The economy is booming and the stock market has been humming. But are we headed toward a significant bout of inflation?

SMI's executive editor Mark Biller offered insights on the economy and the markets last week on Moody Radio's MoneyWise Live. He also took caller questions.

To listen, click the play button below. Scroll down for the transcript.

(And for more radio appearances by members of the SMI team, visit our Resources page.)

MoneyWise Live with host Rob West airs daily at 4:00 p.m. ET/3:00 CT. 


Transcript

Rob West:
Investing icon John Templeton once wrote that it's dangerous to think "this time is different." But it's also true that no one alive has ever before gone through the past year's market conditions.

Hi, I'm Rob West. Dramatic market fluctuations and unprecedented government intervention have left many investors wondering where are we now? Well, today I welcome investing expert Mark Biller to help answer that. Then, of course, it's on to your calls at 800-525-7000. This is MoneyWise Live, where the Bible shapes our financial decisions.

(theme music ends)

Well, Mark Biller, our good friend, is executive editor at Sound Mind Investing and our go-to guy for making sense of market trends. Mark, welcome back to the program.

Mark Biller: 
Oh, good to be back with you, Rob. So, "making sense of today's market trends" — it's kind of a tall order given market conditions. We'll certainly do our best.

Rob West: 
I know you will. And you're the man for the job — no doubt about that.

We don't need to go over all the plot twists of the past year. Most investors are all too familiar with them but, Mark, why don't you begin by giving us a sense of where we are right now?

Mark Biller:
Big picture, you know, it's been over a year since the COVID economic shutdowns started. It's been six months now since the positive vaccine news last November that really re-ignited the U.S. stock market rally. And we're over three months into those vaccines being administered in size here in the U.S. now. And so what we are finding is the evidence is starting to pile up on the economic front that the recovery really is in full swing.

And you know, at SMI, we always try to steer clear of the narratives and look closely at the data. So I wrote an article earlier this month that looked just objectively at a handful of these important data points and tried to interpret what that data was saying — both about the economy and then also what that means for our investments in the months ahead.

Rob West:
Before we dive into the details, you laid some important ground rules for how investors should use this information. So why don't you take us through that?

Mark Biller:
Certainly. There's always a temptation to hear the type of information that we're about to discuss and then feel like you've got to go apply that by making a bunch of changes to their investments, right? And that's really not what we're suggesting here. Certainly not for most MoneyWise listeners. Y'know, if you've got a well-thought-out plan and you've got that minimum five-to-10-year-type time horizon that we're always talking about, you can leave things alone in terms of your portfolio.

So if that's the case, why bother talking about this at all? You know, and we run into that at SMI as well. People are always wondering, "Why are you telling me this if I'm not supposed to change my investments based on it?" And the reason is that there are always people who are either just getting started as investors or they have a lump sum that they need to invest. And they're trying to figure out when to put that to work. Maybe, on the other side, people that are thinking about making a significant withdrawal in the next several months in those types of situations, it can be really helpful to think through some of these shorter-term factors.

Rob West:
Well, at the very least, Mark, it reminds us that we don't know what we don't know, and we should always maintain that long-term perspective because if we're trying to call short-term moves in the market while we're going to be hard-pressed to do that.

We've got about a minute before our first break. So why don't you begin to dig into your assessment of the economy in general?

Mark Biller:
Sure. I'll give you kind of the "big picture" framework, then we'll hit the details on the other side of the break. So our big-picture framework since that vaccine news came out last November has been that starting around the second quarter of this year, we were going to see some really strong economic and market data. And that was based largely on the fact that we were going to be hitting this period of really easy year-over-year comparisons from last year. Plus, we'd finally see the economic reopening starting, and we'd have all that massive government and central bank support. So basically, this perfect storm was brewing in terms of generating eye-popping economic numbers.


Rob West:
Mark, just before the break, you were giving us an assessment of the economy in general at a high level. Dig into a bit more of the details.

Mark Biller:
Yeah, sure. So we talked about how we had this expectation of what we were going to see as the spring rolled around. And then as the March data finally did start coming in, earlier this month and early April, that really shifted from being an out in the future possibility to a present reality. We started seeing these actual numbers starting to rip higher — and we haven't even gotten to the heart of the second quarter yet. So we're still kind of early in this process as far as what we're, we've been expecting.

So in that article, I focused on four particular examples to kind of make this case. First was that the March non-farm employment showed an increase of over 900,000 jobs, which was up from February, which was already at a little under 400,000. Now the key here, Rob, was the expectations. Again, people have been expecting this increase — but the increase that they were expecting was 660,000. And we came in well over 900,000. So while we've still got a long way to go to get all the way back to the pre-COVID employment levels, the jobs recovery is clearly in full swing already.

