The Coming Inflation Crisis. Do This.

buckle up because we're about to go

through an inflation playbook how to

invest

if there's going to be a lot of

inflation or a little inflation

or how to diversify your portfolio and

if you want to learn how to build your

wealth

after you see these principles make sure

to check out the links down below for

the amazing program so you get 39

off using the coupon code to the moon

and folks let's get started with the

video hey everyone meet kevin here so on

tuesday morning

at 8 30 a.m eastern time which is 5

30 in the morning my time consumer price

inflation data for march comes out

and folks a lot of people hate the

consumer price index

in fact most of us watching this are

probably like dude come on man because

the cpi is like

the lie of the government just look

around man prices are going up like so

what the stats don't say there's

inflation

there's inflation just go out into the

real world leave your studio for once

right

like totally totally agree yet the

reality is all of us on tuesday are

going to be like

oh what is that cpi data gonna say well

folks i wanted to talk about

exactly this and some ideas and some

projections and

how to invest in potentially

inflationary times

but also invest in ways that would

benefit if inflation

doesn't manifest as high as we think it

will so first i wanted to start with

with this which this was a really

contrarian piece on inflation that i

thought was

really good actually this was in the

financial time

financial times on thursday inflation

offers escape route

from debt crisis uh and so this here

says

uh basically he's setting up look we've

been printing money like crazy

every country in the world pretty much

has been spending money like crazy to

spend their way out of the coveted

pandemic

we've printed 25 to 30 percent of the

money that exists in the world

uh and and the money keeps flowing i

mean you've got joe biden

who's running an over four trillion

dollar deficit plus the fact that now

we're going to have this

uh additional potentially 2.2 up to four

trillion dollar infrastructure plan

remember the 2.2 trillion dollars that

was just the

first half of the plan but anyway he so

he sort of sets the stage that look

folks how can there not be freaking

inflation coming okay this is nuts

this is absolutely nuts uh and so here

we go

uh he talks about how uh governments uh

were basically in the past

forced to take unprecedented uh

unprecedented measures

to avert a 1929 style depression

it's basically let's spend our way out

of getting into depression we don't want

to be in a depression

but then he says for the entire house of

cards not to collapse though because

countries have taken on so much debt he

says that quote

growth and inflation need to be restored

it is the only way to repay

the debt legacy of the crisis and this

is an

interesting argument because generally

when we think of

inflation we think bad but wait a minute

think about one of the positive

externalities of inflation watch this so

let's assume

you make 50 000 a year if you make fifty

thousand dollars a year

and you have twenty thousand dollars in

debt that debt level doesn't go up or

down let's say

that means for every one dollar that you

earn

you have about uh 40 cents of

debt but what happens now if you get a

pay raise because

there's inflation or you get better at

doing what you do you become more

efficient more productive

whatever you get a pay raise well 50

turns into 65

with a 30 increase so that means now

when you were previously making a dollar

you're currently making a buck 30.

