E33: Understanding Inflation and Its Impact on Your Investments

Did you know that the official inflation rates may not be telling the whole story? In this episode, Eric Scovill dives into the hidden aspects of inflation, risks of high national debt, and implications of the U.S. losing its top reserve currency status. 

Eric sounds the alarm on potential economic storm clouds on the horizon and provides strategies for weather-proofing your portfolio. Learn strategies for navigating this period of uncertainty and discover why diversifying with real assets could be a game-changer for your investment strategy.

Here are some topics from today’s discussion:

• Why inflation numbers are misleading
• High national debt poses risks
• Stock market may be overvalued
• Dollar's world reserve status at risk
• Diversify with real assets like real estate, commodities, treasuries, gold

 

Episode Highlights:

[07:12] Inflation, Its Measurement, and Potential Causes of Hyperinflation

Eric argues that the Federal Reserve's reported inflation rate of 3.7% might be misleading due to rising rent costs and political incentives to downplay inflation. Eric warns of hyperinflation risks and economic instability when money supply grows over 50% per month, and highlights the challenges posed by the soaring U.S. national debt exceeding $33 trillion. Citing historical resilience of the stock market, Eric advises listeners to ignore market swings, diversify their portfolios, and hold onto their investments, given the average post-recession growth of 164%.

[16:06] The Devaluation of the US Dollar: A Shift in Global Oil Trade and Excessive Spending

A key reason behind other countries holding large reserves of US dollars is to purchase oil. However, major oil producers and consumers are now considering conducting trades outside of the US dollar, leading to a decrease in demand for the currency and causing its devaluation due to excess supply. This is not offset by the US withdrawing money from circulation, as its spending continues to escalate. With a federal deficit of $1.7 trillion, federal spending at $6 trillion and tax revenues at $4 trillion, the US is injecting more money into the system than it's taking out, exacerbating the situation as other countries use fewer US dollars.

[19:01] Investment Strategies and Market Valuation

Eric points out that the stock market appears to be overvalued by an average of 114% based on various metrics. He underscores the importance of accurate asset valuation behind investments, warning that market hyperinflation can lead to portfolio overvaluation. Discussing alternative investment options, Eric draws attention to real estate, commodities such as oil, and US Treasuries as potential hedges against a declining US dollar. He particularly stresses buying real estate at a good price, echoing Isaac Bennett's advice that "basis is forever," and highlighting its effectiveness as a hedge against currency devaluation.

[21:23] Potential Portfolio Hedges

• US Treasury bonds/bills: As discussed, these provide exposure to safe government debt with various maturity dates. They can help balance risk.
• Gold: Considered a store of value for millennia and less correlated to stocks/bonds. Physical gold or gold mining stocks.
• Other precious metals: Like silver, which has industrial uses but also seen as precious metal hedge.
• Commodities like oil: Demand remains for necessities even in downturns. Oil seen as particularly important commodity.
• Real estate: Tangible asset class not correlated to stocks. Residential or commercial property or REITs.
• ETFs: Provide diversified, low-cost access to assets like Treasuries, commodities, gold which some may not want direct exposure to.
• Military/defense stocks: Potential beneficiaries if geopolitical tensions rise and countries increase defense spending.
• Foreign stocks: Geographic diversification outside US markets which may be impacted by dollar devaluation or economic issues.