Basics: All You Need To Know About Inflation

Bryce: [00:00:57] Welcome to another episode of Equity Mates, a podcast where we help you learn to invest in 45 minutes or less. We break down the world of investing from beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going, bro? [00:01:12][15.0]

Alec: [00:01:12] I'm good. Bryce safely under the blanket once again as these lockdowns end and we start talking about getting back into a studio. I don't know if I want to get out. [00:01:22][9.2]

Bryce: [00:01:23] I know it is nice to be at home in the rhythm, but to be honest, I am looking forward to getting back into the studio just to see your face. I can't say it, so I'm missing it. [00:01:34][11.0]

Alec: [00:01:34] You haven't experienced the joy of recording under a blanket yet, so [00:01:39][4.7]

Bryce: [00:01:40] this is true. Well, before the show you were saying that that is now not because of acoustic issues, but because your house is freezing cold. So I think we had one listener help us on the acoustic side by donating a couple of sound boards which were looking forward to receiving next week. But maybe if anyone out there owns a heater company, Ren can personally share his address. We'll give you [00:02:02][22.4]

Alec: [00:02:02] we'll give you exclusive sponsorship. You'll be the Equity Mates hate hater of choice for 20 20. [00:02:09][6.5]

Bryce: [00:02:10] Jaser, we make it sound like you're really battling over there. [00:02:13][3.1]

Alec: [00:02:13] But I don't want to pay heating bills. I want to take every cent. I've got an investor. [00:02:18][5.1]

Bryce: [00:02:19] Yes, but that electricity will be compounded. [00:02:22][3.3]

Alec: [00:02:24] I also use candles rather than light. [00:02:26][2.0]

Bryce: [00:02:28] You actually don't have a computer either. You're on a chalk chalkboard at the moment. So I [00:02:32][4.3]

Alec: [00:02:32] record into one of those legal dictaphones and then take the tape out and say, [00:02:36][3.8]

Bryce: [00:02:38] jeez, well, let's get stuck into the episode Ren. Today we're going to go back to a Basics 101 and episode we haven't done for a while. Good to touch base on some basics to to really understand some of the important things that influence your investing journey. And one of those things that we're going to discuss today is inflation, probably a term that you would have heard quite recently, a used a lot. But also, you know, we've spoken a lot about it over the over the course of our journey in relation to particular assets, and particularly when we speak about having money in your bank at the moment and that sort of stuff. So we thought we would unpack inflation. And then there's a flipside to inflation and that is deflation. So we'll also have a look at that to understand what it means. So before we jump in, anything to add to that Ren? [00:03:31][52.8]

Alec: [00:03:32] I think the only thing is the reason we're doing it now is because there's obviously a lot of unprecedented things happening at the moment. And you'll probably see in the media a lot of talk around inflation and you may start to see more and more around deflation in the coming weeks. And so we thought that was why now is the right time to do this episode. So if you're getting confused by the coverage in the coming weeks, hopefully you can come back and say, listen to this episode again and again and again. [00:04:02][30.9]

Bryce: [00:04:04] Timeless episode. Yeah, nice Ren. So I guess the big question is, why are we talking about inflation right now? And particularly also you can touch on why we want to talk about deflation. [00:04:17][12.8]

Alec: [00:04:18] Let's do that briefly and then come back to it, because I think it's important to start with the Basics 101 before we get into that. But to answer your question briefly, the reason we're talking about it now is the central banks around the world have basically said they're going to print money until they can't print any more. Literally, they've said that target for how much they're going to buy print money and the assets they're going to buy is basically infinite. [00:04:43][24.9]

Bryce: [00:04:44] So which is crazy. [00:04:45][1.0]

Alec: [00:04:46] Yeah, but look, this is kind of frontrunning the Definitions and Basics 101. So let's do that conversation, establish all the key concepts and then get into the stuff that is very unprecedented at the moment and will be very interesting to watch in markets in the economy. [00:05:01][15.4]

Bryce: [00:05:02] Sure. Well, let's start with inflation, key term for this episode. So if you think about the word flight, you know, you're pumping up a balloon, putting air into it. And whereas inflation is when it comes to the economy and increase in the general price levels in the economy, which reduces the value of the currency over a period of time. So if you think about the rise of petrol and will get into consumer price index in a moment, but it's generally price rise in the economy. So anything to add Ren? [00:05:37][35.2]

