Ep 91 – Inflation & The Supply Chain

With inflation rates continuing to rise, the Fed is on the move. The continual raising of their fund rate will surely solve the problem, right?

Well, as Adam Schroeder investigates, the problem is likely a whole lot bigger than that and is going to take a lot more than simply raising rates to solve our inflation problem. Adam examines what’s really happening with our supply chain and whether there’s much hope out there on the horizon to open things up.


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Transcript:

Adam 

Hey, Rent To Retirement, this is Adam Schroeder here with another episode. I am flying solo today. And thank you so much for joining me. And we are going to talk today about the supply chain something everybody loves to hear about. We’ve been hearing so much about it. But the main reason we’re going to talk about it is the question of why on earth? Are you even entertaining the idea? Or why would you be entertaining the idea that this inflationary situation is going to be curbed anytime soon? Now, we obviously have heard about the Fed raising rates about interest rates mean higher than normal, about having rents haven’t had time to catch up. But I want to show you some stats or talk to you about some stats that show that just because commies are opening up, travel is allowed all of these things does not mean that our supply chains are running anywhere near what they were before and what they’re capable of doing. And remember, when inflation happens, whenever there’s more money out there than there are available resources. And whenever COVID happened, the available resources plummeted. We were having no issues with inflation beforehand, because the money that the government was putting out there, the government wasn’t competing with, you know, the average investor for resources.

Now, they are now we actually have a deficit in resources. And so, we have a problem. And unforeseen problem. Sure. But it is still a problem. So, I wanted to go through some information I found that talks about what’s actually happening in the supply chain right now. And why it is a serious, serious threat to continued sustained inflation. We saw some information come out recently, that talked about how inflation is now over 9%. This is after we dropped from like 8.6 to 8.5%, I believe. Now we’re up around 9.1%. And it’s something that is just abnormally high for the United States in the past 30 years. Now, obviously, we have seen inflation higher than this before. But for most investors, this is the highest they’ve ever seen inflation. And so, it’s a little disconcerting. So, let’s go into what’s happening with the supply chain, what people in the business are actually seen. So, when we get right down to it PwC does a thing that they call the digital trends and supply chain survey. And this is where they talk to companies that deal with supply chains and major suppliers.

And they ask them, how much risk do you think is involved in these issues. And these are the issues that are considered moderate to major risks. Now when it comes to securing raw materials from suppliers, the major and moderate risk adds up to 64%. The supplier operational issues go up to 68%. The supplier’s financial health is at 58%. Insufficient diversification of a supplier base for critical supplies at 52%. Insufficiently localized supply chain 59% inability of suppliers to respond to technological challenges. Was it 60% supply related political risks? Was it 49% and supplier ethical concerns? Was it 14%. So that makes 12345678 of the things they asked. Six of them were over 50% either a moderate or major risk. One of them was a whopping 49% and the other was 40%. So, it’s not over. These are companies that are still extremely concerned with what is happening. They’re seen the companies that they’re buying from and thinking oh my goodness, I’m not going to get what I need and what happens when they can’t get what they need or they feared they were raise their prices. Because they know when this actually comes up. Whenever it’s ready, it’s going to cost me more most likely.

And if it’s going to cost me more, it’s going to cost the buyer more. So, we just get that continued cycle. Now the Fed can talk about raising rates, you know, three quarters of a percent a percent 2% 8%, it doesn’t really matter, if we have so much supply issue, the only way that they’re going to be able to do this. What happened in the past, was when Paul Volcker raised the rates so high whenever he quotes, unquote, broke the back of inflation, really, he just destroyed demand. You make it so crazy, that it destroys demand. And that allows the prices to stabilize? Well, what we need to do is create a situation wherein we get our supply chain back on track, that’s going to be the fastest way forward for us. And we’re not really seeing that happening right now. You know, as you can see, from the numbers from real companies, they’re still concerned about a whole lot of things. 58% of the companies out there said they’re seeing higher than normal turnover amongst supply chain employees. So, we can’t even keep this people who are working in the supply chain industry, in the industry.

And only 23% agree that they have the necessary digital skills to meet future goals. So, we’re not seeing a whole lot of optimism about the future either. So until we start seeing people actually address the underlying problems, and not just talking about what the Fed is doing with their rates, or anything like that, we’re going to have issues, we need to get in there and start investing in our own infrastructure to invest in our manufacturing, in our transportation in all of the things that we can do to create the supply chain internally, so that we’re not having to rely on external factors on external countries to get us the goods that we need. Now, obviously, some of them are never coming back. But if anything, that COVID has shown us is that we can’t rely completely on external companies, external production, forever, everything, we still need to manufacture goods, we still need to do things in house, so that we are protected in the future.

And those places where we’re going to be doing that are the places that we are buying in right now they’re going to be in the Rust Belt, there are going to be in business-friendly states, they’re going to be in states that have less zoning than others. And that is the place where we are currently investing. And that means that right now, we’re already in the path of progress in a lot of those places. And we’re going to be in the path of future progress. As companies start opening up and saying, Okay, it’s time for us to really start investing once again, in the United States. And having these jobs done here, as opposed to wherever they’re doing it across the sea. So, we are in a situation where eventually, they’re going to start doing that and hopefully sooner than later, so that we can really open it up and stop the inflation because right now, we are not seeing stuff going on right now that is going to curb inflation, because interest rates alone are not going to do it.

