Track THIS for Massive Inflation Danger.

hey everyone meet kevin here or meet

kevin paffrath as the judicial system

likes me to be called in this video

we're going to talk about

some really incredible research that

i've done over the last week

and it has to do with our favorite

things inflation

wages going up what might happen in the

future

and some new facts and data that we've

gotten including from today

so folks let's get right into it right

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okay first let's go ahead and dive into

this report so i came across this

absolutely incredible report

and it makes this argument that

economies perform

substantially the same after pandemics

but the way they perform is different

than how you would expect

so they set up this argument okay during

a pandemic

people die and that's bad but people

also die

in natural disasters or in wars but the

problem is

in wars you have a different outcome of

what you

tend to have happen after a pandemic and

so we want to talk about

what does that outcome look like now you

might be thinking okay wait a minute

what pandemics

well this report looked at pandemics

spanning the last 700 years

including the black death the spanish

flu the asian flu multiple plagues

cholera you name it and even adjusted

for financial crises like the great

depression

taking them out to make sure that we

still had a consistent result

and every single time this report found

the same thing happened to economies

after pandemics which is really

interesting

now initially our expectation is hey

what we're probably going to see in a

pandemic or after a pandemic

that if there is all of a sudden a

substantial loss of life

that we would expect wages to go up if

wages go up

usually inflation goes up and when

inflation goes up and wages go up we

usually expect something known as the

neutral

interest rate to go up now the neutral

interest rate is just a fancy way of

saying

that what is the interest rate an

economy has

to support full employment while keeping

inflation steady

so in other words if inflation is high

the neutral interest rate would

naturally be higher

if inflation is lower neutral interest

rate would naturally be lower and from

now on just to keep things simple i'm

just going to say

rates so over time we've had this sort

of

collapsing of rates and this can easily

be seen well not only just by us knowing

that

but also by taking a peek at a chart

like this you can see that

the neutral rate the red line has

consistently gone down over the past

700 years and this makes sense because

even if we just specifically look at the

last

20 years or sort of the tiny little last

bit of this chart

we tend to see the natural rate or just

rates we're going to call it

go down why because technology helps

foster deflation not inflation and this

is why we've had this

long trend to the downside in fact in

medieval in the medieval era

we had the we had rates around 10

neutral rate was around 10

that collapsed to about 5 during the

start of the industrial revolution

around 1760

and now it's pretty much around zero in

fact when you look at europe

they're at like negative rates which is

kind of crazy to think about

but what was crazy about this particular

report

was not so much that yeah rates go down

over time

but it's what i'm about to show you it's

what happened

to different countries after pandemics

and all of them together so what you're

going to see is you're going to see a

blue squiggly line

and that's going to show you what the

natural rate

did after pandemics 0 to 40 years

after and around that you're going to

see these sort of bands and that's where

you had different results

but most of the results being

concentrated along where that blue line

is so

what i want you to picture right now

before i show you this i think think

about this for a moment and if you're

half paying attention

just stop for a second and think about

this for a second because in order for

you to hit

get the impact of this you have to think

about this so what you're going to think

is

after a pandemic would you expect

rates to go up or down

okay that's it now over what time

frame five years 10 years 20 years

what do you think rates would do over

the 20 years after a pandemic

go up or go down okay you ready for it

here is the result of 700 years worth of

pandemics

with all of them providing these

averages to us take a look folks

rates plummeted on

average 20 years after a pandemic

now you started off sometimes with

slightly higher

rates a slightly more noise

for example here we had a little bit

more noise a little bit more

uncertainty but generally in the 20

years after a pandemic

we saw rates come down which also means

that inflation was coming down

which is really interesting because we

also have wages

going up like crazy right now and how

can wages go up

but rates like inflation not go up right

i mean

if wages go up then that increases the

cost of production

which then businesses raise their prices

i mean they're not going to take

people's wages away right

and if the prices of goods and services

go up well that means inflation goes up

and that means you should have higher

rates

but that's not actually what happened

historically after pandemics now maybe

this time is different

but let me just put it this way i don't

like saying the phrase this time is

different when history says something i

