their profits The risk here is that creates a high amount of pressure on profitability That may need to be offset in other areas of the business You see, strong businesses of strong pricing power, high quality businesses, should be able to go with option one with minimal effects on demand, like my Nespresso example in my personal life.

On the other hand, weaker businesses are stuck, struggling between option one and option two. Raised prices? Demand might fall. Don't raise prices? Profits. And this brings us back nicely to our investment philosophy here at Julius Wealth Advisors. Focus on investing in high-quality businesses and let those businesses do the work for you.

Let them solve the problem of inflation and interest rates while you sit and let your personal wealth grow over time. High-quality, stronger businesses should be able to survive and potentially thrive during periods of inflation. Don't just take my word for it. Look at the data. Look at the data I discussed earlier between the last inflationary period of the 70s to early 80s.

And what's happened since 2021 when inflation has started to rear its ugly head currently. So now let's take another quick break and we get back. We're going to do a have a. Bo knows segment power rankings about the unbeatable sports records.

Alright, let's get after our final segment, everybody's favorite, Bo Knows. Where we're gonna do power rankings on unbreakable sports records. You see, as I was thinking about how to wrap this episode up, and what correlates with inflation, I got to thinking about the ties between inflation... But the only thing that I can think about was the New England Patriots deflate gate saga.

But as a Dolphin fan, I thought, you know, that's just a low blow, I'm not gonna go there. I was thinking about how the changing game in the NFL has affected football. Statistics. Nowadays, passing has taken over the game. I mean, if you look at fantasy football, it's very tough to find a good running back. In recent years, quarterbacks like Patrick Mahomes and Joe Burrow and even my boy Tua have put up some goudy numbers.

And I was just doing the research. One statistic shocked me. Despite all the inflation in NFL passing stats, Did you know that the record for passing yards in a single game was set in 1951? And that hasn't been broken since? Look it up! On September 28th, 1951, Los Angeles Rams QB, Norm Van Brocklin, threw for 554 yards in a game.

And no one has ever broken it since. So this got me thinking some more. What are the most unbreakable records? In. Sports. Now I want to name a few and different sports, baseball, football, even hockey. And I'm going to lay them out and then I'm going to tell you what record that I do not think will ever be broken.

First, let's talk about baseball. We have Cy Young's 511 wins as a pitcher. We have Cal Rickman, the Iron Man, his streak of 2, 632 games, over 16 seasons of not missing a game. Ricky Henderson's 1, 406 stolen bases. We have Wilt “the Stilt,” 100 points in a game. Again, Wilt “the Stilt,” Wilt Chamberlain's 55 rebounds in a game.

And then in hockey, we have Wayne Gretzky's 215 points. Now, these are just some records that stand out in my mind of ones that probably won't ever be broken, but I can see, for example, Wilt Chamberlain's 100 points in a game being broken, just given how offensive-minded the NBA has been lately. I could even see Wilt Chamberlain's 55 rebounds in a game being broken, given this new rookie.

Wemby, that is at the NBA. I was watching a game last night with him and my son and the guy towers over everybody. I can see him potentially getting that record. Hockey, I really can't comment because I haven't watched hockey since the Year of the Rat, and the Florida Panthers, which I think was in like the late 90s.

So, can't really comment on that. I can comment though on baseball. Which, if you follow baseball recently, and really all sports, you break a fingernail, you're out. You have a slightly strained back, you're out. People aren't taking risks. It goes both ways. It's the players don't want to take the risk of getting injuries, further hurting their careers.

And also with all the money that's being invested in these players, the owners don't want to risk players getting severe injuries. So when I think about the records that will not be broken, I Cy Young's 511 wins. The. The player with the most wins currently in Major League Baseball is Justin Verlander.

He has 257 career wins, almost half of what Cy Young had. And he's set to retire maybe this year, maybe next year, but he's not even going to be close to breaking that record. Also, Cal Ripken's Ironman streak. I mean, that is an astounding record. And one that I don't think will ever be broken in the modern day of sports.

Given how often players take off, or a tiny little fingernail broken, they're out. Did you know that Miguel Cabrera, who just announced his retirement this past season, he is the only modern player that has come close to breaking this record. And by close, I mean... He got less than half the way there at 1,152 games played.

And that ended in the year 2000, 23 years ago, no player in modern-day baseball is even remotely close. I try to look up who holds the record now. And the most I saw was. Matt Olson, that I think had 211 games played consecutively, that ended already. So, if you'd ask me, with all the inflation that's going on in the world around us, sports records, and especially in baseball, is actually deflating.

And Cy Young and Cal Ripken's records, in my opinion, probably won't ever be broken.

So let's wrap up episode 23 of the Big Bo $how. “Inflation - Separating the Turkey from the Stuffing.” With inflation being the hot topic over the past two years, we hope this $how helped differentiate the turkey from the stuffing.

The stuffing, TIPS, commodities, real estate, they might look sexy on your Thanksgiving table, but with stats showing... They won't help you fight inflation in your wealth-building journey. And then we have the turkey. The very traditional, tried and true turkey. The centerpiece of your Thanksgiving table. And in this, it's owning high-quality businesses.

It's not sexy, but it will be the centerpiece of your Thanksgiving Day table. And it should help your portfolio fight inflation for decades.

So as I end episode 23 of the Big Bo $how, I'll end it as I do every $how. Always live a life of integrity. Always live a life of obtaining as much knowledge as you can, and always live a life that you're passionate about.

So feel free to give us a call at 201-289-9181 or info@juliuswealthadvisors.com  to talk inflation, Thanksgiving. Football and until next time All the best. Thank you for tuning in to The Big Bo $how.



The content is developed from sources believed to be providing accurate information. The information in this podcast is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Julius Wealth Advisors, LLC (“JWA”) is a registered investment adviser located in Englewood, NJ. Registration as an investment adviser does not imply a certain level of skill or training.  The publication of The Big Bo $how should not be construed by any consumer or prospective client as JWA’s solicitation or attempt to effect transactions in securities, or the rendering of personalized investment advice over the Internet. A copy of JWA’s current written disclosure statement as set forth on Form ADV, discussing JWA’s business operations, services, and fees is available from JWA upon written request.  JWA does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. JWA is neither your attorneys nor your accountants and no portion of this podcast should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.