It's Personal

America’s battle with inflation rages on. Surely by now you’ve been told that inflation has been tamed, but your monthly credit card statement begs to differ.

One challenging dynamic to inflation that gets little mention is how it hits us all differently. This is one of the growing list of beefs I have with both the Fed and the current administration. Against the backdrop of Kobeissi’s research, I’d like to point out a few:

A: If you originated a mortgage in the last 18 months, your housing inflation is significantly worse than someone who locked in a 3% mortgage 3 years ago

B: If you have spouse and 2-3 kids at home, your health insurance inflation is significantly more painful than someone who lives alone.

C: If you have to, or like to travel for work or pleasure, your transportation inflation has jumped a lot. If you work from home, you probably haven’t noticed.

D: If you are paying tuition, well, I feel your pain. Education inflation is absolutely brutal. If you are empty nesters…rejoice!

E: If you live in the Southeast, your property insurance inflation is much different than someone living in Wyoming.

Point being, when someone from the ivory tower likes to remind us that inflation is almost normal again, I want to ask “for whom?”. Not only are inflation changes unique to everyone via our own circumstances, but it appears there are still important people who don’t understand how inflation actually works:

Finally, here is what’s on my radar:

lending & credit

A lot has been made of the potential land mine of defaults facing small banks caught up in the commercial real estate market decline…..however Bloomberg is out with a piece suggesting big banks have plenty to be scared about as well. While these banks don’t make a lot of loans on the actual real estate, they do provide large lines of credit to REITs to help them manage liquidity around redemptions from investors. As more investors bail on a REIT, the problem can quickly spiral out of control.

macro + investing

The WSJ recently wrote about the phenomenon known as “Self-Inflated Returns”, whereby when an exchange traded fund (ETF) or active fund sees a sudden surge in new flows (usually due to strong recent performance), they will have to buy up the assets that have contributed to the outperformance in the first place, thereby creating more upward pressure on the stocks that are performing well.

This can be more pronounced with funds that invest in small companies or thinly traded securities, as a large ball of liquidity hitting it will cause prices to jump suddenly. The real risk to watch for is when the momentum eventually fades and the reverse effect can potentially create havoc to a client invested in the fund.

Consider this chart from Bespoke that highlights how concentrated recent sector performance has been in the S&P500. Definitely something to keep your eye on if/when the tech+AI trade eventually rolls over.

bitcoin

If you own life insurance then you obviously know that one day there may be a death benefit paid to your beneficiaries. This benefit is most likely paid out in USD….a currency that loses its value over time. Therefore if you have or are considering using life insurance as a component to your overall wealth strategy, you should be taking this into account. There are multiple levers that can be considered to combat this “flaw” inherent in life insurance and I’ve used several of them with the families that I work for.

However a new entrant in the Life space that caught my attention is a company called Meanwhile. They are using Bitcoin as the underlying payment vehicle in a life policy…which means that if Bitcoin continues to appreciate in price, the real or “actual” death benefit to the beneficiary could improve as well.

Not only that, but utilizing Bitcoin & blockchain technology will allow insureds the ability to borrow against equity inside the policy, among other things.

I expect this sector of life insurance to continue to see more interest and growth.

Clark Gaines focuses on alternative investment strategies at Almanack Investment Partners, and is based in Charleston, SC.

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