The Expert Podcast

Okay we've all heard of BlackRock one of the largest hedge fund investment companies in the country they own hundreds and thousands of interests in different industries different companies public companies private companies and their CEO was recently interviewed asking about inflation that's the subject on everybody's mind and what he had to say is very insightful and it kind of matches what we've been talking about here is elevated inflation right this is not a transitory thing this is not a temporary thing and he's talking about maybe for years we'll have inflation.

Now years of inflation doesn't just mean the price stays high it means the price increase continues because inflation itself could go to zero percent if inflation goes to zero percent that means the high prices we have now stay the same it doesn't mean the prices go down for prices to go down we'd have to have negative inflation so a zero percent inflation would mean prices stay the same it's never going to happen even in modest years you have a two percent inflation that's what the fed has always targeted two percent and the CEO BlackRock who should know because he's involved with many businesses sees elevated inflation for years.

So if elevated means let's say eight percent which is where we're at right now roughly if that's elevated that means the next years how many does that mean two three I don't know eight percent inflation for three years doesn't just mean twenty four percent increase because eight times three years is twenty four percent it compounds on itself so if you take eight percent and compound it for three years you're probably looking closer you're over 30 probably closer to 40.

So imagine if everything that you buy today has a price that's 30 percent higher than what it is that's a third higher roughly so if gas costs five bucks add a dollar fifty to that so now it's 650. If your grocery bill is 200 add 60 to that whatever you're spending something on if inflation elevated for years means eight times three years add a third to whatever you're spending and that goes for non-discretionary items like your insurance even though you might think well how does inflation affect insurance well your insurance company is going to look at what they have to pay out for claims that's gone up 30 so they'll have to add on to claims too.

Now one place where we differ on this opinion is he's saying it has to do with supply shocks well sort of you know their supply and demand we believe that the rule of supply and demand has been thrown out the window there is no really supply and demand rule anymore because of how constricted the market is and I guess that's one way of looking at it is supply driven but the bigger problem is demand is still there even with inflation and higher interest rates and higher home prices there's still a demand people are still buying people have not yet capitulated to the market and said we're not buying anymore.

Yeah there may be some cutbacks of a few things like you know buying less gas to go on trips on the weekend maybe buying less higher quality meat at the grocery store and getting hamburger hot dog who knows right but people are still spending the same amount on their grocery bill they're just shifting it to different items so certainly there is some supply issues but the bigger problem is demand people are still buying a lot of it has to do with money that came out in stimulus money and still working its way through the system.

You know the government put out 2 trillion into the economy in 2020 and they did that when the economy was closed stores weren't open businesses were shut down and all of a sudden there's an extra 2 trillion chasing sales of products and services that you couldn't buy it's still now taking time for that money to be spent some of the stimulus money that government received for let's say school improvements or government upgrades is still not spent some of the housing money is still sitting in government coffers so there's still a lot of money that hasn't been spent on the demand side and that's really what it is it looks it may look like supply because it's hard to get the items but it's because there's too much demand chasing those items.

How big is BlackRock well 9.6 trillion the world's largest asset manager that's a big deal and it talks about surging inflation rising interest rates geopolitical geopolitical is probably less of a factor than people think it's in the news a lot you know you have wars and things but it it affects things in some ways but the bigger issue is inflation and interest rates.

And that doesn't even take into account some other inflationary pressure that will come from transition to different energy sources look most of the energy for the last 50 60 years came from fossil fuels and that was the driving factor behind transportation manufacturing power production electricity and the world basically became wealthy and comfortable because of cheap fossil fuel for switching over to green energy at first that transition will have a huge cost into the infrastructure into the facilities if you're not going to have you know coal power plants or natural gas power plants you're going to have to switch all those over even electric vehicles it's going to be a huge transition to switch over tens of millions of vehicles from gasoline to electric so that's going to have inflationary pressure on the market.

When it's done will it be cheaper who knows that's it seems like it would be but there's also some factors that are starting to show up that maybe green energy isn't cheaper maybe more money by the time you pay for batteries and and you know precious metals that go into the batteries who knows whole nother issue for a whole nother video but inflation's not going away and don't take our word for it do the math but also see what the experts are saying CEO of BlackRock nine point something trillion in assets inflation's not going away and no one's expecting that it will so you can plan for what you're going to do as a consumer or business owner in the face of inflation put your comments below let us know what you think we'll see on the next video.