Is Inflation Here To Stay?
42m | Oct 5, 2021The Long Term Inflation Trend
In the first episode of The Long Run Show, Mike and Austin discuss inflation, what causes it, how it's measured and what tools the FED uses to control it.
Austin and Mike also look at long term inflation and how hourly wages, job numbers and tapering will affect it. They discuss methods of investing that help hedge against inflation.
They also share some tips on how to get rich quickly by "pulling a Rockefeller".
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NOT FINANCIAL ADVICE
The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice
Unedited Transcript:
Welcome to to the inaugural episode of the long run show with Michael O'Connor and Austin Wilson. I'm Austin. And he is Michael O'Connor.
Yes, that is correct. Today. We are going to be talking about inflation and kind of taking a zooming out and taking a macro look at it. What we are our opinions on, on the future of inflation and what we might do to position our portfolios, um, in accordance with that, uh, we, we may have different opinions.
We may have similar opinions, but we're going to flush that all out and we'll also do a little. Kind of a deep dive on, on inflation itself, how it's measured. Um, and then some of the levers that Mr. Jerome Powell and the federal reserve are pulling to kind of, uh, either dampen, inflation or respond to what we're seeing, I guess, is a better way to put it.
Um, what we're seeing with the CPI reports, we just got one out today. As of the recording of this podcast, uh, new, new report. Uh, CPI for August and that measured, um, a little bit of a slight decrease. I believe it was 0.3%, uh, decrease. Um, so basically you could say a softening or a flattening in the uptake and inflation we've seen over the period of, uh, of a few months here last six months or so of 2021.
Um, we knew some of this was coming. Based on last year since no one in the beginning of 2020, if you forgot what happened, there was a little pandemic lockdown thing. Um, no one back then was going out at all and buying things. So obviously there was a lot less money floating around Jason. Hardly any goods or services.
Um, so that, that makes sense that we didn't see a whole lot at the beginning of this year, as far as inflation goes. But, um, now that we are into the latter part of 2021, and we're seeing a little bit of an uptick in a lot, a bit of an uptick in, in, uh, economic demand and consumer spending, um, we're going to see more inflation.
That seemed to be the narrative of, oh, it's transitory. Um, We had had a conversation Mike, about August, September, October, November, that timeframe that we're in right now and looking to those, those time periods, um, to see what's going to happen with inflation and how that might indicate the longer term trend we're looking at here.
And, and just to kind of go high level for a hot second here as well that, uh, Kind of inspired this whole podcast. Cause you know, we're, we, this is the first episode of the long run show. So our goal is to kind of provide a expanded view and just a top-down view, try and step back a bit from a lot of the short-term stuff, fluctuations whatever's going on.
Um, and to be able to take a real bird's eye view. What our thoughts, our opinions are for things that are happening and, you know, not just a intra month or intern month period, you know, I would say let's not give ourselves a minimum time span for the long run show, but we're not gonna, we're not gonna put ourselves in a box.
Um, It is for the long run. So the long run. Exactly. So with the, with that in mind, inflation, I'm interested to just kind of hear your take on the long run, uh, trend of inflation and, and where you think it's headed from here. Obviously we've got the CPI data, um, inflation rate of over 5% for a couple of months in a row here.
We saw a huge uptick, you know, obviously end of spring, beginning of summer. Where do you think it's headed? Where do you think the ball's going here? Yeah, for me, I think the, the, the two immediate takeaways, um, from the last, even just the last month have been number one, you know, the, the whole idea of transitory inflation and how the, the fed has.
Trying to pacify. It seems like, you know, a lot of concerns, which at the end of the day is their job. You know, they're trying to make sure the economy is as stable as possible. So, you know, there's definitely some voices out there I would say criticizing them, but you gotta remember that's their job to just exactly things, uh, very calm.
