Normally, we are not supposed to experience rising inflation and low economic growth at the same time. But this is not the first time it will ever happen. I am going to try to avoid big economic words and explain this as simply as possible. Get away from any distractions and follow me closely here.

Rising Inflation

If an economy is not growing, it is dying. And because of the huge amount of money that investors put into the economy, they expect to see growth. Otherwise if they are putting in money and there is zero growth, the money is not making any difference. Hence, there is no return on their investment (broadly speaking).

Rising inflation is a situation that should arise when there is huge economic growth and people have a lot of money to spend. The cost of goods and services increase because there is a lot of money chasing after limited supply.

If you studied any bit of economics in school, you know that where demand meets supply determines price. The price is determined by what the buyer and seller can agree on. Prices go up when there is more demand (assuming supply is constant).

This means we are supposed to have inflation when people have more money to spend. The central banks of the world have their inflation target to be 2%. This means that they expect prices to rise at 2% per year.

This means if you bought something for $100 this time last year, the central banks believe it is perfectly okay for you to buy it for $102 today. Which means people continually have more money to spend over the available supply of good and service.

For some reason, central banks believe it is fair. Still don't fully understand why though. They believe it is a sign of economic growth. I differ though because I view having more supply of good and services as economic growth. But people must have money to buy it though. Anyway, let's move on.

Now you understand that inflation is supposed to be a thing when people have a lot of money. Lots of money chasing after the same supply.

2% inflation is good, according to central bankers. But anything above that is not good. 10% inflation is problematic. Anything double digits for inflation calls for a big concern. Central bankers become worried. Governments get worried. The people start to feel the pain of inflation and unrest starts to grow.

From early 2022, the world has been experiencing high inflation. Personally, I witnessed the price of a loaf of bread triple in price within 11 months (not in the USA though). This should mean that there is a lot of money right? Wrong.

Maybe not the first time this has happened. But this inflation is supply driven. All of a sudden, it is still the same amount of money, the same amount of demand, but now very little supply of goods and services.

This is super weird. How can people have (more) money, but there are lesser and lesser goods and services? Can you guess why?

You probably guessed right - the lockdowns. Today, we know that there is no sane basis for the lockdown mandate. It was viewed by many "experts" as the right thing to do then. And now we consider it a disaster even on the health and safety front. But the funny thing is that we will have to live through the economic consequence.

Businesses couldn't do business as usual. And that restricted supply of goods and services. Plus, the central banks (in my opinion) made a grave mistake by doing quantitative easing (QE). They printed money out of thin air and gave to people. They gave stimulus checks, ppp loans, etc. And money supply exploded. That is why you saw the stock market go up during the lockdowns. People had so much money, they resorted to gambling in the stock market.

Ladies and gentlemen, that is where inflation came from. Of course, it didn't happen suddenly. It took several months for it to start reflecting in the price of goods and services. But once it did, it just kept going and going.

The money printing phase is the 7 fat cows phase. If you read the Bible, you would recall a story of ancient Egypt where the Pharaoh had a dream of 7 fat cows and 7 thin cows. It turned out to be of great economic significance.

This situation is more like it too. The only difference is that it wasn't caused by nature, this one we are experiencing is entirely man-made.

Low Economic Growth

Low economic growth is something that mostly happens when there is no money. More importantly, businesses do not have the money to fund growth. There is not enough creating. Businesses are not growing. Instead, they are getting thinner. They are losing money. They are struggling to stay profitable.

When a country experiences two consecutive quarters of negative GDP growth, it is said to be in a recession. Now, there are all kinds of fancy dribbles here. People trying to make up new words and phrases like contraction, technical recession, etc.

Low economic growth means that the economy is dying. Remember, if you are a not growing, it means you are dying. In this case, it becomes a big worry. This is because if the economy goes into recession or depression, it's bad news for everyone.

Low economic growth means there is no money (to fund growth). Inflation means there is too much money (chasing after limited supply of goods and services). So...

How the f*** did we end up with the two at the same time?

It's actually a simple explanation. The central bank printed an insane amount of money. People did stupid things with the money. Afterall, they can't go out (or do anything) because of the lockdowns.

And this is not just everyday people. Even big companies made stupid bets. Most public companies were doing stock buybacks. They were using money to buyback their own stocks so that the stock price can go up further. Facebook launched metaverse. Everybody just went beserk with the free money.

