Speaker 1: Inflation has been a big concern for a lot of investors, particularly recently, you know, it’s been something that we haven’t had to worry about for the past 40 or so years.
We’ve managed to maintain it around that two per cent mark, and that is perfect. But there are a range of investors like Ray D’Alessio, Charlie Munger and Michael Burry, who are warning that inflation may be on the horizon. Mangat cautioned at the end, if you print too much money, you end up with something like Venezuela, a country torn apart from inflation. Michael Burry said history is not useless. This text explores the 1970s American inflation, which is more relevant today than one might think, Dalio said. Now that the economy is rebounding, inflation pressures are rebounding. So you’ve got not just these investors, but well-known investors from around the world warning of inflation. You’ve also got a bunch of statistics that point towards inflation being a problem and perhaps the not so distant future. I’ll show you the soon. But the most important thing that we’re going to discuss is how you can actually profit from inflation, because I’ll tell you this, a lot of people are going to get wiped out from what is to come. You need to know how to prepare. So let’s take a look at some of these warning signals that we’re seeing. First, this is something that not enough people are talking about is the consequences of all of this printing of money. So we had the pandemic and we had a lot of people who needed money. The government did what they pretty much had to do, and they backed into trucks and shipped off a bunch of free money to the people. They gave trillions of dollars to businesses that were struggling with loans, struggling with emergencies and have the general need for cash.
They spent hundreds of billions of dollars with tax relief given to individuals who weren’t working hundreds of billion dollars into medicine. And the same again for government needs. But this money had to come from somewhere. And basically what happened was money grows on trees and the Federal Reserve gets created out of nothing. And all of our problems were magically solved, if only that were the case and if only princi money had no consequences. But anyone who understands sound economic principles will know that this isn’t the case. One of the major problems that comes with printing trillions of dollars is inflation, because if you start handing out free money to people, demand for goods increases. They have more money to spend. And when demand increases, what happens to prices? They rise. As Charlie Munger says, if you kept this going, you’re going to end up like Venezuela, which suffered from hyperinflation. But this is just one of the ingredients that is causing Warren signals of inflation. The other is the aging world population. As we can see, back in the 1970s, we had a lot more young people relative to retirees, USA and the 70s. There were more than double young people compared to retirees. Today, it’s almost the same per each category. UK similar story. In the 70s, there were more young compared to retirees. Today it switched to the opposite way around more retirees than young. If you keep growing throughout the developed economic countries, they tell a similar story. All of these strong economies are declining when it comes to the amounts of the working age population. China, instead of growing a slightly declining developed countries. Same story, Eastern Europe, same story. The only one that isn’t saying this is Africa, which is one of the poorest continents. Now, this decline is important because if you have less able bodied working, less supply, it means the amounts that you can produce is less and it means the price for labor goes up. Now, businesses who hired the labor, they transfer this cost onto the consumers, a.k.a. they increase the prices of goods and services, a.k.a. inflation. Now, these are just some of the factors that we need to be aware of, which could lead to high inflation in the future. But the real question is, how can we make money from inflationary times or at the very least not lose money? Because most of us haven’t experienced high levels of inflation before. The last time that we saw high inflation was in the 80s and most do not know how to invest during these times. We’re not used to seeing our dollar become worth less and less and bonds getting destroyed and certain stocks getting destroyed and other asset classes getting eaten by inflation. You need to know what asset classes do well during inflationary environments. Now, one of the best options to go with, and this is one that I personally Cooper am doing, is buying real estate and supply this real estate. I’m getting in a lot of dads, about three quarters of a million dollars worth. So let me show you the math behind this. So the worst asset class to be in gerin inflationary environments is cash, because obviously your dollar is becoming worth less and less. Now, what’s the opposite of cash debt? So instead of inflation eating away at your cash, it eats away at your debts.
That’s one positive of real estate. But then also with inflation, what happens to the price of your house? It goes up, inflation rises, the prices of everything, including houses. That’s another positive for real states, but also your rental income increases with inflation. So that’s another positive. So if you get into real estate, your debt gets eaten into making it less of a burden, but to the value of your house rises and three, the rental payments increase. So with this investment, you’re profiting in multiple different ways. And if you do this wisely, you can potentially make a lot of money from it’s you can either buy real estate, obviously, directly, or if you don’t have the money for that by a rate, a real estate investment trust that will invest in real estate for you. And you can get into these at much lower prices like the examples given here. But real estate is not the only assets which you can profit from an inflationary times and other assets. That tends to do well. Here is gold. Now, let me explain this. So jarring inflationary periods. Investors see their cash drop in value and so no one wants to hold cash. And I think what’s an asset class that holds its value, that has limited supply and cannot be watered down in value? And of course, gold is one of the ounces. So when investors start seeing inflation, they flock to gold and it shoots up in price. And if you look at history, it will show you this. The last period of high inflation was from 1970 to 1980. It was very high here between five and almost 15 percent. And what happens to the price of gold during this time is shot up like a rocket. It went from about 250 dollars, so over 2000 dollars. This is why gold is such a strong asset to own during high inflation periods. But you want to buy it while it’s the shape. And yes, I myself, I am an owner in gold. Now, the other thing that is likely that investors are going to run to if inflation goes high is crypto currencies like Bitcoin. And I know a lot of people are against this and I know it doesn’t have the test of history to prove it, because Bitcoin has only been around for 10 years.
But we do have the logic. Let me explain. So with inflation, the crux of what’s happening is your dollar is getting devalued. We’ve mentioned that before. It’s printed and printed upon and watered down to become less effective. Now, with Bitcoin, you can’t water it down because there’s only a set amount of them in the system. It has a limited supply of 21 million. So your dollar is getting devalued and watered down so people start rushing to other forms of currency, one of them being Bitcoin. Now, this is no guarantee we don’t have history to prove this, but I think there’s a big chance of Bitcoin taking off if we hit hyper inflation. So we’ve got real estate, we’ve got gold, we’ve got Bitcoin. These assets are ones that will do well in inflationary environments. The other thing that you need to be aware of is the stocks that perform here and the ones that don’t. Now, to show you this, we’re going to go to the example of the greatest investor of all time, Warren Buffett. He’s talked a lot about stocks and inflation in the past. Essentially, when it comes to high inflationary times, you need to focus on stocks that have three key things. You might want to write these down. So one is the ability to generate rather than consume cash, too, as companies that can increase prices easily along with inflation. And three is to buy companies that have the ability to accommodate large dollar volume increases in business with only minor additional investments of capital. You know, even a stock like Coca-Cola, Buffett’s long time investments should fare better than most in inflationary times. They can raise their prices as inflation increases. And they’re a company that generates a lot of cash flow. While stock like Sanderson Farm, they can easily raise the prices of chicken along with inflation. And they can keep. Generating high amounts of cash flow, so it’s these type of stocks you’d want to favor more if we are to see high inflation in the future. So don’t get me wrong, when inflation is high, it can be an absolutely wretched time when it comes to your finances.
As Thomas Sowell said, hyperinflation can take virtually your entire life savings without the government having to bother raising the official tax rates at all. But it doesn’t have to be this way. If you invest smartly, inflation does not have to take away your money. In fact, with wise investments and the right type of stocks in gold and real estate and maybe a bit of bitcoin, you can profit while most lose.