Inflation is Spiking, So Investors Are Seeking Ways to Survive

Mark Hake

Inflation has now spiked for the second month in a row. On Dec. 10, the Bureau of Labor reported that the Consumer Price Index was 6.8% for the past year. This is up from 6.2% for the last 12 months (LTM) that was reported on Nov 10, as I wrote about in my previous article.

And there is a good indication that inflation could actually get worse. Here is the reason why. If you look at the table below you can see that the monthly CPI rate is now increasing.

For example, look at the latest figures that I highlighted in the rectangle above. First, you can see that during the late summer to early fall the monthly CPI rate was much lower, at 0.3% to 0.5%.

Second It shows that CPI during Oct. was 0.9% and for Nov. it was 0.8%. These past two months CPI inflation is now much higher than earlier in the fall and late summer.

Third, If we multiply the Nov. monthly CPI rate of 0.8% by 12, you get an annualized rate of 9.6%. So, if the monthly rate does not fall from 0.8% going forward, the annual CPI rate will rise to 9.6% (i.e., 0.8% x 12), up from 6.8% in the last 12 months. (This does not even include the effects from compounding, which would raise it even higher).

In other words, inflation is now spiking, i.e., it is accelerating.

And, as we all know from the Jimmy Carter era, and from Venezuela's experience, inflation can destroy an economy. As a result, investors should begin to protect their assets and income now, before it gets out of control.

What should you do to protect against a further inflation surge?

1. Moderately Buy in Bulk

If you believe that prices will continue to spike higher, you should buy more items you consistently use in everyday life. Obviously, this does not apply to perishable items, or even things like water, but start with higher-priced items.

For example, if you buy electronic vibrating toothbrush fillers, buy more now. If you use a lot of detergent, it might be useful to buy more now in bulk. Even non-perishable things like water, certain foods, and bathroom items can be bought more in bulk.

The idea is to do this in moderation. Inflation can be very finicky, and could suddenly drop out of bed. Moreover, often grocery stores will have items on sale or with coupons. If that happens, buy more than you would normally would in bulk.

2. Buy Long-Term Hard Assets

Owning things property like real estate, jewelry, diamonds, gold, silver, and other commodities will act as a good store of value. If inflation begins to ravage an economy, paper assets, especially money have nowhere to turn.

It also makes sense to not hold off on large purchases of items, especially property, that you plan on buying, such as furniture, cars, and even home additions. If the price is going to be significantly higher in the next year buy them now.

Don't wait for tax credits, or tax-related savings. Congress is very fickle on granting these things or extending them. Stay away from bond purchases, some CDs, insurance-related "guarantee" products.

This applies even if they are tax-exempt, or you are waiting for the planned purchase to become tax-exempt. It's better to buy them now.

Also, unless you plan on holding them to their full defined term (i.e., no more than 3 years), you should stay away from variable income products. The reason is their value in the secondary market will crater with higher inflation. In the end, you will not make a real, inflation-adjusted return on investment.

Lastly, for large planned purchases, don't be afraid of using some debt to purchase the items. Don't forget that inflation makes it easier to pay back the debt, which declines in value. For example, if your income increases with CPI, you will have more wherewithal to pay back the debt.

3. Buy Dividend Paying Stocks and Some Cryptos

There is one major exception to staying away from paper assets: dividend-paying stocks, REITs and certain cryptos. Companies that create direct cash income for investors tend to do well, as well as some high-tech stocks that buy back large amounts of their stock like Apple (AAPL), Alphabet (GOOG), and Oracle (ORCL).

In addition, some of the largest cryptos (i.e., top 10 market caps as ranked by Coinmarketcap.com) such as Bitcoin, Ethereum, Binance Coin, Solana, etc. I have written numerous articles about these kinds of cryptos, which you can see in my Medium, InvestorPlace, and Newsbreak articles.

However, in general, stay away from fixed-income products like bonds, insurance products, etc. that cannot raise their coupon rates. These will lose their secondary market value very quickly with inflation.

4. Create Extra Income Now

You are going to need extra income. You should do things such as new side hustles, selling unprofitable, or forgotten or unused assets, furniture, or cars, or online jobs over the weekend. This will help you to be able to keep up with inflation.

In fact, consider changing jobs. If your income level is stuck at a level where it won't be able to rise with inflation, you need to switch to a higher-paying or potentially higher-paying job. You are definitely going to need it with higher inflation.

Bottom Line: Be Prepared

Spiking inflation is no laughing matter. It can quickly get out of control. Its causes are hard to quell once ignited. It takes a lot of suffering, higher interest rates, and, if you can believe it, an effort by the government to lower economic growth (the opposite of what you would normally want), to lower it.

But that only works if the inflation is caused by excess demand. Today's inflation appears to be both monetary-based (excess government spending cheapening the value of the dollar) as well as supply constraints (i.e., fewer workers, fewer goods available to sell, etc.). This kind of inflation can lead to cost-push, rather than demand-pull inflation, and is harder to put down.

I lived through the Carter era in the '70s when inflation spiked out of control, and even gasoline was not available. It took the Federal Reserve raising rates to over 11% at one point before the inflation fever broke.

The point is - get prepared now. If you see inflation spiking over the next 2 months, you will know that your preparation efforts now will be well worth it.

By the way, don't forget to fully "Follow" me and make sure to download the Newsbreak app to become a Registered Follower. This way you can also see all my articles in the past. Click on the link underneath my profile name.

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This is not financial advice and you should not rely on my analysis to buy or sell any stock, bond, REIT, or crypto, as I am not undertaking to induce you to buy or sell securities or financial assets or products.

I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

This represents my analysis of stocks, bonds, and cryptos in general and is not meant to recommend any specific security or financial product mentioned in this article, nor is it meant to provide you with specific advice in your own situation. I do not presently own these or related securities, but I may buy some of these in the coming weeks.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ
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