Recently, Jason and his team hosted their monthly Empowered Investor Inner Circle meeting – a great meeting of the minds to discuss all things real estate, economics and investing! One of the main topics of this discussion was the various types of consumer prices indices. Remember that even though it’s the one you hear the most about, the Consumer Price Index (CPI) is not the only one out there; there are many different indices available. Also, it’s important to consider that everybody has their own personal CPI, because we all spend differently, we all have our own rate of inflation depending on our lifestyle, how we spend, and what we choose to buy, etc. The poor, the middle class and the wealthy all spend very differently and Jason talks about this in the Hartman Comparison Index™. If you haven’t had a look at the HCI yet, grab the free white paper at HartmanIndex.com. It is simply the best way to understand whether real estate is underpriced, overpriced, or priced just right.
Inflationary Manipulation Index
One of the metrics that Jason uses in the HCI is the Forbes’ Cost of Living Extremely Well Index, which is essentially a CPI for very wealthy people, based on their spending patterns. It’s important to see how these different measures compare to real estate prices and also, how they compare to each other to get the most accurate assessment of the real rate of inflation. As you well know, inflation has become a serious, serious issue. Currently, according to the official rate, inflation is around 7%. Official rate is one thing, but what is the real rate? In Jason’s opinion, it’s more like 15%. Let’s talk about a few of the official inflation measures for a moment. Of course, there’s the most common one, the Consumer Price Index, otherwise known as the CPI. Now, they also talk about core inflation, or the core rate, right? You’ve heard that before in the media. And what that means is they take the CPI, and they strip out food and energy costs with the excuse that those are too volatile, so they just get stripped out. In other words, it’s another way to manipulate the index down and say: “well, the CPI may be 7%, but core inflation is only 5%.” This makes absolutely no sense because we all need food and energy to live; the cost of energy is priced into every single product that we consume. There’s no exception to that. So these numbers are highly manipulated scams. Remember, of course, they manipulate the CPI, through weighting, substitution and hedonic indexing.
Jason gives us another index to consider: The Sticky Price Consumer Price Index less Food, Energy, and Shelter. So now they’ve taken out shelter, but remember how they calculate it in the first place. They do what is called owner’s equivalent rent, which is just another way to manipulate the index down to a lower rate of inflation. That’s the game here. They have a very, very significant vested interest in making inflation lower than it really is. Looking for some more food for thought? Check out the Sticky Price Consumer Price Index, the Personal Consumption Expenditure Chain-type Price Index, the Median Consumer Price Index, the Gross Domestic Product Implicit Price Deflator – you can measure inflation any way you want and make it look lower than it actually is. That’s what happens in the hands of academics. They can make it say anything they want. But remember, before Jerome Powell threw it out the window, the Fed used to have a 2% inflation target rate. And why did they have that target? Jason believes the Fed has a legitimate argument to say the inflation rate could mirror or track the population rate. So if the population increases, it’s fair to have inflation increase at about the same rate, and also that inflation can increase based on the GDP. Now that is also a manipulated scam, but we’ll just use the official numbers for example. So, if the GDP increases at 2% annually, then inflation can increase at 2% and lead the population’s 2% increase. They also have the Phillips Curve to think about of course, because what they’re trying to do is engineer a sort of balancing act in the economy, an equilibrium or homeostasis that balances inflation with unemployment and keeps them as low as possible.
Unfortunately, back in the 70s things became completely unbalanced and the Misery Index became the thing everybody was talking about under the Carter administration. This index reflected very high unemployment and high inflation at the same time which is the worst case scenario. The only thing worse is deflation. Deflation is one of the worst maladies of all that is very hard to fix. And that is why the central planners and the powers that be are scared to death of it and will do whatever they can, including printing trillions of fake dollars out of thin air, to make sure deflation does not occur. Deflation puts the economy into a downward spiral that is very hard to recover from.
Avoiding a Deflationary Spiral
Jason loves to fly planes and on a recent flying trip, he was thinking about airplanes and the economy. One of the most dangerous things that can happen when you’re flying a plane is to go into a stall. But wait, there’s more. A stall is not actually the most dangerous thing, but a stall can cause a spin and that is the end of the world most of the time. It’s very hard to recover from a spin. A stall is when the plane heads nose up and the wings stop working. The wing design has low pressure above the wing, high pressure below the wing which is what creates lift and how planes fly. And so, if you look at the shape of the wing, it’s shaped to create that high pressure below low pressure above effect, but when you put the nose of the plane up too high, or you make a steep turn, the wings can stop working and they lose lift. When they lose lift, the plane can fall into a spin. And a spin is the death spiral. That’s deflation in the economy and what they will do anything to avoid.
If the Fed will take action to avoid a deflationary spiral, the path forward for us as investors is clear. That’s why Jason believes we can count on income property investing with his inflation induced debt destruction strategy, his Ten Commandments of Successful Investing, The Hartman Risk Evaluator, and all the tools, techniques and strategies he’s created over many years of making mistakes, learning from his and other people’s mistakes, and using those things to teach people to become really good investors. Jason’s strategies were made for this moment and will help you fly above any economic clouds that come on the horizon with ease.
Ashley & The Jason Hartman Team
