Latest / Money Grows on Trees / #342 - BREAKING! The RBA Just Admitted We Are Entering Stagflation

Transcript

#342 - BREAKING! The RBA Just Admitted We Are Entering Stagflation · Money Grows on Trees

• 0:00
  Australia's inflation is surging to 4.8%, while economic growth collapses to 1.3% at the same
• 0:06
  time. Most of China's think a rate hike means the RBA situation is under control, that high interest
• 0:11
  rates are going to fix inflation and we've just got to ride it out. But the reality is stagflation
• 0:16
  is the one economic disease where every single tool the RBA has makes one and a half of the
• 0:21
  problem worse. And Australia's biggest employer group has already said out loud that it's no
• 0:26
  longer a risk to be avoided, but a reality to be managed, which means it's already arrived. I'm Lloyd
• 0:32
  Rose, seven figure investor entrepreneur. I hope thousands of everyday Australians, Americans,
• 0:35
  New Zealand and Canadians get out of debt and build real wealth. And in this video I'm going to
• 0:38
  show you what stagflation actually is. Who gets hurt first, what the 1970s playbook tells us, what
• 0:44
  has worked, and the exact eight step to protect your money right now, before we start, this is the
• 0:50
  environment where prepared people get ahead and everyone else goes backwards without noticing. So
• 0:55
  hit the subscribe button first and foremost if you're ready to go, and then we'll get on with it.
• 1:00
  So the first thing. What just happened? Right. And let's go through the facts. So on May 5th, 2026, the
• 1:06
  IBF hikes the cash rate by 25 basis points. And it's the third rate hike this year was February,
• 1:12
  March and then May. Now the cash rate or the interest rate that the RBA sets is now 4.35% in
• 1:16
  Australia. So if you're listening anywhere else, I'm just talking about Australia presently. Right.
• 1:21
  So here's the fresh forecast from that. Basically growth is slumping to about 1.3%, which is GDP
• 1:28
  growth, which is effectively the gross domestic product of what we can produce and how we're
• 1:32
  growing in the production of goods and services in the country. So if it's slumped to 1.3%, that's
• 1:38
  not ideal. And if you look at the United States, I think now GDP growth in the United States is up
• 1:42
  at 4.56. I think they're actually aiming for 10%. The US is on fire like economically cranking. And
• 1:49
  if you look at some areas like in the boom times of Dubai, the GDP growth there was 17% and China
• 1:54
  was up at 12%, like very big numbers. And it's pared back in China to about 4 to 5%, but still
• 1:59
  growing very strongly. So a good strong GDP growth even for Australia would be around a 3 to 4% mark.
• 2:05
  That's what you'd want to see. So now we're talking about 1.3%. So about a third of what's strong.
• 2:10
  But here's the thing. Inflation surged at you know between three and a half to 4.5% by June.
• 2:17
  Right. So it's really surging. And in fact just yesterday I read that now Australia has the
• 2:23
  highest inflation rate of all Western countries, which is insane. And the reason for that is
• 2:29
  because when after Covid, when rates were almost zero, pretty much other countries around the world
• 2:35
  the United States, the UK, New Zealand, Canada, they increased their interest rates up. They increased
• 2:40
  them up to like 5.5%. Their rates and even the US up to six seven. And we decided to have an
• 2:47
  experiment. They are like, well, we'll experiment here and we won't do that. We'll leave them low.
• 2:51
  And that's what they did. And they even dropped them. And now we have entrenched inflation long
• 2:56
  term at 3.6%, which is the highest in the Western world. Incredible isn't it? So that's the challenge
• 3:01
  we're dealing with now, right. So there's been a huge increase in cost of living because of
• 3:08
  inflation. But at the same time, because of the government spending, government policy, what
• 3:11
  they're doing is has also been a big shift in the productivity of the country. And the two of them
• 3:18
  together is what's called stagflation. When you have inflation and stagnant growth, they call it
• 3:24
  stagflation. And it happened a lot in the 1970s, right. So let's look at the Monetary Board policy
• 3:29
  itself. And they flagged these risks. Right. So they flagged the risks that inflation is likely to go
• 3:35
  higher, which is interesting. And so it's not just entrenched but it may be rising. And it was an AI
• 3:40
  group CEO said that the stagflation is no longer a risk to be avoided, but really to be managed. So
• 3:46
  they're just saying straight out that actually we're in stagflation. It's not even a risk anymore.
