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Nobody likes the damage it does.
But you can understand why Mike Burnick — a guy who’s been a professional investor for 35 years and has actually lived through America’s last inflationary wave – would say that he hates inflation.
And with good reason. Mike has seen the human toll that runaway prices exact.
He’s seen what inflation does to “marginal” businesses – making them slash workers when expenses zoom out of control. He’s seen the sticker shock at the gas pump, and the way surging prices put a pinch on how much food families can put in their shopping carts.
And he’s seen how inflation hammers investment portfolios – inflicting the deepest pain on investors saving for retirement or folks living on a fixed income.
Mike’s not alone in his hatred of rising prices. Like I said, pretty much everyone feels that way.
But there’s one thing that sets Mike apart: Because of his years of experience, he can take action. He can help you do something about it.
And he’s doing just that with a brand-new investing strategy that “programs” stocks to generate inflation-beating, dividend-style payments “on demand.”
My staffers here at TradeSmith have grown used to the nicknames I’ve created for Mike, monikers like the “Inflation Assassin” or the “Dividend Disciple.” I do that to help keep things light in the face of the toughest market we’ve faced in some time. But I also do it because I believe in Mike, who understands more than anyone I know about inflation, its impact, and the way you can build wealth even as prices soar.
Just two days ago, in fact, Mike shared some of his inflation-fighting wisdom at the Demand Cash Flow Summit.
Now I’m sharing them with you. Mike and I talked earlier this week about soaring prices, the surge in market uncertainty, the threats we investors face – and how you can use his “on-demand” cash-flow strategy to kill inflation.
Here’s an edited transcript of our talk.
Keith Kaplan: There’s that old aphorism “may you live in interesting times,” which sounds like a blessing but is actually an ironic curse since it’s better (or easier) to live in uninteresting times.
You’re a guy who’s been around for a long, long time – you’ve been a professional investor for 35 years – meaning you’ve seen the waxing and waning of “interesting times” via market uncertainty. So how would you respond to that?
Mike Burnick: Well, Keith, that’s a great point. And yes, there is plenty of uncertainty in financial markets and the economy. But I think it’s crucial to remember here that with uncertainty also comes opportunity. And as someone who has been in the investment business for 35 years, opportunity is what I focus on most — opportunity and managing risk — because it’s during uncertain times like this that the biggest money can be made.
I like your thinking here, Mike. And I know you have a strategy that does all that and more. It generates big returns and keeps you covered, from a risk standpoint. And because it works during good times and bad, it elbows aside uncertainty and connects you with those opportunities.
Before we get into that, let’s talk about the uncertainty itself — the environment and what folks are facing right now.
Inflation – and what the Federal Reserve intends to do about it – is the No. 1 challenge facing financial markets today.
To be sure, the conflict in Europe has injected even more volatility into the mix.
Which you’d expect.
But – and this is a big, big but – that inflationary inferno was roaring even before Russian tanks rolled into Ukraine.
For proof, just look at the numbers we’ve seen since the start of the year.
Inflation was up 7.5% in January. And it accelerated after that. According to a report that came out a week ago, consumer prices were up 7.9% in February. That’s the highest inflation in 40 years — since the last time inflation was a big problem for markets and the economy back in the 1970s and early ’80s.
That last point really puts things in a unique context, and it’s a great segue to my next question. You have been very consistent in saying that – despite all the market “noise,” despite the barrage of narratives playing out in the headlines – there’s really only one story that investors need to focus on right now. And that one story is inflation. Why is that?
A great question. So, inflation began accelerating a year ago, but the Federal Reserve initially turned a blind eye toward what was happening. Policymakers claimed rising prices would only be “transitory,” the result of supply-chain bottlenecks. Well, good luck filling up your car with $5-a-gallon gas without putting a dent in your wallet. There’s nothing transitory about that.
The bottom line: Inflation isn’t transitory. Just the opposite, in fact. Inflation is likely to be much more virulent than investors expect, meaning it goes much higher and sticks around a lot longer than anticipated.
