Hello, everybody. It's Sam from Financial Samurai. And in this episode, I want to talk about inflation. Because great news, the October inflation numbers came out on November 10th. And they came in below expectations. October consumer prices plus 0.4% versus consensus of plus 0.6%. October CPI, x food and energy, came in at plus 0.3% versus consensus of plus 0.5%.

And then October consumer prices overall increased 7.7% from a year earlier. And core CPI was up 6.3% year over year. And what's pretty cool is that you heard a podcast episode just a couple episodes ago talking about the most bullish economic indicator yet. And that bullish indicator, as you recall, was a lower series I bond rate, lower by 2.7%.

And the general thesis was inflation has clearly peaked. The government has shown its cards. And the upcoming inflation numbers reported in November, December, January, February, March will likely be overall below expectations. Or individual months will be below expectations. So right now, we're spot on. We've got October numbers coming in below expectations.

And what's happening with the stock market? The stock market is up 4%. The NASDAQ is up over 5.5%. So clearly, investors like this print because it shows that inflation really is rolling over. And there's hope now that the Fed won't hike as aggressively in December, January, and February. I think it's really important to know that once inflation turns, it can turn down very quickly, just like how inflation turned up very quickly.

And as a result, interest rates can also turn up and then also turn down very quickly. So a 10-year bond yield at 3.8%, that's a 30 basis point move in just one day. That's huge. That's like a two standard deviation move. So you will see mortgage rates concurrently, on average, go down about 30 basis points.

So let's say 6.5% mortgage, you can now get it at 6.2%. And again, with the series I bond collapsing by 2.7%, and given the rate is for six months, I can very easily imagine where the average mortgage rate will be down between 2% to 3%. So in other words, the average 30-year fixed rate mortgage could decline to 4.5% to 5.5%.

And the reason why is because everything is correlated in finance. Everything is correlated to a risk-free rate and the series I bond rate. It's not a great example of a risk-free rate, given there's a $10,000 limit per person, but it is a risk-free rate nonetheless. And the government has to be consistent with its offerings.

It can't say, OK, the next six months, we're going to offer 6.7% on the series I bond, but inflation is still at 8%, because then people will be like, well, why bother investing in such a lower rate when before you were offering 9.6% on the series I bond? Everything is relative to the risk-free rate return.

You've got to think about that as an investor. Another thing to consider is how come more PhD economists and highly paid Wall Street strategists didn't recognize upcoming inflation figures will likely come in below expectations? Expectations are the expectations. So how did these numbers come in below expectations? They get paid a lot.

They spend 40-plus hours a week crunching the numbers, looking at the research, and so forth. So how did they miss that? Conversely, how does a tired, stay-at-home dad who hasn't worked in finance in over 10 years get the call correctly? And to give you an idea of what I'm up to, it's right now 10:05 AM on November 10, and I'm sitting in my car a block away from the hospital because I just dropped off my wife and daughter for a nose and ear and throat checkup.

So the first important thing to know is that skin in the game matters. If you're just pontificating with no money at stake, it's harder to connect the dots. There is no financial pain if you get your call wrong. And if you rely on investments to take care of your family, as I do, you will experience max pain if you mess things up.

This situation is akin to being a PhD researcher about retirement who has gainful employment and a wonderful pension waiting for them. You know, they can research all they want about retirement lifestyle, withdraw rates, once you retire, and more, but unless you eject, press that eject button, and no longer have biweekly paycheck and a pension, what you think about retirement will be pretty different from what you model out.

Personally, I can't afford to be too wrong with my investments because my investments are what generate enough passive income so both my wife and I don't have to work until our kids go to school full-time. You know, this time is precious, and we can't afford to lose this time.

So having financial exposure is very important for making better forecasts. It's kind of like when you're arguing with a friend and she believes one thing, you believe another, and you just say, "Look, let's bet." And once you say, "Let's bet," that puts skin in the game, that crystallizes the odds, and if you really believe in what you're saying, then you'd be willing to bet.

Otherwise, you'll just shy away. All right, two, you wanna invite dissension, people who disagree with you. Getting things wrong is a part of investing. Therefore, listen to people who have an opposing view. You can publish your thesis or talk about your thesis and invite others to tear it up because finding your blind spots is really key.