The second point that I focused on in the article was the March growth number for U.S. goods manufacturing — y'know, the stuff that we make — it was the highest growth rate and roughly 40 years. So just a huge increase there as well.

The third one was a little more surprising. That's the services side of the economy. And that was surprisingly strong in March, as well. The reason that I keep saying it was surprising is everyone expected that it would take longer for the services side of the economy to pick up again because things are still closed. But these numbers from March indicated that that services growth was already picking up fast. And again, this was, y'know, highest in 25 years in terms of the growth rate there as well.

And the last number that we focused on was U.S. consumer confidence. That was big in March versus February. And we actually just got the April print, which was up huge again — so building from February to March, and again to April. So there's clearly some pretty significant reopening optimism out there among normal people.

Rob West:
Yeah. And I guess in many respects, the question is, has all of that been priced into the market, or is there still some more room to go on the upside? We'll get to that in a moment, but I think the bottom line of what I'm hearing, Mark, is that what we're seeing is, the economy as a whole is looking pretty healthy.

Mark Biller:
Yeah, and that's why I titled it "Booming," Rob, because these four numbers hit the most important points, employment, goods, services, confidence, they're all flying higher. And again, importantly, they're all beating the already high expectations that people have for this period.

Now some of this is obviously a reflection of how bad the numbers that we're comparing to have been. But we're still blowing away these expectations, and this is showing there really is a legitimate economic recovery underway. And there's really no reason to think that won't continue for at least a while longer because, as I said, we're really just at the beginning of the second quarter data. And we know that these next few months are going to continue to see some pretty easy hurdles and setups when we're comparing to a year ago and a quarter ago. So we think this is going to persist through the rest of the spring, into the summer — quite possibly, even through the rest of the year.

Rob West:
Interesting. We want to take some of your questions today. We'll also continue unpacking this article that Mark has written, Economic Update: Booming. You'll find it at soundmindinvesting.org.

This half-hour, taking your calls and questions on investment-related topics. We'd love to hear from you. What's on your mind today? (800) 525-7000. Mark, let's go to the phones and take Joe's call. Joe's calling from Meridian, Mississippi. Joe, you're next on the program. Go ahead.

Caller:
Thank you. I'm a semi-retired pastor. Got a retirement through Monday denominational fund — about $300,000. And I've got in a money market [fund]. Is that too conservative? Or do I need to, over the long run, spread that out a little bit more, get more back into the stock market?

Rob West:
Very good. Mark, your thoughts?

Mark Biller:
It's always daunting to expose that nest egg to risk when you're in retirement. But what we generally recommend is that you do need to have some exposure to stocks, to bonds, to other risk assets, because retirement typically lasts quite a while for folks these days. And if you're looking at a decade or two decades, sometimes even longer, of making that money stretch, you can't just leave that in the safest savings type products.

Most people can't afford to do that because you do have to keep pace with the relentless march of inflation. And so every year, the value of those dollars is becoming a little less and a little less. So even just to keep pace with the purchasing power of today's dollars, so you need to have something that will earn some return. So the challenge is always balancing that risk and reward, but I would say, Joe, that you are wise to be thinking maybe some of that needs to go out into the markets.

Rob West:
Yeah, Joe, what are you needing right now, if anything, from this portfolio? I mean, are your expenses covered apart from these assets?

Caller:
I am pretty much out — right now, for the last several months. I've been drawing $300 a month out of that.

Rob West:
Okay. And that $300 a month is basically what you need to cover all of your bills on top of what other income sources you have? Is that right?

Caller:
That's correct.

Rob West:
And do you see a change in your income in the near future? Are you moving from semi-retired to fully retired or — y'know, when is that next big transition point?

Caller:
Well, I just began an interim pastorate, so I guess it's fixing to climb back for me a little bit here. That's probably the only kind of transition I'd be looking at it where I'm at in life.

Rob West:
All right. But you expect at some point you'd go fully retired, which would mean you'd be relying fully on Social Security plus any income you draw off of this portfolio? Or do you have additional income sources when you're fully retired?

Caller:
There is one additional source. Before my wife passed, we looked at and — when she retired, we could choose in the state retirement system to have her money come just to her or to come to us both. And so at her passing that comes on to me now,

Rob West:
I see. So between those two sources — Social Security and that retirement from your wife — would you expect that would cover the total of your expenses each month for the most part, unless something else came into the picture, like larger medical expenses or long-term care or something like that?

Caller:
I would think so, yes. You know, that's always a shot dark! At the time being it, the prices the way they are now, especially if I tightened the belt in a couple of areas.

