Robert Zuccaro – The Danger of Transitory Inflation in the US

 

About ROBERT ZUCCARO

Bio:

Robert Zuccaro is the Founder & CIO of Golden Eagle Strategies. Over the course of his 30+ year investment management career, he has managed institutional portfolios, corporate and municipal pension funds, and two mutual funds. Robert is one of the most successful investment managers, having been named a top 10 manager by the Wall Street Journal and Lipper and cited for outstanding performance and track record by leading publications including Financial World, New York Times, and USA Today.

 

Robert began his career at E.W. Axe & Co. managing the flagship Axe-Houghton Stock Fund, which outperformed the S&P 500 for six straight years under his management. An early pioneer in the development of quantitative strategies, Robert developed a lifelong passion for identifying the common threads of top performing stocks. Golden Eagle Strategies represents the culmination of four decades of research and expertise honed over the course of 9 bull and 8 bear markets. His research has revealed unconventional truths that drive the performance of the Golden Eagle Growth Strategy.

 

As a prolific researcher, life-long educator and philanthropist, Robert has authored numerous studies, market commentaries, and the book, How Wall Street Reshaped America’s Destiny.

Transcript:

 

Aaron Olsen: We’re here with Robert Zucarro today, and he is a founder and CIO of Golden Eagle Strategies. And Robert, welcome back.

 

Robert Zuccaro: Thank you Aaron. It’s a pleasure to be back always.

 

Aaron Olsen: Oh hey, We’re happy to have you here today. So we’ve had Robert on a couple other times in the past, and he’s just a wealth of knowledge here on this stock market. And he does a lot of really in depth research. And I, I love learning a lot from him here. And now, Robert, back in July, you actually published an article on transitory inflation called, “Is Transitory Inflation, Wishful Thinking?” And transitory inflation, I mean, I never previously heard that topic before. So I mean, for for those of us who aren’t as enlightened here, what is transitory inflation?

 

Robert Zuccaro: Well, it’s a view held by the Federal Reserve that the bump in inflation that we’re going through, will subside in the next few months. But it’s wishful thinking for a number of reasons. Number one, even if the rate of inflation does subside, we are still stuck with permanently high prices. Since I wrote that article, which appeared in family office network in July. I’ve learned a lot more about inflation and how heavily entrenched it is into the US economy. Now. The federal government is not being forthright in reporting to the American people as to what the rate of inflation is.

 

Aaron Olsen: Now, What? Why do you, Why do you feel that is? What, why aren’t we getting all the information?

 

Robert Zuccaro: Well, they’re trying not to alarm the public. And they are understating the rate of inflation, in part, because they’re trying to pass a $4.7 trillion spending plan, which will only exacerbate inflation, which according to my work shows that inflation in the US is not running at a 5.4% annual rate, as released by the Department of Labor through 12 months, and in August, it’s somewhere in the vicinity of 12 – 15%. And as we speak, I will explain the reasons behind my view.

 

Aaron Olsen: Wow, Wow. So, it’s actually 12 to 15%. You said currently?

 

Robert Zuccaro: Yes, I think that’s where we currently stand.

 

Aaron Olsen: Okay, so I mean, how do you think the markets going to react?

 

Robert Zuccaro: Well, before that, I want to talk about the rate of inflation so your audience can understand this better because it is a big thing. A lot of your viewers go to the market their consumers and they know firsthand that inflation is running higher than 5.4%. Let’s look at the cost of shelter, which is reported as being up 2.8%. Over the past 12 months. existing home sales have been running at a rate increase of 20%. Realtor.com reports that right inflation over the past 12 months is running at 8.5%. The federal government reports it running at 2.8%. The apartment list reports a higher reading on the rate of rent inflation and now show an 11.5% increase. Now comes a really bad news on energy costs, which were reported being up 25%. Gas prices in the past 12 months and everybody’s aware of this are up 50%. Heating oil is up 68%. One third of the homes in the United States consumed heating oil, another third are heated by natural gas prices, which over the past this year alone. In the first nine months natural gas prices are up a whopping 175%. If you take gas and heating oil and natural gas and you give them equal weights in the price rise, these three components have risen on average 98% and when we get into the winter season over the next month or so, consumers will go into shock when they say their gas bills. Food inflation is being reported a 4.6% meat, poultry, fish and eggs were up 10.5%. I’m a consumer, and I’m an occasional consumer. And I went to the market last week, and ribeye steaks which were in the case for 18 dollars a pound are up to $24 a pound. That’s an increase of 33%. Because the cost of meat has risen by at least 20%. Since the summer, I’ve never seen this before. But the meat case in our local market is half empty. Now, because there’s price resistance to higher prices. Let’s take a look at the UK in the UK food and beverage foundation reports that inflation is running out of 14 to 18%. In the UK, in the month of August alone, their price index jumped by 3.2%, which equates to a 38% annualized rate of gain. Now, you you read in the media that inflation is bad for the stock market, in that inflation. As inflation rises, the stock market will go down. Let’s take a look at the worst inflation period in the US over the past 100 years. In 1972, the CPI was going up at a rate of 3.5%. Eight years later in 1990 it crested at 13.5%. How did the stock market do? It went up 64% over this period. And corporate America is ingenious how it deals with all types of economic environments. Whether we have a strong dollar or a weak dollar, we have low interest rates, or high interest rates, we have low inflation, high inflation. Corporate America is very astute and will make the adjustments during this high inflation period of eight years from 1972. Through 1980, they made many adjustments and improved profits at a rate of 142%. The higher profits go the higher stock markets go. That’s always been the case. And that will always be the case.