• 3:50
  Okay. And the forebay RBA board member was Bob Gregory, said that Australia is already seeing the
• 3:57
  first signs of stagflation. It expects inflation and unemployment to rise together, which is not a
• 4:03
  good combination either. Right. So prices are accelerating while the economy stalls. And so it's
• 4:09
  not really necessarily a slowdown. It's classic steak and it's basically the textbook definition.
• 4:15
  Right. It was even like one of the senior managers at Ciba even called it a stagflation
• 4:22
  impulse, like a shot of stagflation. So whether it continues is up for debate. Now the RBA can make
• 4:28
  some changes going forward that the property investors are not going to like to shift this and
• 4:33
  start to get in front of inflation, but it's their propensity to do it right. The Commonwealth Bank
• 4:38
  came out and said that they'd anticipate that there's going to be continued increase in rates
• 4:43
  to get in front of this, so the banks are ready for it. I just don't think the government's been
• 4:48
  super honest with people as to what's happening. Right. So again, talking about stagflation, it's
• 4:52
  high inflation and stagnant growth and potentially and usually rising unemployment. Boom
• 4:57
  boom boom. So high inflation, stagnant growth and rising unemployment. We have high inflation. We
• 5:02
  have stagnant growth. It's obvious it's in the numbers. Not even up for debate, not even debating.
• 5:06
  It's just there. Now we're going to start to see what happens with unemployment. And you're
• 5:10
  probably going to start to see that start to come into fruition. You may have some friends right now
• 5:14
  that are actually being made redundant. You may know somebody in the circles. You're starting to
• 5:18
  probably see the beginnings of it. Right? So what the British coined this term stagflation. Uh, it
• 5:24
  was Ian McLeod in the 60s. Well, one of the British politicians, and he said it's the worst of both
• 5:28
  worlds. I'm not people on my show. They're like, why are you laughing, Lord? I'm like, well, in the face
• 5:33
  of adversity, it's important to be cheerful. Sometimes you just got to laugh at the
• 5:37
  incompetence of the folks you think are good leaders of the country, the head of the RBA as
• 5:43
  well as the government. To be fair, that the RBA, they're probably a little bit irritated by the
• 5:48
  government because of their spending and they can't reign in spending, which makes the RBA the
• 5:52
  baddie. So they're the bad cop because they have to increase rates, get in front of this. Right. So
• 5:56
  but it's a little bit amusing to me that we just have such poor leadership in the country, and you
• 6:00
  might find the same in whatever country you're listening to, right? So it's a bit of a nightmare
• 6:04
  scenario for the central bank, for the RBA, if inflation is too high to raise rates and that
• 6:09
  kills growth and it kills jobs. So they're very apprehensive to do it. Yeah.
• 6:16
  Because to get growth stimulated you have to cut rates. That's why Donald Trump in the United
• 6:20
  States is like, let's cut rates because he wants to get GDP growth at 10%. But he's got to be
• 6:24
  careful. He doesn't inflate the currency. They have to cut interest rates are a governor on growth.
