Moneybeat - Questions about the economy

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: We are into week two here at the World Journalism Institute, our host university is Dordt University in Sioux Center, Iowa. We’re working with some very gifted students from all over North America and Eastern Europe as well. And several of our students had expressed interest in posing not only culture questions, but questions on economics as well.

So let’s bring in financial analyst and adviser David Bahnsen. He is on the line now. Good morning.

DAVID BAHNSEN, GUEST: Good morning, Nick, good to be with you.

EICHER: Time is short, so David let’s hear from our students.

ELIZABETH RUSSELL, STUDENT: I’m Elizabeth Russell from Patrick Henry College. And my question for you is now that Russia is only taking payment for natural gas in rubles from countries that are deemed unfriendly. Do you think that this will weaken the U.S. dollar?

BAHNSEN: No, I don't. I think that there is a threat in how oil is bought worldwide to the dollar. But it isn't about the ruble. That is merely a mechanism of Russia trying to protect its own currency. Russian oil was never paid for in U.S. dollars. So that isn't the direct threat. But related to the question is Saudi and other OPEC countries recently expressing a willingness to denominate oil and gas with Asian currencies, particularly China with the yuan. And so that would represent over time, I think, a weakening of the dollar. But I don't think the ruble represents an imminent concern whatsoever.

AVA WOODWORD, STUDENT: My name is Ava Woodward and I go to Lipscomb University in Nashville, Tennessee. In high school, my teachers advise us to invest money to have extra security in retirement. I have looked around for accounts with compound interest but I have not found a high compound interest option. Is there a company who offers an account that you recommend to invest money into or is there another way you recommend to invest money.

BAHNSEN: Yeah, I mean, retirement money being invested to compound at an early age really should never be done with a savings account. And first of all, not only is it true that the interest is so low, that you're not going to compound very much interest. But more importantly, you're not getting any growth on the underlying principle. And so to compound the return, that's where different kinds of mutual funds or ETFs, dividend stocks, you know, depending on what money one is starting with, I would be compounding through something in an equity market investment. And of course, we're big believers in doing that by compounding the reinvestment of dividends. So the long answer is sort of a stock mutual fund is a good way to compound interest for a long term retirement savings.

ZOE SCHIMKE, STUDENT: Zoe Schimke from Colorado State University Pueblo here. To what extent do you think modern inflationary problems are the cause of fractional reserve banking?

BAHNSEN: Yeah, there's basically two types of inflation. And I think that, um, monetary inflation is always in forever a monetary phenomena. So the way I answer the question is by saying that I believe inflation to be too much money chasing too few goods, and I don't think fractional reserve banking has to necessarily mean too much money. But it often has meant that, and then I certainly don't think it has to mean too few goods. I think those are what we call the supply side of the economy. And that's certainly what we're dealing with right now, where demand is picked back up, and you don't have a necessary level of supply, because of too few workers supply chain problems, you know, not enough oil and gas production, those things. So it's a mixed bag. But when you look at the two different causes of inflation, monetary policy can definitely be a huge factor.

EICHER: Excellent questions and we do have some David Bahnsen fans here in this WJI class who wanted to talk economics with you. You’ve got to feel good about that!

BAHNSEN: Well, of course, it's very flattering, but it's also encouraging, not because of involving me, but just involving the topics - you know, to hear young people have an enthusiasm for this. And it's the great passion of my life to see people become animated about matters related to markets. I think markets matter because the human person matters.

EICHER: In our remaining two minutes, David, I’ll throw it open: What were the big stories on your screen last week?

BAHNSEN: Yeah, well, I'll give you two quick tidbits. The stock market was up over 2000 points this week, it was one of the larger increases we've seen in the market in a long time. And so you got kind of a rebound from the really bad week markets had had the week before. And this is sort of the volatility that we expect to continue. It doesn't mean things are bad, it doesn't mean things are good, it means things are just kind of in that moment of uncertainty. And so you know, roller coasters go up and down. And that's where we are right now.

The other thing I'd point out is, I really feel somewhat validated about one of my forecasts this year, which was not that inflation was gonna get all better and everything would go back to one to 2% inflation, but that it would directionally change and that politicians would immediately start wanting to take credit, and I thought that would be near the end of the year. But I gotta tell you, I never thought that I'd see the president send a tweet bragging about the inflation rate in the PCE, which is the personal consumption expenditures, it's the index the Fed uses even more than CPI, the consumer price index. The PCE went from 5.2% to 4.9. So it did go down directionally, which is what I expect will continue. And the President came out and said it went from about six to about four. Okay, so he's somehow by rounding up and rounding down, got .3%, to look like 2% and tweeted it. And this to me is what you should be expecting more of throughout the rest of the year is disinflation, meaning a high inflation rate becoming a lower inflation rate, becoming a big story and ultimately, it's what I think the central bank will use to justify stopping their tightening of monetary policy. But I was intrigued by that this week. Those are a couple of takeaways from the week that was.

EICHER: All right, David Bahnsen, financial analyst and advisor, head of the financial planning firm The Bahnsen Group. He writes at DividendCafe.com. David, thanks!

BAHNSEN: Thanks so much, Nick.

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