 Interest rates versus inflation. Very hot topic these days. As we all know, inflation is at an all-time high. The highs has been in probably like 50 years since the early 80s. Now also every month we gotta hear from the Federal Reserve Chair, Mr. Jerome Powell, as he speak about how he's gonna continue to raise interest rates. So now it's like the dog chasing his tail. Inflation goes up, interest rates goes up. Interest rates goes up, interest rates keep climbing, right? What happened to this back in the 80s? So we're gonna talk about this. What does that mean? How does hire interest rates? Who does that benefit? Because, you know, there's always a winner in this game. Who does it hurt? Where's inflation going? How you can position yourself as an investor? All of that and more in today's episode. Interest rates versus inflation. But without further ado, ladies and gentlemen, boys and girls and true environmental agents, thank you for tuning into the Investor Show. As always, this is your greatest host. The Prince of Investment, coming to you guys and girls live all the way for the beautiful city and state of Honolulu, Hawaii via Denver, Colorado. Don't forget to hit that like, subscribe, comment, share button. And as always, I don't have a lot of time and I definitely know you guys and girls don't have a lot of time. So we're gonna jump straight into it. So today's topic, ladies and gentlemen, as we can see, we're gonna be talking about the inflation rates versus interest rates. The Federal Reserve Chair Jerome Powell came out today and said, we are going to, he was at the K-Co, C-A-T-L conference today and he spoke about, hey, we're gonna chase down this inflation and we're ready to take interest rates to the highest level in order to come back inflation because inflation is a bad thing and it eventually hurt everybody. Now it's like I always think about this. Every time the CPI report comes out, the consumer price index report comes out, boom, here come Jerome Powell with inflation. Inflation just ticking up. I mean, interest rates are just ticking up, ticking up, ticking up. Interest rates were cut to zero during the pandemic of 2020, March 2020. Now they sit at 2.25 to 2.5 respectively. What does that mean? Interest rates have jumped up over the time. Interest rates have raised to 4% so far this year. Now when interest rates start to continue to rise this way, this is a great thing for savers, people who are out there saving this happen in the 1980s and as you can see now, you're probably getting a lot of, you're probably seeing those infomercials, you're probably getting stuff in the mail, you may be getting phone calls from banks telling you like, hey, look, earn 1% on your money, earn 2%, 3%. Your city's interest rates become relevant again because of the rising interest rates. This was good. People was earning double digits. Can you believe that in the early 80s? People was earning double digit interest rates in the early 80s, right? Because that's what my grandmother always told me, save your money. My grandmother told my dad, save your money. My dad told me, save your money because they was making good money, 10%. Put your money in the savings account and earn 10%. Put your money in the savings account and earn 15%. Man, that's not a bad deal. But whatever it calls, there's an effect. On the other side of the table, you had inflation. Now when you go to go buy your new house, can you imagine spending 18% on your house? Right now we're crying at five to 6%. Everybody's like, oh my God, interest rates, are going through the roof. They've doubled in the last two, three years, which is true. But you gotta think about it. We had five to 6% here in 2022. The late 80s, you're talking about being at 18%. The carry-off, not the carry-off, but the caveat to that was back then in the late 80s, housing prices was a whole lot cheaper. It was kind of hard to find a six-figure house. If you paid six figures for a house, you was probably a big baller, right? Now today is kind of hard to find a house up under a million dollars, right? So things have changed. Well, you had low housing prices, but you had high interest. Now today, you have higher housing prices but low interest rates. Anytime you cut interest rates, you always put up blots inside of asset classes. That's what we've been seeing. That's why housing market houses been going up 50% in a year, this and that. People always ask me, Prince, why haven't you gotten any deeper in the real estate? Why, you know, do you own any homes and apartments? Do you run them out? No, I want to get into that space. I mean, it's a real asset who wouldn't want to buy an apartment complex, a house, a duplex, whatever. But knowing the cycle of the market, I feel as though housing market is at a peak. And as you can see, housing market prices are starting to drop. All that overbidding, you're not seeing overbidding for houses anymore. People are getting their houses at the X price all a little bit lower. So you're seeing that housing market kind of tether out and starting to come down. I want to be in the market when the foreclosures hit the market because I know there's a lot of people that are in houses they shouldn't be in just like we saw back