0: if you've been around the block and

1: traded some stunts you've probably heard

4: a lot of talks about inflation and

7: interest rates in the news lately or

9: you've probably seen this guy around he

12: holds a meeting and opens his mouth to

15: talk every couple of months and the

17: stock market goes bananas seriously and

20: here i thought that elon tweets were the

22: only things that traders have to worry

24: about

27: as traders or investors in the stock

30: market it's extremely important for us

33: to understand inflation and affects

36: decisions regarding interest rates and

38: its effect on the stock market so before

41: we start please do me a huge favor and

44: inflate the like button to at least

48: seven percent more okay thank you very

50: much i really appreciate it now that

53: you've inflated the like button we must

56: discuss what is inflation in the

59: simplest terms inflation is just a way

62: of saying it takes more of your money to

65: buy the same things you always bought

68: essentially it means your purchasing

70: power is declining let's look at this

72: 100 bill for example now yes this is the

76: canadian dollar bill look at this is so

79: much prettier and more colorful than the

82: american dollar bills

84: but don't let this fool you this 100

87: canadian is probably worth

90: only

91: i don't know somebody do the math like

93: 20 in us dollars what you can afford

97: with this 100

99: really depends on your purchasing power

101: and that is determined by this scary

104: word called inflation

106: more than 50 years ago in 1960s 100

111: is enough to buy you a washing machine

114: guess how much you need to purchase a

116: brand new washing machine now

118: in 2022 you could still buy a washing

122: machine with 100

124: as long as it looks like this

128: before you make fun of my very own

130: washing machine hey i'm a millennial

133: okay this is what we call vintage

136: anyways nowadays a brand new washi

139: machine cost you 700. on the low end and

143: over 2 000 on the high end the point

146: being 100

148: does not get you as much today as it did

151: 60 years ago and that's because of

154: inflation

155: that same amount of money is just worth

158: less than what it was a long time ago or

161: even just two years ago before the

163: pandemic in 2020 inflation is the rate

167: of increase in prices of goods and

169: services and the cost of living over a

172: period of time there are many causes of

175: inflation and they could get quite

177: complicated and make you and i want to

180: fall asleep

181: but the basic idea is that if the amount

185: of money in circulation goes up you have

188: inflation as a result and why would

191: monetary supply go up all the sudden

195: well you've got the federal reserve to

197: thank for that while there has always

200: been a bit of inflation going around

203: averaging about 3 percent a year more

206: recently that's more than doubled to

208: almost 8

209: in february of 2022

212: because of all the free stimulus money

214: the government gave out to people

217: because of the pandemic when the once

219: every 100 year global pandemic hit the

222: united states in early 2020 events

226: restaurants and many services are forced

228: to shut down many people were left

231: unemployed and those who still had a job

234: were forced to work from home this

237: series of events triggered a global

239: economic slowdown in order to limit

242: damage caused by the pandemic the

245: federal reserve stepped in to create

247: money out of thin air in order to

250: stimulate the economy it is estimated

253: that about 80

254: of all u.s dollars in existence now were

258: printed in the last 22 months totaling

261: around 16 trillion dollars were printed

264: out of thin air slowly but surely

268: there's a bunch of excess money lying

270: around in the economy and if people have

273: too much money sitting around they might

276: just buy something crazy like a lambo or

279: a bunch of meme stocks at gamestop and

282: amc you can learn more about meme stocks

286: and my other video or check out the

288: humble trader community down below

291: basically when that excess money gets

293: released into the wild prices go up and

296: your purchasing power goes down and then

299: boom you have inflation

302: while some inflation in the short term

304: can be okay it could have some negative

307: long-term effects if prices of goods and

310: services just keep on going higher and

312: higher but average people's salary

315: remain the same things would just start

318: costing a lot more but now you and i can

322: no longer afford them at this point you

325: must be wondering okay well what can be

327: done about inflation before it becomes a

331: runaway train

332: enter player 2 interest rate

336: interest rates are the amount you pay in

339: order to borrow money whether this is

342: for a car loan a home mortgage loan or

344: going a margin to buy gamestop basically

348: whenever you're borrowing money from a

351: lender they charge you interest lending

354: out money to people always involves

356: risks and that's why banks and

358: brokerages charge you interest rates in

361: order to borrow money and the amount of

364: interest they could charge you is

366: determined by interest rates generally

369: speaking when interest rates go down

371: people spend more money because money is

