Monthly update: Rampant inflation and Very Bad Things

Jul 31, 2021 9:01 am

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Here's what had my attention in July...

πŸ’° This month in investing

I seem to bang on about inflation a lot, but I find it weird that other people don't talk about it more. Your money is becoming worth less with every passing year – isn't that worth remarking on?

Inflation is currently above the Bank of England's 2% target – but the Bank is spectacularly relaxed about it. They claim it's due to "transitory" factors related to the economy opening up again, so will soon settle down without any intervention needed. This interpretation suits them, because if they took inflation seriously they'd need to combat it by raising interest rates – which, for various reasons, they have no desire to do.

One of my favourite economic thinkers, Russell Napier, disagrees. He believes that while there are transitory factors, there are also structural factors caused by the amount of money in the economy being increased by government and Bank of England policies. He points out that historically, whenever the money supply in a country is growing by more than 10% per year (which it currently is), you always see price inflation above 4%.

If your wages were also growing at 4% and banks were paying 4% interest, that wouldn't necessarily be a problem. But they're not. If your savings continue to earn virtually no interest and inflation runs at 4% for a decade, just under 50% of your spending power will be wiped out.

What's the rational thing to do in response? Well, clearly not to keep your money in the bank – and instead, invest it in the hopes of keeping up with inflation. Also, to take on as much debt as possible, because inflation pays down your debt for you too. If everyone responds in this rational way and competes to buy assets, the obvious end result is an asset price boom.

On the off-chance you haven't unsubscribed in boredom yet, you can read an interview with Russell Napier about all this here.

πŸ˜‡ This month in humanity

In the last month, our family had a bad thing happen to us. I spend a lot of time mentally ranking potential disasters (book me for a motivational speech at your next conference now!), so I'm confident in saying it's in the top 5% of bad things that can happen.

I absolutely reject any sympathy because we're immensely lucky in every way, so I'd think the universe was broken if there wasn't something to offset it every so often. But the point of raising it is to say how unbelievably kind people have been about it. Not just friends, or people whose job brings them into contact with this sort of thing – but people we barely know, and have no reason other than genuine kindness to be so nice.

Clearly though, people don't all spend all their time being thoroughly lovely to each other. In fact, many interactions can leave you assuming that everyone is mean, aggressive and self-obsessed.

I don't think we've had the luck to come into contact with a better breed of human: we've just been in a situation that brings out the best in people. Everyone has challenges, insecurities and frustrations – so in many contexts, they'll end up taking those out on others. But I think that deep down, on the whole, most people are kind and supportive – and given the opportunity, that will show through.

πŸŽ“ This month in education

Ever since we've baked travel into our lives (err except for the last couple of years for obvious reasons), people have asked "but what will you do about school?"

And we haven't had a good answer. I've written about the dilemma in this newsletter a couple of times, and received some helpful replies from readers that have clarified our thinking.

Well, we've finally made a decision: we'll be sending our son to a small school where they're happy for us to take him away for weeks or months at a time. We picked the school on the basis that they do lots of non-traditional things that align well with us, so they'd likely be open to travel too – and they were.

We're also thinking about not sending him to school every day, so there's more time for other experiences and different forms of learning at home. As it turns out, there's a word for this: "flexi-schooling". My wife found this Facebook group, which has resources for how to approach schools with the concept and lets parents ask each other if they know of schools in a particular area that are known to be open to it.

The school we've picked is on the edge of being "commutable" from where we live, which gives me the opportunity to mention the joy of renting again: if the school works out well and the travel wears us down, we can move nearer in a matter of weeks with minimal cost.

🍿 This month in media

πŸ“– I'm way late on this trend, but I've been listening to a lot of Japanese "city pop" this month, which originated in the 1980s and has recently been rediscovered by hipsters (this article has the background). If you want to check it out, here's a YouTube playlist and a Spotify playlist.

πŸ’Š I enjoyed this podcast interview between Noah Kagan and Raoul Pal – a former hedge fund manager who now runs a large economics research business from a tiny island. There's a lot of "design your perfect life" stuff you'll have heard before, but I still found it a fresh take that got me thinking.

πŸ“š Why oh why has it taken me so long to discover Below Deck? It's a reality show about people who work on luxury yachts, and my wife and I haven't been so obsessed with a show since our Bachelorette phase. And you get to learn sailing-specific terms like "Bosun" so it's...educational too? (Thank you to Nick for telling us about it.)

πŸ‘‹That’s it for July! Could you do me a favour? If you can think of one person who might enjoy receiving these emails, please forward this on to them. They can then use this link if they want to sign up to receive more.