in 2008. Now, great, higher interest rates is great for people as interest rates continue to rise. I said it before, great for people who are saving money. But it's horrible for borrowers. What do you mean by that? People who are borrowing money who are the number one notorious people who continuously borrow money? I mean, besides the bottom 50% of people, you know, I'm just speaking in the econ system, it's businesses. Businesses borrow most of the money. Prince, when you're going this, take it and listen. Businesses borrow most of the money. And why do the right wing and people love capitalists love businesses? Because businesses usually create revenue which creates jobs, right? So when money becomes tougher and more expensive to borrow as we're talking about these interest rates that are continuing to climb, inflation's at 8.5, interest rates at 2.5. What do you think is interest rates continue to go up? What is that gonna do to the borrowing pool? Is it gonna increase it or decrease it? Money is becoming more expensive and harder to borrow. When you can't borrow money, most companies when they borrow money, they borrow money and open up a new location. They borrow money and make an expansion. When they open up a new location, they need new employees. When they expand, they need new employees. What happened when they can't borrow, right? When they cannot borrow money, they start to retract. Hey, we don't know what economy's going. Let's slow down a little bit here. Those are the things you have to be worried about, ladies and gentlemen, inflation and higher and higher inflation rates, right? When you see those things starting to happen, you start to wonder and ask yourself, where am I positioned? Where am I adding this entire economy? Who's gonna benefit? So in this episode, we're gonna talk about who's benefiting from higher inflation rates because we can anticipate inflation rates are gonna continue to rise. As not inflation rate, but interest rates are gonna continue to rise as inflation continue to rise. So we're seeing inflation kind of topple off a little bit. So we're gonna wonder what's gonna happen with interest rates. So a lot of people are projecting interest rates to go up. They've already gone up 4% this year. People expect them to go up another 2% to 3%, not percent, but two to three times in the following years, right? Because guess what? Inflation is at 8.5%. And the Federal Reserve goal for inflation is to be at 2%. So what can they do to cut down inflation? They have to raise interest rates. When you raise interest rates, you're wondering why your stock portfolio is not looking so well. You're wondering why your house that you just brought, how's the market is not jumping up and down so well? It is doing what it's designed to do. Inflation interest rates are a way to come back and to work inversely with inflation rates, right? So people don't want inflation because the price of goods and services continue to rise. And even though wages are not keeping up, the bottom part of society have seen a nice jump when you see minimum wage, but that's not something you wanna hold on to forever. So as we can see, the top 10% of households account for 70% of the net worth in America. While the bottom 90% of households account for 75% of debt. I had to look down and make sure I wrote that note before I came in. What does that mean? You're saying that the bottom 90% account for 75% of debt. As interest rates continue to rise, they're getting hurt both ways. If I owe $10,000, $15,000, $20,000 on a credit card and the interest on that credit card is continuing to rise on top of when I go to pump gas, gas prices are going up. Ooh, prices are going up. I'm getting hurt both ways. This is why the rich get richer than the poor get poorer because when she get in that hole, it's hard to get out of that hole, right? So you're seeing this happen. Now, interest rates have gone up 4% this year. Who stands to benefit from the rising interest rates? Banks, insurance companies, broker houses, right? I looked at the financial sector, XLF is down year to date, 13%. S&P 500 is down 16%. So the financial industry is outperforming the broader market even though it's still down 13%. When you're seeing who's benefiting from this, as they're starting to benefit from this, you got to ask yourself, how does a bank benefit from rising interest rates? We all know how banks make money, it's simple. They borrow your money, they pay you 1%, then they lend it out and charge the lender 10%. That's called a spread. Some of them borrow their money out and then they go and get a government yield on a six month yield and they have a nice little spread. I'm borrowing it out, I'm borrowing money at 1%. You bring in your money, you bring in your paycheck, it comes to the bank. The bank takes it and says thank you for banking with us. Here's 1% of the money for banking with us. And then they go out and then they give you a credit card and the credit card charges you 12%. Or they go out and give you your car and charge you 3% on your car, 5% on your car. You go buy a house, it's five, six, 7%. Things like that, right? That spread, I take $10,000. I say thank you for putting your money here. Here's $10, over the