 

Aaron Olsen: So, so what you’re telling me that this isn’t all doom and gloom here, but really I mean, it only is if we continue to behave like we have in the past. But looking forward, so what what type of changes to our behavior should we really be making right now to make those adjustments to turn this from a negative situation to one that can really help us moving forward?

 

Robert Zuccaro:Okay, what ultimately has to happen, which is part of the business cycle, when inflation versus had, typically the Federal Reserve takes action constraints of money supply and raises interest rates. That is not happening this time around, in part because the chairman of the Fed is running for reelection in February. And he’s, he’s being sympathetic, I’ll put it this way sympathetic to the current administration, which is trying to sell the American people on gargantuan spending of $4.7 trillion. So the Fed is purposely keeping interest rates slow, as inflation spirals higher and higher in order to accommodate what the administration wants in the way of gargantuan spending.

 

Aaron Olsen: Alright, so moving forward, I mean, I know family office, my situation here. What should, what type of action should I be doing right now?

 

Robert Zuccaro: All right. In my view, the only place to be in the investment world is in stocks, historically, stocks have provided the highest hedge against inflation. And this means in good periods, good business periods, bad business periods, taking into account recessions, which are inevitable. And if you look, historically, the rate of return on stocks has been 10%. The rate of inflation has been 3.5%. So in real terms, if you have money in the stock market, your real growth in spending power goes up by 6.5% every year, which is the norm, it doesn’t mean it’s gonna happen every year, but over a period of 10 to 20 years. investors will do very well in being in the stock market. Now. Inflation reportedly is running at a rate of 5.4%. Treasury bonds are yielding somewhere obscenity of 1.5%. By holding treasury bonds, investors are losing money in real terms, because what they make on coupon payments is not enough to compensate for a much higher rate of inflation. Stocks are the only answer. Historically, they have been the only answer. And going forward, in my view, they are the answer, but not everybody shares my view Aaron.

 

Aaron Olsen: So is there a particular stock industry that I don’t know you’re advocating currently? Or tech? Should we be looking at just I don’t know, staple goods or?

 

Robert Zuccaro: Well, that’s an interesting question. The stock market and the economy both have undergone profound change over the past 10 years. 10 years ago, two of the largest five stocks in the S&P 500 were tech stocks, comprising 4% of the overall index. If you look at the S&P Today, the top five stocks, which are Apple, Microsoft, Amazon, Facebook, and Google, comprise an unprecedented 22% of the overall index. Last year corporate profits because of the pandemic contracted by 15%. If you take those same five companies, they increase their earnings by 38%. They are less sensitive to economic cycles, they are market leaders. And for the first time in in history, you’ll find that tech dominates the NASSDAQ by comprising 60% of its overall index waiting, whereas the carpool number for the S&P 500 and 33%. Now what I’m about to say, is heretical to the way people think, but the old standard for passive investors has always been the S&P 500. In the S&P 500, you have Ford, you have Xerox, which peaked in price in 1999. In 2000, AIJ, General Electric, Corning peaked in price in 2000. I would argue that based on what has transpired in the stock market over the last 10 years were their cues, which are synonymous for the NASDAQ 100 composite have returned 538%, the Q’s have far outdistance, the S&P 500 or spiders coming in at a rate of improvement of 257%. for investors that use a passive investment strategy, I would strongly encourage them to transition out of the S&P 500 into the NASDAQ 100. And I think 5-10 years from now, they will be very happy that they did so.

 

Aaron Olsen: Very good. Well, thank you very much, Robert, we really appreciate you coming on the program today and sharing that message on the transitory inflation and helping us get more prepared for the future.

 

Robert Zuccaro: And thank you Aaron, it’s always my pleasure to appear on American Dreams.

 

Aaron Olsen: Thank you very much.

 

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