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DEFLATION is the general decline in prices for goods and services.
It usually occurs during a deep recession, when there is a sustained fall in demand and output.
Why do we think this is happening?
Because Commodity Prices Are Rolling Over.
The Bloomberg Commodity Index has peaked and fallen sharply.
Commodities are leading indicators of inflation and the state of the economic cycle.
Dr. Copper (insider lingo for Copper) is the bellwether for economic activity – it’s an input in so many end products.
A hawkish Fed and concerns of a slowdown in the global economy have pressured Copper prices to fall sharply since June.
Lumber prices have experienced a major landslide – a clear signal that cyclical activity is grinding to a halt.
Notice the sawtooth pattern of rises and falls in demand?
Gasoline Prices Are Declining Quickly.
One of the most popular gas-derived end products is falling in price – signaling demand destruction.
More deflation! Oil prices falling, that’s one slippery slope. (pun intended)
Treasuries Say The Fed Will Be Done Soon…
The 2-year Treasury yield represents the market’s expectation of the Fed Funds rate.
Every time the 2Y falls below Fed Funds Rate – the Fed’s hike cycle is over.
What Happens Next, And What Can You Do?
Watch the video until the end to find out!
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⏰ Timestamps ⏰:
0:00 – Intro
0:35 – What is Deflation?
2:01 – Commodity Prices Are Dropping
3:05 – Copper Falling From 3-Year Highs
4:16 – Oil and Gas Prices Are Declining
4:42 – Treasury Rates Lead The Fed
5:44 – Policygenius Spot
7:06 – How To Prepare and Benefit
8:53 – My Thoughts
11:58 – WBF University
12:27 – LOL
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Hey everybody welcome back to whiteboard Finance my name is marco and i’m here to Help you master your money and build Your wealth in today’s video we’re going To be talking about deflation yes Deflation for potentially 2022 or 2023. We’re not talking about inflation as we Have on this channel for a number of Years now but we’re starting to see uh Potential risks of deflation as opposed To prolonged inflation So the title this presentation today is The great deflation of 2022 asset prices Are flashing the signal this was put Together by myself and my research Analyst joe consorti go check him out so What is deflation and what causes it First of all so let’s go over the Definition of deflation so deflation is A general decline in prices for goods And services typically associated with The contraction and the supply of money And credit in the economy deflation Usually occurs during a deep recession When there is a sustained fall in demand And output so that’s basically what this Chart is showing you demand a d stands For aggregate demand uh production this Is basically output right here so let’s Look at some of these factors very Quickly so global recession i think we Can check the box on that one that is Starting to happen uh fiscal austerity Uh this is basically
Higher taxes to fund spending uh raising Taxes while cutting non-essential Government functions or lowering taxes And lowering government spending uh so The first one i think we’re starting to See with more taxes here uh decline in Confidence yes i would agree with that Fall in money supply i wouldn’t Necessarily agree with that if you look At a chart of m2 money supply it looks Like a hockey stick However we haven’t talked about the Velocity of money in this channel Meaning how many times a dollar changes Hands In very simple terms and on the other Side of this we have lower oil prices Which we’ll be talking about in this Video improve technology this is jeff Booth’s whole thesis talking about how Technology is deflationary And then also falling in port prices Lower costs of production this causes Deflation so now let’s get into stuff That’s actually happening right now so Real life examples so commodity prices Are rolling over commodity prices from Copper to wheat are collapsing and that Could flip global inflation into Deflation says society general This is a this is an investment make out Of paris so if you look at this chart This is uh bloomberg commodity index you Can see here over the past couple months
We’ve seen sharp declines um this is Actually peaked and it is falling Sharply so what we’re going to talk About in this next slide in the slide After this is dr copper so it’s Basically just copper that’s kind of Like an insider lingo using the Commodities market to explain trends and Copper’s ability uh to predict the Overall health of an economy this is due To copper being a fundamental raw Material used in inputs in many Industries and products so dr copper is The bellwether for economic activity It’s an input in so many end products Commodities are leading indicators of Inflation and for the state of the Economic cycle So this next chart here you can see that Dr copper is falling from three-year Highs to the tune of about 56 as you can See right here basically from earlier This year to what’s happening right now A nice little bottle right there if You’ve noticed this so hawkish Expectations for the fed’s guidance add To concerns of a slowdown in the global Economy that pressured copper prices to Fall sharply since june uh heightened Geopolitical tensions in the asian Region also kept markets on edge So cyclical activity is slowing so let’s Take a look at lumber here lumber is Another commodity that’s very important
And used in a lot of stuff So lumber prices have experienced a Major landslide Hold on Hold on hold on which one is it [Applause] So lumber prices experienced a major Landslide pun intended this is a clear Signal that cyclical activity is Grinding to a halt so if you look at the Sawtooth pattern of basically expansions And contractions We’re seeing that over and over and over Again this is since 2020. so this is Basically rises of fall Rises and falls in demand So if we continue here This is a huge one so crude oil and gas This is input and this is an input into So many products But basically the input for refined gas Products and one of the most popular gas Derived end products are falling in Price as we mentioned earlier remember The first slide that we talked about Signaling demand destruction no more Deflation so oil prices are falling that Is one slippery slope So markets hate uncertainty so right Here we’re looking at treasuries say the Fed will be done soon so this one may be A little bit hard to see but in white This line is the two-year treasury yield In blue this is the fed funds upper