Uh, so the, the whole transitory factor, I mean, it, I mean, if you look at it, just looking at the numbers. It makes total sense to have this kind of inflation after such a period of like, like you were saying, like decreased consumer spending, everyone got government, most people got government checks and everything is more, there's a lot more money in the ma in the overall monetary supply.
Right. It just, it makes sense to have inflation. So it's, it shouldn't be a surprise. Um, and in some ways, you know, It depends a lot on the economy and factors. You know, it's probably not a, not a blanket statement for every economy in history, but sometimes it is good to have, um, certain levels of inflation, you know, keeps kind of keeps the, uh, the economy turning and moving.
And it's interesting, it's it, it seems like consumer prices for products and you're going from cars to milk, whatever, um, have gone up the fastest. Cause that's kind of the easiest thing for. You know, the companies to directly increase the prices on, but the, the upshot of that is we'll probably see a real salary growth occurring because, you know, on the one hand, if it really is transient, The pressures that are, have already been put on.
I at least I think this opinion. Um, but I think that we'll see real real salary increase just from the number of job openings. You know, the job it's, that's a whole nother topic of the job data, but it's interesting because there's less jobs being filled than forecasted, but this. So many openings, right?
And it seems like there's just a lot of people leaving the labor supply, which is a prime indicator for increased real salary. A couple that with inflationary pressures on the consumer side, you get a, an economic, uh, a real economic system. Probably going to move in that direction, which, I mean, we haven't seen him in a while.
There has been relatively slow growth in terms of real salary. Right. We've seen uptick in real productivity, so that's kind of do, but at the same time, you know, back to the first point of transitory ness of the transitoriness level, uh, of the inflationary pressure, it definitely seems. Because at the end of the day, inflation, what, what creates inflation is the psychological anticipation of inflation.
So when consumers think inflation is going to sack and what creates exactly. So, I mean, by as, I mean, in reality, it, inflation is always transitory because the federal, the fed the central bank of whatever country we're talking about here is, is designed to. Control inflation. So any rise or decrease in inflation is going to be transitory because ultimately the central bank of that country is going to try and get it back to the target rate.
So I think it's pretty disingenuous. Th the fed to just say transitory without maybe trying to, to put some more meat or contexts around that, except I know that they can't because as soon as they're wrong, everyone's going to freak out. Cause we look for we, we try and read the tea leaves whenever the fed says something.
Um, but you know, you bring up the, the kind of parallel discussion of the jobs, data and wage growth. I mean, even in my small town where I grew up in Northern Michigan, I saw a bill. Advertising a job at Culver's for 1850 an hour. I mean, that's, that's pretty, that's pretty high for a fast food job. Yeah. And I'm not, I'm not, you know, I'm not trying to knock fast food workers.
I'm appreciative every time I go get a big Mac, but for 1850, I mean that we've never seen that before. Right. So, um, there is something to be said for that. However, I, I. Almost as a, it sounded like maybe you were thinking that that's a good correction thing. Uh, that's a good, a good thing for the, the labor side.
The way I see it as that could be a. A catalyst for a negative feedback loop where salaries rise precipitously, not in a healthy, measured manner, uh, but salaries keep rising precipitously just to fill the jobs that are needed. But then again, as margins, get crunched more. On the, on the production side of things, you know, companies are gonna have to be charging more to justify the increase in salaries.
And then of course, people are going to be willing to buy at those increased prices. And then you get this cycle of inflation. So I could see it playing out that way. Um, I think. Far more time to really tell how that is going to play in how the labor data is going to play into the inflation data. What I thought was interesting in this recent report here, the one that came up today for August, uh, August CPI, um, data was that.
Inflation minus food and energy actually, um, decreased a bit over the last two months over July and August, there was actually a downtrend from June, um, in, in that part of the index. So it looks like. Food and energy, which are to that that's pretty inelastic essential. You're going to need a food and you're going to need energy to heat your home and drive right.
