Asset Hole: Inflation Frustration in 2024

Consumers struggle, businesses suffer, and employees are laid off.

Based on what I have personally seen in companies I talk with and articles I’ve been reading, 2024 seems to be a year of pain.

Pain for businesses where inflation has harmed their sales while also costing them more to stay in business.?They have nowhere to pass this cost in order to protect their margins so they must pass it on to either the buyer or the supplier.

Pain for consumers who are being pinched on all sides. From groceries to common household purchases. This pressure has been felt by many as over the years the heat has slowly turned up.

Based on what I’m seeing and hearing, the majority can relate to this. Running a business in this climate is challenging, just as having a family with kids to feed is when prices for groceries have increased 25% since 2019.?

The difficult thing about inflation is that the report the public is provided by the government is by definition a lagging metric. So by the time we hear about the consumer price index %, it has already happened. Also, this index can be misleading as it crams all markets together to then find an average %. Once again, it is up to the reader to then dig deeper to get to the true root of the increase in a specific category like rent, groceries, etc.

Outside of conversations and reading, my empirical evidence stems from even just being here on LinkedIn and seeing many #OpenToWork postings of people being laid off and now trying to find a new role. As much as I know it is part of the economic machine we are all subject to, it is still very heartbreaking to watch as skilled individuals are facing these types of pressures.

The biggest threat to our economy that inflation brings goes beyond money. Let me explain.

It's not about the money

The psychological impact that inflation has had on our society is far more threatening than the financial pain. Similarly, just as the financial pain is subjective to one's lifestyle and standard of living, the psychological impact is also subjective.

Inflation has plagued the minds of consumers by harming the confidence of shoppers. This hits harder in the wallet because it simultaneously impacts credit usage as well. The fear that consumers feel as their bank accounts drain or as they struggle to find a new job fills their minds and puts them in a state of panic with a scarce mindset. Rightfully so they enter a state of conservation to protect themselves. As confidence leaves the market this challenges businesses and markets.

Even the confidence needed in lending money to businesses or potential homebuyers is offset by the increased rates to compensate for the risk incurred by the financial institution. This unfortunately continues the vortex of fear in the market as money loses its value and those who are bound by cash(have little or no assets) lose even more confidence in their current standing.

This lack of confidence and increase of fear now lowers the threshold of price sensitivity. This threshold is subjective and a psychological device. Just as real pain is experienced differently per individual, the sensitivity to price is experienced in many ways. This is also altered by the payment method whether that be cash, card, venmo, buy-no-pay-later, etc. due to the immediate versus delayed pain of the purchase.

This lack of confidence in the market is concerning because it will further lead to desperation as those looking for a break will be on the hunt for any hope. On one hand, this leads to poor investments in assets that are at all-time highs, and on the other, it will lead to less access to lending for those looking to start a business or make a change in their life. This can also impact the hiring decisions of corporations who will look for less risky solutions like AI to replace a job or two. The fear within the entire economy leads to immediate bandaid solutions that most likely won't be sustainable in the long term or in the best interest of the individual or brand.

The mindset shift will be set and drive further the vortex of fear and desperation.

Asset Hole

The frustration caused by inflation is obvious. You can feel how frustrated people are in the grocery store, on social media, or even in your house. This is furthered compounded by a raging stock market and housing market where assets continue to gain value.

This is found frustrating by those most affected because they unfortunately have little or no assets. This does not help with the perception of the economy as 40% of Americans have no exposure to the great performance of stocks and 35% of Americans do not own real estate. They are what I call "cash-bound" — they lack assets and are only exposed to inflation on the cash side of the equation where their money becomes worth less and it costs them more to borrow. It's a bad deal.

While cash is losing value, those who hold assets benefit from the inflation as the price of their equities increases nicely. This once again furthers the vortex of psychological pain as the "cash-bound" individuals are driven further across the chasm of have and have-not. Inflation directly becomes a class problem that just makes things worse. (Also note that those who make the laws hold many, many assets)

Whether equities in a portfolio of corporate shares or real estate properties, these assets compound. This compounding plays in favor of the asset-holders while those cash-bound are left holding the bag. As interest rates further prey on the cash-bound like with credit cards, they are driven further down the asset hole. As I've written in my Compounded Guide to Compounding(on Amazon ) there are two sides to the power of compounding.

One side compounds in favor of the holder of an asset. For a lack of better terms, this is good compounding. Now, on the other side of compounding you have the penalty of opportunity costs being compounded. I call this "negative compounding" — this harms those who do not hold any assets. They are cash-bound and driven further down into despair by the negative pressures of compounding which only makes it more difficult for them to recover. I have seen this even in peers who never were able to get into the housing market. They then were stuck in a "rent trap" spending more and more on rent and not able to save fast enough to get a down payment on a house. As time goes on the chasm only widens.

Summary

As painful as these financial situations can be for many individuals and families, we must not let the psychological toll harm us further. We must stay positive and avoid desperation. In my life, I have seen money come and money go, storms come and storms go; it's life. We all have similar experiences. Some make good moves financially while others may have neglected to do so. All I know is that the best time to plant a tree was yesterday. The second best time is today.

Whether in your business, career, or personal finances, we can't let the frustration from inflation get us off track. We may need to adapt and refocus but remain focused nonetheless before the downward pressures of negative compounding get ahold of us. If it is too late and you find yourself down that hill under the pressure of negative compounding financially and psychologically, now is the time to plant your tree. Hope is not lost. No matter the price of your groceries or your current employment, this is a season and now is the time to plant.

Keep pressing on.

-R