[Podcast] Why I’m not worried about inflation — and why you shouldn’t be either

[Podcast] Why I’m not worried about inflation — and why you shouldn’t be either

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A 40-year high in inflation, rising interest rates, talk of our property markets crashing, and our economy falling into recession.

Then there’s Russia’s war with Ukraine.

A spike in energy prices, and a skyrocketing jump in the price of oil. My Podcast #378

Supply chain problems.

Excessive government spending. Exploding government debt.

A huge increase in the nation’s money supply.

All these factors and others are contributing to increased inflation.

But am I worried?

Not really. Inflation2

And you shouldn’t be either.

I’m going to explain why in today’s podcast.

Why I’m not worried about inflation

I think when we look back on 2022 will be seen as the year of inflation.

And it's continuously in the media, isn't it?

I'd like to say I haven't seen so much rubbish written in the media before, but I'd be lying.

I’ve invested through inflationary times before and I know how good it can be for people who have the right assets, particularly property, but many people find it difficult to have peace of mind during a period of high inflation.

We haven’t seen this in the developed world for decades.

And it’s highly uncomfortable if you’re facing higher prices for everything every single month.

And they’re hearing about the current economic problems every day, which makes it even worse.

Things like:

  • Inflation is still getting higher
  • Stocks are down
  • Property values are going to crash
  • This is looking like stagflation: There’s high inflation and low economic growth.
  • Maybe we’re going to have a recession.

Now I’m going to explain to you exactly what inflation is and what is caused and what I’m planning to do, but before I do, if you’re worried about all this my message to you is to look at the big picture.

When we’re faced with economic problems (or any problem), there are two ways to view things:

  • Up-close perspective: Looking at inflation, interest rates, debt, consumer spending, joblessness, and so forth.
  • Broad perspective: Looking at long-term trends and historical patterns.

Our property market and the economy move in cycles.

There have always been periods of high growth and low growth.

For example, when our economy gets stimulated, people get more excited, take more risks, and start to consume more.

This period of high growth often causes inflation.

Then, things slow down again later. Economy Recession

It goes up and down.

But we never spend time in the middle.

Our economy and the share markets and our property markets are at the extremes.

Recessions and slowdowns are normal, despite the screaming headlines you see in the media.

When you invest for the long term, the market fluctuations don’t harm you, especially if you own quality assets.

Things only become problematic when you make bad investment decisions such as owning secondary assets or overborrowing and taking unnecessary risks.

So what is inflation?

There are many definitions, but I like this one:

“Inflation is a persistent substantial rise in the general level of prices related to an increase in the volume of money resulting in the loss of the value of currency.”

Broadly, inflation is caused by an imbalance in supply and demand.

What causes inflation?

Inflation is caused by factors like pressures on the supply or demand side of the economy, money supply policies, and even consumer expectations.

Today’s high rate of inflation was caused, in part, by factors related to the coronavirus pandemic. Property Market

During the difficult years of 2020 and 2021 when large parts of Australia were locked down, the government crafted several stimulus measures to prevent us from falling into recession and prevent the high levels of unemployment that some predicted, and prevent the real estate Armageddon that others predicted.

It did this in part by entering a program of Quantitative Easing - which basically reduced interest rates, increased the supply of money, and drove more lending to consumers and businesses.

During those times we were sheltering in our Covid Cocoons, most Australians stashed their cash as we built up a war chest in our bank accounts and offsets accounts.

Now that we’re back to a normal life Aussies are getting out and spending more and this is occurring at the time of limited supply for mini goods, pushing up prices and therefore inflation.

Until that novelty wears off or until prices rise to the level where it starts to really impact demand or consumption, we’ll continue to see pretty high levels of inflation. Inflation

So, in essence, inflation was caused by the government, and now they’re asking the RBA why they can’t get it under control, rather than admitting the cause was the significant stimulation printing of money.

And it’s likely we’re going to have significantly higher inflation for quite some time because of continuing problems with the Russian and Ukrainian war and supply chain issues related to the Chinese lockdown.

So how worried should property investors be about inflation and rising interest rates?

We have entered the next phase of the property cycle, where the market is cooling and prices are adjusting.

While property prices will correct in some locations, there will not be a property “crash” as some commentators are predicting.

For house prices to “crash”, we need to have forced sellers and nobody there to buy their properties.

Fear and greed

We know that fear and greed drive our markets.

During the recent boom times, greed and FOMO (fear of missing out) drove property prices up strongly.

Today F.O.B.E. – fear of buying too early in a falling market and looking silly is holding some buyers back.

They don’t realize that as property prices decline, they are getting better value for the properties they buy. Market Ratings

Those who are worried should realize that the regular market declines are a fee for admission rather than a fine for getting it wrong.

It’s the cost of being in the market. It’s the cost of long-term success in property

The current adjustment phase of the property cycle provides investors with an opportunity to buy great properties without the same level of competition they would have encountered last year.

So back to inflation – what should you do?

It’s likely that the media will keep feeding us headlines of fear for much of the year, so here are some things you can do.

  • Focus on educating yourself and mindfulness

The economy is affected by various factors, which are mostly out of our control. Rather than let that worry you take a long-term view and focus on things you can control.

Think long-term and don’t seek quick wins. Economy

Remember in early 2020, during the peak of the scare regarding Covid19, when the fear started to rear its head.

Look how wrong all the predictions were then!

Stick to your strategy.

Don’t change your long-term investment strategy because of short-term factors.

The bottom line:

Strategic investors don't really care too much about market phases.

Instead, they concentrate on growing their portfolios and investing in the right type of properties, whenever it suits their finance, their strategy, and their long-term goals. Global Economy

Remember Warren Buffet’s words: “Be fearful when others are greedy and greedy when others are fearful.”

Sure, it’s difficult to act when others around you are talking doom and gloom, but it is during downturns that lifetime wealth is made.

Links and Resources:

Michael Yardney

If you’re keen to buy your next home or investment property why not get the team at Metropole to build you a personalised   Strategic Property Plan – this will help both beginning and experienced investors.

Get a bundle of eBooks and reports here:- www.PodcastBonus.com.au

Some of our favourite quotes from the show:

“Australia is in a great position because the things we grow and the things we dig out of the ground are in great demand overseas.” – Michael Yardney

“The thing is, downturns are just one part of the cycle, so they’re always going to end at some point.” –Michael Yardney

“But it’s times like this, during downturns, during the adjustment cycle, that lifetime wealth is made.” –Michael Yardney

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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au


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Great article (as I read it), the podcast must be superb. This kind of messages and contents should be looked for by everyone instead of allowing the media and non sayers feed into our brains. From an educational point of view and from a motivation ...Read full version

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