And commute and all that. So those things are, are increasing. Um, they inflation and inflation rate seems to be pretty steady on those but other, um, consumer discretionary items or. Non staples and food and energy seem to be decreasing a bit, which again, maybe that has to do with concerns over the Delta variant or, or maybe it just is, you know, kind of as a cyclical thing as summer was winding down.
But I mean, that was both July and August. So we can't read too much into that. It's not, this is backwards looking data. It's not forward looking data. So yeah, it's um, that, that was really what stood out to me. I guess the, the estimate definitely. Um, I think everyone was expecting a higher number, a higher headline number for inflation.
Um, but it, it seems to me that whether it was a higher number or stayed the same like this, I think at least for the short term, meaning six to 12 months, we're going to see inflation, um, B play a role and, and. Main, uh, reason underpinning that opinion is that we haven't seen the fed start tapering yet. Um, which for just a quick definition of tapering, essentially, the fed is buying.
Large amounts of treasury securities and mortgage backed securities, um, in their open market operations, which in turn puts more money into the system. They're buying about $120 billion worth of securities every month. Um, and they have been since, uh, mid last year, actually, since. Let's see here July, or excuse me, June of last year, they've been buying, um, 120 billion a month.
So that's not a small number, obviously, and that's adding a lot of liquidity and therefore more dollars chasing the same amount of goods. At this point, we're seeing an uptick in, in production, obviously post, post pandemic and into 2022. Hopefully post pandemic here. Um, so, but with the fed, not tapering in September, which is clear at this point, My, my assumption is that until we see the fed start to taper off their, their purchases of $120 billion worth of securities, we're going to see inflation, uh, continue, uh, until, until that time.
And probably after that, I mean, I don't know. What do you think the lever is that there that we're, we're going to need to see for inflation to, to, uh, be transitory? Yes. Sure. I think it's a, it's a really funky conundrum that they're in, because I think on the one hand, the fed was really hoping that, um, I think every, I mean, everyone was hoping that the Delta variant wouldn't be as, as according to the numbers as prevalent as it is.
Um, I think a lot of people are expecting a much bigger, broader overall recovery at about this time. So I think that the fed is very, very cautious of. Pulling back that tapering. I honestly, it seems almost that they're more cautious of pulling back the tapering to prevent investors and traders and the whole financial sector from freaking out than what the actual effect of tapering would be.
I think that the, the perception of tapering is more scary to the fed in the financial sector, then the actual tapering itself. Right. Because it's single signals, but the interesting thing. Will I be interested to hear your, your opinion on this as well. And I, to be honest, I forgot what the question in the beginning, but, um, but I think that it'll be interesting to, to think, you know, do, do you think that the reaction is going to be as bad as.
There's a lot of people are saying a lot of people thinking as I think the fed thinks it will be. Uh, it'd be interesting to hear that, but on tapering. Yeah. But what was your question? Well, I mean, my question was I'll, I'll answer that really quick. I don't think the reaction to tapering is going to be that bad only because honestly the financial news has.
Very dismissive of tapering. So every, every thing I've heard and watched and read on tapering, everyone, this time around is very dismissive and has said, oh, it's not going to, it doesn't matter. We're going to be fine. We're not going to see a taper tantrum like we did in 2013. Um, because. That we know what the Fed's doing this time.
The fed is going to signal it far, far in advance. So it's been very dismissive. I don't think that's going to be a, um, uh, an issue like the fed actually might be assuming it will be, um, which is an odd conundrum in and of itself. But, uh, what, what will. Show investors and the whole financial sector that the fed is tightening its monetary policy is when we see rates rise, which is kind of, I was leading you almost to that, that, uh, that point of my question, because.
Um, w what I asked was originally, what do you think the, the lever is going to be for us to see, and this increase in inflation, you know, kind of, kind of stabilize or reduce, um, and obviously rates rising is the answer. But before that, what's going to be an indicator that we'll see. That's a good question.