• 6:29
  They're like, whoa. The GDP growth is so substantial that we have to just increase rates
• 6:35
  to just governor, look, we have to make sure it doesn't rev out because then you can have
• 6:39
  entrenched and running inflation, which is what happened in the 70s. It got so high that they had
• 6:42
  to increase rates to 17%. I don't think they'll go to 17%. But in Australia I would anticipate, but
• 6:48
  we'd get to five and a half to 6% RBA rates, which means that the banks they would probably be
• 6:53
  retail rates of seven. Now, if you look back in the early 2000, from 2007, we were up at
• 6:59
  Percent reserve Bank rates, and you would go to the bank for a lot of property investments. Back
• 7:05
  then, people were borrowing at 9%. So it's not like it's never happened and it will likely happen
• 7:09
  again. So I'm just thinking out loud as to what that looks like in terms of the growth in the
• 7:14
  economy. If rates jump up to 7% because back in 2002, 2007, property values weren't what they are
• 7:20
  today. Debt levels in people's houses weren't what they are today. People are so much more indebted
• 7:25
  today because of this massive surge in the credit growth that's happened, and then pushed into
• 7:30
  property from 0% rates. So now if you go, hey, by the way, we're going to push up the 7% RBA rates
• 7:35
  and 9% retail rates. People are going to shit the bed. It's going to be like a absolute like you're
• 7:41
  going to see foreclosure. Like that's a real possibility, right? When growth is weak, they cut
• 7:47
  rates typically. But right now they can't like well, if there's growth if growth is 1.3%, I mean
• 7:53
  even last quarter I think it was down to 0.7. Like where you can see it start to inch lower and
• 7:57
  lower and lower towards a recession because a recession, just so you know, is two consecutive
• 8:02
  quarters of negative GDP growth. That's what a recession is like. Oh my God. So we're actually on
• 8:08
  a path to our first recession in probably 25 years except for Covid, right. So that's the issue.
• 8:14
  They can't cut rates because of inflation. And the reason inflation says is because they actually
• 8:18
  kept rates too low for too long. And the government spends too much money in fact. So we're
• 8:22
  going to probably this is why you see the rise of one nation happening as a political adversary to
• 8:27
  the Labour government, because a large part of why the inflation is here is one immigration, more
• 8:33
  people, more competition, more spending, and also the government spending on pet projects that they
• 8:37
  want to put in place, like the NDIS was supposed to be 12 or $13 billion. Now it's like $56 billion.
• 8:42
  And there's other things too, like the NBN, etc.. So this is why you're seeing the rise of the
• 8:48
  opposition. Now being one nation is because people are seeing this. It's starting to hurt people in
• 8:53
  their own back pocket. So this type of conversation or this episode of On our podcast is
• 8:58
  popular because people are like, oh, this is why this is happening. This is what's happening. So I'm
• 9:02
  I want to educate you here on what stagflation is, why we're entering it, why it's happening, what
• 9:06
  they need to do, get us out of it. And will they be able to do it so you can follow on. And so you can
• 9:11
  vote accordingly when it comes time for the federal election in 2028. So you're equipped and
• 9:16
  you have the knowledge you need to be able to do that. So right now every option hurts. The RBA has
• 9:22
  got a bit of a playbook where if they do this this pops up. So there's you know they're in a
• 9:28
  very tricky situation. And then you've got on top of that that all supply shock that's happening in
• 9:32
  the Middle East, which is very fascinating because oil prices are falling. And I think there's this
• 9:38
  massive spring, coiled spring that's just waiting for this massive uptick in
• 9:45
  oil prices because of the huge lack of supply. And I think that in the US, the Trumps jawbone the oil
• 9:51
  market, as he's been, you know, warring with Iran to keep the oil prices low for the midterms. But I
• 9:57
  really do think you can only do that for so long. And I think there's going to be a massive shoot
• 10:01
  up in the price of oil. Of course, people will often say that the reason why oil prices a lot is
• 10:05
  because China's demand has fallen, because there haven't been massive buyers. Well, I think that's
• 10:09
  fallen by 4.9 million barrels a day, which is why the price is lower. But that begs the question why
• 10:15
  are they not importing more oil? Are they just choosing to do that presently and using their own
• 10:19
  reserves? There's a reason for that. But I do feel that at some point you can't just keep jawbone in
• 10:24
  the oil market, because if price and oil are low, like $68 a barrel, no one's going to invest in new
• 10:29
  wells. No one is going to drill for new oil, which means it's going to be persistent and consistent
• 10:33
  undersupply across the world for things like feedstock and so forth. The oil supply shock is
• 10:37
  added to the challenge because oil prices, as I've mentioned on many other episodes in this show, the
• 10:42
  price of oil is in everything. Okay, so it's probably a good thing from the RBA's standpoint,
• 10:48
