• Instagram
  • YouTube
  • LinkedIn
  • Facebook

Inflation ... the coffee test

All coffee shops in my city have to charge about the same for a large ice latte. For the last few years that’s always been $5.00-5.25 CAD (all dollars herein are in CAD unless otherwise noted).


Today was the first time I got to enjoy paying $5.88 for the exact same latte as before.



That’s a solid 12-15% increase....or you can simply say my money has lost 12-15% of its value. That’s inflation folks...the "silent killer" of dreams and freedom.




During the same time (let’s say a span of about 6 months) bitcoin in the same window was trading at $7-10,000 cad per bitcoin. Today it is about $13,000 cad to one bitcoin (not including the spike in between where it went up to about $16,000 for a few weeks and then back down to $13,000).


If I held $6 in in bitcoin and paid for the same coffee it would have essentially cost me about $4.50 in bitcoin instead of the $5.88 I just paid in fiat. This is the unpleasant reality of inflation and the eroding of your wealth if it is held in a fiat currency.


Make sense?


Even in the west, where due to accountability and proper governance, it’s much more difficult to fudge things like inflation numbers they are still fudged (as measured by the Consumer Price Index or CPI for short). It’s in the government’s and the people’s own self interest to not know how bad things are.


Supposedly annual inflation rates are 2-3% in a modern western economy. That’s the goal....supposedly this year to date we are at 0.61% for 2020 so far. Compared to 1.95% last year and 2.27% in 2018. Now I could ask a fourth grader if it’s possible for that to be true...and the fourth grader would 100% realize that it is not possibly accurate.


The economy has been closed for almost half of 2020. There is no tax revenue coming in, countless businesses have gone bankrupt and the government has printed hundreds of billions of dollars with pretty much no end in sight. And 2020 is better than 2019? If you buy that...then I have a bridge for you to buy in Florida.



---- https://tradingeconomics.com/canada/inflation-cpi



Explain the apparent mystery. The news and most people will be super happy to note:

“It was the first decline in consumer prices since September 2009”. Sounds like great news doesn’t it. Yay inflation is down and Clint was wrong. Silly bugger. But if we look under the surface what are the numbers actually saying?


This is all just my opinion. But I would be looking at two key things to explain this mystery. I’m not a brilliant economist but I’m considering the macro trends and I have a great ability to smell bullshit wrapped in gold foil.


Two hints:

#1 has to do with the greatest decline in price

#2 has to do with a massive and unique shift in businesses that is currently occurring

Care to guess?


My #2 is oil. Oil fell through the floor early in the year. There was a massive glut in the market. Partly because companies wouldn’t stop producing it ... they needed/wanted the short term gain. There was such a glut that crude oil (West Texas Intermediate - WTI for short) actually dipped down to -$25 a barrel! Producers were literally paying you to take their oil!!!



There is a delay between when they reduce production and it works itself through the transport chain (ie tanker ships), storage volume, pipelines, refineries etc. It literally was to the point where we had nowhere to put the oil already coming out of the ground and you cannot just shut the rigs down on a dime. Tanker ships were literally being left in harbours as oil storage facilities until someone wanted the oil.


Then the global economy stopped virtually overnight. Most people could not leave their homes even if they wanted to. Others began working from home so no commute needed. Stores, restaurants etc couldn’t sell product so deliveries stopped (except Amazon). Cruise ships immediately shut down. Even the US military was parking aircraft carriers due to Covid outbreaks. Airlines cut back 80-90%.


That’s an impossible scenario...but it happened. Hence why oil fell through the floor. Now look at the CPI. The cost of fuel dropped about 70% over a few months. Fuel is a huge part of people’s budgets (either personal commuting, travelling, or delivery of goods to purchase).


But....that massive dip is a bad thing not a good thing. It shows an economy being decimated....yet according to CPI yay it appears inflation is down


Okay so what’s the magical number 1 reason (in Clint’s mind) why the CPI numbers are completely masking reality? Another hint, it does have to do with businesses but not with people working from home...


I’d say the #1 reason these numbers are extremely suspect is that businesses are tanking. Let's ignore for a moment the clearance sales this creates so people can buy clothes, furniture, or whatever other goods they may want at far below market value. The main point I look at is governments have essentially subsidized businesses to keep operating and to keep employing people. This is where a fair amount of the printed money has gone. That has in turn enabled businesses to keep pricing artificially low (not due to generosity but because the governments have mandated that it be so). Airlines have been propped up to keep functioning (at a loss that the government is covering). Food and other critical industries are the same. Largely labour, taxes and rent has been able to be taken off of the income statement in that way.


This is what I mean. Let's say you are selling some incredible Alberta beef and in order to keep from bankruptcy you need to double the price per kg of beef that you sell from $10/kg to $20/kg. Now keep in mind that this is not to increase your profits as a greedy business person...this is to stay solvent. This is to at least make some sort of profit and keep out of bankruptcy. If you doubt me simply look at the cost of masks, hand sanitizer, toilet paper, home exercise equipment, pets, etc. If your entire plant is shut down for a month or two due to one or two covid outbreaks in your workforce (this has happened repeatedly in all different industries) and your efficiency has gone down due to social distancing of your workers and other regulations, you must drive up your product's cost and pass that on to the consumer. That is business 101. So in a normal market thats what would happen, however, currently the government would label that as price gouging and they would go after you for doing it.


So you cannot increase your pricing much...but how are you kept afloat then if you are operating at a loss? Well thankfully the government graciously takes on the cost of your rent, taxes, and labour. Now that all of that is magically happening for free, you in turn can afford to sell your beef for $10. The true cost then is $20/kg to cover all expenses and appropriate profit but the government is invisibly subsidizing half the cost out of your own tax dollars. The government is literally paying to keep you in the dark from realizing what's happening! And when people get those payments from the government in whatever form they actually are thrilled because they think they are getting money?


It's like I pay you $200 for your labour today and you look unhappy. So I ask you why and you tell me that you need $300 a day to get buy and support your family...so I graciously put my hand in your pocket and take $100 without you realizing it...and then give it to you. And if you are like most workers, you would be happily smiling about your good fortune!?!


What really has happened there is merely a shell game. It’s shuffling the shell around so nobody knows where the ball is. That’s why I say personally I don’t buy into the numbers right now.


And THAT is why CRYPTO is your best friend you can possibly imagine. Check out my other blog posts here on CRYPTO and check out our course. The single best storage of wealth by far is CRYPTO especially during these covid times and the hyperinflation that has to follow the printing of all of this money. But storing your wealth in CRYPTO properly is critical or you get hacked and loose it all. And knowing which coins to watch and which to avoid is key.