2020 is coming to an end, so what will be our worries in 2021 and beyond? I think we will worry about inflation a lot – nobody cares now as the focus is on vaccines and covid, but the money is being printed. We are already seeing asset price inflation and consumer price deflation, which is often a start.
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Stock Market News: Inflation Is Here (Asset Price Inflation) Be Ready!
Transcript
Good Fellow investor. Welcome to the stock market news with a long term fundamental twist. In this video, we're going to discuss inflation, how you don't have to worry about inflation in the future inflation is already here. If you're wondering why stocks keep going up, up and up like there is no tomorrow, the only direction is up and up. Well, that is called asset price inflation is different than consumer price inflation. But we are already living in asset price inflation. And that's very important when it comes to investing when it comes to planning when it comes to everything.
So what does asset price inflation mean? Look at this chart. So this index was at 6000 points in 82. And then it exploded to 440 40,000 points by 89. So in seven years, it went up, what is the six times? That's really, really insane. Why did that happen? Well, because at that point, interest rates were very low, close to 2%. And only when interest rates were pushed higher, only then did this bubble, deteriorate.
And even if the Bank of Japan in this case lowered rates very, very quickly. Unfortunately, the damage for the market was done and has been so bad for about 20 years, then they said oh, we can push more, we can print more money. And from 2012. It has been an amazing performance for the Japanese market. Why? Because the Japanese bank did amazing purchases, and it owns 75% of the market. And you can see the purchases here, which are in perfect correlation with what the market has done. This is the world we are living in. And we are somewhere here on the new asset price inflation.
We can call it bubble or not. It will be a bubble if it pops. If it doesn't pop, it won't be a bubble. So let's see how the economy is doing. What are the key components there and what we can expect in the future so that we know how to prepare this video will be about the facts, the situation and the long term outlook and tomorrow are really discussed the strategies related and even one stock related to Okay, how can I invest well, so that whatever happens, I am good. If you get value from these videos, please click that like button. And don't forget to subscribe and click that notification bell so that you get notified every time there is a video there might be some real long term value for you in our videos.
So on the economy, listen to the feds presentation this week and they said it all but given the vaccine given lockdowns given this given stimulus checks, it's like nobody cares about what the Fed does. It's like okay, the Fed and ECB and everybody, they are just going to print, print, print, print, we're all going to be flushed with money all the time. And everything's going to be good. We're all going to be flushed with man, it's time to take again, my worthless pile of money. And this is what it looks like. The only difference between now and worthless money is that people still have confidence in money. It's not yet worthless.
But someday it will be what did the Fed say? They said that they lower the change in real GDP projections down and long term, they still keep it at 2%. And here is this is very important, long term 2%. So they expect gross domestic product to grow at 2% forever stable, give fewer sessions give this give that and you are down to 1%. That's a big difference in estimations in spending in growth in market valuations. But again, nobody thinks about that because well, only we are the long term thinking channel. However, on the uncertainty level, everybody is uncertain.
If we look at the federal participants, uncertainty level is extremely high like it was in 2008 2010 2012. Unemployment rate is really high higher than it was and they will do whatever it takes to lower it down and bring it back down to where it was just 10 months ago to free 4%. However, the situation isn't much better in Europe. If we look at bad debt in Europe, the situation is actually With terrible non performing loans for European countries 40% in Greece 15% in Cyprus, Bulgaria, seven 8%, Italy, still high still 6%, Portugal. So without the ECB printing and giving them free money, this would be a big, big issue again.
And that's something that again, we might talk about in a year, two years, three years down the road. I don't expect linearity going forward. That's a certainty for me further, if we look at lockdowns, we are all in a big big lockdown. So we will not see our loved ones for Christmas. That's Europe, unfortunately. But what's the solution? I enjoyed this sprint sprint sprint sprint sprint sprint, Sprint, Sprint, Sprint, Sprint, Sprint sprint sprint. Right. So that's the solution. And that's what they are doing. So the Fed said 80 billion per month in treasuries and 40 billion per month in mortgage backed securities, that's 120 billion per month.
And perhaps even more importantly, they said that, if they're sick to the situation doesn't improve or doesn't go exit, as expected, they will increase the printing. So as it's free money, you can print that well, as we were saying a year ago, or when they started or five years ago, when they start printing, you simply can't stop printing, because you get high on printing. Everybody gets high on high, high high on free money. And you simply can't stop that even if power doesn't really look high. Well, he does look a little bit high in front of the camera.
But that's a big, big issue. ECB constantly also, they stopped printing for what, a few months, and then they had to keep printing to keep the situation normal. on interest rates. The situation is even crazier. If we look at interest rates. So corporate bond grades are at inflation rate expected inflation. So if you invest in bonds in any kind of fixed income, you expect zero real returns, and everybody's happy with that. Where's the insanity there? Everybody is bad betting on rates staying lower, and going even lower as the Fed projected zero interest rates up to 2023. And then maybe they will increase them maybe. And here is the difference. They will have to increase them one day when they will be forced by inflation.
When will that happen? I wish I knew the only thing I can do is be prepared. Similarly, even crazier things, Austria 100 year bond at 1%. Let me know in the comments below if you want me to make a quick video about this and the craziness and why and who is buying a 1% 100 year bond, when we know that inflation on average will be higher than 1% over the next 100 years. And we also know that we'll be dead in 100 years, let me know in the comments. However, this situation printing money, a lot of money has created plenty of liquidity, plenty of cheap money, low interest rates, a lot of money chasing a few assets.