there's that 30 percent increase

well the cool thing about debt is even

as you make 30

more let's just say it was all due to

inflation like you're the same

productive worker

you didn't get any better at your job

let's just say it was all inflation okay

in the extreme that it was a hundred

percent inflation as to why you got a

thirty percent pay increase

your debt is still twenty thousand

dollars so now you have 40

cents of debt uh for your buck a 30

which before your debt was a 40 burden

on on the amount of money that you had

in a year you made 50

000 40 of that could have gone to pay

off your debt

well now all of a sudden you make 65 000

and 20 divided by 65

is actually only a burden of 30.7

30.8 percent so your debt

burden went down because you're making

more money

and this is intuitive the debt stays

flat and your income goes up the debt is

easier to pay off

so really what this author is arguing

is that hey if we have growth if we have

productivity and and people making more

money and

earning more money and inflation

well now debt stays constant and your

pay can go up for two reasons one

inflation but also if you become more

productive

your pay could also go up and so this is

how

inflation and an increase in

productivity

can really help us quickly accelerate

burning off debt it's like throwing gas

into a fire of productivity

yeah let's run a little hot let's run

with a little inflation but let's also

increase our productivity fast

and we're going to make this debt look

like nothing we're going to cake walk it

away

the problem is this does hurt some

people

mostly it hurts fixed income folks so

for example

if uh you are retired and you make money

off

bond yields like bond coupon payments

well

unfortunately unless you're investing in

something like tips which are treasury

bonds that adjust to whatever inflation

is

your money is going to be worth less and

this is where a lot of

folks get frustrated like wait a minute

like i worked for my ten thousand

dollars in treasury bills let's say

uh and now if the government's just

gonna make everything run hot and

inflate away the debt that's not fair to

me that's not fair

to people who have invested in debt it's

not fair maybe to lenders

and maybe it's also not fair to people

who are saving

but it does also encourage people to go

okay well i may not i may as well not

save i may as well

invest so you have this really weird

sort of give and take when it comes to

inflation and productivity

but this individual here is saying that

look look at the situation we're in

right now

low interest rates a ton of money

printing

at the same time savings rates are at

all all-time highs like we last saw in

the mid-1970s

which is also when we left the gold

standard and had a crap ton of inflation

i'm not talking a little bit inflation

we're talking like 9 to 15 and so this

author makes the case

that here's the thing all of the recipes

exist right now

for big inflation and big growth

which is going to be good for debt like

we need that to burn off all the debt

that we have

but he's giving a warning to say you got

to be prepared

because when that inflation comes you

want to be investing properly now he

gives advice for exactly what he

recommends which we'll talk about

in a moment but i want to read this

quote at the outset of the crisis the

fed's bold action including large-scale

financing of government debt was timely

now it is hard not to see it will lead

to a de-anchoring

of inflation expectations and a revival

of the specter of

1970 style growth in prices

in english look we needed to spend the

money to survive

but now we're starting to realize okay

this is gonna be a little bit of a

problem we're gonna have some big

old-time inflation

and so we gotta be prepared for it in

fact he says

quote we believe this might be the case

again with the rest

coming after the summer once economic

data revealed the true health

of the u.s economy and its inflation

path the fed's role in distorting

asset prices is set to diminish as

market forces reassert themselves in

other words

everybody was relying on the fed last

march and the fed bailed everyone out

now the fed's got to step out of the way

and he believes the market's going to

force the fed out of the way

markets going to take over and that's

what we've already started seeing

happening

in march or in february in march when

we've had this big pullback

to pricing inflation because folks are

gearing up ready for that inflation to

come

and so uh before i mention what he talks

about investing i'm going to talk about

what i

would potentially recommend investing in

i i think it's very interesting to note

that yeah in some sense having higher

inflation

while it does diminish the value of your

dollar

if you're invested and you're a borrower

you win and this unfortunately

accelerates that k

shaped uh sort of wedge we have in

society where

it's harder for people who don't have

assets and businesses and then debts

against those to get ahead because

inflation hurts them

inflation makes it harder for them

to survive on a day-to-day basis or to

get that new computer or to start that

business

right all their startup costs go up with

inflation it's really just

people who already have wealth who

really benefit off inflation

but he says it might not matter even

though it might not be equitable to see

inflation coming

it's coming and you got to prepare for

it because the fed's not going to have

control of this

the genie's out of the bottle so to

speak so now let's talk about

where to invest in these potential

scenarios but to do this i also want to

give you my

projection and then we'll compare where

to invest

all right so first my projection so this

