jeudi 13 janvier 2022


We hear that inflation could be around 7% this year, which is huge. Actually, it's been at least 20 years that inflation hasn't been so high. 

So, the cost of living should go up by 7% this year. 

Given the fact that houses are more expensive than ever (you ask 400 000$ for your house and you end up with a seller offering you 500 000$), it's not that hard to see that something doesn't work. Something similar has happened with the price of wood and various construction stuff, used cars, used motorcycles, used skidoos, etc...

Of course, it won't last. Because excesses like that blow sooner or later. It may last 6 months or 2 years, but it won't last 5 years because a significant percentage of the population will declare bankrupcy before that time. 

That's why interest rates will rise. Because when there's too much money available at a ridiculous cost, people and businesses borrow a lot and spend this money. Then, there's inflation because of high demand for everything. Then, the governement has to rise interest rates to reduce the access to money, thus reducing inflation. 

I finally understand what I've learned at University, 20 years ago.  

What to do as an investor in a period of high inflation? 

Maybe rebalancing our portfolios (for instance, Dollar stores would be a safe bet in an economy where everything is more expensive). 

However, I believe that an investor should stay on the market. Because astute companies always manage to do well in any condition. 

So, to resume all these lines in a very few words, I don't really care about inflation, as an investor. 

I only care about it as a consumer. 

So I shop mostly at Costco. 

4 commentaires:

  1. "Excesses like that blow sooner or later" ... I'm still waiting for Toronto or Vancouver real estate to blow over for the past 15 years. The market can still irrational for longer than you and I can stay solvent!

  2. You're right about real estate. However, recently, it took crazy proportions. Many people sell their house for 100 000$ more than what they asked for and the buyer can't even make a legal inspection because there's too many buyers.

    I don't know for Toronto and Vancouver, but in the province of Quebec, it's never been like that.

  3. An interesting article regarding real estate...

  4. Inflation is caused by increases in the money supply - period. Prices, including stock prices, have rose due to the easy monetary policy. The bubble in stocks, bonds, real estate, crypto, etc. will burst at some point - or we get hyper inflation where paper money becomes more worthless. The next dip in stock prices could be deeper and more prolonged. The end is near! Central banks are the great Satan!!