Alec: [00:05:38] I mean, if we take it a step back, businesses change their prices all the time. You know, they move them up if they think they can make more money or if their costs are increasing, they move them down. If their costs are decreasing, if there's more competition and simply inflation and deflation. Just measures those price rises across the economy. So if in general, the prices of goods and services is rising, then that's inflation. And in general, if the prices of goods and services are decreasing, that FLEISHMAN At the most basic level, that's all you need to think about. It's just a prices increasing or decreasing. [00:06:17][39.1]

Bryce: [00:06:18] Now, when it comes to inflation, we mentioned there that it reduces the value of the currency over time. And what that does is reduce your purchasing power. And what that means is your dollar today buys less in the future. If you think about if I'm buying a loaf of bread for a dollar today, but we have inflation within the economy, that price of that bread is going to rise in price over time. And my dollar today is going to be worth less in the future. And I might be only able to buy the equivalent of a third of that loaf further down the track. And there are some pretty interesting examples of reduced purchasing power around the world. [00:06:58][39.8]

Alec: [00:06:58] Ren there are. So people have probably heard about the situation in Zimbabwe or Venezuela where there's like, you know, like million dollar, whatever that currency is, notes the price of basic goods has become just stupid, like the amount of money in the economy compared to the amount of goods available to purchase is just so out of proportion. And so prices have just risen in an exponential way. And then a lot of people have probably heard about the hyperinflation that Germany had in the 1920s. And there's a story or I don't know if it's a true story, but essentially there was so there was so much money and it was the money was worth basically worthless. That paper were literally pushing wheelbarrows of money around. But other people wouldn't try and steal the money. They would try and steal the wheelbarrow because it was worth more. [00:07:52][53.7]

Bryce: [00:07:54] Imagine that people putting barriers in this way. [00:07:58][3.9]

Alec: [00:07:58] So they're examples of hyperinflation, but inflation in a general sense, we say it most of the time. Our governments and our central banks aim for sort of two to three percent a year of inflation. And so it's pretty normal in many ways. It's a good thing to have a small amount of inflation. It just becomes a concern when inflation gets massive because then the economy starts to get out of whack. The money that you have as a consumer, the money businesses have becomes worth less and less. And so then there's a number of sort of second and third order consequences of that. [00:08:35][37.0]

Bryce: [00:08:36] So before we jump into unpacking inflation a bit further, do you just want to finish the definition of deflation and maybe give us a distinction as to why there is good and also bad deflation? [00:08:47][11.1]

Alec: [00:08:48] Yeah, so deflation, as we said, is just the flip side of inflation. It's just where prices are decreasing in the economy. So, you know, that loaf of bread that Bryce was buying for a dollar, if the price of bread drops to 50 cents, then his one dollar can now buy two loaves of bread. So it increases your purchasing power, which in many ways is good. And I guess the distinction to think about is sort of price deflation, the currency deflation. So price deflation can be great. And like the best example of that is technology. If you think about the last few decades of technology and how much cheaper so many things that we used to have to pay so much for all our quality of life has been made so much better by, you know, companies finding cheap ways to produce goods and produce at better economies of scale and all of that stuff. And so that's great. And, you know, companies and industries will continue to do that. Deflation becomes a real issue when the currency starts to flighting. And there's you know, there's just no no demand is mainly the thing that we're going to talk about today. And so prices are falling because no one's buying anything and that can have some really bad economic consequences. And so an example of the sort of the bad deflation, I guess, Will Liboi was the Great Depression, where between 1929 and 1933, prices in the US fell by a third. And in a similar period in Germany, prices fell by a quarter. And that wasn't because, you know, businesses were getting more efficient and more productive or anything and people's quality of life were getting better. It was just because no one was buying anything. People were deferring their spending decisions because they thought prices would continue to fall and they could buy more in the future. But also that was just so much uncertainty and risk that no one was willing to spend at that time. So businesses had to cut their prices to try and attract demand. But then people there was like a self reinforcing cycle where people looked at that and were like, oh, prices are going to continue to fall, the economy's in trouble, I won't spend. And then businesses cut prices again. And that's self reinforcing cycle then. Has a number of terrible consequences, you know, inability to service debt, businesses go under. So that's the bad deflation that we're going to talk about. [00:11:02][134.6]

