Redrick Terry:
It is 4 Your Money time. And we are joined by David Nelson, CEO of NelsonCorp Wealth management. David, welcome back.

David Nelson:
Good morning, Redrick. Thank you. It’s wonderful to be back.

Redrick Terry:
Absolutely. We’re glad to have you back. So we’ve talked a lot about inflation recently, and it continues to be at the top of a lot of investors’ list of concerns. So why is inflation so important when it comes to our investments?

David Nelson:
It’s a big variable that comes into play as far as when we look ahead, as far as what people are going to have in their plans, their retirement plans, as far as relative to the marketplace out there. And if you take inflation like we’ve had over the last seven years, it’s pretty much non-existent. Now there’s a very real concern that people have as far as that inflation is going to start cutting into one’s returns. And I’ll again, try to as easily as I can and as simply as I can, explain to people the impact that that can have.

David Nelson:
It certainly has created some short-term volatility, as far as in the markets, and basically in a simplistic way, if inflation, in other words, the cost of goods, is going up at 2% per year and your wages are going up at zero, let’s say just again to keep things simple, you got a problem over time. And so that’s why we want to keep a close eye on this.

David Nelson:
I work with a lot of people that are in their 60s, 70s, and 80s, and those individuals fondly refer to the good old days back in the early ’80s when they could put money into a CD investment and get 15% as far as on that CD at the bank. Now what they forget about was inflation. In other words, the cost of goods going up each year was running in double digit levels. So this is significant, and again it comes into play in what I’ll punch out here shortly, and that is the net rate of return as far as that you’re really getting, the real rate of return after inflation.

Redrick Terry:
Well, just from some of the previous conversations we’ve had, we know that market expectations for inflation are at multi-year highs. How are those expectations lining up with what you’re seeing in the current economic data?

David Nelson:
So I brought along a chart that I think will help people. The blue line is a nice visual here where people could just see, this is looking at the capacity utilization out there. In other words, what factories have the ability to produce. Are they running at full steam? It’s factored in utilities, as well, which I’ll get to again here shortly, but what this hopefully visually is going to show people is that there’s capacity that’s out there. In other words, that these corporations can do more with basically what they have. And what that essentially can do is, if that trend continues, that will keep inflation under wraps. In other words, we won’t runaway inflation. If that’s not the case, and all of a sudden the labor costs start going up, cost of goods starts going up, then again, we could see inflation really tick up here.

David Nelson:
And if inflation picks up significantly, again, you take a guaranteed investment, where somebody owns a bond paying 3%, if inflation’s that 1%, they have a real rate of return of 2%. Well, again, that’s not bad, but if inflation were to go up to 2 or 3%, now all of a sudden they’re pretty much breaking even, because the CD or the bond is not going to adjust necessarily as far as to that new rate. So this is important, and this will impact people. It’s the quiet killer as far as inflation. The cost of bread was $1.00. Now it’s $1.10. The cost of gas was two bucks. Now it’s 2.50. You get the idea. This is significant, and people need to pay attention to these type of issues.

Redrick Terry:
Certainly. So do you think this will continue to be a main theme as we go through the rest of the year?

David Nelson:
Well, I think, Redrick, and again, fantastic question. And this one, unfortunately, is a lengthy answer. I’m going to make it really brief. If you look at this utilization and one of the components is utilities and utility companies, and we just look at one item, and that is LED lights and what they’ve done as far as the amount of energy that people need to buy from the electric companies to run their lights, that’s dropped significantly. You got electric cars that are just around the corner here at some point, all these green energy improvements that have been made, and will continue to be made, are really helping to keep these items in check, which is what we certainly want to do. So fantastic news if the strength continues, and I think it will.

Redrick Terry:
We’ll be watching along with you. David Nelson, thanks as always for joining us.

David Nelson:
Thank you, Redrick.

Redrick Terry:
And if you missed any part of our discussion, we’ll make it available to you at ourquadcities.com.