year, I'm gonna give you $1 a month or not even $1 a month, something like 90 cents a month for letting me borrow this $1,000 from you. I'm gonna give you 90 cents a month saying thank you. But then the person that just came in the door and wanted to borrow money, I'm gonna lend it to them at 10%, right? That's $100, over the next year, I'm gonna make $100 from lending out your money. I gave you $10. I lended it out and made $100. Meaning that spread, I made $90 off of money that I don't even own. That's the spread. As interest rates continue to rise, the interest rates of what money is borrowed at continue to rise. So that scenario I gave you before. I said, hey, you gave me $1,000. I gave you 1% for letting me borrow that $1,000, which is $10. I gave you $10 and said thank you for letting me borrow that money. Then I said, I will out and lend it for 10%, which is $100. And the difference was I made $90 off of the spread. Now let's say interest rates went from 10% to 20%. That same scenario, I may let you borrow this money now for 1.5 or let's say 2%. Now let you borrow this money for 2%. So here's $20, thank you for letting me borrow your money. But I just lended your money out for 20%, right? Now, 20% now minus $200 minus the $90, that's 110. So you can see in the scenario before when the spread was 10 to 1, lended it out at 10% to borrow, collected 1% from the lender, from the depositor, I only made $90. But in that same scenario, when the interest rates rose to 20%, and I gave you 2%, I say, hey, I'm gonna double the interest rate that I'm letting you banquet me for. And I gave you $90, it was at $90, $20, I'm sorry. I gave you $20 for the 2%, but I lended your money out for 20%, which is $200. So I gave you $20, I'm sorry, I gave you $20. Then I profited $200 from lending it out. So $200 minus the $20 is 180. I don't know why I thought it was 90 in the first scenario stretch that. So that's 180. So my profit margin has doubled. It went from $90 to $180 of money that came out of thin air by you depositing your paycheck and then me lending your money out. So as interest rates climb, financial industries start to benefit from that. Insurance companies, guess what? When interest rates are going up, usually that is a sign of a good economy. You can't raise interest rates in a bad economy, right? So as interest rates, guess what? Now that I'm buying a house, now that I'm gonna buy a house, I'm gonna go buy that car, I'm gonna go buy that truck, I'm gonna go vacation, buy that boat or whatever. But guess what? When I buy that car, what do I need? When I buy that boat, what do I need? When I buy that house, what do I need? When I buy that, I don't know. I don't know. House, car, there's so many other things that you can put in the scenario, boat, whatever. All that stuff is gonna require some form of some type of insurance, ladies and gentlemen. Some type of insurance. So when you do this and you have to raise this type of money with this type of insurance, what's gonna happen, what does that mean? That means that people are gonna have to buy more insurance, think about it. I went from driving a Chevy Equinox to a Dodge Ram. Chevy Equinox, it only costs you $14,000. Insurance is only 50 bucks. Now you got a Dodge Ram. Insurance is 120 bucks or whatever it could be. I'm just throwing out a scenario because when people make more money, they spend more money, right? So usually when interest rates are rising, that means the economy is doing well. When the economy is doing well, that means that people will need more insurance, just nature of the business. Also broker firms, when people are making more money, the smart people to up 10%, they start to invest more money because guess what, when do people wanna invest? When people are logging into their investment account, they're watching those cryptocurrencies. They wanna jump off a building. When they watching, I'm figuratively speaking, I don't want anybody out there to take anything out there and say, oh my God, you said jump off a building. We just had the bad bathroom beyond CFO do this. So anyway, when you're looking at your crypto portfolio is down, stock portfolio is down, real estate still kinda up. It's kinda tickling down too. Nobody wants to invest. Nobody's enticing. Nobody wants to even hear investment knowledge. Nobody cares. When last year the economy was booming, cryptocurrency was at $60,000 a coin. Everybody said, this thing is about to be at $100,000 a coin. We're about to take off the world, take over the world, right? When you saw Amazon go from $300 all up to $3,000, Apple go all the way up to $700, do a stock split, go back up to 500, do another stock split. When you see Tesla go to $2,000 and go here, go there or whatever, right? When you see all of these things, ladies and gentlemen, people want to invest. That's when everybody's like, man, I need to get into investing. Cause that buddy is telling them, showing them their phones, showing them how much they made on their cryptocurrency. They're showing them how much they made off of this stock. They're showing them how much they made off of day trading. And everybody's like, I need to get into investing. So guess what? When everybody starts to increase investing