Coronavirus & Property Investment – Stagflation – Economic Certainty or Fantasy

Brett Alegre-Wood
April 8, 2020

Could the unemployment rate jump despite the Furloughing? Is all the money printing and stimulus going to end in inflation... Well could this lead to the dreaded Stagflation. Today we look at the case for stagflation and how long it would last if it did.

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Video Transcription:

Hey, guys welcome to coronavirus of property investors today we're covering stagflation. Is it an economic certainty or is it a bit of fantasy and the answer if you don't wanna watch the rest of the video is basically I think that it's it is possible but I think given what's happening right now with the governments around the world and their commitment to the individuals and the small businesses and the very different approach from 2008 is that it's probably unlikely. I think it would need to bridge our trust and our confidence and actually for once excluding the USA we're building lots of trust and confidence or the government's are building lots and trust and confidence in the people so you know that's good news.

It's you know it is a very marked difference from 2008 where you know governments around the world did top-down economics. Where they basically stimulated at the top and hope that would trickle down you know took around economics. It didn't work you know, it didn't work and in the UK we had 10 years of austerity because of that failure. Whereas we could have been out a lot quicker had we actually faced up to it and done what we've done now.

So anyway but let's start off let's get into it we'll start off with the other stuff so basically we've got 10 days left on my 30-day countdown, 8 days of you County from Boris's locked down 21 days. And you know the bottom line is with that is you know when look I mean right now this week is the deciding week. And I think really London if we don't see case and case is submitted and then obviously critical cases and then deaths will follow through but if we see the cases and new cases dropping that's actually good news for London but we may see the ripple out. Hopefully, touchwood we've got the lockout has happened and we may actually have caught it and we may see that we're starting to get to the top of that bell curve as I was discussing so yeah but 2020 still cancelled that that's a given now.

1.43 million people affected with cases 82,000 deaths you know the USA is just still getting hammered but the good hope is at New York the number of cases has dropped off which is good and obviously, that will filter through to the number of deaths and hopefully I can get on the other side of that cycle for New York obviously the ripple is still going to come through most other places in the US. But UK where I think this is decision week this is where it's really going to be painful with the number of deaths. The most amount of deaths yesterday that's likely to continue you know yeah so we'll see how that goes but look let's focus on recovery because really that's what I want to focus on.

Look there's 384,000 I'm sorry that 1.34 million so roughly 25% of cases have actually been had outcomes whether that be passing away or whether that be recovering and 79% of those cases 302,209 have recovered so 79% obviously the alternative is that yeah there's been you know the rest of deaths around 82,000 deaths you know that's just in fact it says I've weakened that should say since yesterday there are 37,000 more recoveries so that's good news that's something to celebrate and we're hoping that figure continues to go up and there you know the actual figure starts to drop down but that will come in time.

All right let's talk about stagflation so stagflation is interesting one because you know we can talk about inflation because inflation is generally always there and that's a sort of standard and we try and keep inflation at 2% per year because that's good for governments. It allows them to borrow allows them to take on debt and allows them to decrease the value of the debt. Stagflation isn't very good and the reason the problem of stagflation is not if it's very short-lived but the problem is stagflation can be very long-lived. Because you're in this situation where the government's printing money, inflation prices of rising, unemployment are rising and you've got this GDP and demand dropping. So the economy's not producing okay but prices are still going up and the problem is one of the tools that most governments will use or most central banks which is that pump more money into the economy. So you know the monetary policy and also fiscal policies through the governments through borrowing and things like that. But the issue is the more money they pump in the more prices inflate and the more obviously unemployment goes up GDP drops and demand drops. And so you're in this challenge where you know it's almost a race to the bottom and you've got to really sort of look at that. So that's inflation so this is you know those four things downwards GDP, downwards demand, increasing unemployment, increasing prices okay that is the challenge.

Is stagflation likely now that I talked about in another video in my manual car analogy where what we've got to find and what the government has to find not as individuals but the government has to find is the biting point you know you've got the accelerator and the clutch. If you ride the clutch then your governments each country stalls if you put too much stimulus in, you end up with inflation yeah if you stall the car totally yeah you end up with potentially a depression alright. So you know this is where you've got to look at you know I saw a deflation, not depression, is the worst of all outcomes you know realistically. I'm not actually that concerned about a depression situation right now I think because the way people have handled it into the governments around the world have handled it by injecting money into the individuals and the small businesses to keep them from losing staff you're not going to have the masses of unemployment possibly okay so you've got to get that biting point and that body point allows the economy to take off smoothly like a manual car.

Look the bottom line is you know the direct investments in individuals you know that means there's less unemployment, less unemployment means there's money available to go back into the economy to kick start it. That's really what we want to kick start demand kickstart the GDP and get it back. We've pressed the pause button on the economy now what we want to do is we want to press the play button when we when it's suitable and we can come out of that you know and the sooner we can come out of that every country worldwide then the sooner we'll start to get back into the grove and get back into that.