Bryce: [00:12:26] we spoke about the measure of inflation, the Ren, which was the CPI, the Consumer Price Index, something that a number of our listeners probably would have heard of that is measured by a basket of goods. What they do is take, to be honest, Ren I'm not sure how many are in the basket. [00:12:43][16.8]

Alec: [00:12:44] I was worried too much about it. [00:12:45][1.2]

Bryce: [00:12:45] Yeah, they just take a general basket of sort of every everyday goods that that we spend our money on and measure the the change in price over a period of time. And that becomes our consumer price index. As Ren mentioned, the Reserve Bank likes to try and keep that inflation rate within a particular range and it's usually two to three percent per annum. That is currently our current CPI is sitting at one point four, three percent or so below what our Reserve Bank would be comfortable with. So that's partly why we're seeing the actions that they're doing, which we'll unpack in a bit. Ren, I have a question. Why is it important that we keep inflation at a stable rate of two to three percent? Not necessarily the numbers, but why in the RBA eyes is inflation a good thing? [00:13:35][50.0]

Alec: [00:13:36] Because inflation's correlated to growth. In many ways, businesses are earning more money and able to pay their workers more and more able to employ more people. It's sort of a hallmark of a strong economy. You want to keep it in that band, because if you start going over that and you start getting serious levels of inflation, you start to have a situation like they did in the 1970s where it's getting out of hand. Money is becoming worth less and less at two. QUICA Right. And then the economy starts to have issues. [00:14:06][29.7]

Bryce: [00:14:07] Nice one Ren put you on the spot there, but answered well. [00:14:09][2.4]

Alec: [00:14:10] So I think I think at this point, let's move on from the basics 101 to I don't know how the course numbering system works one or two or two or one on at one point one. Yeah, one I want to point out. But let's bring in some current context, because as we said at the top of this, there's some unprecedented things happening, obviously, around the coronavirus that are worth discussing. And it's why we sort of put inflation and deflation as the topic of conversation today. And I guess the two big things, the two big forces that are sort of putting up against each other that we want to talk about today are on one hand, the supply of money in the economy is rapidly increasing. It's increasing at a rate that's never been seen before and that's highly inflationary. So there's potential for inflation. But on the other hand, demand is at a level the lowest level it's ever been. Obviously, with most economies around the world shut down, to some extent, that's a highly deflationary force. And so what we want to talk about is just, I guess, the range of outcomes that could possibly be sane over the next few months or hopefully not few years, but however long this economic lockdown lasts, because whilst neither of these two extremes that we're going to talk about, you know, the most likely outcome there in the range of possibilities. And so, you know, when we're thinking about our investing portfolios and mitigating risk, it's important to understand, you know, what is going on in the economy in such an unprecedented time. So. Let's start with inflation. Do you want to kick it off, because I feel like when we get to deflation, I'm just going to be rabbiting on for a little bit. So. [00:16:00][109.9]

Bryce: [00:16:02] Right. I'm happy for you to get stuck in and I'll add bits and pieces as we go along. [00:16:08][5.8]

Alec: [00:16:09] OK, so we'll try and keep this pretty high level. But inflation can happen when there's too much money in the economy chasing too few goods. If you think about a situation like Zimbabwe where they've got massive hyperinflation because the government just pumped money into the economy, just printed more and more and more banknotes, but there wasn't enough goods and services for people to buy with that money. So all that it meant was that the existing stock of goods and services just got more and more expensive and the currency got worth less and less and less and not to that extent, obviously. But what we're seeing around the world is central banks creating a lot of money, printing a lot of money, although these days it's all digital. So they're not actually printing anything to try and get us through this coronavirus lockdown. [00:16:58][49.0]

Bryce: [00:16:58] So so what you're saying there, Ren, is it sounds like it's a basic formula of supply and demand, economics 101 that is coming into play. [00:17:07][8.5]

Alec: [00:17:08] Yeah, that's a good summation of it. Just to give you an idea of how crazy some of these numbers are in terms of how much money they're creating. So the U.S. Federal Reserve, the U.S. Central Bank, on the 26th of February this year, that balance sheet was four point two trillion dollars by the 22nd of April. So like 56 days later, their balance sheet was six point six trillion dollars. Wow. So they added two point four trillion dollars in 56 days, which is the equivalent of half a million dollars every second. [00:17:44][35.6]

