What's up guys and welcome to wall street millennial on this channel, we cover everything related to stocks and investing before we get into the video. Keep in mind that we are not financial advisors and this video is, for entertainment purposes, only make sure to do your own research and consult with a professional before making any investment decision. Over the past year, jay powell has pumped trillions of dollars into the economy. In addition, the federal government has given hundreds of billions of dollars worth of stimulus directly to the people.

The m1 money supply has increased by more than four-fold since the beginning of the pandemic, and now sits at more than 18 trillion dollars. This massive increase in money supply arguably saved the us economy and helped the stock market rally 81 from the pandemic lows in a record-breaking bull market. However, in the world of economics there are no free lunches. The unprecedented money printing by the fed will inevitably decrease the purchasing power of the dollar and cause inflation.

A period of high inflation will have massive implications for the stock market, with some sectors benefiting tremendously and other sectors suffering on may 1st billionaire investors. Warren buffett and charlie munger hosted their annual shareholder meeting for berkshire hathaway in the five-hour meeting. They covered a wide range of topics affecting berkshire's businesses. Berkshire hathaway is a massive conglomerate, with interest in almost every industry, from industrials to financial services.

By talking to the managers of his many businesses, warren buffett gets access to a real-time view of what's going on in the economy. He says many of berkshire's businesses are experiencing significant price increases for the raw material inputs. They are passing these price increases onto consumers who are more than willing to pay, and this inflationary pressure is unlikely to end anytime soon we're seeing very substantial inflation. It's very interesting, i mean we're raising prices, people are raising prices to us and it's being accepted.

I mean it's, not uh. If we get well, you know take home building, i mean you know. The cost of we've got nine home builders and, in addition to our manufactured housing and then uh operation, which is the largest in the country, so we really do a lot of housing. The costs are just up up up steel costs uh, you know just every day.

Uh they're they're going up and that it they're there hasn't yet been because the wage the wage stuff follows. I mean if the the uaw writes a three-year contract. We got a three-year contract, but if you're buying steel at general motors uh or some place you're paying more every day, uh so uh, it's it's an economy. Really it's red, hot berkshire hathaway is heavily involved in the home construction business.

Real estate prices have been driven to record high levels in many parts of the country driven by low mortgage rates and people moving out of big cities to work from home. The supply of raw materials has outpaced demand, causing significant price increases. The steel price index has increased 78 percent from the pre-pandemic levels. Similarly, lumber prices have increased, 71 percent wages have not yet increased, because wages are much more sticky than commodity prices.

Wages are often based on multi-year contracts, so they cannot change day-to-day many service sector. Companies are struggling to find workers and will likely have to raise wages to attract people as labor contracts are renewed. Wages will almost certainly go up as workers need to be compensated for their diminishing purchasing power. This will cause even more inflation as companies pass.

These price increases onto the consumer, they would we closed the furniture stores i mentioned. You know they were closed from six weeks or so on average and they didn't know what was going to happen when they when they open up - and you know they can't stop people from buying things and we can't deliver them, but they say well, that's, okay, because Nobody else can deliver them either and we'll wait for three months or something sort of the backlog grows, and then we thought it would end when the 600 payments ended - and i think you know around august of last year - it just kept going and it keeps going And it keeps going and it keeps going and i get the figures every week. I call herb bumpkin calls me and we go over day by day what happened at three different stores in chicago and kansas city and dallas, and and it just won't, stop uh people have money in their pocket and and they pay the higher prices and and when Carpet prices go up in a month or two. You know we announced the price increase for april, for our costs are going up supply chains, all screwed up, you know for all kinds of people, but it's a buy.

It's almost a buying frenzy except berkshire, owns multiple furniture stores in various parts of the country after the lockdown was lifted and they were allowed to reopen. Demand went through the roof in what buffett calls a buying frenzy. Despite the economic damage of the pandemic, people are flush with cash from the stimulus payments and unemployment benefits. Importantly, buffett said the high demand continued, even after the unemployment benefits were reduced.

This indicates that all the money the fed pumped into the financial system is finding its way into the real economy. With the m1 money supply. Having increased so much, we are likely only seeing the beginnings of a great inflationary period, janet yellen, the buying administration secretary of the treasury, also sees the need to prepare for inflation on a macro level. As a former federal reserve chairwoman before jay powell, when she gives a macro outlook for the economy, it makes sense to listen closely.

