Fisher Investments' Founder, Ken Fisher, Reviews Questions on Inflation, Interest Rates, and More

Transcript

Ken Fisher:

If you expect inflation overall to reverse.

We just don't do that in Western culture. We're not going to go back to the lower prices overall.

So, I get people sending you questions and then every month I like to try to rattle through them pretty quick, what I call invading mailbag. And, one that came in this month. What about the fact that food prices are not falling, Ken? You've said that inflation is falling, but food prices aren't. Under your assessment, input prices have come down. Why is it food prices aren't coming down?

Now let me make this as clear as I can. This is a terminology dilemma. Inflation is always defined as a rate at which prices are increasing. In our Western society. We don't reverse prior inflation. When the central bank talks about its goals, It's never talked about trying to bring food prices back down to where they were. What it's talked about as a goal is to return to 2% inflation on an ongoing basis, which implies food prices going up but at a lower rate than they were going up at last year. If you expect inflation overall to reverse.

We just don't do that in Western culture. We're not going to go back to the lower prices overall. Now, mind you, yes, it is true. There's always some prices going up and some prices going down, making the average at a moment in time. But the totality of them, the central bank hopes, would be 2% inflation, which does not imply reversing the inflation of the past. There is actually no part of what the central bank here, or in Europe or in any other major country in the world, is trying to do purposefully to reverse prior inflation. You shouldn't expect that. But it's a good question, and it's one I hear a lot of why aren't prices back where they were?

You said to watch out what central bankers do, not what they say. What should we be watching for now? That would set off alarm bells in your mind. So this could be a longer discussion. But, you know, there's a very long history, very long history of central bank saying one thing and doing another. And I do not believe that's because they're dishonest or they mean to mislead you. Although maybe at some times and in some places that's been the case, but mostly they don't know what they're going to do. And they say stuff because they just do and then later change their mind and do something else.

And the most vivid example of that was in May of 2022 when Jerome Powell, head of the US Federal Reserve, said we are not even considering raising Overnight reserve rates by three quarters of 1% . Uh, his actual words were 75 basis points. And then the next month, in June, they did 75 basis points. And the next month after that, they did 75 basis points, and they took a month off. And then they did another 75 basis points, and they did another 75 basis points. And that's the point about watching what they do, not what they say. Now in reality, what's really most important is not what they do with interest rates. Because interest rates that they control do not have a direct effect on the economy.

If they did have a direct effect on the economy, the economy would be in a lot worse shape now, as everyone once thought it would be now when they started doing this last year, it would be a lot worse shape than it is. The fact is, the thing that really matters much more importantly than this is what happens to bank lending overall in our society. And if lending growth is relatively robust. What they're doing with interest rates only impacts some sectors of the economy, not the overall economy. And mind you, whatever they do or whatever the federal government does or whatever goes on otherwise in the economy hurts some people at the at the benefit of some others. These people get benefit, these people suffer from it. And that's just, you know, the way it is. There's always some sectors that are impacted. More than others and relative to the overall total effect. But overall loan growth is relatively good.

You can see this every Friday afternoon, if you want, by looking up the Saint Louis Federal Reserve's quote "Fred Data" online and seeing what's happened in the most recent week. And over the longer term and intermediate terms. You do it in charts, you can do it in tables, you do it in raw data to bank lending. But as long as overall bank lending, not this sector, not that sector, but overall bank lending is going at a relatively good rate, stronger than the growth of the economy. That's the most important thing. If the feds actually to do something that's bad, you're going to see the loan growth fall.

Regarding international stocks, can you say you gain less volatility and smooth out your long term returns by being international? I actually never said that. Let me tell you what I said. But the S&P outperforms just about all internationals over time. So why do I want lower return? So first, what I've said is not that you should own internationals instead of US. What I've said is you should think global and you should be global. The fact is. That the global stock market overall has exactly as the question frames that lower volatility than the US stock market. And that's because overall, it's not as concentrated as the US stock market is. And the US stock market has done better than the non-US stock market because the US stock market's biggest weight. Is technology and technology has done very well for a long time. And the non-US market has a much lower weight in technology.

And that's true whether you're looking at China or Europe or Japan or or or or the fact is that if you look at the non tech world, and by non-tech I don't just mean tech, I mean non tech and tech like communication services which would include a lot of the online stuff. The rest of the US stock market returns are pretty much the same as the non-US stock market returns. And the US tech world has done better than the non-US tech world. But again, not by as much. The real difference is that the dominant feature over 30% of the US stock market is in stuff that is tech or is tech like and moves with tech acts like tech walk like a duck, talks like a duck, and pretty much is a duck, even if it's not technically a duck. And that global part allows you to have the tech from America and the diversification of all of the other things overseas.

So you have a more total diverse portfolio with a global stock market return that matches the world. Again, I didn't say ever international. When people say international is a word itself in rhetoric simply means between multiple countries. It doesn't imply non-US in total and there is a non-US in total world. But it's global that you should think at global you should focus at and global. That becomes something that reduces your volatility while still allowing you complete exposure to the fast growing innovations and never yet done things that come out of the technology world. Thank you very much for listening to me.