I mean, obviously they're going to have to tape her out the whole 120 billion and bond purchasing before the rates. Right. So that'll be, uh, but I'm sure that'll be a long road. Like you're saying that the fed is definitely taking a very strategic approach, very slow approach, which not, not, not necessarily a bad thing.
Um, yeah, I think, well, once, once we see a very clear action plan to taper out all those bond purchases, I think that'll be a signal. You know, at some point, uh, time horizon after that, you know, maybe one to three years, I don't know. It could be, it could be a long time before we see rate increases or, I mean, here's the thing too, is I think a lot of how the fed is reacting to things right now is very focused on, um, COVID and I think if, you know, if we have some, some sort of breakthroughs or, you know, this signif.
Um, reduction in cases in the United States and around the globe. I think, I think the fed is watching world cases a lot more than people think they are. I think that's something that they're keeping a close eye on. Interesting. Okay. Um, I think, you know, if you see, if we see that kind of improvement around the globe, I think that would be a good indicator of just general financial health and not the entire world.
And I think that would probably signal a faster move towards, um, a range. I think that that's probably at least that's my opinion. I think, I think that if we see global, global case numbers and global, um, infections and deaths going down, I think that would be a solid indicator of just global financial health.
I think the fed is watching that, um, closer than it seems. Right. That makes sense. And, and they do seem to be, well, they obviously have to. Do some, some coordination with the EU and the European block with the, the, uh, ECB. Um, so that, that makes sense that, that they would need to take a more international approach.
Um, it is interesting, you know, I, I did say we brought up the 120 billion of purchases that they're making every single month. Um, Have though Ben using their reverse repurchase market, uh, or reverse repos to actually take some cash out of the system. And that has been, I think, severely under reported.
This, you know, it kind of goes against my argument that while we're not going to see much change in this inflation, um, until we see tapering, it goes against my argument a little bit because the tapering might've already started right underneath our noses. Um, just because they're taking they're, they're taking a lot of money out of the system at this point, they've taken away.
Uh, trillion dollars. Um, well, yeah, out of the system, just using reverse repos, which is there, um, overnight operation with, with banks where they will sell, uh, secured treasury securities to a bank, the bank will purchase. And deposit the money at the fed to make sure that they get an overnight interest rate on that money.
So essentially it's a, it's a way for the fed to take money out of the system, um, in just, you know, gives them another, another lever to do, to do so, but they've taken out quite a bit of money, um, from, from, you know, what they've put in, which is quite a, quite a large sum over the last 12 months. Um, so that, that might.
Put a little bit of a damper on, on inflation, um, as we keep moving forward, because it seems that they've committed to this a large amount of reverse repo activity. They actually set up a permanent facility in July of this year, July of 2021. Um, to facilitate that the, all of, all of these, um, agreements and, and re repos, or excuse me, reverse repos and repose happen at the New York fed.
Um, Mm, branch of the federal reserve. And so they set up a permanent facility, which is interesting because in 2015, they said reverse repos were a temporary solution to decrease the money, supply a transitory reverse repost situation. I didn't wrap your head around that one. Um, so they've already started a little bit of that.
So that might be an indication as well, that they. We might be running a little hot with, uh, with inflation already. Interesting. Um, it, it's kind of an underhanded way to do it and maybe they like it not being publicized that much, but it is something to keep an eye on, um, as, as we move forward, because if, if they continue to kick the can down the road, when it comes to officially tapering, they may continue to use this as a, as a way to offset those, those purchases.
Here's a question for it. Could they just increase the reverse repos? To the same amount there to just do a net zero and kind of, I, I, I don't believe that they, I don't believe that they could do that. At least not with. Completely shifting the paradigm because the, the, what happens with reverse repos is the, um, bank that they have, the, the reverse repo agreement with who's depositing the money, or essentially buying the securities.
