The economy is gripped by inflation and the fallout from the Fed’s moves to corral it. Inflation has been running near its highest levels since the early 1980s, and the Fed has been on a rampage to bring inflation down.
Billionaire investor Carl Icahn warns the U.S. economy has tough days ahead – and blames the Fed for painful inflation. -Business Insider.
In September, the Fed raised rates another three-quarter of a percentage point. This was on top of the two prior successive three-quarters of a percentage increases in June and July.
The Fed’s rate hikes started with a modest quarter of a percentage hike in March, followed by a half-percentage hike in May. Then, when inflation looked to be getting out of control, the Fed got more serious and aggressive. So far, the cure is worse than the disease because inflation hasn’t retreated anywhere near in proportion to the rate hikes and the pain the more expensive cost of borrowing has inflicted on the economy. One only has to look at the cooling residential real estate market to see what’s happening.
Carl Icahn has been around long enough to realize that there’s no quick fix to the inflation problem. The last time inflation was this high was in the late 70s and early 80s; inflation took two recessions to come back to earth. There’s no reason to believe we’re not in for the same pain ahead.
“A rising tide lifts all boats….”
That saying is an aphorism associated with the idea that an improved economy will benefit all participants. On the flip side, what about the receding tide that we’re experiencing now?
Investors who are not prepared for the receding tide and do nothing will be the ones who experience the most pain. Just like with boats in a receding tide, the ones that are anchored or beached will be stuck when the tide goes out.
When recession hits, you will be stranded if your fortunes are anchored to Wall Street. The investors who will weather the storm will be the ones paying attention and willing to adapt to avoid the low tide and will be the ones who benefit when the tide rises. Those in the wrong place at the wrong time (aka the wrong investment) will not benefit when the economy goes into rising tide mode.
Are you, as an investor paying attention?
Can you adapt to the receding and rising waters to not only weather the storm of inflation and recession but also prosper?
How does one prosper, you ask?
The first step is to untie your portfolio from the investments that will get stuck during a recession. This will be stocks and other liquid assets like crypto that investors unload as cash becomes king during hard times.
For some investors, it will be hard to unanchor and seek safe ground. They are so integrated into the Wall Street and financial machine that it is very hard for them to go against the grain to untie themselves and their portfolios from self-interested financial advisors, talking heads, family and social pressures, influencers, and paid endorsers.
The investors who will be in safe waters are the ones who have been paying attention. They’ll be in safe waters with the right vessels to take them to safety and prosperity. What do these investors and their vessels look like?
The ideal investment vehicle (i.e., vessel) is not tied to Wall Street. It generates cash flow that outpaces inflation. It’s the vessel that can avoid the low tide and continue fishing in safety. These assets that continue to cash flow during inflationary times at rates equal to or exceeding rising prices are the right vessels for keeping your portfolios not only safe but help you prosper.
In addition to cash flow that keeps pace with inflation, the ideal vessel will be backed by a hard asset like commercial real estate or tangible business with an underlying value that will also rise with inflation. Coupled with cash flow, this gives prepared investors a double-edged sword for combating inflation.
Smart ultra-wealthy investors have long been untying themselves from the bonds of Wall Street and allocating to cash-flowing tangible assets to counter the effects of inflation, particularly assets tied to essential goods and services. Consumers will always need shelter, food, fuel, and goods that thrive even in a downturn are ideal for combating inflation as these goods don’t lose demand even as prices surge.
Witness the current year’s cost of rent and fuel that has kept pace or outpaced inflation without diminished demand. Those are the types of vessels you want to be in to avoid the impending disaster that will strand many investor portfolios.
Inflation is a juggernaut that doesn’t look to be waning soon, and recession will come in its wake. Will you be ready when the waters recede, or will you get stuck like everyone else?
To survive the downturn, be ready and have the courage to break away and untie from the crowd to find calm waters.