look

pretty closely and i look for reasons

that say what has happened to the past

is actually not going to happen again

right

his history tends to rhyme and how it

repeats itself okay

let's pause here and say it's kind of

interesting that five to ten years

after a pandemic you really start

getting this plummeting

of rates and likely inflation going down

to help cause this which is really

interesting

because at the same time as you get this

sort of downtrend

in rates after both wars and pandemics

wages tend to go up that is people tend

to get paid

more money after both wars and pandemics

because a lot of people died and we need

more people but what's different

after wars and pandemics is that after

wars

the natural rate actually goes up 20

years after

where with pandemics it goes down

and we could see that's caused by

inflation

over here take a look at this you have

pandemics

which lead to 10 to 12

wage growth over this period of time

substantial

actual wage growth inflation adjusted

pandemics lead to good positive growth

in wages

this is good for workers people actually

getting paid more

adjusted for inflation so now we're

caught up with these weird

long-term historical changes but what

does that mean

in the short term and why the heck are

wages going up

i mean wages are going up that's not

exactly aligned

with inflation going down well to help

us

answer this take a look at what crazy

thing happened

right here when we compare wars to

pandemics

that's definitely the wrong button there

this is the right button

look at this right here at the zero year

mark

you had rates initially go up

after pandemics look at this spot right

here

see that blue line and this initial

increase you have right there in

pandemics

you actually had rates at first after

pandemics on average

go up where they initially went down

after wars but that course

actually reversed itself by about

year five you started having an

inflection point and a crossover by year

seven to eight thereafter and after

about year

seven to eight after a pandemic look at

this

you basically had mega low rates

lower inflation with pandemics

but with wars you had higher natural

rates

so higher inflation and because you had

higher inflation

workers got punished more after wars

because after wars even though in both

cases people got paid more money after

wars people's actual real

wage growth was mostly negative

for 10 to 30 years after

a war however after a pandemic

the next 40 years looked like a solid

line of real wage growth which means

wages going up

above the rate of inflation so this is

actually

very very good and in other words this

research is saying

we should expect wages to actually grow

more than they would have had it not

been for the pandemic

and that's literally what's happening in

fact it's kind of scary to say this

but this report was written in june of

2020

when there were only 000 cova deaths

worldwide

we're now over four million coveted

deaths and yet

now we're seeing that massive wage

growth which this report

actually predicted this report also

predicts the same problem we're seeing

now that natural rates rise after a

pandemic

and only about seven or eight years

later do we get that big plummet

we don't end up getting any kind of like

hyperinflation or

hyper increase in real rates but we do

have a period of instability after a

pandemic

much like after a war now keep in mind

one of the reasons

wars are so different one of the reasons

you might not actually be getting this

real wage growth

after pandemics is because risk goes up

after a war that is people who invest

demand greater returns on their money

after a war

because economic stability is actually

riskier let me ask yourself

let me ask you this what do you think

was more risky

investing in america in

march 20 or

after the day after pearl harbor

like what would make you more nervous

about investing

right march 2020 look at go ahead use

hindsight it's fine right

in hindsight it's like well wait a

minute duh like the day after pearl

harbor

you'd probably be like oh my gosh what

if we're about to get invaded

we're going to war this is scary

uncertainty goes up substantially

more after a war and this is why

real rates tend to go higher after wars

because uncertainty goes

up whereas with pandemics we actually

have a little bit

less uncertainty but we do as a human

population tend to

save more on a personal level we're more

confident in our government which might

i know politically that sounds crazy to

say because our government's crazy don't

get me wrong

but you're certainly more confident than

right after a war right

and uh you have this situation where

generally

rates go down all right so now let's hit

some bottom lines because i know some of

this was a little bit more

detailed and granule but i think that's

why some of y'all come to the channel to

get some of this detailed kind of

insight

so bottom line of this report and then i

want to introduce some new things

is that after pandemics you tend to see

lower returns on assets as societies

save

more money and you get lower returns on

businesses who are now

paying higher wages but those businesses

generally do not pass along

all of the price increases to their

customers and certainly over the

20 to 40 years following a pandemic you

tend to be in a scenario of having

lower inflation you also tend to have