  that oil has started to come down a bit like, oh, thank God for that. Otherwise inflation would have
• 10:51
  gone to another level. Okay. Um, and then I just saw recently that the RBA, you may have seen this in
• 10:58
  the news. I don't know what you follow, but this is fascinating. So the RBA is like, oh, there's not
• 11:02
  really an inflation problem. It's it's you know, it's it's it's it's we're managing it. So the
• 11:08
  union members of the RBA, they push for inflation proof pay rises. And they
• 11:14
  didn't agree to a 9.5% increase in their wages. So the RBA that has publicly rebuffed
• 11:22
  indexing their own union members wages. So they're saying that like the people that work for the RBA,
• 11:28
  they're like hey inflation is a problem. We need to increase our wages to keep up with the
• 11:32
  inflation pressures. So it's funny, it's quite amusing that it's coming from their own camp, that
• 11:37
  they know this is a massive problem because everybody knows that wages haven't sustained with
• 11:41
  inflation. That's why everyone feels poorer. Because and that's why we're in our eighth
• 11:44
  quarter now of negative per capita GDP growth, which means on an individual basis we've become
• 11:50
  progressively less productive and poorer for eight consecutive quarters. So we've been in a per
• 11:55
  capita per person recession for two straight years. And you know this because you go to the pub
• 12:01
  and buy a $12 beer and a $35 chicken sandwich and cost you 50 bucks for a meal and a beer at the
• 12:07
  pub. You know this already. I've mentioned the Maxie Bond Index. It's like I go to BP. My maxi
• 12:13
  bonds are now $6.60. I'm like, what the hell happened? So we're seeing we're starting to see
• 12:17
  this actually come to fruition. This is the result of bad policy. There's nothing there's no two ways
• 12:21
  about it. Just poor policy by the government and by the RBA. Right? Not to mention, when Costello
• 12:28
  stepped out as treasurer in 2007, the Australian government had no debt. Zero debt.
• 12:35
  Can you believe that? Amazing. That's why if you go back and watch that budget that they rolled out,
• 12:39
  it was just such a fun budget to watch because every sector was just dominating and doing well,
• 12:43
  because there was no government debt to pay. So they could just, you know, start to really invest
• 12:47
  in the country. But what happened was another government came in. You could ask you could you
• 12:50
  could actually argue that it was a combination of Labour and Liberal. But more recently the Labour
• 12:54
  spending has been out of control. Now there's $1 trillion in debt. 1 trillion from 0 to 1 trillion
• 13:01
  in 20 years. And so that's also causing a lot of problems because as rates are going
• 13:07
  up, even in Victoria, they've got so much substantial debt and they've wasted so much money
• 13:13
  in there too. In Victoria, in the state, their interest rate used to be 1%. Now it's seven and
• 13:18
  you're seeing the same thing happen with the Australian debt level. A trillion. So we're going
• 13:21
  to the government's got to pay for that too. So that's why they're doing tax grabs and changing
• 13:25
  the budget. And it's happening right. Anyway these things aren't helping is what my point is I'm
• 13:30
  trying to make the oil shocks not helping. That may get worse. And we probably won't see the real
• 13:35
  extent of that until perhaps October. And the fact of the matter is to the latest budget doesn't
• 13:40
  help. So if you look, if you're talking about, well, GDP growth is falling and productivity is low and
• 13:45
  inflation is high. The worst part about the budget is that it implements policies around it taxes
• 13:51
  the incentive to build businesses. With the new CGT ruling, it taxes trusts, it cancels out
• 13:56
  negative gearing. So it's taken away tax incentives for the growth in the economy, in the
• 14:01
  construction sector, in buying and building businesses. It's also not good. So if you if you
• 14:07
  think about the combination of things that have done that, it's no wonder we're in a position
• 14:12
  where we're heading towards a recession. And you'd almost have to say at this point, especially if
• 14:16
  the RBA is forced to increase rates another one, 2 or 3 times, which is a likelihood, a very high
• 14:21
  likelihood of that happening. You can almost guarantee we're going to have a recession, perhaps
• 14:26
  in the next four, but somewhere in the next four quarters. Bookmark this, come back, let me know if
• 14:30
  I'm right. But I think the list of damages is quite substantial, right? Just quickly, if you're
• 14:35
  ready to take control of your finances but feel stuck on where to start, I have a solution. My book,
• 14:41
  Money Buy Happiness simplifies investing and wealth building with practical steps to help you
• 14:46
  achieve financial peace. Get your copy via the link in the show notes and let's get your money
• 14:50
  working for you. Now back to the episode. So let me go through the list of how it's in the order of
• 14:56
  pain, how it's impacting you, right? So first and foremost, we'll go to Cash Savers. Even if you're
• 15:01
  building up, you're saving cash to be able to eventually buy a property or whatever it is you
• 15:06
  want to do. If inflation's at like three and a half to to four and a half really percent, then it
• 15:12