The fed is paying them a very small interest rate on that money. So what you would do is if you were to put, um, to put. $120 billion of reverse repos, um, each month into the fed or through the, through that, uh, New York fed facility, um, it would very much, um, disrupt the short-term money market, uh, part of the financial system.
So I think if they were to do that, it would be. Almost too much of a good thing. And they would ruin the short term, um, debt system that's already in place, uh, in the financial sector. So that wouldn't be a wise thing to do. It would be like, you know, trying to run a race on sugar. Um, it it's, it might work for a little bit, but it's not the long-term solution and not the responsible thing to do.
Um, yeah. Obviously, they're trying to be the responsible one in the room, um, as always, but it is interesting to see them Rob Peter to pay Paul essentially with this whole tapering and repurchasing. Very funny. Yeah. And is that been, has that been increasing over time or is that kind of been very much okay.
Yeah, we, we were, we were, I've got the data in front of me here. Um, April of this year. Um, they only had 35, uh, yeah, around around 35 billion of repurchase agreements. And by, um, August of this year, we were at a trillion, so, wow. It's very, very much increased just over the last. Wow. Five months. Uh, so it's, it's definitely something.
I think that's been underreported, Forbes reported a little bit on Briggs, been reporting it a small amount, but again, something that you would want to keep an eye on and might be a good leading indicator as to what their stance on inflation, what the fed stance on inflation. That's interesting. Now, do you think it could be even a leading indicator if they start pulling back on that, that they're going to do.
It could be, I, I would not want to read too much into that just because I don't, again, I, my, my view is that tapering is not going to matter that much. I think really rate hikes are what's going to matter, which, like you said, it's not going to be for a while. That's going to be in a few years. So that the reading too much into when they might taper, I think could be.
A little bit of a misnomer. I might give you a, you might be reading into it too much and trying to make, uh, make something out of nothing at that point. So it's always important to it to make sure you're, you're not reading into it too much. Um, but with both of us seeming to think that inflation. Here to stay, at least in the short term, what do you think, uh, what are, what are you going to be doing, you know, for your own own portfolio, if you want to share, um, to, to really hedge against that, is, is there a way you're positioning your own portfolio or how would someone, you know, who, who assumes or, or has the opinion and shares our opinion that if inflation is not going to be a month transitory, it might be a, maybe a year transitory.
What is the person doing that in that, uh, circumstance? Sure. Yeah. I mean, there's, there's a whole, uh, myriad of ways to hedge against inflation to be sure, but at least for myself, and I'm a pretty, pretty risk happy person. Uh, I'm very, very okay with taking high risk things, but geez, I'm, I'm, I'm in a gold ETFs at this point after, after the last couple of weeks, um, after kind of digging into the figures and everything, I was like, you know, It looks to be a pretty solid upside, um, for gold and other precious metals and commodities.
Um, especially, especially as a hedge, uh, it's not, it's not the majority of my portfolio, but at the same time, you know, you do want to be able to have those, those different kinds of levers, those different kinds of areas, um, that will hopefully counterbalance each other in different situations. So, yeah, uh, personally I'm in a gold and a gold mining ETF.
Just because it's funny on most of my stock purchases, I'm very technical, very research oriented person. Who's looking for innovation, kind of the value growth. Um, but this was, this was one sector. I was like, you know what, I'm just going to get the bundles. I'm not going to dive to Depot, concentrate energy on just trying to find, uh, innovative companies.
Cause I feel like gold mining is gold mining. Right? I mean, unless you're going after somebody is looking for new gold. Exactly. That's a good point. I mean, yeah. Jeez. If you can find the people who are digging and they haven't found the gold yet, if you can find them, you're going to have some pretty, pretty incredible returns, but that's, but again, it doesn't sound like you're using that as a, let's hit the ball out of the park here.
This is just a, let's preserve some value in the portfolio. Uh, yeah. And that's actually a really good point because I think that kind of boils to the ethos of what works. I think what we're trying to do with the long run show as a show here is. We're probably not going to give you the stock tip that makes you a hundred percent turn.
