You’re a law-abiding, stand-up citizen…
You look at your pay stubs and gasp at how much the government takes out…
And when it comes time for you to crunch the numbers, you hope to get anything back.
But what if I told you the government has been lying to you?
And that with each check, you’re actually making less money?
It’s hard to believe, I know, but while you’ve been a good little citizen working from home, staying 6 feet apart, and trying to decipher how much your Dunkin’ Donuts coffee costs through the mumblings behind a piece of cloth, the government’s been taking money right out of your pocket.
You’ve been paying a “stealth tax.”
And there are three ways to get that money back…
I’ll show you how in just a moment. But first, let me explain that tax you’re paying.
I Read Somewhere…
We’re seeing it all over the place… Inflation is back.
We’re usually skeptical of the mainstream media and its technical analysis, especially when we consider the “magazine cover indicator” — a view that cover stories printed in major U.S. magazines (today they would be e-zines) are often a contrary indicator.
But the Labor Department just released its data… a mammoth 4.2% annual inflation rate. Furthermore, this month Warren Buffett issued a dire warning about inflation in the housing market, saying, “We are seeing very substantial inflation… The costs are just up, up, up. Steel costs, you know, just every day, they’re going up.”
One indicator of coming inflation is a rise in commodity prices. Here’s a snapshot of the S&P GSCI, a barometer of the performance of the commodity market.
So I’m afraid the magazines are right this time. But they’re still a little late to the party.
We’ve actually been living in an inflationary environment for years. It’s just been masked by the price suppression caused by the technological innovations of Amazon (NASDAQ: AMZN) — among other tech companies — and the home-delivery economy.
We can also see inflation in action in the Consumer Price Index (CPI), a measure of prices across 200 categories of goods and services, which rose 0.8% in April from March. This was the biggest increase in the index since 2009.
The data now confirms we’re living under inflation; it’s just that no one’s sure how long it’ll last.
Food for Thought
Inflation is known as a stealth tax because it goes largely unnoticed on a broad scale but affects the consumer and the prices we pay for the things we need, like food and shelter. At the end of the day, we’re the ones getting boned.
When the pandemic began, one of my first thoughts was that food prices were going to rise. It wasn’t hard to reach that conclusion, as I figured there would be an inevitable supply chain shortage coupled with rising demand.
So I stocked up on groceries, and sure enough, with each trip, I was spending more and more money… for the same items. After about two months, I wasn’t going to the grocery store anymore.
I joined the stay-at-home economy and started a garden. I purchased from farmers markets and made trips to Amish food stands.
So it’s no surprise, as people scrambled to grow their own food, that Scotts Miracle-Gro (NYSE: SMG) took off.
It’s also no surprise that at the end of April 2021, the Foundation for Economic Education noted, “Food prices jumped 3.9% in 2020, nearly triple the rate of inflation.”
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And further, “The U.S. Department of Agriculture estimates grocery bills could increase by another 3% in 2021, while some experts are betting on even longer-term problems.”
What we’re seeing in the food industry is an indicator of much larger problems.
If you’re in the market for a home, you know how insane the sector has become.
Buying a house is often the largest purchase a person or family will make in their lifetime. But if we consider that the average American makes around $50,000 per year, 70% of Americans live paycheck to paycheck, Americans have $900 billion in credit card debt with an average student loan debt of $30,000, and the average price for a new home is roughly $400,000… we can see many of these homebuyers should not be buying new homes.
I think people are rushing into buying, overpaying, and are going to be up shit creek without a paddle. As Warren Buffett says, “When the tide goes out, you can tell who was skinny-dipping.”
When the pandemic hit, people wanted to move away from cities — urban flight — causing an increased demand for homes, which raised home prices (not to mention, buyers wanted to take advantage of historically low interest rates). Once those existing homes sold and the market became leaner, the demand for new construction rose.
This is where we are now:
- The cost of lumber is up 340% from a year ago.
- Lumber has added roughly $35,000 to the cost of building a new home.
- Supply is down 20% from a year ago.
I wouldn’t pay for a house that’s $35,000 over market value. Houses are too expensive to begin with. I’d rather purchase some land, build a home by hand, and live within my means and budget. People need to wake up and stop this foolish overspending because it has ramifications in other parts of the economy.
Where We’re Headed
Two terms you should be paying attention to these days are “commodity supercycle” and “stockflation.”
A commodity supercycle is a decade-long period where commodities trade above their long-term price trend. And economists have been calling for a commodity supercycle since President Obama was in office.
We’ve seen only four of these supercycles since the mid-19th century, so economists think we may be due for another one.
In fact, in 2020, prices of aluminum, copper, and silver rose to levels not seen since 2013 and have been steadily rising since.
Investing in commodities has proved profitable of late, but gold has been the laggard. Perhaps Bitcoin has replaced gold as a store of value for the time being, but I don’t think that will last.
Stockflation, on the other hand, is when people take cash out of savings accounts because of low interest rates and put it in the stock market. This has in part been fueling the continuing bull market.
No matter what, you don’t want inflation eating away at your hard-earned money. We won’t stand by it.
Get Your Money Back!
Without further ado, here are the three investment strategies to protect your wealth in this inflationary environment and even get your money back from the stealth tax you’ve been paying.
- Gold and Gold Miners
We remain bullish on gold and the companies that mine it. I’m no gold bug, but I do believe a 5% allocation to gold and precious metals is a smart way to hedge your portfolio. Also, the fear of inflation plus the fact that most investors have little exposure to precious metals have created a void that has yet to be filled. Gold still has room to run, folks.
Our resident gold expert, Luke Burgess, has a killer track record when it comes to finding the best gold mining stocks. Forget the noise from other recommendations because he’s uncovered the best gold mining stock of the decade. Check out his Junior Mining Trader service… You’ll wish you had sooner.
- Dividend Aristocrats
Dividend Aristocrats are companies that raise their dividends every year. I’m a strong believer that increasing your income to provide you and your family with more purchasing power is a surefire hedge against inflation. The list is long, but it includes companies like 3M (NYSE: MMM), AbbVie (NYSE: ABBV), and Clorox (NYSE: CLX).
If you’re interested in dividend-paying stocks and what they can do for your wealth, head over to The Wealth Advisory, published by my colleague Briton Ryle. He’s got the scoop on a $10 stock that’s set to soar while you enjoy a more than 5% dividend yield.
Bitcoin (BTC) and Ethereum (ETH) have a limited supply and real utility in the marketplace. Although more volatile and therefore riskier than gold and dividend-paying companies, cryptocurrency has more potential upside and is a bet on irresponsible government spending and fiscal policy. As Outsiders, we’ll gladly take that bet.
With the current dip in crypto prices, now seems like a good time to buy if you don’t have exposure. I’ll be talking more about crypto and how you can use it as an income investment in the future, so stay tuned.
To your wealth,
Editor, Outsider Club
After Alex’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing.