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Publisher's Letter: Eye on Inflation

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Economic historian John Steele Gordon relates that when FDR took his oath of office in 1933, banks were entirely closed in 38 states and their operations in the (then) remaining 10 states were restricted.

It is true that our current economic reality is not at the level of Walker Evans’ famous Depression-era photographs of deserted commercial districts and hungry, grim-looking, underemployed laborers. Yet perceptions of very deep-seated problems are not unfounded, most especially among professional financial advisors for whom a faltering stock market forms the backdrop of our daily work.

Financial advisor and CPA Less Antman has calculated that, factoring in inflation, the 10-year market performance for the year ended 2008 was -35 percent (vs. a non-inflation-adjusted 14 percent loss). According to Antman, this is the worst 10-year real loss since the New York Stock Exchange opened in 1792.

The pain of our clients’ real (i.e., inflation-adjusted) portfolio losses are compounded by their deep real estate losses. Some might look for comfort in market history, which shows positive 10-year returns following the two previous worst 10-year sequences.

But it is apparent from current market losses that market participants are spooked by the vast spending planned by Washington politicians — stimulus spending, omnibus budgetary spending and spending for new entitlements and new programs. All the zeroes coming out of Washington (planned by all the zeroes in Washington) signal massive future debt that cannot realistically be repaid through economic growth or taxation.

That leaves the easy, but dishonorable solution of running the government money-printing press, which will dilute the value of our currency. It is not for no reason that our Secretary of State is begging the Chinese, the biggest holders of U.S. Treasuries, to continue to buy our debt, and that the Chinese have voiced their concerns about the effect our “reckless policies” will have on their investment.

We all hope and pray that current economic troubles, job losses and foreclosures do not expand into a Great Depression; our economy today seems to be stronger and more resilient than it was 75 years ago. But current stock market woes and negative financial news seem to portend something else: a coming Great Inflation.

What’s a financial advisor to do? Opinions on this differ. Financial advisor Less Antman argues that only equities, representing the productive basis of our economy, can prevail since government money-printing excesses will increasingly be recognized as worthless in the absence of real taxable revenue. Boston University professor Zvi Bodie has long been an advocate of Treasury Inflation-Protected Securities, the closest thing to a safe and guaranteed return that the market can provide. Others advocate for hard assets such as gold or real estate.

One thing, though, is for sure: At a time when U.S. debt instruments are headed in the direction of junk bonds, the only sensible thing to do is to guard against the coming erosion in the value of our currency.

Robert Tyndall


[email protected]


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