And that makes it the one story folks need to follow.
That’s good stuff. Let’s take it another step. Most people understand the basics of inflation – that a dollar today will be worth less tomorrow – but understanding what to do about it is where they get hung up. So let’s go there next. What does that mean for investors and traders? And by that, I mean what specifically? What’s the threat? What’s the risk?
The most obvious threat is the Federal Reserve. Our central bankers have finally woken up to the fact that inflation is a problem that isn’t just going to vanish on its own. So they’ve pledged to raise interest rates – with that initial salvo happening this week.
Investors are worried that the Fed, having waited too long to confront inflation, could now be too aggressive in raising rates – and could end up tipping us into recession.
And as we both know, the Fed has a lousy track record in that department.
Truly lousy. In fact, history shows us that whenever the Fed starts raising interest rates, it usually ends badly for the economy.
Since the early 1950s, the central bank has embarked on 12 rate-tightening cycles. And 11 out of 12 of those rate-hike cycles in the past triggered a recession not long after.
A hawkish move this week would kick off the 13th. Time will determine if this is an unlucky No. 13.
Time will tell, but it’s fair to say that the odds aren’t all that promising for the economy or, by extension, the stock market.
Again, based on the historical record of the Fed’s rate hikes, the odds of a successful “soft landing” for the economy – that’s what economists call it when the Fed pulls it off – aren’t good at all. The deck is stacked against the Fed even more than usual this time around – and for two very good reasons.
And those two good reasons are?
Well, first, as I mentioned a moment ago, our central bankers waited too long to respond to inflation’s acceleration, and now it’s more entrenched than at any other time since the inflation-ridden ’70s and ’80s. And an inflationary cycle is like a pest infestation; once it takes hold, it’s very hard to combat.
Second, the Fed plans to reduce its nearly $9 trillion balance sheet by either selling the Treasury- and mortgage-backed securities it owns or letting them mature. That’s a game-changer, given that the Fed was just recently buying $120 billion in assets every month. It means financial conditions are tightening in the real world. We’re already seeing that reflected in rising volatility and lower stock and bond prices.
Translation: A tightening of the cheap-money spigot.
A good analogy, Keith.
You mentioned the sell-off in stocks and the big spike in volatility. Clearly, plenty of spooked investors have retreated to cash because of this volatility. You’ve commented to me that you see that as a big mistake. Tell us why.
I do see it as a big mistake. It’s tempting to simply hide out in the supposed “safety” of cash, but that won’t work in this environment. In fact, it would be “hazardous to your wealth.” That’s because your cash won’t be worth what you expect it to be. Inflation is eroding your money’s value month after month. And there are always opportunities out there that will come your way, but they’re opportunities that you’ll miss if you’re hiding out in cash. Between the two of those – the one-two punch of the missed opportunities and inflation chewing away at the real value of your cash – you’ll fall behind.
Running and hiding – actually, retreating and surrendering – isn’t the answer.
Instead, you must take greater control.
You’ve very clearly defined the threat here, Mike, which is terrific. Now let’s spin it forward. You said investors must take “greater control.” How can they protect themselves? How can they respond? How can they capitalize?
Well, that brings us full circle to Tuesday’s Demand Cash Flow Summit that you mentioned earlier. In that event, I showed investors the best ways to protect themselves from turbulent markets and accelerating inflation.
It really comes down to two simple but powerful steps.
- Buy only the highest-quality stocks (many of which are now on sale).
- Learn and deploy my strategy, which essentially allows you to “program” your stocks to deliver instant “dividends” — extra cash income that you can literally earn “on demand” from the market, on your schedule, any time you want.
I like that a lot. What other “opportunities” is inflation creating for us? And how should investors attack those opportunities?