Definitely not. Mike Mike on accident, Mike, Mike, I'm going to drop a ticker and it might pop, but yeah, no, that's not. I don't think that's the, I mean, you have to, you have to transition at a certain point from making your gains to preserving your games. I mean, it's just as hard, I think, maybe even harder to preserve your game.
Over a long period of time, uh, then than it is to pick the next hundred X 200 X like muscles, muscle gains. Keep doing, you gotta keep lifting. I mean, you can shoot up the gains with some steroids, but that's not going to work long term, but fair point. But yeah, I mean, I, I think, um, having a portion of your portfolio allocated to something that's.
Preserve, what you've been building in another section is a really smart way to do it. Then, then you kind of, um, well obviously diversify, but you have your, your own, your own sleeves within your portfolio that have their own tasks and their own marching orders. Yeah. I think that's very smart. Yeah. For me personally, I, I have bought some of the, the gold mining ETFs, I think.
We're a little bit counterbalanced in, in our investing approach. I traditionally have been more of a ETF, give me the bundle and, uh, I'll, I'll be okay with that. Um, and I think that's maybe my downfall. So I have added, I have edited a few individual positions, but those are more of a, um, More like, like we just talked about kind of the let's hit the ball at the park.
Let's take a few swings. Sure. Um, what I'm using for, you know, an inflation hedge is an, uh, commodities ETF actually. Um, and I, I was actually kind of choosy and looking for an ETF with commodities. You can get, um, a few different, a few different types. You can get. And an ETF that is built on derivatives of commodities.
You get an ETF that actually is built on the commodities themselves. Um, so there's a few different, few different things you can do there. I tried to stick to the commodities themselves, or as much as possible, um, and less of the derivatives and derivatives because that market is full of it. So well, I wanted it to be as close as I could to, to the actual, you know, hard product, but Hmm.
That's a, that was one piece of the portfolio that I just added, um, was, was, uh, I was a commodity ETF along with the gold mining, uh, ETFs. I think those are two good pieces. Some things also to look at would be possibly real estate. I know it seems like we might be in a quote unquote bubble as far as real estate values, but, um, It's one thing that they're not going to make more of.
Yeah. There's no way you can produce more land. Yeah. That's all we got. So in a, I don't know, Elan's, we're going to Mars soon. Get some while it might be. Yeah. Yeah. You can be a land developer on Mars. Um, so, but, but you know, maybe, uh, maybe a REIT or fun dries, those are some good options. Um, again, not going to hit it out of the park, probably if you're going for a eat at a REIT.
But something with exposure to real estate is good. Again, commodities, hard goods, gold. Those are also great. Um, you had a, you had a thought on an uncorrelated asset as well, you know, uncorrelated kind of alternatives being a good hedge as well. Yeah. Yeah. And that's actually something that I've gotten into in the last.
She's only the last six months is a fine wine investing, which is something I'd never thought about investing in before. And just kind of heard about it from the grapevine. Oh boy. You're in for those folks. You're in for some bands around here and I let it ferment in my head for a little while. Yeah. Um, but I think the hunt for uncorrelated assets like real alternatives, uh, it just kind of led me in that direction because that was at the same time I was getting more and more into crypto.
And crypto is a significant part of my portfolio as well, because I legitimately believe that there is a lot of innovation going on there. I'm actually not a big Bitcoin. I don't not a big digital gold guy. All right. I was going to ask you, I was going to ask you about that. I mean, the, the supplies locked, right?
So wouldn't that be a good inflation hedge? Sure. But I think at least for me, and this is just personal and this is personal opinion, none of this here's the disclosure, none of this constitutes official investment advice, your licensed advisor, um, and all that. But for me, I, what attracted me to cryptocurrency originally was.