  melts away your savings. So like your money is losing three and a half to 4% a year. So even if
• 15:17
  it's a term deposit for 4.9%, which you can get now, probably even at ING, you can get five. Plus
• 15:23
  you're just basically investing that in turn deposit to stand still. That's what's happening,
• 15:27
  right? Then you've got wage earners. What I mean by wages is pay people who are on fixed wages. And
• 15:32
  the challenge with fixed wages is you have no pricing power necessarily, unless you get a pay
• 15:38
  rise. But unless your business or your the work, your employer is making more money, there is
• 15:43
  nowhere for you to get a pay rise. So you're fixed. You have a fixed wage. Now, if inflation is running
• 15:48
  at 4 or 5% or, you know, three, 3 to 4%, but your wage is not going up at all at all, not even two
• 15:54
  and a half at all for two years, three years, four years. Um, you're progressively losing four 5%
• 16:01
  of your weight every year. Now, over a course of say, four years, you are earning 20% less than what
• 16:07
  you were four years ago. So in actual fact, your real disposable income has fallen massively and
• 16:12
  you have a huge income shock. And that is what I'm certain almost all of you would be facing today
• 16:17
  who are on a fixed wage, and even business owners to that extent, but not the same because they can
• 16:21
  always raise prices, right? Subject to what the clients want to pay or customers want to pay. Then
• 16:25
  we look at the third people who are affected, which is variable mortgage rate holders. Now these
• 16:29
  ones are the ones, especially the ones that took up the 5% deposit scheme that the government
• 16:33
  wrote out right at the peak, right at the peak, like within months of the peak of the real estate
• 16:38
  cycle. And if you go back and listen to our show episodes, you will see that we pretty much
• 16:42
  predicted the exact thing that was going to happen has happened. If you go back on this show
• 16:46
  the last two years, I've been talking about real estates in a bubble. It's too high, blah blah, blah.
• 16:50
  They going to raise interest rates are going to come back and guess what's happened. We're now
• 16:53
  seeing 12% drops in real estate values in Sydney already. Melbourne already Gold Coast Brisbane is
• 16:58
  now it's just in the last two months. The auction clearance rates are 16% and recently they were up
• 17:03
  to 5,060%. So we're starting to see that come off the ball. So you think about that now is not only
• 17:08
  have you got these people who have recently bought property, they've now got negative equity,
• 17:12
  meaning the purchase price they paid for it. It's now worth less than that. And it's worth even less
• 17:16
  than what their loan balance is. They're stuck that they can't even refinance out of it. So if
• 17:21
  they've got variable mortgage rates. And by the way, in Australia we can only have a fixed
• 17:25
  mortgage rate for typically four years anyway. So everyone eventually becomes a variable mortgage
• 17:29
  rate holder. Obviously as they increase rates again, you're going to be hit again and again and
• 17:33
  again. So not only is there inflationary pressures, but there's going to be an interest rate pressure
• 17:37
  on your mortgage repayment every month, which hurts you again, which reduces spending, which can
• 17:41
  have an effect on inflation, which is why they will probably increase rates, because if you're
• 17:45
  paying more of your mortgage, you're probably having less beers at the pub as an example. So
• 17:50
  this is why variable rate mortgage holders will be hurt. And I mean been told
• 17:57
  this is why I'm renting right now. People will say, yeah, but they'll increase your rent. Depends if
• 18:02
  they own the property. Outright or not. And depends if they want to keep their tenant or not. Because
• 18:06
  it sucks to also have a property investment where your tenant leaves and then you're stuck trying
• 18:10
  to get a tenant. Then we look at long duration growth assets, right. So we look at like stocks. Now
• 18:16
  when rates go up typically stocks fall. But in the Australian share market for example it's heavily
• 18:22
  denominated by banks and and resource companies. So if you're looking at the resource sector
• 18:27
  there's actually we're in the midst of a beginning of a huge structural resource boom,
• 18:31
  which is why BHP has risen so much. So I think a lot of those commodity driven businesses, Rio's
• 18:36
  and the BHP and the Fortescue's and so on, they're going to grow well. And I think just so you know,
• 18:41
  with banks, they make money from what's called a net interest margin, where they're borrowing at a
• 18:46
  wholesale rate and they're relenting at a higher retail rate, or they're taken on deposits at a
• 18:51
  4.9% rate, and they're lending back out at 7 or 8. So they're taking an interest margin spread. Now
• 18:56
  when rates go up, banks typically get a bigger interest rate spread, so they actually end up
• 19:00
  making more profit at higher rates. Just so you know. So I would say if we're denominated by CBA,
• 19:05
  ANZ, Westpac, NAB, etc., the big four banks in the ASX, which we are. If you look at the top ten ASX
• 19:12
  companies, pretty much all the banks are in there. We're going to see the ASX probably do okay. Right.