And right now, you know, when we see inflation, at 9% and interest rates in the low six percent, you know, that is something that is going to be very beneficial for you in the long run as you do your inflation arbitrage, as you’re able to get in and make, you know, a 15% spread from when you can get, you know, seven or 8% cash on cash from, you know, 9% inflation, you know, and your interest rates lower than inflation. I mean, it’s a beautiful thing. You’re going to need it to keep up and right now in today’s environment, if you can keep up with inflation, you are beating everybody out there. Everybody out there. We are in a place I talked about in one of the YouTube videos I did recently according to the US Census Bureau. Supply chain disruptions by sector. Let’s get into it manufacturing over 60% construction nearly 60% And these are in the last week.

Did this business have domestic supplier delays? retail trade about 55% wholesale trade about 50% accommodation and food services about 45% Other services except public administration about 40 to 43%. administrative and support services 30%. And even finance and insurance are at 5%. Educational Services at 15%. You know, mining, Korean oil and gas extraction, about 17%. Real Estate and rental and leasing, was about 22%. I mean, everywhere, everywhere is seeing this, and this needs to be the focus. This needs to be what we’re talking about what we’re getting dealt with. And we’re not really seeing it. And so, we’re going to see the continued inflation environment. So, it is not time for you to dig in and say, oh, my goodness, this is, you know, its high inflationary environment, my returns are getting compressed, I’m just going to put my money away and not do anything with it.

Good luck with that, you’re going to end up with money, that’s worth a whole lot less in the future, whenever you do decide to do some investing, and you’re going to be down, you know, you’re going to be down, you know, 910 15%, because you kept your money stashed, because you weren’t willing to take slightly less returns year one, as opposed to, you know, looking out three, four or five, six years for your investment, and seeing where that money could have gone to make your investing journey a lot better. So, look and see what’s out there. I mean, take advantage of the current market, find good cash flowing properties, in solid markets. And just go for it. Forget about the past, look at what’s happening now look at what’s going to happen in the future, and make your best decision based off of that. And I think whenever you actually look at the numbers you’re going to see, and it’s going to be obvious, it’s time to do something, now, it’s time. You can’t just keep delaying it.

And if you own some real estate now, and you’re thinking, well, the returns that I would get on my new purchases, aren’t this, you know, aren’t the same as what I got originally. Well get over that thinking, set that aside. Look at how it’s going to benefit you not today. But tomorrow, and a year from tomorrow, and two years from tomorrow, three years from tomorrow. extrapolate your returns over time and see what it will do for you. You know, don’t wait to buy real estate, buy real estate and wait, you will be extremely happy that you did it, you will come back in time and thank your former self. Once we sort out however on earth you, you know, time travel, once we sorted that out, everything will be fine. We can come back and say hey, tap tap, you should still be buying properties.

You should still be buying properties. If you bought properties. Back when interest rates were 18%. You were doing really well 510 15 years later. That’s why they created refinances. Yeah, you can get you a lower rate and pull money out at the same time. And be absolutely fine in everything you do remember, real estate continually changes, you can change the deal anytime you want. You are in control of that, not your lender, your lender is locked in. Your lender has loaned you the money, whether it’s an adjustable rate, or a fixed rate, for at least the first five years, you’re locked in, even with your arms with your five-year arms. And you decide when that deal gets renegotiated unless you have a prepayment penalty. But still, you decide if you’re willing to pay that penalty. You are in control you have the power in the situation. Take advantage of it.

Don’t just sit there and think that you’re not in control. Because you are you are in control of your investing future. You just need to go out there and actually grab it and utilize it for your success down the road. So, head on over to rent to retirement.com Look at the inventory scheduled call with us. Even if you just want to get on the phone and talk about what is going on about why you should be investing in real estate about where you should be investing in real estate. Schedule a call. Just do that. Help yourself out schedule a call talk to one of the investment strategists like myself. And we can see how you can deploy real estate to get you where you want to go.

Because what you’re doing now, I can almost guarantee you was not working. You know we’re seeing the sign inflation where while we’re also seeing the market tank and we’re seeing them or continue to tank. And we know that over time, you know, most advisors out there can’t do better than this index in the market. So, what are you going to do with your money, you can put it in something that’s a great hedge against inflation that will continue to make you positive cash flow in an inflationary environment. Or you can sit on it. Or you can invest in an asset that’s rapidly depreciating and isn’t going to get you any tax benefits. I mean, the choice to me seems pretty obvious, but I guess it’s up to you.

Whether or not you think it’s worthwhile. But head on over to rent to retirement, look at our properties, schedule a call. Get Started, do something. Really appreciate you listen to the show. If you have any questions, email them to podcasts at rent to retirement.com. That’s podcast at rent to retirement.com. You can also leave us a review on whatever podcasting platform you utilize. Greatly appreciate it. And I’ll talk to you on the next episode.

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