The FED Just Crashed The Market | DO THIS NOW

What's up, guys? It's Graham here, and, uh, welp, things got worse for anybody looking at their portfolio wondering why they can't seem to make it green. Unfortunately, turning it off and on again isn't going to work because inflation just came in significantly worse than expected throughout every single category, having just increased at a rate of 8.6 percent year over year.

This was the largest increase since December of 1981. It broke recent records for both food and energy. Housing saw the biggest surge in over 20 years. And the strangest part about all of this is that it might not even be entirely accurate. The reality is CPI doesn't factor in the specific purchases that most of us make on a daily basis, and that means there's a stronger chance of more rate hikes coming soon, a lot higher than expected.

Anyway, it's become clear that the situation is not going away anytime soon, so it's important to talk about how much worse this could get, how long this will continue, what's going to happen, and how to invest your money in such a way that it doesn't evaporate into thin air. Okay, whatever Andre chick does it better.

Although, before we start, in the spirit of inflation, it would mean a lot to me if you inflated that like button for the YouTube algorithm by giving it a gentle tap. Doing that helps me out tremendously. And as a thank you for doing that, here's a picture of a puffer fish. So, thank you, guys, so much, and also a big thank you to public.com for sponsoring this video, but more on that later.

First, we gotta clear up the confusion when it comes to the inflation reports because even though we see an increase of 8.6 percent year over year, that doesn't tell us the entire picture. It's really important that everyone understands exactly what this means. On a really basic level, inflation is simply the rate that products and services increase in value over time, lowering the value of your money today.

It's generally thought that the more money gets printed into the economy, the more we devalue the existing currency in circulation. Over time, the more dollars it costs to buy the exact same thing—simple, right? You know, historically, inflation is nothing new, and it's something we've been seeing each and every year since the beginning of time. In fact, the years we don't see inflation are usually associated with the recession.

But for the last 100 years, inflation has really been the backbone of our economy. It's exactly why in 1963, the median cost of a home was $17,800, whereas now it's $428,000, or how a Big Mac was 65 cents in the 1970s, but today it's $5.81. However, here's where things get interesting: even though we know prices are rising at an incredibly fast rate, the real mystery comes with how inflation is actually calculated, and maybe it's significantly higher than most of us are led to believe.

Actually, in fact, it is higher than most of us believe, and here's why. See, inflation is not just a one-size-fits-all approach across everything. After all, if the price of Rolex and Patek Philippe watches increases a hundred percent because people want to flex on Instagram, that's not appearing on a list showcased by the Federal Reserve while they rapidly raise rates so that more people could buy Rolex watches instead.

Inflation is measured by the essential products and services that people consistently use on a daily basis. Even though I guess you could say for some people Rolex might be essential, but that's besides the point. The main category that gets the most attention is what's called CPI inflation, which stands for Consumer Price Index. This covers the weighted average of the most frequent purchases and is tracked on a year-over-year basis every single month.

As a simple way to visualize it, just imagine that you have a grocery basket of 10 items, and on a regular basis, they compare the current cost of that basket with the prior month. If that basket costs more, then we've seen inflation, and that's reflected in the headline number that we see here.

But unfortunately, here's where things take a turn for the worse. CPI may not be accurate, and it could well underestimate the true impact of inflation, meaning some could say it's potentially way higher than we're led to believe. After all, there have been numerous revisions to the CPI leading people to believe that it's carefully crafted and manipulated to show what they want us to believe, not what it actually is.

In a way, I have to say objectively they're kind of right. On the one hand, CPI is adjusted to account for all the extra features that weren't available 10 or 20 years ago, like the fact that all new cars are required to have a backup camera. Every aspect of CPI is constantly being adjusted to account for quality increases, quantity decreases, new features, and keeping that as consistent as possible.

But there are a few complaints that stand out a lot in terms of why this is not the full picture. First, CPI numbers are adjusted to consider the fact that when prices rise, consumers could switch to less expensive alternatives as a way to save money. And this switch is calculated in the overall amount that's shown here. Sneaky, right?

Like, take for example you always buy Pepperidge Farms cookies at the grocery store for five dollars. But over time, that increases to six dollars, to seven dollars, to eight dollars. While inflation numbers won't count that increase if consumers have the option to switch to a less expensive alternative like Kroger cookies at five dollars, in this case, inflation can be shown as zero percent even though in reality it's not.

Second, in terms of housing, they base this on what's called owner's equivalent rent. This is obtained by asking homeowners if someone were to rent your home today, how much do you think it would rent for monthly unfurnished and without utilities? Of course, this brings a major concern that homeowners may not know what their home could accurately rent for, and it's entirely dictated by opinion and not actual data.