is

my thought on how consumer price how the

consumer price index might move

and i understand this is not exactly the

best

measure of inflation is just one

arbitrary measure

that we have but this is what i'm going

to chart with so we already know 1.3 and

1.7 these numbers already came out for

january and february as annualized rates

i think in march as in the data that

comes out

on tuesday i think we're going to see a

really nice

bump so we're going to really see this

acceleration in inflation

and it's really going to be its worst in

april

and the reason i see this is just

looking at the base effects of where we

sat

last year what was the base we sat at

last year and this is why we see this

big bump

of inflation because we had a hole last

march april and may

and so then i think we're going to

slowly unbury ourselves from this

and we will see higher inflation but we

might not see this

genie on the bottle style inflation that

we're worried about or at least some of

us are worried about now i'm going to

talk about investing in both scenarios

but take a peek at this there is also

the possibility that we do have

a form of inflation that just does

something like this

and this could potentially lead to this

higher style inflation that many folks

are worried of

that we might run over to four five even

six maybe seven percent inflation i'm

not sure many folks

i'm sure there are some but i don't i

think most people would say if we're

going to see higher inflation it might

be around these six seven percent ranges

maybe not as high as we have previously

seen like that ten to fifteen percent

but i think that's an alternate scenario

here so i think these are the

the two scenarios here you've got either

inflation going up

and i'd say maybe this range right here

kind of this little middle section here

i'd say that's probably our you know 95

percent likely range right here

that sure is it possible that we'll see

lower or higher of course

but i'd say this is probably the 95

percent that we should be thinking of

and obviously you could draw your own

chart and think of your own 95 percent

uh and then if we were to say okay well

what what is a middle probability here

well i think it's personally i think

it's going to bias a little bit to the

lower side

and so personally i think this right

here

is about 50 probable being somewhere

below

3.5 percent inflation and then maybe

this section over here uh also has like

a 40

45 probability of maybe running a little

hotter than that three and a half

percent

but this that gets a little bit more

arbitrary you know

where we think things are going to go i

think the better thing to do here

is to decide okay how do we

invest in these sorts of environments

and so the first thing that's useful to

consider is what happens to

different asset classes so what happens

to stocks what happens to

bitcoin what happens to real estate well

so

with stocks generally what happens with

inflation

is high growth stocks so anything that's

growth

with inflation we tend to see

with inflation high growth stocks go

down in the short term

so i'm going to write short term uh and

that's because we're really eradicating

future potential earnings with inflation

we're

devaluing those future earnings because

money in the future is going to be worth

much less to us but in the long run

growth stocks can still do very well it

just takes longer term

and the reason for that is inflation

does

ultimately lead to prices going up even

in deflationary tech if we do have

a lot of inflation we would expect to

see prices going up and those earnings

in the future and projections for future

earnings should go up

and so in the long run we should see

growth stocks

also do well in inflation in the

in the shorter term we have other stocks

and these are oftentimes considered the

value stocks

value stocks can be whether they're

financials or industrials or recovery

stocks

oftentimes now when we think okay we're

going to have a growth

uh or sorry we're going to have

inflation so we'll draw this

here and say uh value with inflation

usually in the short run these guys do

very well

because folks say ah well we don't want

our future growth getting eroded away

so let's just park our money into value

stocks or just stocks that look

cheap today at some point in the future

though

we'll see that rotation back and so in

the longer run

in my opinion we could potentially see

uh value stocks will still do decently i

think they'll they'll still kind of go

up and to the right maybe not straight

up like growth might in the long run

but i think we're going to have a little

divergence where

you will see highly indebted indebted

companies

even with inflation i think they're

still going to suffer

and so they're probably going to trend

down a little bit more especially as

things in the long run rotate over to

growth

even though inflation makes it easier to

pay off your debt

these particular companies in a uh in an

inflationary environment which could

also potentially be a really hot

economy might end up suffering to the

burden of the amount of debt that they

have

and they won't be able to catch up with

growth growth will outpace them so

quickly

so in the longer run very very bullish

for uh for growth to do very well in the

long run

uh value in the long run i do think will

go up

but at a slower pace and uh indebted

highly indebted companies will probably

trend down over time

with inflation this is the with

inflation uh scenario here right

and then in the short term growth is

what really gets hurt

yeah which for some who are willing to

be patient about it

i can see that as a buying opportunity

but anyway that's

usually what you end up seeing in