Bryce: [00:17:45] Jayce. Yeah. Wow. [00:17:47][2.4]

Alec: [00:17:48] Some analysts expect that number could get as high as nine trillion by the end of the year. And so basically, that's money that the Fed is creating and then using it that newly created money to buy different assets, mainly bonds to sort of stimulate financial markets and ensure there's enough liquidity and stuff like that for financial institutions and banks. Wow. A lot of people looked at that and were like, oh, this could cause inflation and we haven't really seen it yet. And it's kind of the same as the GFC where the central banks did something similar and we didn't really see a lot of inflation. But, you know, it definitely is something that's being discussed as a possible outcome of all of this central bank money creation. [00:18:30][41.8]

Bryce: [00:18:31] A great rundown of what's going on at the moment. But the question I think it's probably on a lot of people's lips is what assets are best in an inflation environment? You know, you and I have been harping on for a while now about the risks of having large amounts of money in the bank, given the impact of inflation and also the impact of interest rates. Very important correlation there. But there are a number of different assets out there. What are some assets that perform well and not so well in times of inflation? [00:19:00][29.1]

Alec: [00:19:01] Yeah, well, the worst asset to hold is cash because literally by doing nothing else, inflation is reducing the value of your investment. So, you know, to use your bread life, for example, if you can buy a loaf of bread for a dollar and then all of a sudden the price rises to two dollars for a loaf of bread, so you can only buy half a loaf by doing nothing and just stashing cash under your mattress. The relative value of your investment, the amount of stuff you can get for that amount of money has halved. So cash is the worst in this situation in terms of bad investments. Bonds also become quite a bad investment because most bonds have a fixed interest rate, essentially. So, you know, you you buy bond and it pays you two percent a year. But if inflation is moving faster than that, then that two percent doesn't keep your head above water, essentially. So what you want to own are assets that will hold their value as currencies are getting inflated or potentially people will be willing to spend more on to protect themselves against inflation. And so historically, the best hedge against inflation has been gold or other precious metals. A lot of people on financial Twitter and including some of Bryce favourite followers will say Bitcoin is the 21st century gold. I guess that remains to be seen, remains to be tested. But I don't know if you have any thoughts on that. [00:20:26][85.4]

Bryce: [00:20:27] No, I don't. I'm going to leave it behind. [00:20:29][2.5]

Alec: [00:20:31] And then I guess the last one is stocks and stocks can be good or bad depending on the stocks. So if you hold stocks that, you know, hold a lot of cash, then potentially they're not great investments because the value of their cash is going to go down. And also, depending on the industry and, you know, all of that stuff. So high fixed contracts or you don't have a lot of. Ability to change your pricing and the value of the currency is being inflated away, then the value of the money that you're bringing in will be less and less. You want you want companies with pricing power who can raise their prices above the rate of inflation, that they're the investments that will do well in an inflationary environment. [00:21:10][38.4]

Bryce: [00:21:11] And before we close this out, it's it's really important as an investor to understand and just get your head around the impact of inflation on purchasing power. And at the end of the day, at bare minimum, your investments need to return greater than the inflation rate. Otherwise, you're really digging yourself into a bit of a hole. And particularly that comes with cash sitting in your account. So if you do have large sums of cash sitting in there without knowing your personal situations, definitely have to think about what is going on, particularly given that some interest rates at the moment are certainly well below the inflation rate. So that puts a nice bow around inflation. Pretty important topic to understand and a lot going on in that space at the moment, given what the central banks are doing around the world and potentially what is to come. So that brings us to deflation. Ren also important to understand and something that you've been thinking about over the last couple of weeks and I guess a very interested to see how it plays out over the next little while. So do you want to give us a bit of an intro into why it's top of mind for you? [00:22:20][69.1]

Alec: [00:22:20] For sure. Now, you're going to have to keep me on the rails here. So if I start, [00:22:23][3.0]

Bryce: [00:22:25] I need one of those bells. That's like a two minute warning, 30 seconds [00:22:30][4.4]