You won't know what you don't know. So with Financial Samurai, I have this platform where I can publish a post, and then people can comment and say, "You're an idiot. "I agree with you. "Have you looked into this and this and that?" It is vital to see the other point of view, the other side of the story, because if you just have people saying, "Yes, sir, yes, ma'am, I agree with you.

"I love your thesis." Whatever it is, you are gonna develop these blind spots, and you might suddenly think your poop doesn't stink and you're just God's gift to earth. But the reality is every experienced investor has lost a ton of money before. Hopefully, we can all get it right at least 51% of the time.

If we do, we're gonna win long-term. But in the short term, it's really hard, and you need to at least call the direction. Once you get that direction correct, then you can look into the minutia. Please uncover your blind spots. All right, three, don't be delusional. All right, post-mortem analysis is very important.

Ask yourself, did you get the call right because of your reasonings or because of something else? Because if you confuse your reasonings with something else, you're gonna be delusional. Let's use an example. Let's say you predict so-and-so is gonna win the tennis match, and you predict because the forehand, the person's forehand is better and they're fitter.

And the person ends up winning. So you're suddenly thinking, ah, you're a genius. But the real reason why your person won was because the opponent had a stomach tear, and he twisted his ankle, and he was getting over a cold, so he couldn't perform to 110% of his ability.

If you don't know that, then you are going to over-optimize on betting on the person you thought who would win, and over the long run, you might get very frustrated when that person doesn't win because of your reasoning. The same thing goes if you got your investment thesis wrong, but the results turned out correctly.

Please don't forget that you got your investment thesis wrong, and basically luck bailed you out. Very important. Don't confuse being born on third base with hitting a home run. All right, final point here on how to be a better forecaster and hopefully a better investor, because it is hard.

Man in the Arena, a great speech by President Teddy Roosevelt. Here is part of the speech. It is not the critic who counts, not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs, who comes short again and again because there is no effort without error and shortcoming, but who does actually strive to do the deeds, who knows great enthusiasms, the great devotions, who spends himself in a worthy cause, who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

I love this speech. I have the speech hung up in my bathroom, so every morning I see it to not give up. Except you will get plenty of calls wrong and lose money in the future. That's just the way investing is. But stay humble and recognize luck. To achieve financial independence, to make money on risk assets, you must continue to battle and suppress the fear of looking like an idiot by taking calculated risks.

Think about it. When I was coming up with my investment thesis on the most bullish indicator I've seen this year, I was kind of concerned. I was afraid, like, is this investment thesis correct? Will readers and listeners think I'm a dumbass? But then I thought to myself, well, I look like a dumbass all the time based on my writing and my podcast.

Hey, y'all tell me that all the time in the comments and I've come to embrace it, right? So I wanna look at those blind spots and I wanna do my due diligence and figure things out. And I said, you know what? People get things wrong all the time, but you know that if you don't try, if you're not in the arena, putting out your investment thesis, battling it out on the tennis court or on the pitch, you're never going to win.

You're never gonna win at all. The reality for me is that money is too important to be left up to pontification and just winging it. It's one of the reasons why I started this podcast and why I started Financial Samurai in 2009, because writing and recording this voice helps me think things through.

Because when I write, I've often discovered, ah, I missed something. And it just really helps crystallize and make you think more purposefully. So I highly suggest it for all of you before you make an investment thesis or investment decision. Moving forward, I'm pretty confident the worst is over for this bear market.

3577 on the S&P 500 reached in mid-October, 2022. Hopefully, likely is the bottom. As a result, psychologically, mentally, I feel more at peace that we're not gonna go down to the depths of despair like we did during the global financial crisis in 2008 and 2009. However, the X factor is whether the Fed will really recognize, verbally, publicly recognize that inflation has peaked and that they will slow down.

They are the X factor. And I hope that my podcast and my articles, just speaking out will help pressure them to be more balanced and thoughtful for the middle class going forward. Because the last thing we want is to have millions of people unemployed for the sake of pushing down headline inflation by two or 3%.

Yeah, inflation stings, but losing your job, losing your livelihood, stings even worse. All righty, if you enjoyed this podcast, I'd love a positive review and a share with your friends. If you wanna support my work, check out Buy This, Not That at financialsamurai.com/btnt. If you wanna subscribe to my newsletter, it's financialsamurai.com/news, N-E-W-S, so you don't miss a thing.

And finally, don't forget to check out the show notes because I'll include the relevant links. Thanks so much, everyone. It's time to pick up my wife and daughter.