375: cheap or sometimes free to come by like

378: during 2020 and 2021 when the fed

382: dropped interest rates to almost zero

384: percent it was essentially free to

388: borrow money this also means that when

390: interest rates go up people spend a lot

394: less money because now you have to pay

397: to play right it makes sense if all of a

400: sudden your credit cards didn't charge

402: you anything to borrow money you would

405: just spend like crazy however if they

408: charge you 20 interest

411: well i'd never borrow anything from them

414: now how does this interest rate get

416: determined this all goes back to our

418: good old friend papa powell

421: federal reserve they tell us what the

424: interest rate should be and the lenders

426: use that as a guideline okay so now we

430: have player 1 inflation and player 2

433: interest rate what exactly is their

436: relationship if you remember from

438: earlier inflation happens when there is

442: more money created in circulation your

445: purchasing power goes down as goods and

448: services rise in prices

450: interest rates and inflation they tend

453: to have an inverse relationship when

456: interest rates go down people tend to

458: spend more with excess of free money and

462: inflation rises but when interest rates

464: rise people spend less and inflation

468: slowly goes down well hopefully

471: fast forward now two years after the

474: pandemic first started inflation is now

477: at 40 year high and my 2003 corolla

481: actually went up a lot in price like i

484: said lamborghinis are too overrated with

488: inflation now at 7.8 percent this is the

491: reason the federal reserve is increasing

494: interest rates in order to slow down and

497: reverse the current rate of inflation on

500: march 15th of this year the federal

502: reserve increased interest rates by a

505: quarter percentage point this is the

507: first rate hike we've had in more than

510: three years and the federal reserve

512: actually further signaled potentially

515: six more rate hikes to come by the end

517: of

518: 2022 now what does all this inflation

522: and interest rate talk have to do with

524: the stock market

526: generally speaking low interest rates

528: encourages speculation by investors as

532: they are more likely to throw excess

535: money at speculative growth stock

538: opportunities some example of these

541: growth stocks are snow lucid nicola and

545: even the king of volatility tesla stock

549: and of course let's not forget the meme

551: stocks and the wall street bets

553: movements in 2021

556: it's the same thing in the crypto market

558: we had crazy rallies in dogecoin

561: followed by shiba inu coins all these

564: hype was only made possible because of

567: the low interest rate environment and

569: the stimulus checks remember when

572: interest rates to borrow money are cheap

575: the risks are lowered so speculation in

578: all sorts of markets was cheap and let's

581: be real fun

583: on the other hand high interest rates

586: encourage prudence from investors when

589: interest rates are high

591: investors are less willing to take out

594: high interest loans to fund risky

597: investments that's also one of the many

599: reasons growth stocks are not in favor

603: in the current market condition as

605: investors are looking for a safer haven

608: to park their money and we're not just

610: talking about the most speculative

612: stocks we mentioned earlier we're

614: talking about tech giants like nvidia

617: facebook and even amazon

619: all these growth stocks though they are

622: incredible profit machines their share

625: prices have been undergoing a lot of

627: pressure in the current market the

630: upside is that investors are once again

633: forced to pick investments that have

635: sound fundamentals instead of

638: speculation

639: wow i have to say that is very

642: refreshing to hear with all these fears

645: going around there are a couple of

646: common ways investors like to hedge

650: against inflation

652: generally speaking stocks are often

654: considered to be the best hedge against

657: inflation because when inflation occurs

661: stock prices rise along with it and the

664: negative effects of inflation are

667: negated when it comes to investing in a

669: stock market people tend to look for

672: value stocks with good long-term

675: fundamentals like reits or even dividend

679: aristocrats like coca-cola

682: m among many other boring stocks some

685: other common assets to consider for

688: diversification or inflation hedge are

691: real estate gold or even digital gold

695: which is bitcoin i think after all the

698: ups and downs we've seen in 2020 and now

701: 2022 with all the factors we mentioned

705: in this video pandemic interest rates

708: and inflation we can say this the stock

712: markets are unpredictable that's why

715: diversification

716: and risk management are there to protect

719: you in the stock market if you are

722: looking for more resources feel free to

724: check out some links below including my

727: free weekly watch list for stocks i send

730: out every single sunday and if you are

732: interested in learning more about risk

735: management and my day trading strategies

738: feel free to check out the humble trader

740: community down below

742: thank you guys so much for watching as

744: always i'm the humble trader and i'll

746: see you guys next time