• 19:17
  But when you increase rates, you effectively decrease the net present value of assets with
• 19:22
  there forward future cash flows. So don't be surprised if we see a bit of a stagnation
• 19:27
  potentially of the ASX returns. So it'll impact those who own shares. Okay. I think then you've got
• 19:34
  jobseekers looking for new jobs. This is the fifth person that it impacts to because when growth
• 19:38
  stores to 1.3 and then we go through a recession. Businesses aren't recruiting and hiring to grow,
• 19:43
  then they can be redundant and shrinking. They're scaling back. So you're going to see a this is
• 19:47
  where you see a quick rise in unemployment go up. Right. And then of course if you're unemployed and
• 19:51
  you can't pay your mortgage, then you get foreclosures. And then it's a bit of a
• 19:53
  self-perpetuating cycle down. And this is what happens during recessions. Okay. What does
• 20:00
  okay. Here's what does okay. During times of inflation. Owners of like physical assets in a
• 20:06
  sense that have no debt on them. Pricing power businesses like we have a laundromat business.
• 20:11
  It's a necessity business effectively. It's not disruptive to AI. And we have pricing power. So we
• 20:17
  can slightly increase the price in the machines that they use based on inflation, based on the
• 20:24
  competitors too, at the same time. Right. So if you've got a business that's got pricing power,
• 20:28
  you're good to go. And anyone with low debt and high skills, you tend to be okay because you can
• 20:33
  price your offerings to your clients and customers commensurate with increases in
• 20:39
  inflation. So you're seeing this, you know, obviously at the pubs, restaurants they're all
• 20:44
  doing this. They're increasing their prices to to combat inflation. Right. So there's a gap between
• 20:49
  the prepared and the unprepared as to who gets affected by stagflation. Okay. Without getting into
• 20:56
  gold, I also think that is France course. I think the peak of the gold. You can go back to listen to
• 21:02
  episodes. We spoke about this. The peak of gold happened when, you know, the line at the bullion
• 21:07
  shop in Sydney, Macquarie Street in Sydney. There's a shop there where you can buy gold bullion, and
• 21:11
  there's a massive line out the front of that place that's gone now. Those who are going to buy
• 21:15
  gold have done it now, and it doesn't seem to be the reserve asset that it's supposed to be during
• 21:20
  uncertain times, which is fascinating. And don't even get me started on crypto. That is just like a
• 21:24
  worthless that's now becoming progressively just worthless. And you haven't been. If you've been
• 21:29
  following me for the last 3 or 4 years, five years on this show, I've been very solid with my
• 21:35
  apprehension to even touching that stuff because it's now just it will just disappear. There's no
• 21:42
  because there's no value in it. So I don't think that's a protection mechanism at all. So I would
• 21:46
  say if you're going to protect yourself, it's like have high skills, have low debt, have businesses
• 21:50
  with pricing power, don't be exposed to variable rate mortgages and be versatile. And this is the
• 21:56
  beauty of it. All right. This is what I this is the philosophy we talk about on this show. So now is
• 22:01
  where we're coming into our own and we're prepared for it, which is great. Right. You just
• 22:05
  want to be prepared. What has done well during these periods, as I said, real assets and
• 22:09
  businesses and commodities, which you're going to see now, which are going to buy shares, I think
• 22:13
  commodity sectors pretty good pricing power businesses. So again, as an example of our
• 22:16
  laundromat, we also have an accounting business. So those are the types of businesses that are
• 22:20
  essential and needed. And you can price power accordingly. There's an element of like turn
• 22:25
  deposits I know that inflation wipes away those. But if you can get some sort of even first rate
• 22:31
  mortgage, it's not too bad because as they increase rates, you're going to get a higher
• 22:36
