What You Need To Know About The Coming Inflation Storm

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Look, folks, I've been around the block more than a few times, and I'm seeing some storm clouds gathering on the horizon that we need to talk about. The inflation beast that's been lurking in the shadows might just be getting ready to rear its ugly head again in 2025-2026, and smart investors need to start positioning themselves now.

Let me tell you something I learned from my old mentor during the inflation-ravaged 1970s: When the money printing presses run hot and the government keeps spending like a sailor on shore leave, somebody's going to have to pay the piper. And that somebody is usually us regular folks.

Now, here's what's keeping me up at night, and why you should be paying attention too.

First off, we've got this perfect storm brewing on the demand side. The labor market's tighter than a drum, wages are creeping up like kudzu in summer, and folks are still sitting on piles of pandemic savings. When people have money burning holes in their pockets, prices tend to follow suit. It's as simple as that.

But wait, there's more – and this is where it gets interesting.

The Fed's doing their usual dance, trying to convince everyone they've got everything under control. But let me tell you something I learned watching markets for decades: When the Fed says they've got inflation figured out, it's time to start worrying. They're walking a tightrope without a net, and one wrong move could send us into either an inflationary spiral or a recession deeper than the Mariana Trench.

Here's where the rubber meets the road for us investors: REITs. Now, I love a good REIT like my wife loves her garden – they need attention, but they'll reward you handsomely if you treat them right. During the stagflation mess of the 1970s, REITs managed to deliver an inflation-adjusted return of 6.5% year over year. That's nothing to sneeze at when everything else was going to hell in a handbasket.

Let me break down why REITs are your best friend in an inflationary environment:

Think about it like this: When prices are rising faster than a hot air balloon, property values typically follow suit. REITs own real estate – actual, physical assets that you can touch and feel. These aren't some fancy financial instruments cooked up by guys with MBAs who've never set foot outside Manhattan. We're talking about real buildings, with real tenants, paying real rent.

Speaking of rent, here's where it gets good. Many REITs have lease structures that let them adjust rents upward when inflation hits. It's like having a built-in inflation protection mechanism. While your average stock might be getting hammered by rising costs, REITs can often pass those costs along and keep their income streams growing.

But here's the kicker, and pay attention because this is important: Not all REITs are created equal. You need to be looking at REITs with shorter-term leases in sectors with strong demand fundamentals. Think apartments, self-storage, and certain types of industrial properties. These are the ones that can adjust their rents quickly when inflation starts biting.

Now, let's talk about what could set this powder keg off, and folks, we need to have a serious conversation about tariffs and immigration policies. These aren't just political talking points – they're real economic forces that could send inflation through the roof faster than a rocket on the Fourth of July.

Let me break it down for you. If we see aggressive tariffs come back into play – and that's looking more likely by the day – we're talking about price increases across the board. Remember what happened last time around? Everything from washing machines to construction materials shot up in price. And this time could be worse, especially if we're looking at broader tariffs on Chinese goods or European products.

But here's what many folks aren't talking about: immigration policies. Tight labor markets are already pushing wages up, but if we see stricter immigration policies, that pressure cooker is going to blow. We're already short on workers in construction, agriculture, and service industries. Restrict that labor supply further, and you've got a recipe for wage inflation that'll make the 1970s look like a warmup act.

Add to that the energy markets that are more volatile than a cat in a roomful of rocking chairs, and the global supply chain mess that's still sorting itself out, and you've got yourself a perfect storm brewing.

The way I see it, we've got three main scenarios playing out:

1. The Fed gets it right (about as likely as finding a unicorn in your backyard)

2. They move too slow and inflation runs hot

3. They overcorrect and send us into stagflation

My money's on door number two or three, and that's why I'm positioning my portfolio accordingly.

Here's my bottom line, and I don't say this lightly: The time to prepare for inflation isn't when it's already here. It's now, while everyone else is still debating whether it's coming back or not. REITs have historically outperformed the S&P 500 by 1.3 percentage points during inflationary periods, and I expect history to rhyme, if not repeat exactly.

Remember what Benjamin Graham taught us: The intelligent investor is a realist who sells to optimists and buys from pessimists. Right now, the optimists are still running the show, thinking inflation is dead and buried. That's exactly when you want to be building your positions in inflation-resistant assets like REITs (for my favorites, check out our Total Return Portfolio).

Stay smart, stay patient, and keep your powder dry. The storm's coming, but for those who prepare, it might just bring some interesting opportunities along with the rain.

And remember, as always, this isn't just theory for me – I eat my own cooking. I'm positioning my own portfolio exactly as I'm describing here. Because at the end of the day, the best investment advice comes from people who have skin in the game.

Keep your head down and your eyes open, folks. The next couple of years are going to be mighty interesting.

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