inflationary environment obviously if

there's

no inflation or low inflation well then

that long run for growth will just come

faster and we'll see that that increase

in growth stocks much sooner

than we would if we had to go through

sort of an inflationary cycle

because this high inflation won't last

forever at some point even if we went to

high inflation

we might end up just vocally down and if

we do pull volcker down

there is also the possibility of a

short-term

depression where a companies go through

painful de-leveraging and this is

kind of exactly what we see here where

that painful deleveraging would probably

lead these highly indebted companies

to go bankrupt and growth will survive

because many of the growth stocks are

just not highly indebted

and so they'll end up coming out the

winners either way so in either scenario

when it comes to stocks

for the long run i mean it's one thing

if i wanted to momentum trade you know i

can momentum

trade some of these trends but for the

long run i really want to be

in uh the growth because with or without

inflation

in the long run i think i'm going to do

very well on the growth plays and so

that's an expectation that i have

that's sort of my theory on stocks uh

now uh what if we run over to bitcoin

let's instead of uh stocks let's call

this uh bitcoin

so with bitcoin the two scenarios would

be

inflation or uh not right

so we'll put or not inflation or not so

obviously in an inflationary environment

uh well i shouldn't say obvious i ran a

poll on

twitter which follow me on twitter i

really kevin if you haven't yet

i ran a poll and i asked why folks

invest in bitcoin and

about 48 of you said you invest in

bitcoin as an inflation hedge

and so i do think that bitcoin does

stand to do very well

in an inflationary environment so if we

get that higher inflation

i do think bitcoin will will do very

well especially if more corporations

uh put some of their treasuries you know

with cash that they have or cash and

equivalents that they have

into bitcoin it's very likely that in an

inflationary environment

uh we could easily see bitcoin five to

six x you know 300 to 360 000 uh dollars

per coin

is not unheard of uh of course there are

many folks who believe we could see

bitcoin a million we could see bitcoin

500k

uh certainly bitcoin 100 i think is

within the radar

uh and this is of course barring any

kind of massive debt crisis

that ends up coming out of a

rehypothecation crisis in the crypto

lending market

because of a lack of uh of governance

and uh you know we don't know where all

these loans are going and how often

loans are being made so there could

potentially be a debt crisis in

cryptocurrency which would just be very

bad for cryptocurrency all around

uh but aside from that kind of debt

crisis i do think that inflation is

going to help

push bitcoin we'll draw this a little

bit more clearly to 300 to 360 000

now if we don't see inflation and and we

do start

getting this this decline of a run here

which i expect

the decline to really start taking hold

somewhere around june or july

and that's really when we'll see this

inflection point where either will

maintain that higher inflation

or it will go away which i do expect

that it will go away

not only because those base effects will

be gone but i do think supply chains

will repair themselves over time uh and

it does take time for supply chains to

fix themselves

but remember supply chains have been

repairing themselves now uh

or been trying to for over a year now or

at least in june or july they will have

been for over a year now

because supply chains really got damaged

in march and april of last year

and and now we're starting to see some

of the effects of that the shortages

chip shortages lumber prices

real estate price is so high that lumber

is so high right and other

real estate inputs are so high so now if

we do not see

uh inflation i do worry that one of the

big reasons i mean almost a 50

reason for people to be investing in

bitcoin evaporates there are of course

many other reasons to invest in bitcoin

but if inflation goes away it's possible

that uh as as growth stocks start taking

off potentially more than bitcoin does

uh and let's say bitcoin you know this

summer hits a hundred

it is possible that that it could in an

uninflationary environment

either trade sideways or stagnate a

little bit in value

so i'm not here to prophesy that oh

bitcoin's going to zero i just think for

a trading and momentum mindset

if we do see this sort of downtrend in

the chart here where we start going down

i do think bitcoin potentially will

suffer in an environment like that

whereas obviously i think it'll do very

well in the inflationary environment

okay then let's touch on real estate

here

so then we have real estate so with real

estate

real estate it's a little bit of a

double-edged sword so with real estate

uh what i really want because there

could be a lot of pain in real estate in

a high inflation environment

but let's talk about this so in a high

inflation environment

what's really going to win the winner

uh and there's really going to be a

limited style of winner here

but the person who wins with high

inflation in real estate

is the person who has long fixed

rate debt and

cash flow to cover

see the beauty of long fixed rate debt

is

in an inflationary environment if we do

see this high inflation scenario

we'll expect interest rates to go up

substantially

and you'll want a fixed rate loan so

that your payments don't go up and you

want it to be

long so that your your payment doesn't

balloon or all of a sudden become

do and payable at a time when you have

to refinance at a substantially

higher rate that would be bad so