Rob West:
Yeah. So that's a good place to be, Mark. Joe's obviously, y'know, all of his expenses, for the most part, should be covered from Social Security and this other retirement income. So given he's got about $300,000 — obviously, we'd encourage him to connect with a professional, either at Sound Mind Investing or find a [Certified Kingdom Advisor] there in Mississippi to come up with an investment strategy — but at a high level, what should he be thinking about in terms of the right portfolio?

Mark Biller:
Yeah, if the expenses are covered, that is certainly the key, then you can afford to keep that relatively conservative. So traditionally, that would mean a very high percentage in bonds. Now, bonds aren't yielding a whole lot right now, but that is still a relatively safe way to hopefully maintain purchasing power, even if you're not gaining purchasing power over time. So, you know, I would certainly say, y'know, half to two-thirds of that portfolio probably would be appropriate to have in conservative savings and bond-like investments. So, and then, depending on the risk tolerance and so forth, how you feel about putting some of that at higher risk in the stock market, you could look at that with a smaller portion of the portfolio.

Rob West:
Yeah, very good. I would agree with that. I think the bottom line here, Joe, is that, you know, given that this money needs to last a long time, if the Lord tarries and you have good health, we probably need to be putting it to work, but in a very conservative fashion. So check out the folks at soundmindinvesting.org, or find a CKA in your area.

We're going to pause — more to come.


Rob West:
Welcome back to MoneyWise Live, where God's Word intersects with your financial decisions — taking your calls today: 800-525-7000.

Mark Biller, executive editor of Sound Mind Investing, is on with me today. soundmindinvesting.org is where you can find the article from Mark Biller on the economy and where we're at today. We've been discussing that. A lot more detail behind our discussion today is available. Again, soundmindinvesting.org.

Let's head to Austin, Texas. John, you want to talk about inflation? What's your question for Mark Biller?

Caller:
So, I'm just curious on all these future investments and different stuff that we're equating a real-day value right now. Now, I mean, in the last year or even this future bill, we're talking like close to $6 trillion that has been injected into the economy, which usually causes inflation and usually increases prices and this and that — which also stifles productivity and growth and all those other things that come along with it.

So from an investment standpoint, it's really hard to kind of, y'know, quantify something like that and what you should really be into.

Rob West:
Yeah. Mark, your thoughts?

Mark Biller:
Y'know, John, it's ironic you bring that up because the May issue of our newsletter — which just hit our website about four hours ago — the cover article of that newsletter is Balancing Inflation Fears With Market Realities. And it's a deep dive into this exact topic that, that you've brought up.

We're clearly seeing inflation signs. They're popping up all around us. We're seeing commodities prices just ripping. It's starting to bleed through into the prices of everyday items that we all purchase — food prices and so forth. So the big question is, "Is this just the reflation of the economy following this big shut down, or is this a new inflationary trend?" And it is very difficult to interpret that at this point because if you'll remember back with me, coming out of the great financial crisis in 2009 we had all of these same predictions about inflation. We had new policies, new quantitative easing, money printing, a lot of new debt. And there was a lot of concern that inflation was going to take off then too. And, of course, it didn't. We didn't see that inflation.

We don't have time to go into all of that right here, but that's what this digs deep into: "Why didn't we see that inflation, and what are the factors that might be different this time?" Because there are some that that people are pointing to — specifically the fiscal spending side from the government that's putting money in the hands of people directly to spend. So there's a much deeper dive available on our website.

But, y'know, I would just caution folks. While you do want to have some protection in case this inflation ball really does keep rolling, we feel like it is a little bit premature still in spite of the evidence, and the evidence that we think is going to be really kind of coming at us in the next few months in terms of headline inflation measures. We think those are going to look really bad here in the next couple of months. But we still think that there's a strong case to be made that a lot of that may not be long-lasting. So we don't want to get too overboard on the inflation protection in our portfolios.

Rob West:
John, we appreciate your call today. It's a great question. One, that's on a lot of folks' minds.

Well, just around the corner, Mark's going to be back with us to take more of your questions. We're going to talk about this economic recovery and deal with Wendy's issue related to the auto industry. We'll also talk about how to invest retirement assets. That, plus your questions at 800-525-7000. Stay with us.


Rob West:
Mark, before we go back to the phones, you were describing all that you're seeing in the economy, analyzing the data, which is really strong at this point. How does all of that that you articulated really translate into the markets moving forward in your estimation?

Mark Biller:
Yeah, unfortunately, it does get harder trying to make that leap from the economy to the markets. And, really, the most important takeaway for all of the listeners today to get from this conversation really is that point that the economy does not equal the stock market! It's important to understand the stock market has already been pricing in the strong recovery in the economy ever since the vaccine news started coming out in November.

