Every single financial advice out there can start with spend less than what you earn, and by all means stay out of debt.
Simple right? As most things in life, simple does not equal easy.
I believe the main reason of this advice is the way most people use debt. They start using credit cards to pay for this and that and suddenly they spent more than what they could afford.
Of course, I’m not saying go out, get in debt and max out all your credit cards to go on an exotic travel around the world (although sounds pretty fun to be honest).
What I am proposing here is to look at debt in a different way.
Currency debasement and debt
Normally like i have previously discussed on why things are getting more and more expensive, i have explained how currency debasement is a HUGE problem for almost every single country in the world.
What to do? Try and look for assets that can protect against that, but at which rate?
Meaning if the monetary expansion is at 27% per year.
We need to find somewhere to invest our money that can at the very least earn 27% or else we risk that our money starts melting away like an ice cube.
In that process, as traditional assets like Gold, Bonds, Stock Index Funds, etc.
Normally yield much lower returns than that, Investors are being pushed towards investments that can achieve that.
Such as Bitcoin, Tourism Real Estate Properties, NFT´s, AI stocks, Financial Leverage, etc.
That is ok but is not the main point of discussion of this post.
Doing that is the going “Long” in your investments, as you think they are going to appreciate more vs the weak currency that is being debased by your responsible government.
Shorting the currency
But think about it as a Hedge fund manager, they normally profit from buying stocks, going “Long” stocks.
BUT
There are at times companies that they think will go down in value, for several different reasons, could be mismanagement from the executives, a bad product, macroeconomic factors impacting their business, etc.
It is in those occasions when they decide to go “Short” and bet that the stocks of that company will go down in value.
So, using that analogy i figured the following.
If we understand our currency is being devalued at certain % every year thus we choose to invest in different assets, go “Long”.
Then how could we also go “Short” and bet against the currency in existence that is being debased year over year.
There are different ways to achieve this, for example as a Forex trader i could choose to a pair between the currency of my country and short it against a stronger currency.
But that is not really very convenient, and also not my favorite way.
The best way to short the currency
The best way for me is to take debt in form of a mortgage, the reason for that are multiples, let me guide you through them.
Let´s say we know the currency is debasing by 15% a year on average, and please stop believing the correct number is the CPI number, that is a manufactured number just to keep people at ease.
The correct number is how much the Money Supply in existence is increasing Year over Year.
That means that if you have $1,000,000 usd, after 10 years it will be worth $197,000.
Yes, sounds pretty bad, is a loss of more than 80% on your initial capital.
I hope you start to see the point by now.
If we know that’s the case, then wouldn’t it make sense to borrow the million dollars and pay back 80% less?
True, we must consider the different factors, for instance we are not getting the million dollars at a 0% interest rate, so we need to factor that in.
Thats why comes the second part of the strategy.
The loan comes in form of a mortgage for multiple reasons, one of those is that mortgages are probably for most people the biggest amount of money for a loan they can get and second its also the lowest interest loan.
So let’s say they can get a mortgage on average for 6% , even taking into consideration the interest payment, we are still way below the currency debasement of 15%.
We are still in good shape.
The last but key ingredient
Now comes another great and last point to this strategy, as it is a mortgage loan, the property you are buying will very likely also appreciate in value, depending on the area and certain other factors in can vary but let’s say by 5% per year.
You see what is happening here? You are literally using the currency debasement in your favor.
Taking both benefits:
1.- Borrowing NOW, paying back LESS
2.- Buying an asset that is increasing in value
I just think is a great way to “Short” the currency and use the currency debasement in your favor.
It’s of course nothing new and is something people have been doing for many years, but thinking in this way will also help you see why this could be a great strategy even better than in previous years.
As good as it sounds, you are still acquiring debt, and that puts an obligation on you to continue with the payments, at least if you want to keep a good credit score and your house btw.
So, remember to run your numbers, and perform your due diligence before going out and buying 7 houses.
The important message is also to continue thinking in terms of the currency getting weaker and weaker and how to take advantage of it.
So if you already have 1 M, probably is a smarter idea to still take on the debt, and use the rest of your capital to invest in other scarce and hard assets.
Maybe even use it all for real estate but instead of buying 1 property full cash, you use it for 2-3 downpayments on multiple properties.
I mean is up to you, remember this is not financial advice, is meant for you to expand your thinking about the possibilities.
Hope you enjoyed the food for thought of today, and if you can think in any other way to “Short” the currency let me know.
Zifush out.