  savings rate at the turn of deposits. Okay. It also protects you a little bit from being in high
• 22:41
  growth stocks that might get hit. But at the same time, I'm not selling any of my stocks. There was a
• 22:46
  really interesting, uh, episode with the CEO and Jeremy Grantham, the perma bear, and he said in
• 22:52
  that show to Stephen Bartlett, he said, oh, you know, sell your stock, you're not going to make money in
• 22:57
  your stocks, blah, blah, blah. Very important that you don't do stupid things like that and try and
• 23:01
  time the market because you don't know what's going to happen. Like if the United States gets to
• 23:06
  a 10% GDP growth, it's just going to crank. Who knows? We don't know how AI is going to play out.
• 23:11
  We don't know. So what do I look for in those times of uncertainty is Warren Buffett. And so
• 23:15
  what he's got is he's got a 290 odd billion dollar portfolio. He's got 400 billion in cash. And
• 23:21
  Berkshire Hathaway itself is about $1 trillion. So really he's got a lot of cash on the sides. But
• 23:26
  he's not selling out of his Apple stocks. He's holding them but he's not adding more. So I think
• 23:32
  I approach it the same way. I'm not currently adding more stocks. I'm building cash, but I'm not
• 23:37
  selling my stocks. That's the difference, right? Um, now we talk about the last thing you can do is
• 23:42
  obviously improve and increase your skills. And I've mentioned that it's the ultimate hedge
• 23:46
  against inflation. And stagflation is where your skills can be deployed at a higher rate of return,
• 23:52
  and it's how you actually combat inflation the best. So if you're not investing in your skills, be
• 23:56
  it reading, writing, Communication skills. Leadership skills, technology skills AI skills
• 24:02
  like especially your ability to use Claude to create things, communicate with people like. These
• 24:06
  are all important skills that you should be spending a lot of time at. Like on the weekend, I
• 24:09
  was spending a lot of time learning those skills. I know what you're up to. Some people are out
• 24:12
  there picnicking, and I'm not saying don't leave your life, but this is the time to really get
• 24:16
  ahead of the game by enhancing those skills, right? So what hurts long term? Well, cash in the bank
• 24:21
  with no return in a term deposit will hurt you for sure. Long dated bonds will hurt your
• 24:26
  speculative high growth assets like I think those that you know, the high growth companies, they're
• 24:30
  going to get hurt standing still and waiting for things to change without you doing anything. You
• 24:35
  get hurt doing that and holding debt, you know, whether it's on your car or whatever it is, just
• 24:39
  being in leading with debt, it's going to hurt. And so be prepared for, you know, potential changes in
• 24:45
  your employment, potential changes and increase interest rates. Just understand that that's
• 24:48
  probably coming. Okay. Um, so I would say in order of what I would do if I were you would be
• 24:55
  to one kill any variable rate debt you've got that's running there, especially high interest
• 25:00
  debt. Get rid of that if you can. Stop holding cash in an account. That's beyond three months of
• 25:05
  expenses for your emergency fund. Stop holding that in a 0% interest account. Do something with
• 25:09
  it. Put it in if you need to. And you're not gonna invest in stocks, put it into a term deposit at
• 25:13
  some sort to get some return to combat inflation. And make sure if you do have a portfolio of
• 25:18
  assets that it's geared towards, like we have a big position in railroad because it's a fixed
• 25:23
  asset, it's a combat against inflation. We own oil stocks and the companies that we own. They've got
• 25:27
  pricing power to price through the inflation. So I think even in our other business, our private
• 25:31
  small businesses we have the same. So look at your portfolio of assets and understand what are the
• 25:36
  can this. Is this exposed or is it going to move through. Now just understand what you own and why
• 25:41
  you own it. Right. Um, gold bugs got rich a little bit once the other day, and then I think it's done.
