Fisher Investments Reviews How Tariffs Impact Inflation, “Soft Landings” and More

Transcript

Ken Fisher:

The stock market is not a perfect predictor of recession, because that sometimes goes down when you don't have one. Or as legendary economist, that I never much cared for, Paul Samuelson said when I was a kid: "The stock market's forecast seven of the last five recessions."

Every month, people send me in questions. I write them on cards big enough for a septuagenarian to be able to read them without his glasses on. And the first one here says—then I try to answer them real quickly for you, this is what I call the mailbag, the monthly mailbag—that: "I'm close to retirement. When do you think there will be a recession, and how can that impact the timing of my retirement?"

First, I'm going to tell you: I don't know. Predicting a recession is an interesting little feature, but I'm going to make a point here: Before we have a recession, the stock market always goes down for at least a few months— four, five, six before the recession gets measurably noticeable. Sometimes the stock market goes down like that anyway, and you don't have a recession, like 2022.

But when we have a recession, the stock market always goes down first. The stock market is not a perfect predictor of recession, because it sometimes goes down when you don't have one. Or as legendary economist, that I never much cared for, Paul Samuelson said when I was a kid: The stock market's forecast seven of the last five recessions.

But, the fact of the matter is, as long as you have seen global new highs in the stock market, like we have in December —domestically and globally— you know we're not getting to a recession real soon.

Secondarily, it really shouldn't be the driving feature in your retirement. What you should do is look at what you have, and make sure that you have enough assets, liquid and otherwise, that you can live comfortably whether there's a recession or not.

What does a recession do? Well, basically what a recession does is it brings down values temporarily and may bring down —depending on what you're investing in— cash flow temporarily, until you get to the other side of the recession. And then it gets better. So you need to make sure you've got enough cushion that you can withstand that, whether it's recession or not. Nobody should be retiring on the presumption that there is no recession at all ahead, because someday we're going to have them, that's for sure. It's just the nature of it all. So that's one.

"I'm in my mid 30s, and I have a little bit of spare money. I have a reasonably high mortgage on a high interest rate. Is it better to put money into my retirement portfolio or into my mortgage?" You're not going to like the answer I'm going to give you to this one. You're just not. I don't know the rest of what you got going here. For example, I don't know how stable your job is. I don't know what your future is. I don't know anything else about you.

The most important thing about investing —whether it's investing in your home or whether it's investing in other things, liquid or illiquid—the most important thing that you should know is more about who you are. And I encourage you—there's lots of books that cover this topic— but first, I encourage you to look at who you are, what you're about, what your future is about, what the stability of your job is and then read a couple of books on that trade-off: Of what you should do about your mortgage versus investing in other things. And ultimately you'll come to the conclusion. But it's more about you than it is about the things. It's always more about you than it is about the things.

"How do tariffs impact inflation and the prices of consumer products?" So, those are two completely different questions. First, tariffs don't impact inflation at all. Inflation comes from the government creating excess money relative to the growth of the economy. As I say over and over again. And no one ever wants to believe me. It doesn't come from government spending. It doesn't come from other stupid stuff that governments do, although they do plenty of it. It comes from the central bank, creating money at a faster rate than the growth rate of GDP in the country.

Now, GDP isn't measured perfectly accurately. And the quantity of money is measured in four different ways. And no one really knows perfectly what the right way is. But if we take money, maybe the average of the four different ways, and you grow it by 6% when the economy grows at 2%, you're going to get 4% inflation over time with a little time lag from the time the money was created.

But what happens if they impose tariffs and the central bank isn't increasing the quantity of money? Well, the tariffs make that item more expensive in your country to buy. And if people are going to keep buying it, which they may not depending on what's tariffed—and I'll come to that in a moment. If they keep buying it, that does make the price of that go up. It makes the price of that go up. But when the quantity of money is not increased to create inflation, the price of something else has to come down. The consumer price level overall doesn't change.

When the central bank does not increase the quantity of money, relative to the growth rate of the economy, and one price is pushed up for any reason, tariff or not, some other price gets pushed down to offset it because there's only so much money.

And now let me just speak to tariffs again for a moment. If the tariff is on one thing from one country, a common modality for tariffs, then Americans—let's say, assuming you're an American— Americans just buy it from other countries. And the country we put the tariff on, sells it to other countries instead of selling it to us. It doesn't really do much. It doesn't really do anything to impact inflation at all. Because if you could buy from A, B, C or D, and you buy from D instead of C —and the prices are all the same in the global market— it doesn't matter that you didn't buy from the one and instead chose from the other. So the answer to your question in an overly simple sense is: Tariffs don't impact inflation. And in terms of consumer products, that's just a subset of inflation.

"I worry about my accounts and check them frequently. Do you have any practical advice for investors to help them be more calm during market volatility?" This is a tough one because first off lots of people are very different emotionally, and some people just can't get a handle on their emotions. And some people just got, you know, rock-solid relative to their emotions. I don't know you, and I'm guessing you're pretty emotional because you worry. It does help with worry. If you educate yourself more about how all this stuff really works. But that's a lot of work by itself, and a lot of people don't want to do it. And a lot of people do it and do it by doing stuff like reading media. And media is often wrong in the stuff it's teaching you. Because media is often aimed at trying to get you to be afraid in the first place.

So unfortunately— let me try to play this in the way that I think is right. And I say this before about so many different things and different topics. The most important thing about advice for investors is to know themselves. The more you know yourself, the less you're going to get yourself into trouble. And if you're having a lot of emotional issues relative to your investments, you know, I'm not trying to say you're crazy. You're not. But maybe you want to see  a psychologist to get a little impact on why and how you worry less. There's a lot of different techniques for that, but it's really about knowing yourself first as to which of those will work. I can't render you macro advice on that in this because this is all aimed at short answers. But  education about how markets work. Learned about yourself—like with anything else that's emotional or, you know, family problems or any other thing—maybe you want to seek some counseling.

But the reality is, you know, I've been involved in markets all my adult life. I've been doing this professionally for over 50 years. They don't rattle me worth a darn.  But I've got 50 years into doing it. So, you know, I don't know how old you are. I don't know how much experience you've had. I don't know if you've made a lot of mistakes before or you're new to this, or you've done well but you worry anyway. So I think the prior advice that I gave you is about the best that I can.

"I keep hearing about a soft landing. Can you explain what that means?" I've always thought it was a ridiculous concept. First off, it assumes there's a landing. A landing from what? Was there a fall before? Have we been floating down through the air, and suddenly we're about to create it? It's—in some ways it's a presumption that we didn't really have to be afraid in the first place. It is going to be okay and things are going to be smooth and soft moving forward. Instead of a crash from the stupidity of what we thought before that led us to having to freefall. Oh my gosh.

I actually don't have a good explanation for you about what a soft landing is, because it presumes there was a falling first to crash, and that you're not going to crash. Usually it just means that the people that talk about it had wrong expectations in the beginning, and they couldn't see the reality ahead of them. And it turns out to be not bad like they thought it was. It's actually okay. I just think it's a strange, misguided term. And if I were you, I wouldn't pay much attention to it. It's a statement about expectations and sentiment more than it's a statement about reality.

Thank you very much. I hope you found this month's answers useful. This month, my answers were not as good as I'd like them to be, because a lot of them I don't really have good answers for. But please send them in next month and tune in, and I'll try to give you the best answers I can. Thank you so much. Appreciate it. Talk to you next month.

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