Market Update October 20, 2021

TOP OF THE MARKET? & INFLATION

There’s a couple related topics I’d like to cover today. I thought they might be some good food-for-thought over a hot cup of coffee.

I. TOP OF THE MARKET?
Many people speculate that we’ve reached the top of the market. But how can the average person tell if we truly are near the top of a real estate bubble? Well, by first disregarding technical analysis and talking heads, and instead looking at other people’s mood.

At the top of a major market cycle you will find that people are elated and euphoric. Pervasive eagerness to spend money on champagne dinner parties and other frivolous pursuits – or better yet, if you’re getting financial advice while checking out groceries – are often key signs of inevitable dark days ahead. If you become increasingly aware of such behavior, please sound the alarm by writing me an email so I can spread the word.

By putting our heads together we might just be able to avoid losing our shirts to the next bear market. I haven’t experienced this sort of sentiment yet, but I have a feeling we’re only a few years away (this could change at any moment, so remain vigilante). While we might experience a market correction in the near future, caused by Fed policy, this is not the same type of crash when people lose faith in the system (aka 2008).

Loose lips… save ships?

II. INFLATION
Not to beat the dead horse, but what can we expect from inflation? I’ve written about this topic several weeks ago and expected actual inflation data to contradict the Fed’s narrative. While the Fed predicts inflation is temporary, due to supply chain issues escalating cost of goods, I don’t think that is necessarily the answer and I urge you to consider protecting yourself from the coming inflation.

If you don’t know Robert Kiyosaki, author of Rich Dad, Poor Dad, and a very successful entrepreneur/real estate investor. His take on what the current climate is less than rosy. A healthy Debt-to-GDP ratio is 90% (prior to COVID), however, as the money printer has gone brrrrrr, this ratio has skyrocketed to 130%!

According to Mr. Kiyosaki, this leaves the Fed only with three options (from least likely to most):

• Default on the debt (unlikely)
• Increase Taxes
• Devalue the dollar via inflation

Devaluing the dollar is beneficial for the Fed twofold because:

…most American’s don’t quite grasp the concept of inflation thereby becoming less of a politically charged due to its gradual nature. To put it bluntly, if you haven’t received a pay increase of at least 5.9% this year, you’ve gotten a pay cut. While inflation is, in most cases, a slow and steady process, its current rendition will be immediately felt in our pocket books; for example, heating a home this winter is forecast to cost an additional 30% or more.

… it far easier to pay off existing debt. If you owed $100 to a friend, and that $100 could buy you a relatively nice bottle of wine, but now you need $200 for that same bottle of wine, your debt burden just went down 50%. Essentially, while you still owe your friend a $100, value of those dollars is only half as much, thanks to inflation. This is why if you are able to refinance or buy more real estate at current interest rates, for all intents and purposes, you’re being given free money because inflation will outpace the interest you’re being charged.

While yes, raising interest rates is typical Fed policy to combat inflation, this runs counter to being able to pay off existing debts with cheap dollars until our debt-to-GDP ratio returns to a healthy level.

• This segues into PHYSICAL asset classes that you can own to protect yourself against inflation:
• Physical precious metals (gold)
• Business ownership
• Luxury items (art, exotic cars, etc)
• Real Estate

If you are unable or willing to acquire some of the above items, here are some paper assets you can park your money in:

• TIPS (treasury)
• Gold Mining Companies (risky)
• Commodity ETFs
• REITs
• Technology Stocks

—————————————————
Thanks for reading and hopefully you’ve found this information informative. If you have any friends to colleagues that could benefit from this information, send me their email address and I’ll get them hooked up right away!