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Uh oh, inflation is still at 40-year highs…

That’s the short and not-so-sweet takeaway from the latest official inflation data, published this morning by the U.S. Bureau of Labor Statistics (“BLS”)…The consumer price index (“CPI”) for September checked in at 8.2%.That’s year-over-year growth of prices people are paying for identical goods or expenses, like food, gas, and rent. While down slightly from this summer’s numbers, the annual inflation rate is still near a 40-year high…

 

That tiny peak may be nice to see, but it’s still concerning that price growth isn’t slowing down and has accelerated from its previous pace. On balance, prices were 0.4% higher in September, up from a 0.1% gain in August…According to the BLS data, gasoline prices were down 5% in September, but natural gas prices were up 3%, and food and rent were up 0.8% and 0.7%, respectively. Everything else measured in the data outside of food and energy was up by a collective 0.6%, which is maybe the worst data point.

In response, stocks went wild…

Markets sure can be perverse.The benchmark S&P 500 was off more than 1% on today’s open, making a clear new intraday low for the year, before rallying to more than 2% in the green by the afternoon. What gives?We can’t say for sure, but if somebody wanted to look at the CPI data from a positive view, they could. As our Stansberry NewsWire editor C. Scott Garliss reported today…It took us 26 months to get to this point. It’s likely to take at least 12 months to see a sustainable shift in the [inflation] metrics. But the trend over the last couple of months is heading in the right direction.In any event, today certainly wasn’t the worst or most troubling trading day we’ve seen this year. But it might not be all that it seems on the surface.While stocks popped, interestingly, Treasury yields also moved higher, which indicates investors in the bond market are more concerned with the latest inflation numbers. Remember, bond prices trade inversely to yields.As we said yesterday, the volatility in stocks today was to be expected – either up or down – based on a few tenths of percentage points of data and how they are perceived. We saw this in the action today. It might continue as earnings season gets going tomorrow.But the big takeaway for me (Corey McLaughlin) from this morning’s CPI report remains largely the same in the big picture… Inflation is still at 40-year highs. And we can parse all kinds of consequences and reactions from that, starting with free markets’ too-frequent foil, the Federal Reserve…

First, we’re left wondering once again, ‘How will the Fed respond?’

Fed Chair Jerome Powell has called previous inflation reports “bad.” I can imagine what he’s thinking about this one… What the hell do we do now?!The September data largely didn’t include the gasoline price increases of the past two weeks or so. And with rent – which makes up a large chunk of the CPI measure – still high, it’s hard to think of reasons why inflation would slow this month.In other words, the official inflation data is going to be worse than the Fed probably envisioned through the end of the year… which means it might have reasons to raise its benchmark interest rates at an even quicker pace to fight inflation.This has been the theme all year long… The central bank says it will raise rates by 0.25% to ease demand in the economy. Then inflation data is higher than expected, so it raises rates by 0.50% instead…The Fed has indicated it would raise rates by 0.50% a few times this year, saying that would be an “aggressive” approach. But inflation data has remained high, so it raises rates by 0.75%… and on and on again in this pattern.Recently Powell finally said publicly that the Fed wants interest rates to be higher than the inflation rate…Right now, the Fed’s benchmark rate range is between 3% and 3.25%, while the CPI is still above 8%. Meanwhile, the Fed’s preferred inflation gauge – the personal consumption index – is at 6.2% at last count.

You can see where this might be headed…

Continuously high inflation readings and record-low unemployment might lead a reasonable person to believe higher rate hikes are in order. They might be.This morning, immediately after the CPI data release, traders in the fed-funds futures market started making bets on a 100-basis-point (or 1%) rate hike at the Fed’s next policy meeting early next month, rather than the expected 0.75%.The odds on a 1% hike went from zero to 8% in the early hours of the day but mellowed back to 2% quickly after. That may be because the Fed seems to at least be aware of the concern of “overdoing” its influence on the economy and markets while inflation is still high…

The Fed is threading a needle…

According to the minutes from the Fed’s September meeting that were published yesterday, some of its board members raised concerns of overdoing rate hikes before seeing the impact of previous ones on the economy (like job losses and a recession).And one of the Fed string-pullers, Chicago Fed President Charles Evans, said at a business conference in Chicago earlier this week that the consensus goal from Fed members is to have a “4.5%-ish” benchmark interest rate “by early next year.” Then, the bank might be more patient with the pace of raises ahead…He said, “We’re going to need months and months of data” to see the impacts of the Fed’s policies that are now restricting economic growth, not encouraging it. In other words, we’ll see…But the broader point is, benchmark rates are probably going to be between 4% and 5% at least in 2023… or possibly even higher.