Bound okay so the fed funds upper bound Is the upper limit of the federal funds Target rate this is basically the rate At which the fed lends money out to Commercial banks for very simplified Terms so the two-year treasury yield Represents the market’s expectation of The fed funds rate and you can see it’s Always leading the blue um the blue Blocks if you will so every time the Two-year falls below fed funds rate the Fed’s hike cycle is over so if the fed Continues hiking above fed funds Expectations if you can see my laser Pointer over here to the right it would Be disastrous for the markets sending Asset prices through the floor markets Hate uncertainty uh the next slides We’re gonna teach you how to benefit and Then also my thoughts at the end but Before that let’s get into today’s Sponsor policy genius i use policy Genius to find the right life insurance For my family the peace of mind knowing That my daughter is covered just in case Something happens to me is priceless Even if you have coverage through your Job this may not be enough for most People most people actually need 10x the Life insurance that their company Provides typically life insurance gets More expensive as you get older so it’s Smart to get a policy sooner rather than Later they even have options that offer
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No i’m just kidding I don’t know if he has cats or if he Eats ramen i’m just i’m just pulling his Leg so what happens next and what can we Do so Typically in deflation we have a reverse Wealth effect so in inflation you know You see all these headlines of the one Percent getting rich and you know Inflation balloons elon musk’s net worth By you know tens of billions of dollars Right um so typically we see the reverse Happening uh during deflation so as the Value of consumers wealth drops they Will spend less driving prices down this Negative feedback loop of falling asset Prices will continue until substantial Liquidity re-enters the system So what are we doing whole dollars and Other liquid assets dollars are Strengthening as we talked about in my Last video So holding plenty of dollars along with Liquid assets like treasury bills and Notes will be your best bet at Outperforming deflation So this goes this is counterintuitive to Everything we’ve talked about on this Channel because we’ve been in such a High growth uh low fed funds rate Environment we’ve had zerp zero interest Rate policy for years now um it’s Basically counterintuitive to what i’ve Been teaching on this channel but it
Makes sense if we’re going to see Deflation remember this channel is the Signal a lot of other channels are noise You want to find the signal not the Noise so this is going to be a little Bit ahead of its time in my opinion so Pay down debt i know we talked about how Debtors are winners in an inflationary Environment and savers are losers if we Do go into deflation we’ll be seeing More expensive dollars your debt is About to become more expensive to Service But not to sound like uncle dave ramsey But it wouldn’t hurt to pay down some Debts sooner than later okay so let’s Get into my thoughts so number one i’m Holding more cash than usual so Typically the amount of cash that i have As a percentage of my net worth is Anywhere from 10 to 15 percent this is Both offense and defense the defense Part being it’s part of my emergency Fund i have a daughter i have a wife Obviously i’m going to be a little bit Conservative in that regard but also Holding more cash than usual can also be Used as a war chest right it’s for Offense buying opportunities if you see Things that are undervalued or perceived To be undervalued that could be a good Time to deploy some of that cash number Two is if we truly see deflation having Less debt is good so the example that i
Always give over the past you know three Four years of doing this is that savers Are losers and in a high inflationary Environment uh so over the past you know 12 years or so We’ve had super high growth super low Interest rates uh high inflation that We’re starting to see over the past year Or so so savers are losers why because You’re losing your purchasing power to High inflation your money is becoming Worth less it is able to purchase less Over time With deflation the exact opposite is True typically in an inflationary Environment debtors are winners right That’s what every real estate developer In the world banks on right is is money Becoming cheaper over time they lock in That fixed rate debt and they’re able to Pay down this asset with cheaper dollars Down the road right But with deflation the exact opposite True is true we want to have less debt And we want to have more cash because The cash will eventually be worth more It’ll be able to buy more the purchasing Power will typically increase and then Number three finally asset prices may Start to decline Because of less and less demand so in The previous slide we talked about People’s wealth perceived to be going Down their savings rate will typically
Increase they will start to cut back on Discretionary spending Thus sending the price of those goods Lower and lower it just has to balance Out supply and demand right So barring logistics obviously we’re Having a bunch of logistics problems With a chip shortage with cars um you Know all these boats docked off of Sitting off the shores of like long Beach if you will at the docks so i get It there’s logistics issues going on Right now sometimes these Manufacturers of things like cars for Example they simply can’t lower their Costs otherwise they’d be losing money On everything they sell But with other areas we could start Seeing less and less demand thus sending Prices lower so i know i’ve talked about Inflation for years on this channel um For 2023 we may be actually seeing some Deflation or less less prolonged Inflation i want to know what your Comments are or your thoughts are about This down below are you starting to see Prices come down we’re starting to see Gas come down we’re starting to see Other things come down but they are Coming down from essentially all-time Highs going back to my house analogy Where it’s like yes housing prices are Coming down we are starting to see price Cuts but where are those price cuts
Coming from you know they’re coming from The top of mount everest you know not Your median or average prices that we’ve Seen over the years so as always i hope You got value out of this video let me Know your thoughts below i can’t wait to Release whiteboard finance university This is my school with multiple teachers We’re going to have stocks etfs options Macro discussion digital assets real Estate a little bit everything it’s the Finance education you don’t have to pay 70 grand a year for it’s going to be Very reasonable so super excited for That that should be ready in about 60 Days i’m in the process of building it Out right now and hiring and onboarding All the professors If you’re interested check out the Waiting list down below and as always Have a prosperous day [Music] There we go Okay so uh two economists walk into a Bar [Music]