For instance, in the latest CPI report, owner's equivalent rent rose a solid 0.6 percent, which would imply a 7.2 percent increase. Meanwhile, realtor.com pegged year-over-year rent growth in March at 17 percent, while Zillow's observed rent index grew at 16.8 percent. The Bureau of Labor Statistics also counts their rent on a survey, asking tenants what is the rental charge for your household for this unit, including any extra charges for garage and parking facilities.

This does not take into consideration what the owner would charge at market value if the tenant were to move out, and that in turn underestimates just how far rents have really gone up. This is incredibly important because shelter makes up one-third of the entire inflation index, and if this number comes in lower, it dramatically skews the true inflation that we're actually seeing.

To show you just how much, take a look at this chart here, which compares the Schiller price index to that of owner's equivalent rent, and you can see just how far apart they are. And finally, third, we have a metric called core inflation, which excludes food and energy because those are known to be more volatile based on outside factors, and they're also considered to be staple items that are consumed on a regular basis, regardless of how much they cost.

In this case, gas prices are up 50 percent year over year from increased demand and limited production, and grocery prices were up nearly 12 percent, reflecting the largest 12-month increase in 43 years. Point being, inflation is extremely difficult to calculate because, yes, even though there are ways to switch to cheaper alternatives, truth be told, the actual number for someone making no adjustments whatsoever is likely significantly higher than what's being reported.

However, in terms of what's going on right now and what this means for you, your money, and your investments, here's what you need to know. However, before we go into that, as I'm sure you've noticed, the market continues to be extremely volatile. Although one of the best ways to mitigate that is through consistent investing, all thanks to our sponsor, public.com.

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And now, with that said, let's get back to the video. All right, now as far as what's going on today, the biggest concern in terms of you, your money, and the stock market is that higher inflation readings increase the likelihood of a larger rate hike when the FED meets in June, July, September, November, and December.

And that scene is a negative for stock values as borrowing gets more expensive. See, prior to now, traders were pricing in just a 3.6 percent chance of a 75 basis point rate hike in June, but after this report, they see a 13 percent chance of that coming in just the next few days. Another report shows the chance of the 75 basis point rate hike has increased to 50 percent in the following month of July, which is substantially higher than the 50 basis point rate hike that we were hoping for.

In other words, the one thing the market absolutely hates is uncertainty, and when inflation comes in significantly higher than expected, the market tends to price in the worst possible case scenario, and your portfolio sees a lot of red as a result. After all, the more interest rates increase, the more expensive it is to borrow money. The higher mortgage and auto rates get, the more it costs businesses to finance their operations, and the more likely we are to see them cut back, resulting in a recession.

Beyond that, though, I want to share my own thoughts on this because very rarely do I speak from the heart without all of these charts and figures backing up my claims. I just think this needs to be said. Since the very beginning when I started talking about personal finance here on the channel over five and a half years ago, I've consistently said to buy the dip on a regular basis throughout a diversified index fund, regardless of where the market is trading at.

And even though the headlines might be spooky, the truth is no one knows what's going to happen, and it's best to ride the entire market all at once over the long term. That advice still holds true today, and I have not changed my investment schedule at all since I started buying real estate in the beginning of 2011.

I have never timed the market. I have never sold an investment without the purpose of either tax loss harvesting or for a better opportunity. And I have no intention of changing anything in terms of how I invest throughout these next 10 to 20 years. However, I will say this: from my experience, both throughout working in real estate in 2008 and watching the markets collapse in 2020, at first, it's really easy to think this is awesome. Everything is on sale right now.

I get to buy everything cheaper! What more can I ask for? I mean, the truth is I agree completely with this, and it's the best mentality that you could possibly have during times like this. But I have a feeling if things get worse, sticking with that strategy is not going to be easy. The market is known for crushing souls and making you feel like a complete idiot when you buy something and it falls, and you buy more, and it falls more, and you keep buying and it keeps falling.

Then you think to yourself, "I'm doing everything wrong. This time is different; I suck. I'm just gonna wait." It's going to be a real test to mental endurance and strength to stick with a strategy that should logically work over the next 10 to 20 years.

Even though there are going to be times when you lose in your investments each and every year without making a profit from multiple years in a row, at least just be aware that all of that is normal. It will pass eventually, and long term, no one can predict what's going to happen in the market.

Even the Harvard Business Review found that the brightest minds and most complex algorithms in history couldn't do it. So what makes you think that anyone else can, including me? All I will ever tell you is to continue buying as normal, consistently, and in times like this, do your best to stay employed so you'll have the disposable income to invest.

That research that we have available to us is the most likely way to maximize the amount of money that you make over 10 to 20 years, and everything else is a shot in the dark. Plus, don't forget, it's shown that optimists are more likely to live past the age of 90, giving you more time for compound interest to make you even more money.

So don't worry; focus on what you can control, and at the end of the day, the best thing that you could do is to subscribe if you haven't done that already. So with that said, you guys, thank you so much for watching. Feel free to add me on Instagram. Thank you guys so much for watching, and until next time!