variable

or short-term debt is definitely more at

risk in real estate

and not having the cash flow to cover

the payments on these debts

would also be an issue so you want

enough cash flow to cover and service

your debt

and you want that long fixed rate debt

that way if we do have high inflation

and we end up getting interest rates to

go up remember the rule of 10x if

interest rates go up

2 real estate prices could go down 20

percent

there could be a large adjustment in

real estate prices downwards

in an inflationary environment however

even as real estate prices adjust

downwards in a shorter term inflationary

environment

and rates go up for a few years to sort

of control put the genie back in the

bottle so to speak

control that inflation anyone who's able

to ride out that storm

is going to see their debt become a

whole lot less valuable

which was is a benefit a partial benefit

of seeing inflation

their debt will become relatively cheap

uh compared to

what they have now and so this is where

with high inflation real estate

investors could really win

or anybody with debt could really win

now personally i do not encourage

uh debt on bitcoin i think debt on

bitcoin is bad it's it's very volatile

i think any more than 20 debt uh so

anything greater than 20

debt on stocks i think that's bad margin

calls are bad margin calls and bitcoin

are also very bad

but debt in real estate is actually very

very good and so

there is this argument that it might

make sense if we do

expect larger inflation to come it might

make sense

to invest more heavily in a safer

real estate debt maybe buy that house

get that long-term fixed rate debt

i'll buy that multi-family building and

get into the real estate market

so that your your debt gets worn away in

an inflationary environment now

if we don't see that inflation then and

rates do not go

up to hurt real estate prices in the

short term because in the long run

i still think real estate prices even if

we go through a short term

uh you know high rate environment in the

long term i think real estate prices are

likely to continue to

to increase uh and not forever i mean i

do think that there could there would be

a

substantial amount of pain don't get me

wrong uh with with high inflation but i

think in the long term

anybody who can hold on to the real

estate will benefit substantially

but the point is here that if if we do

believe

we are going to go to this higher

inflation environment we would benefit

from either momentum trading

value stocks now or riding the pain

in growth stocks because growth stocks

are likely to do well in the long term

so you'd have to really be able to time

your exit on those value stocks

or certainly at least the recovery

highly indebted value stocks that that

look like value right now that but that

are really value traps

with bitcoin you want to be aware of the

momentum as well because if we start

getting that inflection point

to the downside as well i think there

could be some softness in bitcoin

pricing

and then real estate unless you have

cash flow and you could cover this long

fixed rate debt you have it's going to

be very risky to take on short-term debt

because we could see

a dramatic decline in real estate prices

in the event that interest rates

go up substantially to combat inflation

but

someone in the long run is really going

to win in that sort of scenario

so i'm going to give an example here

let's say somebody has

a 300 000 house and they take out 200

000

of debt let's do it in red here uh 200

000

of debt uh and so now we have interest

rates go

up you know two three percent whatever

and the value of this real estate comes

down to let's just make an example here

200k

uh and the value of our debt goes down

to 200k

so now we've had real estate prices go

down but in order to see this like

in this case like three plus percent

increase in interest rates or

potentially even more

the person's still able to make their

payment they're not getting margin

called whatever

yes some equity has gone away but what

is a benefit of a higher inflationary

environment well you have debt

so the amount of money that you're

working for your your income

should be increasing in an inflationary

environment

the productivity of any of the goods or

services you're producing or commissions

you're receiving or whatever

should be going up in an inflationary

environment as long as we're also in

this booming economy right

and if we're in a depressionary economy

well that could also be a potential

issue

as our income goes down or our

productivity goes down

but nonetheless we're not forced to sell

and what's happening

every single month is we're still paying

off this debt

and whether we're getting paid more or

tenants are getting paid more

inflation will make those older dollars

less

valuable so let's go say we go through a

period

of uh five years of inflation and we end

up having

i don't know let's let's go with six

percent inflation for five years

okay so if i do uh two hundred thousand

dollars

or let's say i make fifty thousand

dollars of money okay fifty thousand

dollars of money is what i make

and we go through six percent of

inflation-adjusted wage increases

one two three four

five and that puts me at about that

sixty seven thousand dollar income

so now i have sixty seven thousand

dollars of income where previously i had

50k

and that's five years at six percent

inflation

the same is hopefully going to be true

of my very qualified tenants

so it's actually very likely that an

inflationary environment

could foster rents to go up see even

though

prices right now are going up so

parabolically

rents are not keeping pace right now in

many different areas

