ONE NUMBER THAT WILL SHOCK YOU

This inflation crisis is different. Very different.

Here are two key differences to prior inflation crises:

1. In global inflation history, we have never entered an inflation crisis with such a high debt mountain
2. We never (to my knowledge) had a global inflation crisis. High inflation was typically a problem of a few countries, while others served as a safe harbor.

We enter an unprecedented crisis. And it is far from over.

In fact, our current situation is worse than the one experienced by countries at the beginning of the 1970s inflation crisis.

But there is no reason to get scared. Let me share one nugget of wisdom from THEORY OF MEGA RISKS (my work on how to turn big crises into opportunities and on which I offer workshops to company clients and soon also a video tutorial for everybody):

MEGA RISKS ARE DISASTERS FOR THE UNPREPARED, BUT THEY ARE ALSO EXCEPTIONAL OPPORTUNITIES FOR THOSE PREPARED TO DEAL WITH THEM. IT IS YOUR CHOICE WHETHER YOU ARE PREPARED (BE A WINNER) OR UNPREPARED (BE A LOSER).

Warren Buffett and his Berkshire Hathaway turned the 1970s inflation period into the most successful event of his investment career. You can do this, too. I tell this every client:

Hire an expert, get smart on inflation, and use it to YOUR advantage (like Warren Buffett and many others did).

Let me refresh your memory with a chart I cannot show enough:

I need to mention this, because those of you who know me personally are aware that I m NOT A NEGATIVE PERSON. I just see the world how it is: IT IS FULL OF RISKS AND UNCERTAINTY, BUT THAT DOES NOT MEAN YOU CANNOT TURN IT INTO A COMPETITIVE ADVANTAGE OR ATTRACTIVE OPPORTUNITY FOR YOU. I just play the role as an opportunity enabler when it comes to inflation risks.

If you suffer from inflation issues and have not invested time in understanding inflation mechanics and dynamics, it is your own fault. But you can change this at any time.

To do well, you need to understand the REALITIES OF INFLATION. And here is one of these shocking realities caused by our past indulgence on debt and debt based economic growth:

1. Global debt is above USD 300 trillion (keep in mind with a weakening dollar this number goes up). In just 10 years we accumulated an additional 100 trillion USD of debt.
2. Hence, the GLOBAL DEBT TO GDP RATIO is above 300 %. The highest debt leverage (to my knowledge) in world history
3. Almost all of this debt had been originated during the time of practically zero interest rate policies by central banks
4. Paying back this debt will be impossible. It needs to be refinanced (at much higher rates leading to a refinancing shock)
5. Interest expenses paid by governments, companies, and consumers will go up drastically in absolute terms, but also in relative terms.
6. Higher interest expenses will be inflationary: A company paying much higher interest expenses will have to raise prices to protect its profit margin.

Here is the shocking number (simplified):

For every 1 % higher interest rates set by central banks (and the FED has raised its rates in record time by more than 4 % points) we will create (with time delay until all old debt is replaced by new one) an annual future USD 3 trillion charge against World GDP. Or in relative terms a charge of about 3 % of World GDP.

If you assume, that global interest rates will raise by conservative 3 % points, we are talking about:

• an annual charge against world GDP of about USD 9 trillion
• equivalent to about 10 % of current World GDP (assuming total debt does not rise, which is unrealistic)

The only way out of this debt mess is let inflation do its job to inflate away the debt mountain. This is painful, but this is the price for past mistakes. We need to contain inflation and prevent it from spiraling out of control.

If we try to eliminate too aggressively, we will risk a new financial crisis with potentially out of control inflation 3-5 years down the road.

Forgive me the analogy: You do not want to beat cancer by killing the patient. And you don't want to eliminate inflation at the price of crashing the world economy.

We need to inflate away the debt mountain and set the stage for a NEW AND MORE RESPONSIBLE BEGINNING.

Keep in mind, inflation was used successfully to inflate away debt accumulated during WW1 and WW2 by governments.

Companies and investors who are prepared for this situation do not have anything to worry. Prepared means an understanding of:

1. Inflation mechanics
2. Inflation dynamics
3. Inflation history.

Prepared companies and investors have nothing to fear about inflation. They will turn it into an opportunity (like Warren Buffett did).

And don't forget: I am here to help you.

Before I close, let me remind you again of my brand new book BEAT INFLATION NOW.

This book is not written for millionaires (they can easily deal with the new challenges). It is written to provide help to regular people who struggle tremendously to survive the current inflation issues. If you know people who are in need for such help, please buy a copy and give it to them. If you are a CEO, maybe you want to do the same with your employees. A little investment can help them a lot.

This is it for this week.

Again, whether you will do well or not during the current inflation crisis is up to you. Study and understand inflation and you are likely to beat it.

Have a great week

Wolf

(Dr. Wolfgang Hammes)

If you are interested in our help, here are the services we provide (examples):

1. Management workshops on strategic inflation management?with tons of examples and applications
2. INFLATION STRATEGY STRESS-TESTING?for management boards
3. Management training on INFLATION MECHANICS: How does inflation work? How does it impact our strategy? What is next?
4. Consulting services
5. Sparring partner to top management?(on retainer arrangements - limited availability)
6. Keynote / Impulse presentation in board meetings

How to reach me:

email: info@hammesperformance.com

phone: +1 561 537 1819 (The Vangi Group LLC, the consulting company I co-founded)

As always, the newsletter is for informational purposes only. It is written to invite critical discussion of my current views, opinions, and interpretations. It is not advice in any form

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