activities, brokers make money. Also, brokers make money when you have massive sell-offs and the pandemic brokers make money, Goldman Sachs trading floor made a lot of money. Brokers make money when people get in there and get the panic selling. Oh my God, it's a pandemic going on, people are dying. This is like, I am legend, right? What does that mean, ladies and gentlemen? People out there are looking for different ways to invest money, but they go into what I like to call the hot hand betty, where they're just looking for whatever the hot hand is. And right now, if I say utilities is the hot thing, they want to get into it. So people as broker houses start to make more money because people become more interested in the investing world when the economy is doing well and interest rates are rising. Now, I just gave you guys and girls a micro view of economics, right? What's going on? Interest rates versus inflation. Now I want to give you a macro. Micro meaning very small, looking inside. Macro, we're going to take a step back, look at what's going on in the economy and look at five years from now. Well, would it even matter what the interest rates were? Would it even matter what inflation was? Doesn't even matter who the president was? Was it a Democrat? Was it a Republican? Who was the fair chair? It probably won't even matter as we are probably in a J curve, right? That sideways J, that little dip that's going to go back up. So what I say, from a macro level, it doesn't matter, continue to invest, take this as a buying opportunity, go into that consumer discretionary space, the Amazon's of the world, and watch them and thank me later, because this is not advice to tell you what to do, but they're the most discombobulated sector of the market, consumer discretionary because of inflation. Inflation, stocks don't go off of what's happening today, it's going off of what is predicting to happen. It's predicting that inflation will continue to be a problem. And when it continues to be a problem, it will draw up the real, dry up the real income, meaning people don't have that much disposable income. People don't have that much disposable income. What does that mean? How is that going to affect everybody? People don't have a disposable income. That means that people don't have that much money to go out and buy that new shirt, that new pair of shoes, whatever sort of consumer discretionary is getting beat up, they will be the shining star in a matter of time. Just wait. Especially since you got Amazon, who just did a stock split, and also you had Google who just did a stock split as well. So, and look at the NASDAQ. The NASDAQ technology is the most beat up sector of all of the sectors, right? So there we go, interest rates versus inflation. It's like the dog chasing his tail. I wish I was a great mean writer, but as the interest rates, as the inflation continues to rise, you know, we're like the dog chasing his tail because we threw all this money into the economy during the pandemic via PPP loans and stimulus packages or whatever. Then now we're wondering why would you have so much inflation? So as inflation go up, here we go. We're chasing it down. We're trying to chase it down, chase it down, chase it down. In the meanwhile, in the short term, there will be growing pains. There will be layoffs. Unemployment will start to increase because companies will become afraid to expand. Money will become harder to borrow. But on the flip side, if you have a savings account, you start to make a little bit more money in your savings account. Well guys and guys and girls, don't ever think you got it bad. Go back to the 80s. You think five to 6% is bad. In the 80s, it was at 18%. Why wasn't it at 18%? Because that's when inflation hit its peak in the early 80s. Gas prices through the roof. And you're talking about inflation up in the double digits. The Federal Reserve, I forgot the name, Paul Volcker, he raised interest rates all the way up to combat inflation and it got ugly. We put ourselves into a self-induced recession. Technically, according to what they did in the 1980s, we're in a recession right now. But the White House changed the meaning of recession in the middle of a recession. But anyway, ladies and gentlemen, that's gonna be my time today. Interest rates versus inflation. Who benefits from interest rates and inflation? What's the good and the bad part? And the historical presence to, not historical presence, but a historical lesson on when we've seen this in the past. Hope you guys and girls like this, if you did hit that like, subscribe, comment, and share button. Drop some comments below. Also, DM me and say hello. And contribute to the Wesley Lernes Children's Book, Children's Financial Literacy Book and Paying. Every dollar you donate will be matched by the Contribution App, Contribute App. So head over to the Contribute App, check the description link below and get financial literacy books into the hands of kids around the world. So kids can learn about investing, credit, and insurance. Until the next video podcast, cartoon, whatever it's crazy you see me do around the globe, my name is Prince Dex. I'm the Prince of Investment. 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