Alec: [00:22:31] or just a short call. So I guess to start the conversation around deflation, if we think about one of the big argument around inflation, it's that all these currencies being created. But that same thing happened with the GFC in 2008. There was four trillion dollars in the US, two point three trillion dollars across the EU, and then another two trillion dollars in Japan and the Bank of England. So over eight trillion dollars. And we didn't really see much inflation in the decade afterwards. Now, there's probably a number of reasons for that. And we probably saw inflation in asset markets rather than in, you know, your general cost of goods across the economy. But it doesn't seem likely that central bank activity alone will cause inflation for, you know, like everyday people. And everyday businesses might cause inflation on Wall Street, but not on Main Street, I guess, is the the way to sum it up? I think a main reason for that was that we saw this response from central banks, but we didn't really say much from governments in at least in America. In Australia, Kevin Rudd did some fiscal stimulus. He gave everyone a check for 700 bucks for memory. And yeah, the US is doing a bit more of that this time. But to my mind, it's probably not enough to really say some serious inflation. And I think we're starting to see is actually some of the opposite, that we're actually seeing some serious deflation. Now, the big one is oil. That grabbed a lot of headlines as prices went into negative. And, you know, oil is an input into everything. So as the price of oil falls, then a lot of other goods get cheaper. But it also has a number of flow on effects. So a big one that I thought was pretty interesting was corn. Two out of every five rows of corn grown in the US are used to make ethanol. They're not actually made for a human or animal feed. With oil being in so low demand, then the demand for ethanol is low as well. So that has a flow on effect to corn. The 2020 price for corn is down about 13 or 14 per cent and we're starting to see it in other commodities and stuff like that as well. Now, this is going to be a little bit of a tangent, but I thought it was pretty interesting. Mate is a really interesting industry at the moment, so I don't know. Have you heard much about all these meat production facilities getting shut down in the US? [00:24:57][145.8]

Bryce: [00:24:57] No, I know there's something going on with pork, but haven't gone too far into it. [00:25:02][4.7]

Alec: [00:25:03] Yeah. So somehow, like all of these big like abattoirs basically have had their workers infected with coronavirus. So 15 percent of US meat production is offline because the facilities have been shut down due to coronavirus, which is creating a really interesting market dynamic, the price of prepared pork. So like, you know, slaughtered and cut up pork doubled in the last four days on the news of the latest plant shuttering. But at the same time, farmers are now looking at their options to actually take the pigs and get them processed. And because all these plants are shutting down, they don't have an option. So the actually the price for hog futures is down twenty one percent for April. And so basically, we're seeing this massive divergence between. The price of process made and the price of the animals themselves and depending on how long day's production facilities are offline, potentially we see massive shortages in the US and the price of animals plummet because they can't get processed or there's just too many animals for the remaining production capacity. And so, yeah, there's some there's some price falls in a number of commodities. And if you're a farmer or, you know, an oil producer and you're looking at the market and you're saying your prices fall, if you're an oil producer and you're saying prices go negative, you're obviously not going to be investing in a new capacity. You're not going to be hiring new people. So you know that that can have a real slowdown effect on the industry. At the same time, the US Federal Reserve is reporting wage cuts for businesses are cutting wages to try and keep staff. But obviously, if you're earning less, you have less ability to spend. And so that can be a deflationary pressure on the economy. Some countries are starting to report deflation. Slovenia, a key market indicator as as we often say, [00:26:57][114.1]

Bryce: [00:27:00] reported [00:27:00][0.0]

Alec: [00:27:01] deflation of one point two percent in April. And Japan started cutting the amount of inflation linked bonds they were issuing. And without getting too into the weeds there, basically that reflected lack of demand for things that protect against inflation, indicating that people are expecting no inflation or deflation in the future. [00:27:21][20.5]

Bryce: [00:27:22] But Ren, the question is that all sounds great to some extent as a consumer, if the price of oil is dropping, then, you know, a lot of products that use oil in the manufacturing process or, you know, your fuel are going to be going down and which means I'm going to need to spend less. Why is this a bad thing or perhaps what are some of the key risks when it comes to deflation that I guess outweigh that? [00:27:49][27.2]

Alec: [00:27:50] Yeah, so it's a good question. And we can get in these I guess we can call them like deflationary demand spirals. And essentially economic growth will slow. Consumers will see prices falling, they'll delay spending, and then that will hurt businesses. They'll drop their prices to try and get consumers in the door. That will offend the consumer's belief that, you know, prices are dropping. They'll delay spending even further. And it can create this deflationary spiral in the economy where people are continuing to defer purchases longer and longer and businesses are going under because, you know, they can't service the debt and stuff like that. [00:28:30][40.4]

