Inflation without Interest Rates

Speaker 1 00:00:05 This is annuity straight talk since 2008. Your host Brian Anderson has helped clients nationwide navigate the complex market for annuities with Brian's assistance. Hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian Speaker 2 00:00:49 Hello and welcome everyone to the annuity straight talk podcast, episode number 27. My name is Brian Anderson and I'm solo today. Sorry to let you know, you're going to have to put up with me entirely. I've got a, I think it's a pretty good topic. And I wrote a newsletter about it last week, came out right after the last week's podcast. We had John Balmer talking about some bearer signals in the market. Really good one to pay attention to. If you're looking at conserving playing the market the right way, it's not necessarily us trying to tell you that you got to pull money off the table or do this. You should have a plan anyway, and short-term events should not cause you to make quick changes. If that's the case, then you really need to take a deeper look at your overall plan. So the idea is just kind of giving you signals, uh, things to look out for. Speaker 2 00:01:34 We're both trying to help people the best we can and really giving you market indicators and stuff like that, I think is helpful to keep everybody paying attention and keep their eye on the ball. And obviously like I've always said we want to play offense and retirement. So I think it was really good timing last week, to be honest with you, it was John's idea. I can't take a whole lot of credit for it. Just, I just facilitated the conversation and put it out there for anybody who wants to, uh, take a look at it and I'd encourage you if you're concerned about the market. If you didn't see it, go back to episode 26 is a market correction coming as a title it's in YouTube or any of your favorite podcast platforms. So it was good timing because the fed, you know, said they want to raise rates four times this year, some analysts are predicting six or seven rate increases because it's real interesting. Speaker 2 00:02:23 And that made the market really nervous. Obviously, if they raise rates, it's harder for businesses to loan money. The banks have to take their rates up. And that's where the, the topic of this podcast comes up. It's a newsletter last week. The podcast is really a little bit kind of hurt my ability to write because I don't feel like it conveyed my thoughts appropriately in the newsletter. That's why I like kind of double it up and give you a little bit more information. And also anybody who doesn't necessarily want to read, they might want to just sit back and listen to it. Or you can go look at the YouTube video to see some of the charts and some of the things that I looked up just to kind of support what I'm talking about. But what's interesting is over the past 10 years, August, I'll share my screen. Speaker 2 00:03:02 So you guys can see where I got the inspiration for this. And it's just the things that I think about over time. Again, I'm really working for your benefit. The idea is that I consume all the information, pass it off so I can answer questions to a lot of people. Here's the newsletter inflation without interest rates. If you didn't see it it's actually live right now as I'm recording, it just went out this morning. But, uh, you guys will see this coming up next week. The interesting thing about over the past 10 years is there's really two problems with inflation. It's kind of, it's like the hidden tax. And I think one of the things is inflation is reported as a CPI, the consumer price index. There are a lot of criticisms with the CPI. And my biggest criticism is I think it's under, because obviously we can look at 10 years ago and say, well, we feel like inflation is a whole lot more serious than is being reported. Speaker 2 00:03:58 And one of the reasons is, you know, like take a vehicle. For instance, the vehicles now have so much more technology in them. And so a brand new vehicle is substantially more expensive than it was 10, 12, 15 years ago. And part of that's just inflation in prices. And another reason for that is technological advances. I mean, you can't even find a new car without a backup camera. It seems. I don't like that because I think it makes me rely on technology for things that I should be able to do on my own anyway. But that's one of the reasons why prices go up over time. Technological advances, planned obsolescence, actually, you know, a lot of older goods and service or older goods that we have just don't work anymore. I mean, I guess the Blackberry, the very first smartphone, which I really liked, they totally shut off service for that phone. Speaker 2 00:04:44 So some people had a Blackberry for 12 years because they were really Hardy machine and they worked really well. All of a sudden they cut off service for Blackberry and that forces people to go out and buy an iPhone or an Android or whatever it would be if they want to do, you know, business applications on a phone, or if it's just a kid that wants to take pictures and play with social media, with friends, whatever, that's a form of inflation. My favorite example is a Gatorade. I drink Gatorade every now and then because I don't like to buy water bottles. You know, you get fancy water bottles. Thermal keeps stuff, cold keeps stuff warm, but just, it's hard to get a regular, a water bottle that even just a little one that fits in the rack on a bike costs seven or eight bucks. Speaker 2 00:05:27 Now some of them are 40 $50 for a fancy water bottle. I have a habit of losing water bottles, so I'll get a Gatorade and I'll drink the Gatorade. And then I'll use the bottle as my water bottle. And all my friends, a lot of people spend a lot of time around me. I'd carry around a Gatorade bottle and you guys have seen it sitting on my desk as well. And here's a way they way they do inflation, right? Is there was a point in time where Gatorade, the big bottles are 32 ounces and you can still get those. But in large part, a lot of the new Gatorade bottles are only 28 ounces. And so they changed from 32 to 28 ounces, but they charge the same amount of money for it