3 "Rethinking inflation"

3 "Rethinking inflation"

We need to rethink what inflation is. Don't just blindly follow the traditional economists and your government. Do your own research and makeup your own mind!

Over the last few weeks, we've seen a lot of bullish news around Bitcoin. Bullish means positive, and in the context of financial markets, people generally think the price is about to rise. Last week, we saw one of Wallstreet's best investors, Stanley Druckenmiller, talk about Bitcoin as a store of value. We can add him to a long list of well-known investors who publicly stated that they own Bitcoin. Why is this important? A significant reason is that this acts as a sort of license for others to buy it or make the same public statement.
Another reason is when people like Stanley Druckenmiller, Mike Novogratz, Chamath Palihapitiya, and Jack Dorsey announced that they believe in Bitcoin. Other people take it seriously or even get introduced to it.

We currently see companies converting their treasuries from Dollars to Bitcoin. Depending on the company, there is a different process in place before they can take such action. But when you have a public company, you have to disclose this publicly. People can agree or disagree, but your stock price will ultimately show how people feel about this.
I get excited to see more and more companies stating they hodl bitcoin as a reserve asset. At this point, the amount already adds up to hundreds of dollars. We can only guess what private companies are doing, but one thing is for sure. The hurdle isn't as big as with public companies.
Over the last few weeks, I've started talking more about bitcoin with friends and family. I've noticed a lot of different reactions to it, from dismissing it to owning some. There is a common theme in these conversations. When I start talking about the current economy, people aren't acting on their thesis. The general feel is we are in a crisis, and it might worsen. But for the large part putting your money into a savings account is still the expected thing to do besides invest it in owning a home.

Let's talk about all these stimulus packages that have been handed out around the world. In the short term, they are a great thing. But in my opinion, this is only putting off the obvious. I don't blame anyone for taking them, but I do think this is creating zombie companies. The big issue I have with this is where the money originates. It starts with the central banks printing money. They're not just turning on the printing press. But they are expanding their balance sheet. Meaning they are expanding the money supply. Whether it is the European Central Bank or the Federal Reserve in the US, they are printing money like crazy. This has some significant consequences in the long term. Just think about the simple concept of supply and demand when you look at a physical product. If the supply is increasing and the demand is staying the same. The price of the product will decrease. When you apply this to money, it works the same. You might think that 1 Euro is still 1 Euro even if the supply grows. But it isn't about the number on your bank account. It is about the value it represents. What purchasing power does it hold.

This process of inflation isn't anything new. But the strange thing is that we measure the inflation of a currency by connecting it to arbitrary numbers (the CPI). They mainly consist of products and services that don't have a limited supply. The CPI numbers leave out a vast majority of goods and services that represent real things people want. For instance, the housing market and luxury goods are not part of the inflation calculation. When the central banks are striving to keep inflation at around 2%. This isn't using the correct data. We need to rethink what real inflation is. Don't just accept what you're being told by the government and traditional economists.

Starting in March of 2020, when we saw the stock markets keep going up. This made me realize how much influence central banks and governments had on the stock market. We always price the stock market in either the Euro or the Dollar. But when you take a hard asset like gold and denominate stock prices in this hard asset. The price has stayed at relatively the same level. Then look at the percentage that the stock market has risen. Look at the debt growth and costs of luxury goods and prime real-estate. You'll get a more representative inflation percentage of around 8 to 25% a year.
That is when a country with either the Euro, the Dollar, or another relatively stable local currency. When you think about countries like Argentina, Turkey, or Brazil. It is another crazy number of yearly inflation.

So when you want to store your wealth. You need to do this in an asset that is at least surpassing this inflation rate of 25%. When I look ahead, I don't see many assets you could invest in to outperform or match this 25 percent. A stock market index fund won't do the job, so you could pick individual stocks. But to do this right, you have to become a professional and invest a lot of time learning about it. Which isn't realistic when you have a regular job and want to keep a private life. Flipping houses is the same. There is money to be made there, but it requires time and a nice pile of starting capital. You want a scarce asset that has growing demand, and more and more people realizing this. You want an asset that you can buy a piece of with only a hundred euros. Here comes Bitcoin. I know this might sound like a sales pitch, but it is not. Yes, I'm invested in it. But even if you're listening to this, and you bought a 100000 euros worth of bitcoin. It won't move the price.

Over the last few months, I've even gotten more convinced in Bitcoin. And I just want to educate and make content around it.