Bryce: [00:28:31] To be clear with when you're saying deferment of payment, you're suggesting that consumers get into the mindset that why would they buy something now knowing that further on down the track it's going to be cheaper given we're in an inflationary environment? [00:28:45][14.1]

Alec: [00:28:46] Let's put a really practical example to this. Let's say you had a house deposit right now. Yeah. Would you be buying today [00:28:55][8.9]

Bryce: [00:28:56] in a deflationary environment? [00:28:57][0.9]

Alec: [00:28:57] No, just like in Australia right now. [00:28:59][2.0]

Bryce: [00:29:00] A loaded question. I know. [00:29:04][3.8]

Alec: [00:29:05] Yeah. You would be wanting to say the coronavirus stuff shook out. Yes. There's an argument to be made that, you know, just because people aren't going to open houses, people aren't going to auctions, the price that sellers will be able to get at the moment isn't. [00:29:20][14.9]

Bryce: [00:29:21] Well, I'm saying it in the rental market at the moment, Ren what you could have got for, say, eight fifty three months ago. You can now get sort of six hundred a week now and it continues down that sort of path. So it's already happening in the rental market. So you could assume that it would flow on. So yeah, [00:29:39][17.2]

Alec: [00:29:39] that's the kind of mindset if you expect things to not be great in the future and to get cheaper people slow their spending down now. And that can cause real issues in the economy because, you know, economic activity slows down as a result. So that's the flip side. Now, obviously, neither case, the inflation case nor the deflation case is likely to happen. In reality, what will probably happen is governments will help us throw it. But I definitely think we're going to see the conversation more and more in the financial media around deflation. And so I think it's important that people are just looking for those signs of slowing activity beyond the current lock down that we've got and dropping prices and, you know, things like that and keeping an eye on how quickly demand rebounds when economies are opened up again. So I guess the question then is, if we do see deflation for a little while to come, how do you invest accordingly? [00:30:39][60.2]

Bryce: [00:30:40] Is it a straight out opposite approach to the assets that perform well in an inflationary environment? [00:30:46][5.5]

Alec: [00:30:46] Ren Yeah, pretty much. It's like in that case, forget every. We've said about storing cash under your mattress, get it back out. Yeah, I know. Well, if it's a deflationary environment, stuff that mattress full. [00:31:02][15.8]

Bryce: [00:31:04] You want cash? [00:31:04][0.5]

Alec: [00:31:05] Yeah, yeah, yeah. I mean, there's two reasons for that. One is the value of your cash is growing because relative to everything else, because the value of assets are reducing in comparison to the cash. But also it just gives you a purchasing power. You know, if assets are falling, you have the ability to spend that cash to buy more stuff later than you could today. And again, you know, to go back to the housing example, housing example, you can get more house with your deposit if you think prices are going to fall and you wait. [00:31:35][30.2]

Bryce: [00:31:36] And what about stocks? [00:31:36][0.6]

Alec: [00:31:37] So, yes, stocks are, again, a mixed bag and it always just depends on the company. So, again, if the company has a lot of cash or if they have a lot of fixed contracts, you know, like utilities and stuff like that, where they don't have to reduce their prices, they can keep their prices stable in a deflationary environment, that's a company that's going to do better. But, you know, if it's discretionary retail or something like that, then they're going to have to reduce their prices to get people to buy. And, you know, that's that's not a great situation. So, again, it's a mixed bag with stocks. Gold is not a great hedge against deflation. You'd rather have cash. Interesting to see what happens with Bitcoin because in theory, if it's meant to act like gold, it wouldn't be a good hedge. But arguably, people I'm sure people on Twitter would argue that a deflationary spiral would be the start of the, you know, the end of fiat currencies and Bitcoin is going to take over and, you know, all that stuff. So, you know, Bitcoin believers have it both ways, I guess. Hmm. [00:32:42][65.1]

Bryce: [00:32:43] And what about bonds? [00:32:44][0.8]

