By Kris Sayce, editor, Casey Daily Dispatch
When you hear the word “inflation,” what comes to your mind?
For most people, it’s the obvious things.
Gas and groceries.
For the investor, perhaps it’s bitcoin, the U.S. dollar, and gold.
But inflation means more than that.
The effects of inflation stretch into every part of the economy…
…With consequences you don’t expect.
Stick around. We’ll show you what we mean…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from the founder of our business, Doug Casey, and our in-house investing experts: Nick Giambruno and Dave Forest.
Today we continue with our theme of the week – inflation.
It’s a subject on your mind… and on the minds of the Casey Research team. It’s on your mind because you’re concerned about it. It’s on our mind because we’re looking for solutions to help you deal with it.
How to Make Your First NFT!
Two headlines caught your editor’s attention yesterday, both from The Wall Street Journal:
“Internet’s Original Source Code Sold as NFT for $5.4 Million”
“Ford to Idle or Curb Output at More Plants Because of Chip Shortage”
At first glance, these may not seem like inflation stories.
But look closer and there’s no doubt… both are inflation stories.
In the case of NFTs (non-fungible tokens), it’s a reflection of a lot of money sloshing around in the economy looking for a home.
We’ll come back to Ford in a moment.
But before we go any further with the NFT example, a brief explanation of what they are. In simple terms, an NFT is a digital asset. It can represent pretty much anything that you can create and store digitally.
So things that can be an NFT are video clips, digital graphics, music, photographs, and digital or digitized text… including computer code.
An NFT can’t be something physical. It can’t be a physical baseball card, a house, a car, a watch, or a hardback book.
So how do you create one of these things? According to Coindesk, to create and sell an NFT, you need to:
Select a clip, photo, or text that you own,
Have an Ethereum wallet that supports ERC-721, and
$50-$100 in ether
After that, you connect to an NFT platform to create the NFT… and that’s it. You can then sell the NFT on an Ethereum NFT marketplace. Seems simple… even to your editor.
The latest high-profile NFT, as reported by the Journal, is the original computer code created by Tim Berners-Lee. He’s the man who invented the World Wide Web.
In this case, the NFT was the original code for the World Wide Web, a digital letter written by Berners-Lee, and other digitized elements. He put the NFT up for auction, and yesterday it closed at a sale price of $5.4 million.
That brings us back to the point we mentioned earlier, about money sloshing around in the economy. That’s exactly what’s happening here.
This Is How You Know It’s Serious
Figuratively speaking, the money is flowing… so much of it… that people are running out of things to do with it. In our view, NFTs are part of that. It’s something new, some people want it, and they have a few spare million around to pay for it.
That said, we concede there are probably genuine uses for NFTs. We can see the case for limited edition digital artwork, music and video collections, and digitized intellectual property.
Although it will likely take some time for all this to evolve.
The other inflation story is Ford and the microchip shortage.
The fact that Ford is cutting production on the world’s biggest selling vehicle – the F-150 truck – tells you it’s serious.
But the problem stretches further than that. As Autoweek noted this week:
If you’ve been shopping for a used car lately, you’ve probably been knocked into the Twilight Zone. Used car prices have climbed to unheard of levels, in some cases surpassing the vehicle’s original MSRP, which has effectively turned vehicles into an appreciating asset. This, by and large, is not normal.
Why would the chip shortage push up used car prices? With fewer new cars available on the market, many people can only trade up to buy a newer used car.
That means the stock of used cars is also falling… pushing up prices there. As Autoweek also explains, rental car companies aren’t selling their stock of cars, because they can’t top-up with newer models.
Car lease customers are buying the car at the agreed value at the end of the lease, because it would cost them more to take out a new lease on another car.
You Shouldn’t Believe the Official Inflation Rate
All of this adds to the inflation story.
We showed you previously how the cost of basic grocery items had risen. Not just compared to 2020 prices (as the Federal Reserve would have you believe), but compared to 2019 and 2018 prices too.
As always with inflation, it makes it hard for people (and businesses) to plan for the future.
Even the best-case scenario from the Fed is for inflation to be 2% next year, and 2% the year after. All told, that means that when you add this year’s 5% inflation, prices in 2023 will be around 9% higher than in 2020.
And that’s assuming you trust the official inflation figures. We don’t. You shouldn’t either.
All this makes it even more important that you have and stick to an investing plan… a plan that can help you to combat rising inflation.
As we mentioned before, part of our job is to help you deal with that. The Casey “10 x 10” Approach to investing helps. That’s where you divide your portfolio into 10 investment types or themes, and then make approximately 10 specific investments within that theme.
(It doesn’t have to be 10 exactly, but that’s a good guide.)
Bottom line: Despite the efforts by the mainstream to downplay the inflation threat, it exists. If you haven’t yet drawn up an investment plan, including a “10 x 10” portfolio, it’s not too late.
But don’t leave it too long. Inflation is here, and it will do severe damage to the wealth of the unprepared.
Editor, Casey Dailey Dispatch
P.S. One last thing. A certain type of investment is perfect for the Casey “10 x 10” Approach. It ticks all the boxes. It allows you to invest small amounts… it offers leverage to an underlying asset… it can lower your risk (if used the right way)… and it can produce outstanding returns – something we all need in times of inflation.
In fact, we would go so far as to say that we can’t think of a single investor type who shouldn’t have exposure to this investment. We recommend checking it out right here.