higher wages in a real manner that means

real wage growth above inflation so if

inflation is one percent

maybe wages are going at three or four

percent and it seems weird like how

could that happen wouldn't wages raise

uh the rate of inflation not necessarily

because

if the marketplace stays competitive and

consumers say you know what

i'm not going to pay higher purchase or

prices i'm going to save more instead in

other words

frugal decade then the ability to raise

prices erodes prices stay low while

wages go up

it's crazy but history tells us that's

what happens after a pandemic

so bottom line in the short term you

know the first two or three years after

pandemic

lots of uncertainty longer term after a

pandemic

low rates lower yields so in other words

you kind of have to prep

for lower returns on investment and

lower inflation

in the long run but there are some risk

factors

a big risk factor actually has to do

specifically with

what governor waller of the federal

reserve said today

governor waller mentioned that he has a

real concern

that what if businesses can raise

prices and keep those prices high

well in that kind of case it's possible

that inflation may not be as transitory

as

we expect it will be but that's not his

base case scenario so let me break that

down very clearly

he believes that we are going to see

inflation inflect

downward he thinks that's the likely

case scenario

towards the end of the year we'll have

less inflation that things like

car purchases and airline purchases and

ticket prices and things like that

aren't going to keep going up 10 10 10

percent forever

that they're going to inflict back down

we're going to see a leveling off of

these prices

but he does make the argument that the

big risk factor is

what if we deviate what if those prices

stay up and so this is where what i'm

going to do is i'm going to draw

a little bit of a sort of a game plan

uh that i that i think will be a lot

easier for us to follow

so basically we believe based on this

report here

that in the long run we're going to have

lower yields

so we're going to write down lower

yields and

lower inflation especially over

the uh the next oh gosh i don't know

somewhere like 5 to 10 years right

this time frame and likely based on this

historical report but i don't like

estimating that far out

even 20 years so really like 5 to 20

years

unless and this is the key thing that we

have to watch

unless as mr waller says which right now

he just references as being anecdotal

like him talking to businesses

unless businesses maintain

price power price power is going to be

the key here

so if we want to keep an eye on what the

economy is likely to do going forward

we have to see how capable businesses

are at consistently passing price

increases along to their customers

now unfortunately it's going to take

time to see exactly how that

plays out but in the meantime personally

i'm using a very simple strategy when

i'm investing

i'm trying to get myself as usual real

estate

below market value undervalued real

estate

i haven't really found that i've been

hunting

i will find something eventually i

always do but it's been a little

it's been slimmer pickings in the last

few months and i know that

in stocks i'm not super excited about

paying massively high valuations because

quite frankly

i think we should expect lower returns

going forward in the future

and slower returns lower and slower

returns

means lower implied volatility which

means

stay away from things like bought call

options

instead consider selling to pick up

premiums

covered calls and puts

so selling and put selling puts

or selling covered calls those are ways

that you'd be able to

farm yields obviously i talk about this

regularly in

my programs like stocks and psychology

of money with options and trading

link down below you said 40 off coupon

code but of course uh you could also

read a book if you want to

but anyway these these are things that

in my opinion

this report really helps us reiterate

a lot of the beliefs that we have now

i'm always very

cautious to say oh yay i found a report

that

pats my strategy on the back that says

yeah inflation in the long run will be

lower

i i get that that's it's cool i

recognize

my potential bias here but at the same

time what i'm doing that's unique is i'm

also looking for my risk factors

which is what usually folks don't do

they look at confirmation bias and then

they don't look at their risk factors

so remember what was our risk factor

folks businesses maintaining pricing

power

if we go into a frugal decade then

people

consumers are going to stop paying

higher prices

they're going to choose to save instead

and after stimulus the stimulus tap is

completely off

after the unemployment tap is closed i

think businesses are going to lose that

pricing power

and we are going to see that

deflationary trend again

that's my belief that's why i'm

investing the way that i am

this is also why i'm not like desperate

to get into more real estate

because real estate's a good inflation

hedge and i'm not desperate to get in

more

because quite frankly if inflation's one

or two percent

not that big of a deal hey but rates

will be lower so anyway

things to think about if you found this

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video and as always check out the

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for watching

you