Whatever happens, remember one of Warren Buffett’s laws…

When the world was trying to figure out what investing in a land of near-zero interest rates looked like back in 2013, the famed investor said…Interest rates are to asset prices what gravity is to the apple. They power everything in the economic universe… When there are low interest rates, there is a very low gravitational pull on asset prices.As we wrote back in April, the opposite is also true…When interest rates go higher, as dictated by the Fed, there’s a stronger pull “back to Earth” for stocks, bonds, and any other assets with a connection to our debt-loaded, dollar-based financial system.The higher rates go, the tougher the environment is for higher stock prices…Our long-running advice on inflation this year to “prepare for the worst and hope for the best” still stands. It’s been higher for longer than most observers thought it would be, and the trend is still going.I might be one of the few souls who bothered to read all of the minutes of the Fed’s last meeting last night (while needing a beverage or two to get through them). Among the lines that stood out was this warning…With respect to the medium term, participants judged that inflation pressures would gradually recede in coming years.That’s right. In private, Fed members are talking years before “inflation pressures” slow to what we used to know… not months. The only saving grace is that they’re as wrong about this thought as they were about “transitory” inflation in the first place.

Moving on, today we have another special guest contribution…

It comes from our Thomas Carroll, Stansberry Research analyst and longtime health care sector expert. He is now also part of the team behind our colleague Dr. David “Doc” Eifrig’s new health care-focused Prosperity Investor newsletter…Subscribers and Alliance members can check out their latest issue, out today.Tom brings a wealth of knowledge about the health care system to his daily work. You’ll often see him in our office poring over financial statements. And he has a breadth of insight about our complicated health system that few others do…I think you’ll see that from this contribution, which is especially timely for a variety of reasons – particularly for people in or nearing retirement. Tom is taking over from here, starting with this blunt statement…

Our health care system is so dysfunctional…

The incentives are wrong. Doctors and hospitals are rewarded for over-testing and overtreating instead of being paid to prevent illness.Fortunately, a better system was actually created in the 1990s, and it has been made even better over time. It’s just that few people know the details about it, if they even know about it all…This program realigns the incentives patients see at the hospital or doctor’s office. It’s designed specifically for seniors. And this new arrangement is so powerful that it can save you around $100,000 over the course of your retirement while improving your health.I (Thomas Carroll) have been watching this story unfold from its start… And today, I want to show you how to take advantage of it…I’ve spent my entire career in health care finance. After I finished graduate school at the Johns Hopkins Bloomberg School of Public Health, my first job was with a startup health care company that focused on what I’m talking about today.

I’m passionate about this industry…

As I have shared in the Digest before, it’s the only sector of the economy where we are all customers. As such, the health care sector is ripe for investment.Health is our most important asset, and it needs to be managed like any other important asset we own, such as our house and our savings.This is especially important as we plan for and navigate our retirement years…Health care costs so much money in the U.S. that many people can’t wait to get government-sponsored Medicare insurance once they turn 65.People believe that once they’re enrolled, they can finally stop worrying about potential financial ruin from a costly health care event.

But most people don’t realize that Medicare won’t cover all their costs…

In fact, the part you have to pay for could be enough to ruin you financially.There are limits to Medicare coverage, and many things are not covered, like prescription drugs, long-term care, most dental care, or routine eye exams. These costs can add up to tens of thousands of dollars. It’s an expense that often goes unplanned for and can overwhelm your hard-earned retirement savings.Regular Medicare comes in two parts – Part A and Part B. This is often referred to as Medicare fee for service (“FFS”).Part A is “hospital” insurance. It covers a lot of the cost of an inpatient stay in a hospital. The Medicare taxes paid during your career entitle you to Part A benefits.Part B is “doctor” insurance. This part of Medicare pays for the doctor services you receive. However, your Part B benefits cost between $170 and $578 a month in 2022, depending on your income. This premium is expected to remain flat in 2023.These two parts will cover between 60% and 70% of your expected medical costs.The rest can eat away at your savings…For example, the American Journal of Cardiology estimated the average inpatient cost for coronary artery bypass surgery was $151,000 in 2016. That number is surely higher today. Covering 35% on your own will yank almost $53,000 from your savings.

There are better ways to handle your health insurance in retirement…

You can bundle Medicare with two other common insurance products: a Medigap policy that covers the “gaps” in Medicare benefits and a prescription drug plan (“PDP”) that covers retail pharmacy medications.That will get the job done but can cost you hundreds of dollars a month in premiums.On average, a healthy 65-year-old can expect to live another 21 years. In that time, they will be responsible for around $200,000 of medical expenses. This must be paid for with savings.Medigap and a prescription drug program is a good option. But there is an even better path to consider…It’s called the Medicare Advantage (“MA”) program. The government calls this Part C in Medicare lingo.

Here is how Medicare Advantage works…

You enroll in an MA plan with a private insurance company. The company will collect a small premium from you, along with additional funds from the government, and will combine all the parts of Medicare to manage your coverage.Rather than having to coordinate all your Medicare “parts,” juggle numerous cards, and figure out which pays for what… under MA, you get a single insurance card, like how you probably did when you were working.And, more importantly, MA is a lot more affordable than traditional Medicare options.Below is a chart illustrating what a 65-year-old can expect to pay out of pocket within his or her remaining lifetime under three scenarios. The first two are the commonly bundled Medicare products discussed above. The third is MA.