So that's not to say that the stock market is going to roll over and crash now or anything like that, but it's important to have perspective. And that perspective is that the S&P 500 stock market index is up about 90% from its lows last March. It's 23% higher today than it was before the COVID bear market started in February of last year. So a lot of today's good news is already priced in to the stock market.

So I would just caution folks who are maybe thinking, "Wow, we're having this incredible economic data that's really going to propel the stock market forward." Well, we may have already had that in reverse order. We had the stock market propelled forward in anticipation of what we're now seeing today and the economic data. And, y'know, if we look back to the last big bear market back in 2008–2009, what happened coming out of that one was we rallied very significantly. The stock market rallied very significantly for about a year. And then we hit a summertime 20% or so correction, which everybody freaked out about because everyone thought, "Oh, no, we're rolling back over into this financial crisis." But it wasn't that. It was just the market had come so far over that first year or so, it needed some time to work through and correct.

And it really would not be a huge surprise if we saw something similar, maybe this summer. A lot of times, these things happen over the summer during the slower market months. But I would encourage people to not necessarily think that that's the beginning of the end if we see some kind of pullback like that.

Rob West:
Let's go back to the phones. New Castle, Indiana — Jim you're next on MoneyWise Live. Go ahead, sir.

Caller:
Hello!

Rob West:
Yes sir. Go ahead.

Caller:
Hey, I've just been in Christian education my whole life and didn't do much retirement [saving] until a few years ago. I'm 63. I've got about $30,000, $32,000 maybe, in an IRA — the Wellington fund through Vanguard with a 60/40 split. I just started my wife's IRA with a little more conservative — on one of their retirement things, y'know like one of the 10-year retirement scoped-out things, about maybe 5%-7%. Anyway, I got a house that I got about $30,000 equity in and one we're renting out that I have about, maybe, $50,000 equity. And I just wondered what you would recommend as far as future investment — how I should do the balance on that?

Rob West:
And how long do you plan to continue to work, just based on your plans today, Jim?

Caller:
Oh, I'd say another 10-to-15 years of the Lord gives me health.

Rob West:
Okay. So still quite a bit of time, Mark, to go. He's got a 60/40 split on his current investment portfolio, obviously adding to it. Any thoughts?

Mark Biller:
Yeah. I would say, Jim, that, without knowing a lot more detail, that sounds pretty appropriate for where you are. You've got this 10-year or so runway ahead of you before retirement — and we're always pointing out that you need to have that 5-to-10 year time horizon to be invested in the stock market to ride out any downturns. It's certainly too early to give up on the growth that the stock market would provide, but at the same time, you're close enough to the end goal that you don't want to go too wild with the risk either.

Y'know, as we were talking about earlier with Joe, the biggest issue really is going to be balancing the retirement expenses with the retirement income. And it's certainly not too early to start thinking about those details in terms of what you will have coming in through Social Security and any other income sources, what your current expenses are likely to look like in retirement, and that's where you can start to home in on how these investments are going to supplement that other income to make sure that you're able to cover those expenses.

Rob West:
Hmm. Very good. Jim, we appreciate your call.

Mark, we're about out of time today. Charles called from Huntley, Illinois. He wanted to ask about the deficit spending and how that's going to impact the economy over the next decade. I'd love for you to share your final thoughts today for those folks that are just concerned — and you addressed a bit of this in our inflation conversation a moment ago — but a lot of folks are just concerned about what they're seeing going on and how that might affect the economy and ultimately the markets and, at the end of the day, their 401(k). Any final remarks on that?

Mark Biller:
Yeah, and I think that it's appropriate to be concerned because some of these policies are not necessarily great for the long-term economy and for individuals.

Now, the one thing that I would throw out there that a lot of people miss is that if the deficit spending — and in John's question earlier, if we see this in persistent inflation — what history shows us is that real assets, including stocks, typically do not necessarily struggle in an environment of reasonably low inflation. So unless we see breakout inflation, which we truly have not seen for the past 40-plus years, even a lower but higher level of inflation is not likely to devastate your stock investments. Now it would be tougher on bonds, but stocks, real estate, those types of things, often hold up well.

Rob West:
Very good. Well, Mark, always great to have you along with us today. Folks, if you want to learn more about sound mind investing, go to soundmindinvesting.org. You can read his article, Economic Update: Booming. Again, soundmindinvesting.org. Mark, thanks for stopping by.

Mark Biller:
Thank you, Rob.

Rob West:
This is MoneyWise Live.