And this is how you end up with inflation and low economic growth at the same time. Now, let's talk about the entry of the thin cows.

The Thin Cows

Normally, central banks fight low economic growth by some form of stimulus. Stimulus meaning pumping money into the economy. And they fight inflation by increasing the interest rate. Which means increasing the cost of borrowing money (which is to reduce the supply of money).

So, right now, in the US, the government is trying to stimulate the economy with a whooping $1 trillion (via government bonds), while the central bank is raising interest rates.

Meaning that the cost of borrowing money is going up for individuals and businesses. At the same time, the government is trying to pump an insane amount of money into the economy. Can you see the contradiction?

The central bank functions independently from the government, that's why you have this mess. Which is funny because during the lockdowns, they sort of collaborated together. Now all of a sudden, everybody is on their own. This is why I consider the lockdowns the greatest economic fraud in the history of mankind.

But the simultaneous actions of the government and the central bank means some groups of people are about to get lots of money and some are about to suffer.

The Fed is the central bank of the US. But they also play a vital role beyond the US because they preside over the world reserve currency. So, when the Fed moves, it moves the world. Not just America.

Let's consider this. Who is suffering or about to suffer? Who is about to start enjoying? What can you do to game this system during this interesting times?

The Ws and Ls

Who is going to get more money? Who is going to run out of money? People love to attribute their success to themselves. They love to attribute their success to their hard work, ethics, etc. But that is not the entire truth.

Success is 90% positioning. You could have the best hardworking team in the world but if your goalscorers doesn't know how to position, you won't score any goals. You score goals by positioning - in sports and in life.

This is so true especially with regards to money. The world is constantly changing with regards to who is making money and who isn't. First, let's consider those who will be taking the L in this unusual current state of the world.

The big losers will be businesses who have a lot of debt and low margins. This means that they have a lot of loans to service and their profit margin isn't significant. This means they barely make more money than they spend.

Many businesses like this have already gone down. And more will still go as interest rates climb higher. Stay clear of any investment that is riddled in debt. If you don't see a clear cashflow system, the business is likely having a tough time.

Smart business people who use good debt as an instrument understand how to pass the debt burden. Debt is good if the burden of the debt is not on you. When it is on you, it is difficult to avoid losing in this current economic climate.

This is why with the current debt to GDP ratio, the US government is crazy to take up another $1 trillion of debt. Which is why I strongly recommend staying away from bonds. They have become a giant bubble.

Now, you know who the big losers will be. Who then will be the big winners? First, all the people that are going to get government contracts (in any way, shape, or form) are about to make a lot of money. It could be in form of aid, support, benefit, loan, contract, etc.

Someone once told me that the ultimate hustle is to have the US government as your client. They will just keep printing the world reserve currency and sending it to you, while everybody else is working hard for money.

If you are in a position to take advantage of government contracts, please do! Investing in businesses that get government contracts is another good move. But you must be smart so you don't get played.

The best time to raise money is when you have just gotten money. Mainly to appeal to fomo (i.e. fear of missing out). These companies know these things. So you have to play smart. Do your research well. You have to be sure the business is who they say they are and the true profits will be shared with investors.

Some think of buying stocks of public companies that are largely getting these huge government contracts. Yes, but it often doesn't make a dent in the overall business because they might have other areas where they are bleeding money.

In some cases, it doesn't even take having a for-profit business to be on the receiving end of government borrowing. Now, I admit it is not fair. And honestly, I dislike this. But this is the reality. If you want serious money, be on the receiving end of government spending. It is called positioning.

Conclusion

I have just given you a fundamental breakdown. How you deduce it into specifics is up to you. The big lesson here is that if you want to make serious money in 2023, be on the receiving end of government spending (especially the US).

Avoid anything illegal, immoral, or unethical. If you are going to be ashamed of yourself if it is on the front page of the news tomorrow, don't do it. But now you know where money is going.

These are the days of the 7 thin cows. Hopefully they'd be less than 7 years. There is still money in the world. The difference now is that some groups won't see much of it and other groups will get loads of it.

I'll let you know when things change. Stay rich

P.S. I shared a few economic predictions on Tuesday. Check it out here