Video Update: The Big Picture on How to Fight Inflation

Last year, the average rate of inflation was 8%.

Meanwhile, wages and salaries increased by only 5.1%, according to the Bureau of Labor Statistics.

So unless you were one of the lucky few who got a raise higher than 8%… chances are, your buying power took a hit in 2022.

But it doesn’t have to be that way…

This week, the latest inflation report came out.

So not only will Chief Analyst Adam Galas break down everything you need to know about it in today’s video… But he’ll also illustrate how – during a year where most people’s finances faced major setbacks – Fortress Portfolio was able to produce returns up to five times higher than the rate of inflation.

And how it’ll continue to so decades into the future.

Click or the image below to watch the update.

Happy SWAN (sleep well at night) investing,

Brad Thomas Editor, Intelligent Income Investor

Welcome, everyone, to another Fortress Portfolio Weekly Video Update.

Yesterday, of course, was CPI (Consumer Price Index) Tuesday, and as we saw last year, inflation dominated the headlines.

We saw markets move plus or minus 3% in a single day.

So what’s going on with January’s inflation report?

Well, there’s good news, and there’s bad news.

The good news is pretty much, as expected, inflation continues to fall.

Instead of 6.5% year over year inflation last month, it’s down to 6.4%.

The bad news? Economists were expecting 6.2%. Because in recent months, inflation has been falling by about 0.3% per month.

Now, the further bad news is that month over month numbers actually increased by 0.5%. This is more important to note because of the way commodity prices affect the overall inflation rate, for month over month prices.

Now, last month, they only increased by 0.1%.

That was part of the reason stocks rallied so hard in January. Everyone was excited that annualized inflation was about 1.3%.

Well, now, it’s 6.2%.

Now, that’s still 3% lower than the peak we saw in June of 2022.

But the bad news is that historically, the Federal Reserve (Fed) never finishes hiking rates, until it’s above headline inflation.

So the Fed is likely to keep hiking.

Now, we talked about the red hot jobs market last week and how this was likely to happen.

Before this inflation report, the bond market expected the Fed to keep hiking interest rates all the way to 5.25% in June.

That’s still the expectation, but now, there’s also a growing probability that we might go as high as 5.5%.

This is actually worse for the economy than it sounds, because like we talked about last week, quantitative tightening, i.e. reverse money printing is occurring.

This is, basically, the Fed contracting the money supply at the fastest rate in history, which the San Francisco Fed estimates adds effectively another 2% to interest rates.

So essentially, the Fed’s going to hike another three times, maybe four times… resulting in effective interest rates going from 0% at the start of 2022 all the way to 7.25% or even 7.5%.

You can imagine that will have strong negative effects on the economy.

For example, with credit cards, we’ve seen average credit card rates go from 14.5% all the way to 19%, the highest ever recorded.

Yes, higher than even than 1981 when the Fed was at 20% interest rates.

Up until now, we really haven’t seen much negative effect on consumer spending, which drives 70% of the economy.

That’s thanks to a very strong job market, in fact, the strongest in 54 years plus, there is still, $1 trillion in excess consumer savings.

All those pandemics checks that people hadn’t yet spent?

Now, those are expected to be spent by the end of this year, which could still cause a mild or even moderate recession next year when the full effects of all these rate hikes come in.

There is some good news though. Before 2023, pretty much everybody expected the recession to start right at the beginning of the year.

This meant that stocks could potentially fall as much as 40%, because earnings would be declining off of 2022 and into 2023.

Now, if the recession gets pushed back, until the second half of 2023 or even 2024, that means that the final decline in the stock market might not be 35% or 40%, but around 25% to 30%.

And here’s the good news.

October 13, 2022, we hit -28% on the S&P, meaning it’s possible that we have already seen the bottom.

And, in case you’re worried about this recent market rally, the eighth strongest start to the year in history (meaning all the blue chip bargains are gone), fret not.

Interest rates are too high and still climbing for stocks to really take off. The economy is currently too strong for earnings to really contract and stocks to fall that much.

This means we’re stuck in this range for the foreseeable future.

Now to be sure, we’re still in a 15% decline off of record highs. And with individual companies, we see absolutely incredible bargains, which we’ll be showcasing in the coming months in the Fortress Portfolio newsletter.

But I want to leave you with this important point.

As I like to say, short term prices are vanity, cash flow is sanity, and dividends are reality.

We just had one of our companies, TC Energy (TRP), hike its dividend for the 22nd consecutive year.

Last week, Oneok (OKE) hiked its dividend just as expected. Right on time.

And while we are disappointed that VF Corporation (VFC) cut its dividend and gave up a 51-year dividend growth streak (just one quarter after its most recent raise), this is the benefit of diversification and prudent risk management.

For example, we took a 14% loss on VF Corp, but because it was just 4.4% of the portfolio, the total loss for the portfolio is about 0.4%.

Well, guess what?

Our portfolio yields 6.5%, meaning that in less than a month, we’ll recoup that loss.

And we replaced VF Corp with Brookfield Renewable Corporation (BEPC), one of the best high yield ways to play a $150 trillion mega-trend in green energy.

In this month’s issue, we’ll be talking about that with a deep dive into why it’s such an exciting long term opportunity.

But let me zoom out and give you the big picture when it comes to fighting inflation with dividend blue chips.

Last year, we had 8% full year inflation.

Not many people had an 8% raise, but guess what?

The S&P 500 saw its dividends go up 11%, dividend growth blue chips up 14%.

High yield blue chips raised their dividends 18%, and guess what Fortress did? Thanks to a blockbuster year for managed futures, our income went up 42%, five times the rate of inflation.

That is how successful long term income investing can help you achieve your financial goals.

Worst inflation in 42 years. Dividend investors won in a year when almost no one else did, and that is what Fortress is designed to provide for you.

No matter when the recession starts and whether or not we even have one, you are well positioned for whatever happens with the economy.

Let me give you one quick example.

Energy prices were up 8% in January. That’s one of the reasons that inflation is starting to get sticky, coming down slower than expected.

Well, guess what? The oil markets are likely to keep getting tighter. That’s because Russia just cut its output by 500,000 barrels.

Organization of the Petroleum Exporting Countries (OPEC) says it’s not going to do a darn thing about that.

China is reopening. Europe is doing better, because China is its largest trade partner.

And in fact, Europe now looks like it might avoid a recession entirely.

This means there will be higher demand for oil, while the supply is going down, not up.

So if inflation gets sticky because of higher energy prices, guess who benefits?

Fortress. 56% of the portfolio directly or indirectly benefits from higher oil prices.

But because we use hedges and the most reliable energy utilities in the form of midstreams, if oil prices do fall in a recession, we’ll still be protected.

That is what it takes to retire rich and stay rich in retirement. You don’t have to guess what interest rates are going to do next or what the economy is going to do in the next year or two.

Being prepared with a sleep well at night, buy and hold forever portfolio of the world’s best high yield blue chips, will ensure that you can withstand anything that’s coming in the next few years or even decades.

A quick reminder, please send in your questions, keeping in mind that I’m not legally allowed to give personalized investment advice.

Any questions that come in, I will try and answer as soon as possible in future videos and monthly issues.

Thank you for joining us for another Fortress Portfolio Weekly Update.

Wishing you a safe, happy, and relaxing President’s Day weekend.

This is Adam Galas, signing off.