Alec: [00:32:45] Yeah. So bonds are a mixed bag. If you get into a deflationary environment, it means that debt becomes more expensive for the companies or the governments that have to pay for it. On one hand, there's a high risk of defaults because companies can't service that debt. But on the other hand, the if the bond is paid back, then they're worth more because obviously cash is king in this environment. So if you're looking at bonds, you're probably going to look at your high investment grade bonds, U.S. government treasuries and stuff like that. But you'd probably steer clear of the low grade junk bonds, you know, Virgin and Boeing corporate bonds, Carnival cruise bonds would probably be a steer clear. [00:33:27][41.9]

Bryce: [00:33:27] Nice Ren. So a lot to get your head around there. But in summary, I think firstly, good to get back to some basics to kind of wrap that up. Inflation is really the increase generally increase in price levels in the economy that reduces the value of your currency over time. So it's important as an investor to at least try and get returns that beat the current inflation rate. And to that point, if you do want to keep track of the consumer price index, the CPI, very easy to do just through a Google search. The Australian government and a number of websites make it publicly available, I think, every month. So it's a pretty important measure for them to keep track of. So great run down from Ren. They're on deflation. And it's going to be interesting to to see how this all plays out over the next few months or maybe even year or so as central banks embark on the largest quantitative easing exercise I think we've ever seen. So, yeah, looking forward to keeping track of that Ren. So anything else to add before we wrap? [00:34:31][63.4]

Alec: [00:34:32] Two thoughts. No. One is watch the US pork market and the Canadian beef market. Both very interesting. Not so much related to this, but, you know, we touched on it. [00:34:43][11.1]

Bryce: [00:34:43] And that's what Ren does, is it does in his spare time. [00:34:47][4.4]

Alec: [00:34:49] Yeah. Trade pork belly futures. The second more serious thought is the it can sound scary inflation and deflation. And for me, like it's something that, you know, I'm so uncertain about what's going to happen. And I think most people are. But history has shown again and again that in inflationary environments and deflationary environments over the long term, stocks perform. So, you know, we had massive deflation in the start of the Great Depression in the 1970s. We had massive amounts of inflation. And yet overtime again and again, stocks have down periods, but then they pull through. So I guess the final takeaway is you could just shut your eyes, ignore this whole episode and and just buy an Old World ETF. [00:35:40][50.5]

Bryce: [00:35:41] Well, yes, I think that's the last episode was Lars. And that was what he completely suggests to do is all world ETFs. Shut your eyes, Salimata side. [00:35:50][9.1]

Alec: [00:35:51] Then you don't have to stress about all this financial media exactly, but on the other hand, if you want to own that old world, ATFP and then also try and make some more money, you know, try and beat that old world, ATFP go for it. Keep an eye on the the pork belly futures market. [00:36:07][15.4]

Bryce: [00:36:09] Bryce, Ren. We'll just before we go, if you've just joined the show, welcome. Great to have you. As part of our investing journey and the Equity Mates community, there's a lot going on in our Facebook group, a lot of discussion. So come over and join us at the Equity Mates Facebook discussion group and also follow us online, Twitter, Facebook, as well as sign up to our Thoughts Starters email, which we release every Monday. Five interesting articles to start your week so you can do that at our website, Equity Mates dot com and make sure you go and check that out. So we'll leave it there, Ren. We're also [00:36:42][32.7]

Alec: [00:36:42] on YouTube [00:36:42][0.2]

Bryce: [00:36:42] now and we are also on YouTube. Yes, everyone is doing funny things that we are not on Tik-tok just yet. Still waiting for you Equity Mates dance, but [00:36:52][9.3]

Alec: [00:36:52] are still trying to learn the renegade dance. [00:36:54][1.4]

Bryce: [00:36:56] So I will leave it there. Always good to chat stocks with you Ren. And looking forward to next week. [00:37:01][5.6]

Alec: [00:37:02] Sounds good. [00:37:02][0.4]

Speaker 3: [00:37:03] Thanks for listening to Equity Mates investing podcast production of Equity Mates Media. Please remember that everything you hear in Equity Mates investment podcast with general advice on the content has been prepared without knowing your personal objectives, specific financial circumstances or goals. The host of Equity Mates Investment podcast, May 19 positions in the company was discussed before considering any investment. Please read the product disclosure statement and consider speaking to a licenced financial professional. [00:37:03][0.0]

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