The projects that have a legitimate, like real use cases. And sure we have, you know, the, the forks coming out for Bitcoin that are kind of adding onto it and creating more use cases. But I think at the end of the day, if, if the, if the blockchain itself is built to be used for, for. Um, you know, creative purposes, I think it's going to be able to do better in the long run than things that are kind of tacked on.
So for me, the things that got me into cryptocurrency were coins, like a theory from Al grand, uh, stellar lumens, like things that had a specific direction to them where they're using blockchain technology, not to just store value. Like it's great. Uh, it's a great way to use. And I mean, gosh, yeah. Bitcoin is incredible innovation.
It obviously works. It worked very well and continues to work. Yeah. Yeah. But I, I'm not, not as, as bullish on Bitcoin as I am on other coins and chains that have kind of more broad, innovative uses. Uh, I think if you're looking for just a value, if you're looking for just kind of keeping that. You know, I think that you're probably better off with a gold miner ETF or something like that, rather than investing in Bitcoin to try and lock in value.
If you really believe that Bitcoin is going to the moon, then you know? Sure. Um, but I think at least for me, and this is kind of a more, a broad statement as a whole, but as an investor, I look for things. Legitimately believe in, um, unless it's super short term, but we don't talk about that in the long-term.
This is the long run, the long run show, the long run. We talk about that. So, so yeah, so fine wine. You're getting back to the point, fine wine kind of came up and started getting more and more into it. And it's a really interesting, a really interesting hedge, especially against something like inflation, where it's this unique alternative asset that.
You know, it's physical. You can take shipment of it. If I want, I can actually get my huddles shipped to me and it's kind of oil and a drink. Um, if I really want to let me know when you're doing that, I'll come over. Yeah, yeah, yeah, definitely. Um, but it's, it's a unique kind of alternative asset that, you know, it's not, it's not.
It's not fine art, you know, I don't have to shell out 30 million to buy a Monet or something like that. You can buy a case of a case of like very high quality wine for a thousand dollars or something like that. And let that sit and let that mature and, uh, you know, collect returns on the, the, the value of the wine going up over time, which usually it seems like they trend upwards as they get better with age or whatever, but then you also, it's one of those products that is naturally.
Pretty decent hedge against inflation, at least from, from what I've seen, what I've experienced. So that's, that's something that is, I never would've thought I'd be investing in. And I don't think has been really accessible to invest in for, you know, not in a liquid way or an easy way for normal people.
Yeah. We're not Somalia, you know? Yeah. But yeah. And, and yeah, something less. Sexy than wine investing that just get just crossed my mind, I think is important to, to broach the topic here is just large mega cap stocks. Those may be one of the, one of the better, um, almost. Low risk. I, again, obviously they're an equity, right?
So you've got inherent risk there, but, um, those mega cap stocks in, in the, in the U S market are going to fare pretty well in an inflation, deflationary period. Um, they're, they're set up perfectly. They've got their war chest full of cash to do whatever they need to, um, to, to be nimble enough. You know, very good solid revenues coming in and they have most of them being tech companies obviously have room to grow margins even during inflationary time.
So I think those are also a good, a good thing to look at. Even owning an ETF, you know, me and my ETFs, even owning an ETF on the S and P 500, still bet on the, on the. Five or six companies. Right. So, yeah, that's a good point. That's, that's also not a bad, uh, inflation hedge either. And, and something that might be overlooked, um, when you're thinking about inflation, because obviously you're going to think gold commodities, hard assets.
That's true. Uh, but in, in these sort of crazy times, maybe the safest bet might be a few stocks. And that's a, that's a fun, a fun thought too, because it's, it's been interesting to watch the, the prices of Fang and the other kind of mega caps. Like you're talking about, um, go up quite a bit in the last year and.
You know, it's, it's interesting too. I mean, talk about parabolic, just look at alphabet. Yeah. Just look at their chart. Yeah. Yeah. Wish you'd bought it in 2019, but now here, here's the question that I, at least from what I've been seeing and reading and hearing about, it does seem like there's kind of this movement.