 

With the two common Medicare FFS options (using a drug plan and/or Medigap), a 65-year-old retiree can expect to spend between $190,000 and $224,000 in premiums, deductibles, and copayments over the course of their average 21 years of retirement.But with MA, the average retiree expense is $125,000. This is a savings of $65,000 to $99,000.You have different choices for how extensive or expensive you’d like your MA plan to be. In 2022, the MA program offered an average of 39 options to Medicare beneficiaries at lower out-of-pocket costs to people who received benefits this way.These plans offer everything from $0 premium plans to higher-cost plans that have little-to-no payment when you go to the doctor. They’re typically combined with prescription drug benefits, vision, dental, and even fitness programs, like SilverSneakers – a fitness-and-social program that’s offered free of charge through many MA plans.This might sound too good to be true, but it isn’t.MA plans were started in the early 1990s. Back then it was called “Medicare Risk Contracting.” The goal was to explore more cost-effective options for Medicare and provide beneficiaries with more choice.The program has undergone a number of iterations over the years. The version we have today is humming along very well.

Why is this important to understand right now? Two reasons…

First, if you’ve never heard of MA, now is your chance to explore these easy-to-use, benefit-rich plans. And second, it could save you tens of thousands of dollars.Between October 15 and December 7, a window opens when you can research and enroll in an MA program. And, if you change your mind or find an even better plan for your needs, you can switch back between January 1 and March 31.The difference in cost is huge for most retirees living on a fixed income or just their savings.The other benefit is qualitative.An MA plan is very user-friendly. “Young” Medicare-eligible people often find MA easier to use. It’s similar to using the employer-sponsored health benefits they’ve become accustomed to during their careers.

MA plans bundle everything together in one simple, affordable option…

You carry one health care card in your pocket instead of three (Medicare card, Medigap card, and PDP card).The companies that run these plans send out advertisements to attract new enrollees. They are looking for you. But too many seniors think that it’s just a sales pitch and don’t dig in.I am an unbiased analyst. Our only incentive at our publisher, Stansberry Research, is to deliver you valuable truths so that you stick with us as subscribers.After more than a decade of analyzing these plans, I believe they are a win-win scenario for most people eligible for Medicare. You get more affordable coverage and better health outcomes.But what I really like about it is that it’s a uniquely American idea that has been successful…

MA is government funded but privately administered…

This isn’t the government managing your health care. These are sophisticated, technology-enabled, efficient organizations that extract considerable value for their “members” – the people who sign up.Now, MA isn’t for everyone. It’s also easy to find horror stories online about people with MA who have a tough time. If you are wealthy, a host of concierge medical services are at your disposal. But for most people, MA is really great. The bad stories are the exception, not the rule.If you need further convincing, just look to your fellow Medicare beneficiaries.Currently, 28 million people with Medicare get their benefits this way. That’s 48% of the total Medicare population and the highest it has ever been. And it’s continuing to grow as Baby Boomers continue to age in to Medicare. If it were so bad, would almost half of the Medicare population choose MA?Health insurers are the part of our system that says “no.” As such, they are mostly hated.

This brings me to my last point…

Over my career, I’ve had a saying that has worked out perfectly: Don’t hate your HMO, invest in it. This has been very true for health plans that focus on the Medicare population.Health insurers have been some of the steadiest, most consistent investments anyone could make over the past 20 years. For example, the S&P 500 Managed Health Care Sub Industry Index is up 2,444% over the last two decades, including dividends. This compares with 616% for the broader S&P 500.We see no reason why this performance would slow down anytime soon.So do yourself, your parents, or your grandparents a favor and look into the MA plans that are available to you where you live. If you’ve never heard of MA, I urge you to see what options are available where you live. You can do that at Medicare.gov.Then, go out and buy stock in one of the large MA health insurers. If you need an idea, we have a great way to invest in the popular MA program in the latest issue of Prosperity Investor, sent to subscribers today.

This idea and many other health care investment opportunities are ready for the taking…

You just have to know where to look… and the great thing is, you can educate yourself about our health care system along the way…Remember, we are all customers of the system. You might as well invest in the health care sector and offset medical costs with investment gains.If you don’t already subscribe to Prosperity Investor, click here to get started. You’ll get access to our latest ideas, the ticker of an MA company poised to profit, and my complete analysis of it.Plus, with a subscription, you’ll get a number of special reports with health care information you won’t find anywhere else.You’ll find “forever” health stocks that we believe can potentially double the market every year, an idea that Doc calls the No. 1 opportunity of his life… and even advice on how to “grow your health span”… plus a primer on psychedelics.We launched Prosperity Investor a few months ago, and I’m really proud of the product. Doc, analyst John Engel, and I have combined our expertise to bring folks what I think is a one-of-a-kind advisory in our industry.

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Link to previous major COVID shows:

September 11, 2021

September 18, 2021

September 25, 2021

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