Nobody will say it, but some believe that the hidden agenda of many Washington, D.C., politicians is to stealthily “inflate” their way out of the more than $30 trillion in federal debt they have created, most of it in the last two decades.
If that supposition is true, it won’t work, Loomis Sayles Vice Chairman Dan Fuss told attendees today at the virtual Inside Retirement conference sponsored by Financial Advisor and The Money Show.
As an example, Fuss pointed to what has happened in Turkey over the last decade. “Look at the value of their currency,” Fuss said.
The Turkish lira has declined dramatically against both the U.S. dollar and the euro. The result has been a collapse in living standards for the Turkish people.
Turning to the U.S. economy, Fuss noted that even though the latest inflation numbers came in at 4% for May, many of the increases in costs that occurred over the last 18 months are structurally locked into the economy. Most costs, like labor and rent, go up and rarely go down.
For U.S. advisors and investors, Fuss told attendees it was a time to remain cautious. The Fed has managed to halt last year’s surge in inflation, but he thinks that problems regarding future prices are far from over.
Fuss said he saw certain similarities between today’s inflation and that of the late 1960 and mid-1970s. Notably, he did not cite the final bout of that era's inflation when it soared to double-digits in the late 1970s.
“I don’t think the Fed will back away,” said Fuss, who has been working in the financial services business for 64 years. But in the next 18 months they are likely to face pressures from some politicians, he said.
“At some point, this works its way into the political system,” he continued. “Next year we have an election and the Fed doesn’t like to be a disruptor.”
He urged bond investors to keep their portfolios weighted towards the short end of the yield curve and not invest in bonds with maturities exceeding five or six years. “Let’s play this safe,” he said, hinting that the economy is in the early innings of a new business cycle. “There will be opportunities, dislocations and it will influence changes in corporate behavior.”