Are you worried about your stock portfolio’s performance during record-high inflation? In this segment of Backstage Pass, recorded on Jan. 12, Fool contributors Trevor Jennewine and Rachel Warren discuss their personal strategies for investing during this inflationary period and some recent updates from the consumer price index.
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Trevor Jennewine: It’s that scenario where tough times tend to make good companies even better. They tend to, I guess, separate the wheat from the chaff. I’m not really making any changes.
I was going to throw up a chart real quick that shows The Labor Department’s numbers going back to 1982. If you take a second to go through all of these numbers. We have 7.1% down here for the most recent figure.
The last time it was that high, it was June of 1982. Like you mentioned, Rachel, it’s been 39, 40 years. I think based on looking at this, I think inflation is temporary.
If we consider the recent past where we had the coronavirus causing business closures and that spiraled into manufacturing and logistics bottlenecks. At the same time, the government sending out stimulus checks, the Fed’s buying back treasury bonds and mortgage-backed securities to stimulate the economy.
So, you end up with that situation where you have people that have extra spending power, but there’s not as many goods and services for them to buy, and that’s, I think, a big cause behind the current inflation. But all of those things are going to work itself out.
I think the supply chain situation will continue to moderate over time. I think the Fed’s plan to raise interest rates this year will cause the contraction that they’re looking for. That being said, in the meantime, rising interest rates do make it more expensive to borrow money. I like what Jamie said about looking for pricing power.
In addition to that, I might be a little more cautious around companies that aren’t generating positive free cash flow just because they might need to raise capital by issuing debt.
Other than that, I’m not going to sell anything. I do believe that …….