The Ghosts of Past, Present and Future Inflation are Back in Town

Innovation and Venture Review Week 7/2022

Feb 20

The first time I heard of the novel coronavirus was back in January 2020, interestingly on TikTok.

I watched dystopian short videos of "cruelties" that happen in China, like locking down an entire region. I didn't believe that the situation would soon affect the whole world.

It was March 2020 when I did my usual after-run breakfast shopping on March 12 — a Thursday. March 12 isn't a special day in Austria, nor was it a Thursday or Friday before a long weekend. Usually, on the days before such a weekend, everybody and their pets went shopping on the same day.

But, the shop was so crowded that I had a hard time getting into the grocery store. At 8:30 am, all shelves were almost empty already. I bought a few things I needed for breakfast and lined up at the cashier's desk.

It took a while, as the line was very long, and when it was my turn, I asked:

What is going on? Did I miss a bank holiday? Or is the eastern weekend early this year?

The lady laughed and said:

"Didn't you hear it?"

"What?" I replied.

"There was an information leak in the ministry of defense. The whole world will go on lockdown by March 16. Only God knows what comes next. The message said that this virus that spread from China is more lethal than expected."

I couldn't believe what I heard. Is this dystopian reality that I saw on Tiktok coming to all of us? It was so unreal, like the 9/11 event in 2001.

It is February 20, 2022, and almost two years have passed. Everybody is aware of the events of the past two years.

The government's reactions were logical, but some will have effects a few years later down the road - which is now:

Central Banks printed money to ease the burden of lockdowns
Governments issued lockdowns to prevent the virus from spreading
And provided direct payments to those who lost their jobs

All in all, good intentions. But everything in life has a flipside, and one of the flipsides is:

Rising Inflation

In the U.S., in January 2022, inflation accelerated to 7.5% per month. Putting it in simple words, it means:

That all cash positions loose 7.5% of their value compared to the previous year

It doesn't sound extremely dramatic. 7.5% isn't much, and yet, leaving cash on the bank account means it will have a halfling event within nine years. It will have lost half of its value in this period.

And the big fear is that the entire western world enters into a state of hyperinflation as countries like China, Argentina, and Romania had in the bast three decades.

When the entire population loses money daily and can't pay rent or buy groceries, it can cause a lot of turmoil in society.

That is why governments and central banks want to keep inflation low and stable.

How to do that needs an understanding in:

Causes of inflation

In principle, there are three leading causes of inflation:

Demand-Pull Effect: Demand grows faster than supply, or supply is cut back.
Cost-Push Effect: When the supply cost rises, those costs are handed down to customers.
Built-In Inflation: Many contracts have an inflation adjustment built-in, which increases their prices over time.

The question is always:

What is the root cause? And which ailment helps to remove to the main problem?

What economists are saying about soaring inflation

Three articles that are going in-depth into the root causes of inflation.

This weekend the WSJ published another article to discuss the root causes of inflation:

I agree with Cathie Woods opinion and those of the N.Y. times and WSJ that most of the inflation is caused by two reasons:

Supply Chain disruptions are caused by lockdowns that have built up inventory as many goods couldn't be delivered and out of fear of supply chain disruption — an artificial demand increase.
Increased consumer demands due to stimulus checks that helped build savings to pour into consumption

Is increasing interest rates the right cure?

One cure against certain types of inflation is increasing the interest rates.

Certain types only as inflation are not created equally. When consumers buy too much, companies invest too much, and governments purchase too many, prices can rise as a result.

But only when the economy is flowing well — which I don't believe is the case now.

Cathie Wood states in her latest video that the economy is weak after continuous lockdown policies, and the increase in consumer demand is a temporary result of stimulus checks.

Once the politicians reopen the economy, inflation should even out when the supply chains start working correctly again.

2 Podcasts from this week

E68: Trudeau invokes emergency powers, Bitcoin vs. government, Tiger Global's new strategy and more

4 US-based Investors - the besties - discuss the latest events in politics, society, and the economy from the week.

Bruno Montanari - How Venture Capital Supports Science & Innovation

This week I had an amazing conversation with Bruno Montanari, Partner at Seroba Life Science.

Everybody who didn’t have time to attend the live recording can watch the live stream - uncut.

1 Youtube Takeaway from this week

Books I am reading this week

USA Today Bestseller

In his sixth business book, bestselling author, entrepreneur, and investor Gary Vaynerchuk explores the twelve essential emotional skills that are integral to his life—and business—success and provides today’s (and tomorrow’s) leaders with critical tools to acquire and develop these traits.

For decades, leaders have relied on “hard” skills to make smart decisions, while dismissing the importance of emotional intelligence. Soft skills like self-awareness and curiosity aren’t quantifiable; they can’t be measured on a spreadsheet and aren’t taught in B-schools or emphasized in institutions. We’ve been taught that emotional intelligence is a “nice to have” in business, not a requirement. But soft skills can actually accelerate business success, Gary Vaynerchuk argues. For analytical minds, it’s challenging to understand how to get “better” at being self-aware, curious, or empathetic—or even why it’s important to try.

In this wise and practical book, Gary explores the 12 human ingredients that have led to his success and happiness and provide exercises to help you develop these traits yourself. He also shares what the “half” is—that emotional ingredient of leadership he’s weakest at and makes the most effort to improve. Working through the ideas and exercises in the book, he teaches you how to discover your own “halves” and offers insight on how to strengthen them.

Gary’s secret to success is using these twelve traits in varying mixtures, depending on the situation. But how do we know when to balance patience with ambition? Humility with conviction? Gary provides real-life examples involving common business scenarios to show you how to use them together for optimum results.

This iconoclastic book will help you refine your ingredients and improve your leadership capabilities. When implemented in the proper situation, these ingredients can help leaders land promotions, retain core employees, move faster than competitors, win the loyalty of customers, and build successful organizations that last.

— Twelve and a Half: Leveraging the Emotional Ingredients Necessary for Business Success by Gary Vaynerchuk

Best Quote From This Week

I Disapprove of What You Say, But I Will Defend to the Death Your Right to Say It

Source: Quoteinvestigator

Upcoming Recordings

February 24, 02:00 pm CET - Alexander Belcredi, Lorenzo Corsini - How to Create An Overnight Success As An Entrepreneur

February 25, 10:30 am CET - Astrid Woollard and Christian Niedermüller - SMAPE Capital - The Future of Investments in Digital Assets

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