The danger is this and if you own a business out there the one thing I'm going to say is this is if you're not careful yeah I own a business a sales business and sales business starts at zero every day. Now what I have to be very careful of is this we've gone into this COVID/coronavirus now what we've done is we've actually you know through furloughing our staff in that particular business because our income has dropped to virtually zero we've furloughed the staff we've still got some costs that I need to sort out but you know that's fine I'm comfortable with that and I have multiple streams of income and out which hopefully you have to but if you haven't and you're relying on that then what you're gonna look at is right now when they press play on the economy what happens? You may take three months in my business it takes three months to get from no sales to sales yeah so to get cash coming in the door for that particular business. So I've got to look at my cash flows and I'm gonna look at how I kick start that business and effectively I if the furlough stops I've got to now fund that business for three months before it gets back into making its own money. Now if the government says press button go furlough stop now I'm as an entrepreneur and as a business owner and as an employer I've got to sit there and go can I afford that three months, if I can't well then the likelihood, is I'm gonna say right guys, unfortunately, redundancies you know half of you guys are leaving or whatever it is. Then that will increase the unemployment rate increases if lots of businesses do that.

So it's important and it's paramount that the government looks at how we come out of this so guys you know Boris if you're listening from your hospital bed you know just consider this Rishi I'm sure you're listening anyway. But the bottom line is you need to think about how we come out of this we can't just press play stop everything back to normal we've got to ease back into this okay and I think that's important. You know and the bottom line is it is as much about increasing demand and getting consumers to spend and you know goods and services and all that stuff as it is about maintaining trust and confidence in the government, their policies and in their approach and if they do that then they get it right then actually potentially we can press play and it probably takes three months you know to come out and be back into normal sort of trading and probably six months before we start seeing you know a full economy again.

That's probably the ideal case okay now my question is this how can you as a property investor take advantage of this you know this thing this you know press button and the three months you know. What you've got to realize a high inflate first of all if we have inflation which we are likely to because it pumping lots of money in the economy okay your mortgage debt will be less. Inflation degrades the value of your mortgage over time and that will work out. So high inflation actually helps property investors from a perspective. But it doesn't necessarily help the economy okay you don't really want and that's why they pitch at 2% because it's a good amount of inflation. Alright but if it's running 5%, 10%  you know that's starting to get too high and that's where they start to on the one hand if they've got a stalled economy and all of a sudden their normal tricks and their normal things are to you know damp down the economy to stop prices rising well I can't do that. So they're really they're restricting what they can do.

Anyway, what do you have to do so what is you as a property investor or as an employer or an employee, first of all, get together your war chest because you might have to have that three months or in your business, it might be a month it might be six months whatever is. One of my mates you know he sells aircraft and his cycle is 12 to 24 months that he has to nurture someone before he gets a sale all right so he's got to be really careful that his business may have to fund him for that amount of time before they seen more sales coming through. Get your plans out work your plans out your business may have changed you may have to pivot your job may have changed you may have to pivot you know your career may have changed you may have to pivot. So you look at these things and really get a sense for what's happening then what I talk about is some two scenarios one which is what happens if interest rates go you know by up by say 2% to 4% if you run those two scenarios can you afford a 2% can you afford a 4% increase across all your mortgages if you can then you can probably sit back and relax from that perspective. The other side is you know act as if you've lost your job and it takes you three months to get another job at 80% of what your previous or the earning and if you can survive that if so if you can survive the 4% 2% 4% and that well then you're probably sitting pretty I think. You know it's a good scenario to run yeah because what it does it allows you to sleep at night and you're not worried as much about what's going on out in the marketplace all right.

The other side is you know as an entrepreneur as an employee as a species we've been working so bloody hard we've been bloody you know I mean if you're looking down from space I'm sure you know the aliens up there looking down going look at these ants running around like headless chooks ants running anyway the bottom line is we've been running so hard take some time to recover you know to take a couple of weeks off we've probably got it you probably got a good couple of weeks where you can just sit back relax recuperate and allow those ideas and the creativity to flow. I think if you do that will really get you some clarity around ideas you know be opening new ideas but by the same token what I'm saying is you know get back into it then plan out what it is and then what you need to do is get ready for when they press play because at that stage massive action. Getting in there and getting out there and really getting on top. The government has done the right thing in what they've done with furloughing and you know stimulating and all these packages now you know once they press play again it's our responsibility, everybody's responsibility to kick things off get things moving and not be stopped by you know the virus or you know the outcomes the virus.

But look guys you know that sort of hopefully a bit of an idea of stagflation you know it's a pretty simple concept do I think it's gonna happen it is a probably it is a possibility you know do I think it is gonna happen I don't and the reason I don't because this direct stimulus to people and business is gonna have a profound effect on the confidence in the government's on a lot of things like that. Yes we know we're always paying out on you know I'm the best at it you know taking the piss out of the government and politicians and all that sorts of stuff but I have to say they've done pretty well this time you know they really have you know excluding the US I think that's pathetic the case of you know think but the bottom line is they've done a really good thing you know most governments around the world that have enabled the unemployment rate to stay you know relatively low compared to what it could have been because you know pausing an entire world economy pretty much was which is what it has done two-thirds of the world you know it's a massive massive risk. but I think touchwood it may pay off you know but in any case, prepare for it get your war chest get your plans if you have to pivot, pivot run your scenarios so you know you can sleep at night and then get ready to run hard but take some time to recuperate and take some time you know to really focus on getting that creative juices flowing because times are changing you know AI robots automation all these so things are coming to your industry you know I don't care who it is so that's a bit off so they can talk about in another video.

But guys so stagflation hopefully that gives you a bit of an understanding of stagflation and what my thoughts are but yeah make sure you subscribe, comment I'm happy to answer any questions happy to record videos in response and you know whatever you want to know and yeah stay safe stay healthy and stay at home right now and we'll speak to you real soon see you later guys bye


Tags

Property Education, UK Property, UK Property Investors


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