Open this if you want to know what percentage of your dollars are getting DESTROYED every single year, behind closed doors….
Hey all!
So one of the things that really started me down this journey of entrepreneurship and investing (like my life depended on it it) was this concept of inflation.
Our entire lives, we’ve been told that inflation is 1-2%, NO BIG DEAL.
This “inflation rate” comes from something called the “CPI INDEX” which is just a fancy term for a basket of GOODS that everyday people use.
Think
Milk
Sugar
Eggs
etc
Now, this SEEMS to make sense.
Milk and eggs haven’t all the sudden gotten crazy expensive….
Maybe a little more expensive year after year sure, but not something to write home about.
So, people automatically THINK that their money is safe!
Basically, for the majority of my life, I thought that MY DOLLARS would buy the SAME AMOUNT (or pretty much the same) of STUFF the next year!
Now what if I told you that wasn’t true, at all?
What if I told you that the TRUE rate of inflation was 10%.
That every year, your money would purchase 10% LESS stuff.
Would that bother you?
What if I told you it was 20%?
Picture this.
Every year, on new years day.
Instead of sleeping off a hangover like the rest of the World.
You do something crazy.
You take ALL your money, all your assets, everything.
You LIQUIDATE THEM.
You take that cash, and you put it in the middle of a random parking lot.
Hopefully, theres a decent stack of cash there.. :)
Regardless of how much there is…
You light 20% of it ON FIRE.
POOF.
Gone forever.
And then next year you do the same exact thing…
and the year after that
and the year after that…
How long until this starts to seem insane?
How long until you literally can’t buy anything you want?
So let’s talk about the REAL inflation rate.
Because I really don’t want any of my readers burning their money in a parking lot :)
Here’s a concept that is really important.
For MOST PEOPLE, CPI is MEANINGLESS.
If EGGS increase in price $1 every year, will that bankrupt you?
Absolutely not.
However, if the price of your DREAM HOME on the BEACH increases in price 25%?
Will that hurt?
Absolutely.
What about if all the stocks on the stock market increase in price 25%, and you don’t own any?
Exactly.
2020 made it GLARINGLY obvious that the true inflation rate was around 20%, for things that PEOPLE ACTUALLY WANT TO BUY.
Vacation homes
Stocks
Bitcoin
Businesses that generate cash flow
Don’t believe me? Here’s a chart of the stock market, (DURING A PANDEMIC, MIND YOU)
As you can see, the Nasdaq, a basket of tech centered stocks, went up 42% during the pandemic.
42%.
That means that if you want to buy any of the BEST companies in the World…
You have to pay at least 42% MORE this year than you did last year.
That’s pretty crazy huh?
Hmmm.. what about real estate?
I’m sure you’ve seen the crazy headlines…
There has been a MASS EXODUS of people from places like San Francisco and New York City to warmer, less locked down cities like Miami and Austin.
Real estate prices in hotbed areas like these have absolutely soared.
What about Bitcoin?
Up 400+%
What about cash flowing businesses?
As I’ve written about previously, Amazon businesses are selling at record speeds for record prices.
Now, I could go DEEP down the rabbit hole here and into way more detail than is necessary.
If you want that detail, I would HIGHLY recommend this podcast, you will learn more in 2 hours than you’ve learned in the past year… ->
However, we can summarize the argument for 20%+ inflation very simply.
Remember the game monopoly?
What if I told you that the monopoly banker just handed out 20% more money to each of the rich people playing the game?
What would be the inflation rate?
If you guessed 20%, you’d be correct!
Those rich people would buy 20% more houses, and bid up the prices on those at least 20%.
If they weren’t stuck in the game of monopoly, and actually in the real World, they would buy other scarce things, because why would you keep cash?
Clearly the banker can add cash whenever he wants, and thus devalue your cash.
So you might as well buy something to try to store your wealth in…
So they would buy stocks, bitcoin, businesses, start new businesses, etc.
AND THAT’S EXACTLY WHAT’S HAPPENING IN THE REAL WORLD.
Actually, it’s really EASY to calculate the true inflation rate.
Just go here. -> https://fred.stlouisfed.org/series/M2
That is a LIVE graph of the M2 MONEY SUPPLY.
It’s just a fancy word for how many dollars the government prints.
As you can see, that SUPPLY OF MONEY (think Monopoly banker) has gone up by 20% in the past YEAR.
That’s ridiculous.
I’ll stop typing now because this letter is getting really long but I just want you to stop and think about that for a second…
If what I am saying is true, are you ACTUALLY lighting 20% of your money on fire every year? (by leaving it in CASH that is being devalued)
What can you do to AVOID doing that?
*hint* subscribe to this letter, I’m here to help, and it’s free for 30 days
Kale
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