Here's what she said about some of the implications of the buying administration's spending plans for the economy. Well, it does involve a reallocation of resources toward these kind of programs and away from other things and um. You know it may be that interest rates will have to rise somewhat, to make sure that our economy doesn't overheat, even though the additional spending is relatively small. Relative to the size of the economy, so it could cause some very modest increases in interest rates to get that reallocation, but um.

These are investments. Our economy needs to be competitive and to be productive and um. You know it's, you know. I.

I think that our economy will grow faster because of them there's a very high payoff to government sponsored r d. We saw that in the 60s and we're proposing to return r d spending toward the levels it was at in the 1960s. What janet yellen is saying here is that biden's infrastructure plan is so ambitious that it brings us back to the level of spending in the 1960s. During that time, there were massive highway projects and other construction projects that built much of what america is today.

However, this level of spending would, in her words, likely necessitate some level of interest rate hikes to prevent spiking inflation as a result of the increased spending. But it's unlikely that that increase in interest rates will happen anytime soon, at least not with jay powell. As fed chair in a federal reserve press conference in march, following a federal open market committee, meeting fed chair jay powell announced that the fed would continue to keep interest rates low, while pumping tens of billions of dollars into the economy for the foreseeable future. Throughout the press conference, he emphasized that the fed would do whatever it takes to ensure that the economic environment is accommodated until the recovery has been fully realized.

With regard to interest rates, we continue to expect it will be appropriate to maintain the current zero to one quarter percent target range for the federal funds rate until labor market conditions have reached levels consistent with the committee's assessment of maximum employment, and inflation has risen to Two percent and is on track to moderately exceed two percent for some time. I would note that a transitory rise in inflation above two percent, as seems likely to occur this year, would not meet this standard. In addition, we will continue to increase our holdings of treasury securities by at least 80 billion dollars per month and of agency mortgage-backed securities by at least 40 billion dollars per month until substantial further progress has been made toward our maximum employment and price stability goals. So, despite the previous fed chair and current treasury secretary, janet yellen saying that interest rates would likely need to be raised somewhat due to inflationary pressures.

Jay powell remains fully committed to keeping rates low. This effectively would add fuel to the fire, as the real inflation rate would be accelerated by a low interest rate. Environment jpowell is taking the fed through an outcomes-based policy where the fed will not adjust the low interest rates until it starts to see an extended period of high inflation or full employment. By the time this happens, it will likely be too late to stop inflation.

So what does this all mean for investors? First and foremost, the view commonly held by the world's brightest macro? Investors is not to hold cash or bonds. Doing so will expose investors to the full negative effects of inflation. Investing in the right stocks has a much better chance of being able to withstand, or even benefit from inflation when inflation rises. Usually commodities are the first type of product to see prices increase oil is a type of commodity whose price changes extremely quickly.

This is largely due to the fact that nearly all parts of the economy are in some way dependent on oil. If you need to transport products or operate any vehicles, you need to be a customer of oil. Oil producers, such as exxon, mobil and chevron, would thus be among the first to be able to see their revenue increase as a result of inflation. On the other hand, wages are slower to adjust to inflation and any fixed costs associated with building oil.

Rigs or refineries are obviously already paid for so at least for some time, their costs will be much less affected by inflation. In addition, for the same reason that investors don't want to be long bonds or cash in an inflationary environment, you wouldn't want to be invested in companies that themselves own a lot of cash or bonds. In fact, just the opposite. Companies that have a lot of debt, in other words, are short bonds will see the value of their debt.

Liabilities decrease in real terms. So exxon mobil, for example, with almost 70 billion dollars of debt, would see their effective debt burden decrease in inflationary environment while at the same time see their revenue likely increase. Another commodity producer that may benefit is cleveland cliffs, which is a medium-sized company that produces steel. They will likely see their margins expand dramatically as revenue increases.

The same thing goes for timber producers, which investors can get exposure to through the wood. Etf homebuilders are seeing unprecedented demand, while at the same time cannot get their hands on enough lumber to meet the demand. This is great news for anyone producing that lumber. All of these are things for investors to consider going forward.

Alright guys that wraps it up for this video, if you like the content, make sure to smash that like button and subscribe for future videos also make sure to check out our second channel wsm research, where we post dd on high growth socks. As always. Thank you. So much for watching wall street millennial signing out.

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