Weekly Market Update with Brian Ransom 29 October 2021
Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
With the market pulling back 5% in September, the month of October has been the exact opposite rallying back to all-time highs. In the short term, the market appears to be trading sideways following the strong rally over the last few weeks.
In the news this week, Tesla market value surpassed $1 trillion with rental car company Hertz ordering 100,000 Tesla vehicles for their inventory. President Biden pays a visit to Congress to help negotiate the two infrastructure packages. And Jack Dorsey, CEO of Twitter, had the financial internet in an uproar last Friday saying, “hyperinflation is going to change everything. It’s happening.”
So I wanted to spend a little time talking about hyperinflation since that term is getting tossed around a lot these days. First, a little inflation is defined as the increase in prices of the average consumer goods and services over a period of time. A bottle of Coca Cola that once cost $1 would cost $1.25 after 25% inflation.
Mild inflation is considered healthy for the economy, typically in the range of 2-3% annually. Increased prices in small increments mean increased returns for companies, which become more valuable with higher earnings. This subsequently increases the capacity to pay higher wages to workers which further encourages positive feedback purchasing. 2% inflation per year would mean a $1 bottle of coke would cost $1.22 in 10 years. With 5% annual inflation, like we’ve seen over the last few months, a bottle of coke would cost $1.63 over the same timeframe. This level of inflation over 10 years would be moderately uncomfortable for consumers and the economy.
This… is hyperinflation. Hyperinflation, is defined as 33% inflation or more per year. This dwarfs the level of inflation we’ve been seeing recently and a bottle of coke would cost over $17 in 10 years. This would be disastrous and probably mean the end of society as we know it. So when folks claim “Hyperinflation is here,” that is a gross exaggeration of the situation we currently find ourselves in and is nowhere close to reality.
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Sources:
FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved October 28, 2021, from FactSet Database
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