March 28, 2022

What happening with bonds and inflation?

The Markets

I want to take a moment to cover 2 topics that are playing out for all of us.

First, many retired people are constantly told or read that they should be in bonds because they are safe. Well, are they really? At the end of the first quarter this year the bond market had its biggest decline in the past 40 years, The U.S bond index had a negative return of -6% for the quarter. This poor performance has been a difficult territory for investors seeking a safe haven when stocks and many other markets have made several sharp swings and been volatile. It’s for this reason that we have several alternative positions in your accounts to help avoid this decline as well as an effort to protect your principal.

Secondly, how does the government measure inflation? The answer is that it depends on how you measure it.

Determining how quickly prices are rising or falling – and where they may be headed in the future – is not simple. In the United States, millions of goods and services are bought and sold every day – shelter, food, transportation, energy, water, education, childcare, equipment and tools, medical care, furnishings, apparel, trash removal, and much more.

The government relies on two indexes: the Consumer Price index (CPI) and the Personal Consumption Expenditures Index (PCE). Each index has two versions: headline inflation and core inflation.

Data is gathered in 75 cities, collecting information from about 6,000 households and 22,000 department stores, supermarkets, hospitals, gas stations, and other establishments. So, the CPI is a measurement that reflects the experience of urban consumers.

CPI headline Inflation
Last week, the CPI showed that headline inflation, which includes all price changes collected, was up 1.2 percent from February to March, and up 8.5 percent for the 12-month period that ended March 31. The largest increases were in:

•    Used cars and truck prices                                          + 35.3 percent
•    Energy prices (fuel oil, gasoline, natural gas, etc.)     + 32.0 percent
•    New car prices                                                             + 12.5 percent
•    Food prices (groceries and eating out)                        +  8.8 percent

Please note if you are holding large cash balances in your saving or checking account this is not necessarily playing it safe. Your cash is buying much less each month so you are actually losing money as you buy goods and services for your lifestyle. If you are in this position somewhere in your holdings feel free to check in with me or let us know that you’d like a call and will talk it through and see if there are any options for you to consider.

Focus On The Positive
“Finish each day and be done with it. You have done what you could. Some blunders and absurdities no doubt crept in; forget them as soon as you can. Tomorrow is a new day. You shall begin it serenely and with too high a spirit to be encumbered with your old nonsense.” —Ralph Waldo Emerson, philosopher and poet