Before last Thursday and Friday, the last time we saw two consecutive days that the Russell 2000 Index fell at least 2% on two consecutive days was March 23-24, 2021. That sounds a bit ominous, with the R2000 down 14.6% year-to-date, and 15.6% over the past year, especially as today could set up as a three-peat. But the market has a will of its own, and can always provide a surprise.
Meanwhile, the "I" word continues to rear its ugly head; unless you are aged 50 or over, you likely don't remember too much about the last go around we had with inflation in the early 1980's. My most vivid memories of that time are the long lines at the local coin shop, as folks sold off silver and gold. Gold, as I recall, topped out around $850, and silver at $50; the latter influenced by the Hunt Brothers attempt to corner the silver market. Some car dealerships in my area were taking silver coins in lieu of cash for new cars. At the time, I was tasked by my grandparents with going through my grandmother's coin collection in order to pull out "junk" silver, which was sold to provide them with cash for a new couch.
Inflation adjusted, gold's top price during that era was just under $3000 in today's dollars, while silver would be about $175/ounce. For perspective, gold currently trades at about $1923, while silver is at $23.82/ounce. While silver is way under the 1980 inflation adjusted price, the price of that era was tainted (Hunt Brothers), yet I am a bit surprised it's not reacting more positively to inflation. The Sprott Physical Silver Trust (PSLV), my "top pick" for 2022, is up about 8% year-to-date. That's not a bad return in this environment, but under the circumstances, I'd have thought it would be performing better.
There's some inflation protection in your pocket change. Barron's ran a story yesterday, pointing out that a nickel, actually contain 8 cents worth of copper and nickel (8.07 cents as of this morning). However, the real "bang for the buck" remains copper pennies minted before 1982, which contain 3.08 cents worth of copper and zinc. Unfortunately, it is currently illegal to melt either.
One of my own gauges of inflation is the cost of a case of Mexican Coca Cola 12-ounce bottles (made with sugar). I bought a case last month for $25.59 at Costco (COST) . That same case now goes for $27.79, an 8.6% increase. A year ago, it was $21.99.
The real question now, is how the Fed will handle inflation. More interest rate increases are on the way for certain, but it is doubtful that the Jerome Powell Fed will take the Paul Volcker approach, and raise rates above the rate of inflation. I don't think this Fed has the stomach to handle it that way.
One of the "benefits" of the 1980 era inflation came in the form of CD's, namely locking in at double digit rates for several years. The problem is, when you locked in, you had no idea when inflation would cool, and the cooling was what made 12% or 14% five-year CDs so great.
One thing is certain, this is not the 1980's; this country's finances are in much worse shape, in my opinion.
Keep saving those nickels and pennies...
(Costco is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells COST? Learn more now.)
