Jun 9, 2018

Cory Diary : Inflation and Currency

There are 2 things to watch that can manipulate what we think about how much asset we actually have with time.


The typical one is the lack of understanding of Purchasing Power. The typical normal is I have $100,000 today and as long we lose no money in scam, investment, spending etc, 10 years later and is still $100,000, mentally people will be ok. And that will be a big mistake in the current world. In the past 10 years, for the same property, price has doubled. This excludes the possible rental income we can extract from it less interests.

The important question to ask is that where is the middle ground of this extremes ? Is zero the right answer in order not to lose real money ? Let put this way. If "inflation" is 3% annually, after 10 years, $100,000 will have to grow to $134,400. What this mean is $134,400 is the break even of not losing money. And if we do nothing, that is 34% loss. That's huge.


The world is connected and supply chain is efficient. In the ideal world, an iphone price in Singapore vs one in US assuming everything the same, after currency rate, should be about the same. But then interesting we often hear about Mac Donald Burger index when we translate the same burger in USD term, can be vastly different between countries. Why ? 

There are few few reasons I could think of. First is property space efficiency. In Singapore, the Malls are highly developed. The rental psf on average is costlier relative to less developed countries. The other is Singapore employee cost is much higher despite large foreign workers intake. However this allows more locals to move to higher value jobs aka higher salary. Singapore being a city state also means that most of the raw materials are imported which will command a higher cost structure on average. Imagine when Singapore dollar depreciates against the dollar. The cost will just escalate. The good way about it is to be in better value job that can command higher earning power.

Ideally we need continuously higher salary to maintain the same level of living cost. While this can compensate,  our saving in the bank couldn't since they aren't a function of salary increase. So many people needs to keep working and longer to keep up with inflation as saving in the bank is not working at all. The rich knows that and need to make their wealth work hard. The most average will be able to get by with good job and prudence. The poor will be in the rat race immersing themselves in conspiracy theory and negativity. Hard Truth ?

I wrote this to remind myself not to slip into one of no return.


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