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Transcript

Hello, this is our weekly Market Alert video for the week ending October 29, 2021. Before I get into what’s going on and what we should do about it, I just want to thank everyone who has donated to our corporate charity’s Walk to End Alzheimer’s team. Last week, we announced that our corporate charity, RPOA Cares is participating in the Alzheimer’s Association’s Walk to End Alzheimer’s. The RPOA Cares team has already been name the rookie Team of the Year. This is the world’s largest fundraiser for Alzheimer’s research, so I want to thank everyone who has participated.

You have until November 6th to donate, and you can either donate a certain amount to the team or you can sponsor one of our employees who is going to do the walk. You can also do a virtual walk yourself, so you don’t have to actually go there to participate.

What we haven’t told the Alzheimer’s Association is that as a company, we’re going to match the charitable funds that have been raised. So ,they don’t even know what they’re in for. Not only are the Rookie Team of the Year, but they’re going to get a double whammy of contribution! It’s very exciting and so great. So, again, thank you guys, you can click the link in your email to participate with us in this great cause.

Let’s talk about what is going on with inflation. A lot of people are asking me if inflation is going to cause the next market crash. We’ve been talking about this topic in this video and in our podcast the past couple of weeks, but I wanted to kind of put it into a different perspective for you

By the way, I’m Ken Moraif, and I’m the founder of Retirement Planners of America, and a Senior Retirement Planner at the firm. I want to talk about the worst period of inflation we’ve had in modern times here in the United States. And of course, that is the early eighties. We had hyperinflation at that time. We even had stagflation before that—really ever kind of inflation you do not want to have, we had during that time. What are the lessons learned from that? A

The reason I’m going to do this is because a client asked me, “Ken, how can it be that with all this inflation, the Dow is hitting new all-time highs? What’s going on with that?” Well, here’s my explanation. If you go back to the early eighties, what you can see is that during that time of hyperinflation, we saw the stock market go up at the beginning of that inflationary cycle. But then eventually, it crashed in 1982. Why? The example I used on my podcast and radio show was this: let’s say that McDonald’s charges $5 for a sandwich right now; but because of inflation, all their costs have gone up so now they charge $10 for a sandwich. Let’s say that they make a 20% margin, meaning they make 20% profit. So, when they charge $5, they made a $1 profit. Okay, now inflation has gone up, and now they’re now charging $10 for a sandwich. They do this to maintain their 20% margin, right? They’re going to make 20% of $10, right? Well, that is $2! So, what just happened to their profits? They went from $1 to $2—they doubled!

As you guys know—we’ve said this many times in the past—the biggest driver for the value of a stock usually is profits. So, if McDonald’s profits doubled, what do you think is

going to happen to their stock price? It could potentially double! So, therefore, in the early stages of the inflationary cycle, we see a large bump the stock market. That’s what it did in the early eighties.

The problem is this what happens soon after that market increase. If inflation continues, it becomes too much for the consumer, so the consumer stops buying. The moment that happens, a company’s profits will fall. Then what happens to their stock price? It falls right along with it. It should anyway.

What that means is this inflation we’re seeing now is causing companies to see profit expansion. Now, are they really making more money if you take inflation out? No. It is in terms of dollars, but not when those dollars are adjusted for inflation. The value of the dollar goes down when we’re in an inflationary period. So, a stock price doubling during inflation is not a true reflection of actual growth.

We believe the inflation we’re experiencing now is temporary. It could be longer than we want. It could be through the middle of next year or there abouts before we get out of this period, but we think it will likely just go away. Potentially, that is what could happen.

So when I say McDonald’s is charging $10 A sandwich, and I’m just picking on McDonald’s—that’s not what’s happening–but let’s say they’re charging $10 for a sandwich and then their costs go down. What have we experienced in the past with companies when their costs go down? Do they lower prices as fast as their costs go down? I’ll just let you sit on that one and answer that yourself. So if their price stays up while their costs go down, they could make more money, which would make their stock price potentially go up even more!

Because of all of this, we anticipate that we’re going to see more, new all-time highs with the Dow and the S&P going into next year. As long as inflation does not become a permanent condition, and we don’t think it will, we think our economy will adjust. The broken supply chains will be fixed as more people go back to work everyone starts to get back so an assemblance of normalcy.

Now, we could be wrong. Nothing is guaranteed here. Certainly inflation could be worse than we think and it could stick around longer, causing consumers to stop buying as much. If this happens, we could have a big, bad Bear Market. That’s why we have our Invest and Protect Strategy™ in place—because we don’t know when bad things are going to happen. We don’t know how bad they could be. We don’t know when they could happen. The important thing is that we have a strategy that is ready to be enacted when the time comes. It’s similar to having a strategy to address hurricanes. We don’t know when a hurricane is coming. Well, we don’t know that it how bad it’s going to be. We don’t know exactly where it’s going to hit. We just know hurricanes will come and therefore if we’re doing our job, we should be prepared for that. We should have our teams ready for an emergency evacuation. We should have all that ready to go so when it does happen, the damage is minimal. That’s what our Invest and Protect Strategy™ is designed to do.

I hope that gives you peace of mind despite the fact there’s all kinds of scary things happening out there. And it is Halloween weekend, so, boo! Don’t be afraid. Have peace of mind. That’s what we want for you.

Thank you for watching this video, share it with five people, subscribe to it and get five people to subscribe to it as well. We want as many people getting this message as possible and you’re free to do that. So, get five people to hear this message. They will thank you for it if it saves them too!

We will talk again soon.

MMWKM Advisors, LLC (d/b/a Retirement Planners of America ) (“Retirement Planners of America”) is an SEC registered investment adviser with a primary business location in Plano, Texas. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. References to the “invest and protect strategy” (the “Strategy”) and recommendations made under the Strategy from 2007 through 2009 refer to strategies collectively employed and recommendations collectively made by Retirement Planners of America’s principals while employed at Eagle Strategies, LLC., and also at Cambridge Investment Research Advisors, Inc. Four of the five principals remain as principals today, including the Retirement Planners of America’s founder, Ken Moraif, and Chief Investment Officer, Eli Dragon. Retirement Planners of America has been employing the Strategy since its inception in 2011. Therefore, any references to Retirement Planners of America’s performance or its investment advisory recommendations predating 2011 generally refer to recommendations made by Retirement Planners of America’s principals at the respective other firms described above. Like all investment strategies, the Strategy is not guaranteed. It is possible that it can incorrectly predict a bear market (generally accepted as a 20% drop in a market index), which has, in-fact, happened before at Retirement Planners of America and affected its clients accordingly. When the sell / “protect” portion of the Strategy is implemented, affected investors will incur transaction costs and taxable accounts will incur tax consequences. However, when implementing that portion of the Strategy, Retirement Planners of America generally believes that the benefit of avoiding bear markets outweighs the burden of these transaction costs and tax consequences.