This seems more and more, um, Uh, leverage behind, I don't know, not leverage, but it seems to be a cascade momentum. That's a good word. Uh, more and more momentum around kind of government actions, both in the United States, in the Europe, especially in and around the world. I mean, have bigger and bigger fines.
Um, more kind of, you know, not quite antitrust yet, but we're edging in that direction. There's a lot of talks to those kinds of. And I don't know. What are your thoughts on that? Do you think that, and then we're getting, we're getting very far up the inflation that's okay. I mean, I, I think, um, I think that's definitely, I mean, you're talking about regulation risk there, right?
Yeah. And so that plays into it's a stock. So if you're using it as an inflation hedge, obviously there's more than just. Inflation that you need to think about when you're owning a stock. It's a business that operates in the real world deals with real people, real governments there, obviously with a mega cap stock, it's in the name, it's a giant.
So there's going to be, you know, antitrust. You know, opportunities for regulators to come in and apply antitrust law to it. Um, or even privacy restrictions with, with these tech companies. That's a huge, a huge concern in Europe as well. So yes, there's, there's regulation risk. Um, I think that's probably a healthy thing.
We don't want five companies buying up all the startups, uh, because the competition is what drives innovation. Right. And so you need to maintain that. Um, but I, at this at the same token, I think. From a valuation perspective, um, antitrust is not going to be, I'm not going to be the, the straw that breaks the camel's back when it comes to will, will their valuations will these big, you know, the Fang stocks will, will their valuation stick around.
I think they have so much. Uh, internal growth possible just because they have ample resources at their disposal. I don't believe that that antitrust is going to be the straw that breaks the camel's back there. And so that's what I that's, maybe my. Uh, to bullish perspective on them Roman and from a, from a longer-term view.
But I think that's why, um, I would look to them possibly, uh, as a piece of the portfolio to think about, you know, giving them the inflation, hedge, um, task, along with the other, the other things we talked about, the other vehicles we talked about, and that's actually a really good point, the valuation perspective.
I didn't realize this until recent. But the, the classic antitrust of standard oil and John Johnny Rockefeller, apparently he didn't really, I mean, he grew fabulously wealthy because of standard oil, but he actually became the wealthiest man in the world after it was broken up. And he had interests in all of the subsidiaries that were kind of shattered into and all of them started doing well.
And so as an aggregate, the pieces of standard oil actually did better and made him. That's standard oil as a, as a near monopoly. So maybe the best, uh, the best way to get rich in the long run. As soon as you see a company about to be broken up, go buy, get a little ownership, stakes and all the subsidies pull a Rockefeller.
That's going to be deemed pulling a rock. You heard it here first? Yeah. Yeah. Well, yeah, I think that's going to do it for us here today on the long run show. Um, it's been great talking about inflation. Like we, uh, like we mentioned, there's a few different ways you can hedge against it. Obviously there's a myriad of different indicators that you might want to look at.
Keep in mind that CPI and the data that comes out on a monthly basis. That's, that's backwards leaning. I mean, we're in, we're in September talking about August data. So you want to find your, your leading indicators, if you're trying to position yourself for the future. Um, and, and. You know, give, give different sections.
I think the theme here at the end was give different sections of your portfolio, different tasks, give them different marching orders. Yeah, that sounded good. And one thing that we didn't get to touch about, which I think would be a whole other episode is things like the infrastructure bill, you know, what happens if a three, three and a half trillion dollar bill gets passed?
That's, you know, that's, that's a whole other ball game. You're going to be watching that stuff as well. Just keep the eyes open across. Across the sectors of government and financial sector and everything. Yeah. There's a lot to keep your eyes on and you have to have them. Yeah. So true. Anyways, that's going to do it for us today, like subscribe and we'll see you next time on the long run show with Michael O'Connor and Austin.
See you next time. Bye.
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