• 25:47
  So I'm not suggesting that that's a good place to be. And favour income over speculative growth in
• 25:53
  high growth. You know the old saying when Robert Kiyosaki in his book invest for Cash Flow, It
• 25:58
  really helps because that's what pays your rent. That's what pays your expenses. It's not growth.
• 26:02
  There's a really interesting thing that go from Bridgewater Capital, Ray Dalio said the other day.
• 26:07
  He said in a situation that precedes a recession, you tend to get this explosion of wealth but a
• 26:13
  reduction in cash flow, he said. When you're seeing wealth go up but cash flow, not follow it, you're
• 26:19
  seeing the preamble of a recession. He means what people start to have to do is sell their wealth
• 26:24
  to get the cash to pay for their life. So you're seeing this pump up in the real estate sector.
• 26:29
  It's called the wealth effect, where you do a wealth, you have wealth on paper being built, a
• 26:32
  wealth in assets and in stocks. In America, it's wealth. It's Elon Musk, it's wealth. He's got it in
• 26:39
  $1 trillion, but it's not cash flow. So he starts to see eventually people start to sell their
• 26:43
  wealth to pay for their needs with cash flow. And that's why you're probably seeing a fall in
• 26:46
  Bitcoin, etc., because they're like, oh, we need to sell our wealth now. And that's what's happening,
• 26:50
  right? So you understand and you know now that growth is low and falling. It's going to have an
• 26:56
  impact. The rates are probably going to go up. It's going to have an impact on those with debt. It's
• 26:59
  going to have an impact on employment. And it's now about getting in front of this and being
• 27:06
  intelligent with what you do next. So if you don't make the hard decisions now about how you manage
• 27:11
  your personal finances, the market will make them for you. If you're feeling hesitant about taking
• 27:16
  action, don't get in front of it, right? Because with higher inflation, low growth,
• 27:23
  you can see the writing on the wall that over the next two, three, four quarters, we are probably
• 27:30
  going to see a worsening of the economy, sadly in this country. So I hope that makes sense. I hope
• 27:37
  you understand what stagflation is, how it's happening, what's going to happen in the future,
• 27:40
  how to protect against it, how it impacts you. You know, the old saying goes, the proof will be in the
• 27:44
  pudding and time will tell. But here's what we definitely know stagflation doesn't hurt everyone.
• 27:48
  Equally. It transfers wealth from cash holders to real asset owners, from the unprepared to the
• 27:53
  prepared, from people who froze right and who people who took action and didn't in the 1970s.
• 27:58
  People made fortunes, right? I mean, I remember Warren Buffett. He he basically didn't participate
• 28:03
  in the market in the 70s. And then when it fell to shit, he came in to dominate. They were buying
• 28:07
  stocks for so cheap. Right. So there is a way for you to make money out of this too. All right. So
• 28:14
  just understand that it can be done if you're prepared and ready. Okay. So, uh, if you enjoyed this
• 28:21
  episode, go ahead, hit the subscribe button. Share this with a friend. If they have to understand
• 28:24
  what's coming and this makes sense to you. Share it with a friend. Come and talk to me in the
• 28:28
  comments, and I'll come and talk to you in there about what your feeling is about this. How do you
• 28:31
  feel? How are you preparing for it? And let's see what the RBA does and let's see how this unfolds.
• 28:36
  And I'll see in the next episode are the Money Grows and Trees podcast. Thanks for listening to
• 28:39
  Money Grows on Trees. If you enjoyed the episode, leave a five star review on Apple Podcasts and
• 28:44
  Spotify, and subscribe to us on YouTube so you never miss an episode. And if you're serious about
• 28:49
  building wealth, make sure to check out the links in the show notes and follow me on all social
• 28:53
  media platforms at Lloyd James Ross for more. See you in the next episode.