over time. And that's just, now it depends on where you get it and what price you're paying, but it's hard to find a 32 ounce Gatorade bottle. Speaker 2 00:06:15 A lot of them are 28. Most of them are 28. Now that's a hidden form of inflation because it essentially represents a 12%, 12 and a half percent price increase for the amount of Gatorade you get. Right? And there's a lot of different ways. They do it to take a box of Cheez-Its or a box of cereal, any number of things where you're getting less for the same amount of money is a sign of inflation. And so I think a lot of that is under-reported. And when you talk about the consumer price index here we have, this is a, basically an example of what it shows you the eight different groups of good services. The things we spent money on were that are factored into the consumer price, index, housing, apparel, transportation, education, and communication, other goods and services, recreation, medical care, food, and beverages. Speaker 2 00:07:07 So transportation is a really good example of one right now. If you look at it and say, well, okay, so price increases, whatever the report in the CPI. Well, we all know transportation. Part of that is fuel and the cost of fuel has gone up dramatically. It's a hundred percent increase and even more in some areas in the past year. Well, they're not going to report a hundred percent inflation. Obviously, if it's equally weighted across all those eight groups, then just the fuel in the transportation would have an outsize effect on what the level of inflation is. So I think they change the weighting of certain things to put, put an average in. So it's very much a manipulated number because in housing, I mean, housing has increased by 30% nationwide in the past year, the median home price is now close to $400,000 in the U S alone, which is up from, I don't know, probably two 50, only, just a few years ago, dramatic increase in housing costs. Speaker 2 00:08:04 And so they changed the weight of that in order to not balloon the flat effect of CPI. So it's again a manipulated number in a lot of ways. If you look at the CPI over the past 10 years, that's, it's interesting, you know, 2011, it was close to 3% inflation and then it went down as low as, you know, one and a half, 1.7 and even below one in 2014 and 15. So pop back up in 2016 and it maintained a higher level of 2%. But if you think about it, like what in the world has only gone up 2% per year? Cause it seems like everything we pay for now, what's interesting. What got everybody nervous and why the fed wants to raise rates is because in 2021, they're expecting the inflation number to jump to 7%, which a lot of times it was reported, you know, five, five and a half, maybe six, the numbers come out. Speaker 2 00:08:56 I think in February, February 10th, they're expecting it to be 7%, maybe even a little bit higher. So what I think is interesting and the reason I wrote the newsletter is everybody's been expecting to see inflation was that, well, I don't want to commit to a fixed asset. I don't want to do this because inflation is going to take off. Well, yes, maybe inflation takes off, but what do we got? We don't have the interest rates to go with it. So that's not necessarily a perfectly correlated area. And so we've seen 2% inflation, which is what's reported. We know it's much higher, but fixed rates are still not responding and giving people adequate CD rates, bond rates, annuity rates, stuff like that. And so that's something that's really curious. And I want to just kind of shine a light on that for people to understand that just because we have inflation does not mean we're going to have super high interest rates. Speaker 2 00:09:53 It's a lagging indicator. It takes a while for that to catch up while the fed is manipulating rates that may not ever catch up before, they've got to drop them back down to stimulate the economy. So you can't just sit around and wait for interest rates to go up. So we've got 7% inflation in the past year, lots higher in my opinion. And I think a lot of people would agree with me. And then you go to bankrate.com and you look at the highest CD rates they're paying you 1% on a five year CD is reported as the highest rate available. So we've got inflation. We don't have fixed rates. Anybody that wants to protect money, you've got to do something a little bit different. I guess that's the whole point of this to begin with is you can't just expect to be able to go get CDs or bonds necessarily. Speaker 2 00:10:39 You've got to do something a little bit different index annuities allow you to leverage those rates. So you can get five, six, 7% in lieu of one to 2%. That's the value proposition. And it's again, it's not to say everybody's got to go get one, but it's a lesson to learn. We've got inflation. And if you want to protect money, then you're going to have to do something different than, you know, just the traditional route. So one thing I'd recommend everybody do is go back to episode 18. It's called the annuity alternatives. It's another one I had with John bomber on. That's why I wanted to have him and add him to my business because he's got a lot of alternatives that work well for people where you're going to get enhanced rates and a shorter time period, 2, 3, 4 years, where you can actually get a reasonable yield on assets. Speaker 2 00:11:26 And I strongly encourage everybody to take a look at that and think about it. Cause if you want to protect money and you want to have some sort of guarantee or consistency, then you've got to think outside the box and do something a little bit different. So you want your 1% CD. I think I was on Investopedia for a couple of those articles, right? It was interesting to me because there was a big banner ad on the side that said 0.5% savings account. So that's supposed to be really exciting right now where the treasury, the 10 year treasury jump up to about 1.7, almost 1.8 during the week. But consumer rates don't respond that way. And a lot of people think the federal reserve only that the only rate they said is the rate at which they lend to other banks. So if they increase those rates, that means the