Why Inflation is Gonna Sky Rocket!!!

Right now businesses are finding it more and more expensive to produce goods… my own guess is that cost of goods are going up 20% to 50% depending on which segment… simply due to 3 key reasons… Higher Energy Cost, Higher Shipping Cost and Covid Cost

Gas has tripled from 2 dollars to 6 dollars

Oil has doubled from 35 to 70+

Now is cost a lot more for manufacturers to run their operations.. the electricity bills are killing them…

Shipping rates has 5x from 2k levels to 10k levels!

Lastly the cost of labor is going up as you need to send workers for swab tests, quarantine them and give them paid leave when they are infected… you need to comply to safe distancing measures.. the added layers of administrative works is making you as a boss paying much more for the same amount of the work done…

Right now at this moment consumers are only slowly feeling a mere 5% inflation in prices of their goods… this is because companies cannot raise prices sharply.. if they pass on the entire 20% increase to consumers then customers will immediately switch to rival brands instead…instead in the case of a 20% increase cost.. the company will instead absorb 15% and pass 5% to consumers… striking a balance but also taking a big hit into their earnings

So during this down turn you may see producers still posting higher revenues but their profits could fall drastically or even be wiped out… sinking into big losses.. while Powell is telling you not to worry and this spike is only temporary.. I do not agree… I think Energy and Shipping costs may remain elevated for sometime.. maybe even into 2022/2023… so eventually companies will be forced to update their sale prices to distributors and then to customers… do not be shocked to pay 20% to 50% more for the same good next year in 2022 or 2023… hyper inflation is coming!!! This is the curse of printing so much money… nothing is free in the world and everyone is subsidizing the Fat Americans who are taking unemployment checks and watching Netflix at home.

So how do we hedge against this wave of insane inflation? firstly try to hold little to no cash.. because cash is trash like what Ray Dalio has said… Cash/Bond gives u little to no returns when inflation can be 5% to 10% yearly… your purchasing power is quickly eroded.. I think its ok to hold just 3 to 6 months of expenses as cash… but I personally is leveraging up a lot.. borrowing at 5% rates to increase my stock positions.. but with the high inflation that I am expecting… I am technically borrowing for free! as long as you manage your borrowings conservatively and not face a margin call its ok…. I think its okay to be leveraged a tiny bit… but if you are a new investor its would be more prudent not to borrow at all… just do not hoard cash… cash is useless and dies to inflation…

So what do you invest in to hedge against inflation? Forget Gold and Forget Crypto… they are just not reliable… I think Property and Selected Stocks are still better choice… with Residential Property my top pick (but now is already too late to buy)… as post covid people work from home more… head to the malls/office less… people are spending much more time at home… as Residential Property supply tightens so its only up up up… what is inflation is simply the cost of living which is Housing and Food… so its always wise to first get a home… and invest your spare cash into stocks… in this inflation world.. if you have a fully paid home u can never starve to dead… all you need to do is rent out the extra rooms and you can lead a simple life with no worries… a house is actually the best asset to fall back on

For stocks… many traditional businesses are hard hit by covid and the rising inflation… you really have to be very selective and be 100% sure you are holding companies that are not affected by rising costs or can pass it fully to consumers… Example why I continue to like Alibaba is because its a just a middle man platform that takes a cut… it doesn’t matter if the price of a Bowl or Mug goes up from $2 to $3… a 50% increase… the higher prices is a good welcome for Alibaba as they now take a bigger cut of the deal… inflation is actually great for e-commerce platforms as they take a percentage cut..

Q3 is ending soon so I will await the results in early November as I continue to see the tech giants posting great results… my strategy and thinking remains the same… the post covid world is very different… i do not like traditional businesses like banks, airlines, developers, utilities, commercial/retail assets anymore… my preference is still big tech as they will continue to dominate despite all the regulatory pressures.. no new comers can disrupt their leadership positions for sure

ML