Video Update: Inflation Hasn’t Gone Anywhere

Thanks to the recent banking crisis, the Fed has had to change its plans to fend off inflation.

In today’s video update, Chief Analyst Adam Galas will tell you how the market is reacting to this shift.

If you’re worried about how prolonged inflation could affect your portfolio, he’ll share an example of one company that thrived the last time this happened.

This Fortress pick has everything it takes to maintain that track record… and it’s trading under our recommended buy-up-to price today.

Click the image below to watch the video.

Welcome Fortress Portfolio members to another weekly video update.

Today, we're talking about a very important fact: inflation is far from dead.

If you've been watching the market the last few months, you've probably seen tech stocks on fire.

The Nasdaq is up 16% as of filming this. And thanks to three stocks in particular, Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT) – the S&P is up 7% to start the year.

Guess what? Outside of those three stocks, the market is flat.

So what's going on?

Very simple. The market is convinced that the era of free money is coming back. Bond buying has zero interest rates. And it thinks the Fed's about to pivot and bring back the good times that we've all known for the last 15 years.

Well, guess what? To paraphrase Mark Twain, rumors of inflation’s demise are greatly exaggerated, not just in the U.S., but globally.

Inflation is still rampaging at 5.7%. Core inflation in Europe has a new record high, 10% inflation in the U.K., 11% in Mexico, 12% in Sweden, 18% in my homeland of Poland, Argentina, 102%.

Now, compared to these countries, the U.S. looks like we're doing pretty well. We just had core inflation come in at 4.6% on Friday, slightly better than expected. And on a month over month annualized basis, things look even better at 3.7%.

But there is a problem. The inflation rate is still at twice the Fed's goal. And super core inflation (basically services except for housing) has been stuck around 5% for the last four consecutive months.

Now, the Cleveland Fed has a real time inflation model that says they expect next month's core inflation to still be 4.6%, but on an annualized basis closer to 4.9%.

So some economists worry that if the Fed cuts too quickly, inflation might end up dropping from a peak of 9% down to 3% at the bottom of the recession. But then start climbing again all the way to 11.5% by the end of 2027, at which point the Fed would have to go full Volcker (as in Paul Volker, the Federal Reserve Chairman who declared war on inflation in 1979 and hiked interest rates up 20+% over the course of his time in office).

This could lead to hike rates beyond our wildest nightmares right now and put us into a very severe recession.

Now, the good news is that the Fed says that they are on the case. Three Fed presidents (there are 12 total) came out after the Federal Reserve’s last meeting (in which they hiked 25 basis points) and signaled that they were going to hike up to 5% and then keep rates there the rest of the year and possibly not start cutting until September of 2024.

This is where BlackRock (BLK) comes in. They are saying that they expect a recession this year, which the economic data agrees with. But they don't think the Fed's going to cut. And they don’t think the Fed is going to buy bonds either.

The Fed is going to do something that the market right now thinks is impossible. Basically, for the last 15 years, any time the Fed was cutting interest rates, the Fed turned off quantitative tightening or reverse money printing.

In fact, at the slightest hint of economic weakness, the Fed would start buying bonds, cutting rates, and talking as dovish as you can imagine to instill confidence in the markets.

Well, that is a different world that has now ended. What’s actually likely to happen now — is that the Fed will backstop the banks with infinite liquidity to keep them out of a crisis.

But just like the bank of England, rates are still going higher. Reverse money printing is still in effect. In other words, after 15 years of not fighting the Fed, the market is fighting the Fed. The Fed says that easy money is not coming back. But the market is acting at the moment, as if it were. In fact, right now the S&P is trading at 19 times forward earnings as of filming this.

If you factor in the recession that is coming in the next 2 to 4 months, most likely, and which we'll talk about in next week's video, it's closer to 21 times earnings.

Well, guess what? 21 times forward earnings is where the market was trading at the start of 2022. And remember, that was a terrible year.

So what about Fortress?

How can your Fortress Portfolio protect you from a potentially very painful year — or even a lost decade for stocks?

Should the Fed lose its nerve and stop trying to beat inflation – or simply do the right thing and not cut back on raising interest rates in a recession?

Let me give you a perfect example using one our Fortress Portfolio holdings, Enterprise Products Partners (EPD).

EPD is the master of pipelines. It is the only A-rated midstream company in the world with a 24-year dividend growth streak… And its management team has been hailed by many analysts as the best in the industry.

Morningstar describes them as, quote, “chess masters, where others are playing checkers.”

EPD is a company that has a rock solid balance sheet that gets stronger every year.

They've survived four different oil crashes, including when oil hit -$38 per barrel in April of 2020.

And if you're worried about a lost decade (as might happen if the Fed blinks and we get a stagflation-hell scenario)… Well, in the last lost decade, Enterprise went up 800% while the S&P was flat and the Nasdaq was cut in half.

Why? Because in 2000, Enterprise was offering a glorious combination of value, safe yield, a strong balance sheet, and an adaptable as well as trustworthy management team (just as it offers today). In fact, right now, the bond market is so confident in Enterprise's plans for the transition to a green energy future that they're willing to buy their bonds maturing in 2055.

Basically, the smart money on Wall Street says enterprise will survive and thrive for the next 30 plus years at least.

And I can confirm they do have a very solid plan to keep that 8% yield safe, while growing around 4% per year.

So that is what your Fortress Portfolio does as well.

We put together the best combinations of safe, ultra-high yield stocks with strong balance sheets, great management teams, and truly battle tested businesses so that you can trust your portfolio to help you achieve your financial dreams – no matter what the economy, inflation, or interest rates do.

And as a reminder, please send in your comments and questions so I can respond to them in these videos as well as our monthly issues.

Wishing you a healthy week and safe investing.

This is Adam Galas signing off.