You touched on this topic yourself in TradeSmith Daily recently. You want to own “forever stocks,” as you called them. These are the best and most successful businesses in the world. You don’t have to worry about their staying power. You can invest in them for a lifetime. It all goes back to what I learned from Peter Lynch, the Fidelity fund manager and bestselling author who said: “Know what you own” – and be able to explain why so simply that even a fifth grader will get it.
In other words, stocks that you can confidently hang on to through the market’s ups and downs?
Yes, these are companies that have very wide protective “moats.” They enjoy dominant market positions, which give them pricing power during inflationary stretches. Companies like these have high profit margins, strong cash flow, and high returns on equity. You mentioned some really great names in that Daily article – including Hershey (HSY), Microsoft (MSFT), Coca-Cola (KO), and more. Stocks like these thrive in an inflationary environment by simply raising prices to keep up.
I can finish your sentence, Keith. Unfortunately, these days, too many folks chase “exotic” stocks they don’t understand. Maybe it’s biotech or a company working in the cryptocurrency space or some complicated technology play with a sky-high valuation. These kinds of stocks have crashed and burned in this recent market decline.
So the performance-chasers have had to relearn this lesson the hard way.
The hard way and the expensive way. You are far better off sticking with easy-to-understand blue-chip stocks that can stand the test of time. These companies – and their shares – will likely be around forever.
And your Dividends on Demand cash-flow-when-you-want-it strategy will work with these “forever stocks”?
Oh, absolutely, Keith.
In fact, my strategy begins with quality stocks of this type. Our TradeSmith tools give us a big edge here – allowing us to select the right stocks at the right time. I’m also looking for stocks that pay a solid cash dividend – preferably, stocks with growing dividends that give you inflation-proof income.
In essence, you’re getting paid while you wait for the stock to move higher in price. And because the dividends rise over time, those income streams stay ahead of inflation.
But we’re not talking about “buy-and-hold” investing, are we?
No. No way. Not at all.
You see, here’s where I take it a step further.
I’m not just sitting around and waiting for these quality stocks to pay me regular quarterly dividends. With my strategy, you can “program” those stocks to pay you more than four times a year. By placing a few simple trades each week or so, you can program these stocks to pay you “instant dividends” – cash flow on demand.
Is this strategy dependent on a certain market environment – for instance, bullish or bearish? Do you have to wait for a certain signal?
You can use this whenever you want. Instead of waiting for the stock market to do something, you can proactively earn money more than four different times on every investment you make. I’m talking about regular, recurring income – in addition to traditional dividends you collect along the way. And you can realistically earn anywhere from several hundred dollars to several thousand dollars every week no matter what the stock market is doing.
Mike, that’s big – huge, in fact. I mean, when you consider it this way, it’s really a way to insulate yourself from market volatility – to reduce your risk in whipsawing markets like the one we’re living through right now.
That’s a great way to look at it. You take control of how much your stocks pay you – and when those payments come through. And it doesn’t matter whether stocks are rising, falling, or trading in place.
It sounds like your strategy could be really useful for any investor, whether they’re still saving for retirement or already living off their savings.
Absolutely. You’ve got the opportunity for your investments to grow much faster – and for your holdings to become much larger – than you’d otherwise expect, thanks to the extra income-earning trades we take advantage of each week.
I’m sold; how can our readers find out more?
They can watch the replay of the Demand Cash Flow Summit to learn all about my strategy.
There’s no cost to tune in.
And I’ll show you how easy it is to “program” your stocks to pay you more — to decide how much you want and when you want it.
I’ll also provide several specific examples on exactly how to place these “instant dividend” trades, so you can try it out for yourself.
Mike, thanks so much for taking time to speak with me today, and for sharing your views on the market and your strategy for overcoming the crippling inflation facing us all. I also want to share with readers that they’ll start to hear more from you here in TradeSmith Daily moving forward. Starting today, we’ll feature your insights every Thursday so everyone can benefit from your years of experience.
Absolutely. I’m looking forward to it, Keith. Thanks so much for the opportunity to share with your readers!
Thanks again, Mike. I look forward to reading more of your insights in the weeks and months to come.