banks are paying more to borrow money, the money they borrow to lend, but they don't turn right around and start paying you more for CDs. Speaker 2 00:12:25 You'll see a little bit of a bump, but I wouldn't expect if inflation seven, you can't just expect, oh yeah, CDs are going to pay nine. CDs were not made to made to beat inflation. So it's an interesting thing. If you consider what, you know, a lot of people think, oh, the Fed's going to raise rates. That means I'm going to get more out of CDs or annuities or bonds, whatever it would be. It's not necessarily the case and it doesn't ratchet up or quite as quickly because inflation is a market driven number. And in a lot of ways, interest rates are as well. It's a risk on attitude. Federal spending created, it was easy money for businesses to expand for real estate development to happen. If you've been in real estate and stocks, you've done really well. You've kept up. You've stayed ahead. That's the point. Speaker 2 00:13:14 But when you get into retirement, you want to protect money. Again, the rates aren't necessarily going to be there just because we have inflation. And I think that's a lesson that we've kind of seen. We've kind of learned this past year because they're actually reporting some, uh, some real numbers of 7% inflation rate. I'd argue that it's probably 20%, 30% extremely high. Everything's really expensive. And so you got to keep that in mind, inflation does not mean high interest rates in the short term, because if they raise rates in the, of course, what they're doing is they're raising rates to try to slow down the economy. And that brings inflation in check in theory. But what happens if it goes too far, then you see a correction in the market, a slowdown in the economy, possibly a recession, and what do they do? They do what they've always done. Speaker 2 00:14:02 They cut rates. And so they're going to, it's just a vicious cycle where you might see a short-term spike. And if treasury goes to two and a half percent, you're going to see some good deals in some better deals in CD, some great deals in annuities. The bonds are gonna look a little bit better, but a lot of people are going to hold off and say, oh, I'm just going to wait for that thing to go to 4%, but I'd love a 4% treasury, but I don't think it's going to happen. It's too political. It costs the country, the economy too much money. And one thing the federal reserve wants to do is they want to make sure that the U S keeps paying its bills. So rates get too out of hand. Then the economy suffers for it. They're going to cut them back down. Speaker 2 00:14:41 And so, you know, if you sit around and wait too long, then you're going to be stuck with an asset, or you're going to stuck be stuck with fewer choices than you have right now. So because a 1% doesn't sound that great for locking your money up for five years, but people still do it obviously. But if you want to protect there a lot of different ways, you can do it again. Annuity alternatives, episode 18 on YouTube or on the podcast. And then obviously I I'm a believer in index annuities, but any of these things have to work well for you. All of them are a way to enhance the rates that you could get on traditional assets. So that's what we're here, basically what we're here to do. So check out the newsletter. There's a couple of other, uh, ideas in there, but just a simple, a kind of idea I wanted to share. Speaker 2 00:15:30 Inflation comes without interest rates. They don't go hand in hand and it could damage your retirement if you're trying to protect money. So that's why you give us a call. You can hook up with me or any of the advisors I have out around the country. If you want to work with someone locally, just let me know. I'll let you know who I've got. A lot of different people are joining the cause and I'm happy to have the help. And it's been working out really well for a lot other people also. So go ahead and subscribe to the podcast on any platform. Spotify Casto says who's hosts it, Google podcasts, apple podcasts, the YouTube channel, where you can see the video. Usually in the video, if you're listening to this, the has got a few more graphics and we do some screen shares too. Just to show you what things we're looking at. Speaker 2 00:16:12 All this stuff's easy to research. So just start typing in Google bang, whoever you'd like to use duck, duck go. If you're into the, I guess the uncensored version of it, I don't know. I've never used it, but I've heard, uh, heard good things about it. Yeah. So check it out, do some research and then contact me with questions. I love some comments on it. I'd like to know what everybody thinks. This is my 2 cents, but again, just trying to help people make good decisions. So you can always get ahold of me at 804, 3 8 5 1 2 1, or you can hit the website. The schedule a call button used to be green. Now I think it's white. It's got a little border on it, but it's in the top right of the website, check it out. I'm going to be back next week. I'm going to redo a video that a lot of people like to from a couple of years ago, I'm going to bring it into, today's kind of try to relate it to what's going on today, but markets are high. Everything's risky. We want everybody to be looking out for that and trying to give you the ammunition, the fundamental reasons for making sound decisions in retirement. Again, Brian Anderson here, annuity straight talk. Thank you for joining me. And I will see you next week for episode number 28. All right. Thank you. And have a great day. Speaker 1 00:17:33 You've been listening to annuity straight talk. The proceedings for patient is for informational and educational purposes only and does not represent tax legal investment. The views expressed by guests on this are their own and do not necessarily reflect the views of annuity straight talk or its partners. No information presented today should be acted upon without meeting with the licensed professional. It is important that you read all insurance contract disclosures, carefully making a purchase decision guarantees are based on the financial strength and claims paying ability of the insurance company.