Smart Money with Keith Springer Saturdays at 1PM and Sundays at 6AM on NewsRadio KFBK 93.1 FM and 1530 AM

Inflation, Deflation or Disinflation…What’s An Investor To Do?

Keith SpringerTo those of us who eat, drink (yes beer and wine included), drive and turn on the heat, prices have been going up. Of course my running joke on my radio show is that no one in government or over at the Federal Reserve, which includes Janet Yellen, must do any of these because they keep saying there is no inflation.

That’s because their favorite gauge for inflation is the Personal Consumption Expenditures (PCE) Price Index which measure a basket of goods but makes adjustments for spending habits such as people substituting one good for another if the price rises to high or for seasonal factors.  Up until 2000, The Fed focused on the CPI (Consumer Price Index), but changed it to PCE inflation.

This helps those that have rising wages to cover the extra costs but hurts those on a fixed income, such as those who are retiring or already retired. Unfortunately for us, our nation’s demographics are such that an overwhelming portion of our population is in or approaching those golden years faster than young people are entering the workforce.

This retirement crises is a serious issue that all of us need to address and one that I discuss at length in Facing Goliath – How to Triumph in the Dangerous Market Ahead. The reality is that over the next decade, more than 10,000 Americans a day are turning 65 years old. Therefore we had better understand what type of economy we are in and what our investments need to do about it in order to pay for the lifestyle we want. Prepare your portfolio properly, and you’re flying first class to see the grand kids. Do it wrong and you’re taking the bus!

We are all aware of inflation. For the record, Inflation is simply the general increase in the level of prices. Put another way, inflation causes the purchasing power of the currency to decline. That’s what all of us are used to and inbred in us to think that’s what we always have.

The reality is that for the last 6 years we have had Deflation and or Disinflation. We had a brief bout of deflation in 2008, which was quickly overcome with the Fed’s stimulus and Quantitative Easing programs. Before this we haven’t had deflation in the U.S. since the 1930s, which is the general decline in the prices. It may sound attractive, but consistently falling prices leads to declining wages which diminishes consumer demand. Keep in mind that debt levels would remain steady, so falling wages will lead to increased defaults. This then leads to consumers delaying purchases, anticipating lower prices tomorrow for everything, a frightening prospect for the Federal Reserve!

“The [FOMC] recognizes that inflation persistently below its 2% objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.”

Keith Springer

Don’t confuse Deflation with Disinflation
In a disinflationary situation, prices are slowly rising, but below target. This creates the threat of falling into a deflationary environment, which is enemy #1 for a capitalist economy. Currently we are in a disinflationary situation. If it looks like we’ll fall back into deflation, expect to see more QE programs.

Investor Strategy
Understanding what’s going on in the economy from the top down is a the critical first step for successful investing. This economy and market is the most difficult I’ve seen in the 30 years I’ve been in this business and chasing returns with unnecessary risk can derail your retirement hopes and dreams. Investing to get the returns you need but with the least risk possible is easier said than down. That’s why it’s so important to graduate to a qualified retirement advisor as you plan for retirement or whether you are already there. Money sitting in the bank earning nothing can hurt you just as much as losing it by taking too much risk. Either way, you can’t replace this money.

…… and that’s where we can help. To learn more about The Springer investment approach, which is our powerful proprietary Investment Management Strategy designed to manage risk and deliver returns in any market…and/or get a free second opinion on your portfolio, simply reply to this email, or give me a call for a no-cost no-obligation consultation today at (916) 925-8900

Springer Financial Advisors ("Advisor") is a federally registered investment adviser located in Sacramento, California. Advisor and its representatives are in compliance with the current filing requirements imposed upon registered investment advisers by the Securities and Exchange Commission and the State of California. Advisor's web site and its emails of general distribution are limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of Advisor's web site on the Internet or dissemination of informational emails should not be construed by any consumer and/or prospective client as Advisor's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. A copy of Advisor's current written disclosure statement discussing Advisor's business operations, services, and fees is available from Advisor upon written request. You may also obtain publicly available information about Advisor through the SEC website as follows: http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx. Advisor does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Advisor's web site or incorporated in an email, and takes no responsibility therefore. All such information is believed to be reliable and authoritative but does not constitute sufficient information to be the sole basis for sound investment decisions and all users thereof should be guided accordingly. Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended or undertaken by Advisor) made reference to directly or indirectly by Advisor in its web site, email, or indirectly via a link to an unaffiliated third party web site, will be profitable or equal the corresponding indicated performance level(s). Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client or prospective client's investment portfolio. Certain portions of Advisor's web site (i.e. articles, commentaries, etc.) may contain a discussion of, and/or provide access to, Advisor's (and those of other investment and non-investment professionals) positions and/or recommendations as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from Advisor, or from any other investment professional. The information is of a general nature and should not be applied indiscriminately to particular situations wherein it may not be completely applicable. Advisor is neither an attorney nor an accountant, and no portion of the content should be interpreted as legal, accounting or tax advice.