don't get me wrong rents are up but

they're not keeping pace

and that's really because it's just more

affordable to buy so more people are

buying inventories low less people are

selling

so you're seeing this big wedge at least

in in the areas that i'm looking at

seeing a wedge in what prices are versus

what rents are like rents are not

keeping up

with home prices right now but an

inflation in inflationary environments

when

wages go up but maybe real estate prices

don't go up you can actually

ironically see inflation push

rents up and if rents and incomes go up

your income your tenant's income

that debt becomes substantially less

valuable like that example with the 20

000

credit card we made earlier so then of

course

after an inflationary environment has

come and gone as long as you've held on

to your real estate

and then interest rates come down well

now your

income is higher your tenant's income is

higher your rents are higher

but your debt is still denominated in

those really old dollars which are

worth a lot less now so to me trying to

figure out a balanced portfolio

in this environment between real estate

bitcoin and stocks is the big challenge

now this particular author here he

argues

that the return to inflation could help

ease the debt burden but it will

be hard to swallow since it arbitrarily

transfer

transfers wealth from savers to

borrowers

exactly it transfers wealth from savers

to borrowers we don't like borrowing on

stocks

we will not borrow on cryptocurrency but

we will borrow on real estate

for exactly this reason as an

inflationary hedge

real estate could operate very well

especially since real estate prices

oftentimes do

ride on the inflation curve so if this

is what inflation is here

real estate prices often either match it

or ride

slightly above it and then you benefit

because of

leverage in real estate but anyway

this particular author says that

investors needs to need to prepare

themselves for this shift

by seeking value stocks rather than

chasing new fads

so this particular author encourages the

value stock argument

i encourage a little bit of a balanced

portfolio so i want to give these bottom

lines here so

if you are a momentum trader i think

recovery

uh recovery and value uh and even

bitcoin could be good momentum

but you're going to have to be careful

here because that momentum could shift

quickly

especially at the point of this

inflection if you are

a a real estate investor you really want

that

long fixed debt and you almost you

almost i know this sounds crazy but you

almost want as much of that as possible

because an inflationary environment

you're gonna win and uh if we don't see

a lot of it and this is even if prices

go down you're holding for the long run

right your goal is to eradicate that

debt

not to try to flip the property it's not

like you're going to buy real estate and

go i'm going to try to flip this for a

big profit because prices only go up no

no

no i am warning that prices can and will

go down in an inflationary environment

but your goal is to eradicate that debt

so that when you come out on the other

side

you're coming out like a bandit because

you've got really really cheap debt

and yeah i mean your rents are up your

incomes up whatever

so long fixed rate debt on real estate

uh

is is going to in my opinion be good in

both scenarios so you win in high

inflation you also win in low inflation

uh if the momentum trades they'll work

short term but you have to be aware of

these these changes so

bitcoin recovery value stocks be aware

of those the one that's going to hurt

the most in my opinion is really going

to be

a growth but it's only going to hurt

in the short term and that short term is

either

while we experience inflation or while

we anticipate

inflation because obviously if the

inflation woes go away

then we would expect to see lower

inflation so

those are the the three ways that uh i

advocate

uh investing and sort of diversifying in

these

inflationary or potentially inflationary

times

the biggest thing that i'm doing just to

be transparent is

i'm about four percent uh bitcoin

i'm about uh 50 uh yeah 50 yeah

i would say right uh 50 uh real estate

and then about a 46

growth stocks so that's uh that's that's

my breakdown

and so you can see i'm really i'm really

taking a strategy

that's uh heavily focused on the long

term

i would not be in growth stocks if i was

not in them for the long term

and i wouldn't be in real estate if i

was not in them for the long term

i would be tempted to flip out of my

real estate i'd be tempted to flip out

of my growth stocks

in the short term if i was solely doing

momentum plays uh

and then bitcoin i'm keeping an eye on

his momentum play and then sure i might

mess around with some momentum trades

and things like that

but it'll be a small part of my

portfolio since again we're about 50

real estate about 46 percent growth and

then that four percent sort of momentum

this is the more entertaining part right

here right

uh but my lungs are very very strong so

anyway uh this gives you my inflation

playbook and why inflation might

actually be a good thing

for people who have assets unfortunately

everybody

doesn't uh get screwed which is uh that

is

the mission of my channel is to make

everyone who watches my channel realize

that uh if if uh if you don't have

assets you get hurt in this country

unfortunately

and uh if you want to learn my

perspectives on building your wealth

make sure to check out the programs down

below and building your wealth with real

estate with stocks

uh or sales or youtube or property

management you name it

links down below and folks we'll see in

the next video

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you