And if we look at the chart showing IPOs doubling on the first day, we are in 1998. Okay, not going into 1999. So it's not that crazy yet. But if we look at the market, I would say we are somewhere here, it could easily double again because of price inflation. So that's the game and you have to see what kind of game are you going to play. But more about that tomorrow. If we take a look at other metrics us total market capitalization to GDP ratio has never been so high.
So this is a clear example of asset price, inflation and they listen to Charlie Munger's great Caltech interview where in one hour, you'll hear all you need to know about live. So I highly recommend that video. I'll put it here in a card above. And the thing is that he has never seen such a economic situation.
He says that never in history, printing money at will has ended well, and that he's very curious about seeing how this will end. And that's the situation we are in. When it comes to investing. The risk is where are you going to stand? Are you going to stand on the side of this is the new normal this will go on forever, or do you want to think both there are the third option is okay, let's hedge Let's be a contrarian, but I prefer thinking okay, if this is right, I win. If this is right, I win. So I try to stay in the Middle more about that again tomorrow. So please subscribe.
So the main stream is nobody cares about inflation, the projection is very low. And then they hope again, to bring it up to 2%. By even letting it go higher for longer to 3%, just to get to the average 2%. They're doing whatever they can, if we look at the money stock, the broad explanation of money over time, so just over the last year, it has expanded 15%. So the amount of money around is 15% higher, which means that there is also inflation in real assets.
The difference is that the quality has gone down. You can't go to you can't go to school, but the school and tuitions are still the same. So the quality has gone down. Probably in the future, they might rise the price prices when the quality comes back, we'll see. But this is all long term, nobody knows exactly what will happen. We just try to be prepared. This chart is perhaps even more important this is m to the amount of money for the 12 largest countries in the world. It was 43,000,000,009,007. And then over time, financial crisis printing, printing, printing, let's print it baby printed. And we are now at 81 trillion. That's more than twice the amount of money that we had 1314 years ago.
For me that is inflation. Going back to mongers interview, he said that he remembers eating a five course meal in Omaha for 60 cents 60 cents, I think when we will be all as Mangere 96. That's in 60 years, I'll still be making videos. And we'll talk in the comments below how we used to have a five course meal for 60 bucks, you can get the four course you can get it still in euro for 60 euros, you can get a five course meal. Let me know in the comments. If you think we'll have $6,000 six course meals in 60 years. And there are many reasons why we see asset price inflation, but not real consumer price inflation First, we already said we are in a lockdown. But secondly, look at the Commodity Index.
So commodity prices index what what do we eat what we use the index 160 then it crashed over the last years. And now lay only lately have we seen a nice rebound. But there is still plenty of room to grow. And commodities are one way to be exposed to growing inflation and being protected whatever happens because we still need to eat and do whatever we do. Normally, however, commodity prices going down what's this 30 40% has had a very negative influence on inflation high on deflation. And that's why we see these low consumer price price indices. Plus we have globalisation of labour. Now you can get services done from somebody in India, that works for you in the states 10 years ago, it wasn't that easy.
So the globalisation of effort of services of goods of everything, hire technology, just think of the tech you just look at this, just look at YouTube 15 years ago, you would watch television, which would was much more expensive. So the world has changed. But therefore we don't have to look at inflation is one fixed item, we have to look at asset prices, monetary inflation, consumer prices, and then then also don't look at the average Look at this. Look at that. Healthcare versus apparel, apparel costs nothing healthcare goes constantly up and up and up. So the main question is for how long will this last this this time is different. I don't know. Maybe it will less than other here another two years, another five years, another seven years.
Maybe if we look at from an investing perspective, maybe we are here maybe we are here. Look at this, this is seven years period. So the market can keep going up for 510 years. You never ever know. But we as value investors, we want to invest with a margin of safety.
Looking at a terminal value so that whatever happens, we do good when this crashes, I don't want to be on this side. I want to keep getting my value my dividends and everything. And I have seen this already from an emerging market. This is where I started investing. I sold here somewhere and I missed this run up my stock that I sold when went up another free x before going down back to what I paid for that was the insane after going up five times to end up another free times, and then it crashed below and now it's bankrupt. But that's very interesting. And so I have seen this. And I don't know when will this end. In this point when everything is going up, up and up like crazy, it's very simple.
This was Croatia. If we look at Japan, it's equal. So asset prices, inflation, you saw a lot of stocks around there, and everything does that, whoa, rocket up. But you never know when it will end. That's the problem. And we value investors look stupid, like you're missing on such a ride. But I'm trying to get both safety and a little bit of the ride, I don't need the whole ride because I know that the ride down might be around the corner.
That's the difference. And the difference between value investing is that we are here we are still investing after 20 years, many of those that took this ride in Japan or took this ride in Croatia or the.com bubble ride have stopped investing. So that's very important. And we have assets price inflation, we don't have yet consumer price inflation, more money supply is going higher and higher, which means the value of money is going down.
Very important if you have savings if you have whatever deflation is because of cheap money high investments, low interest rates, more factories, everybody can build electric vehicle factory now just the money flies in to just have an idea which increases supply on lower demand low prices, which is what it is also high competition, low prices. But we need to find an investment that does good no matter the environment more about investing in this environment tomorrow. Thank you for watching, subscribe, and I'll see you in the next video.
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