Why do we have inflation and why do governments under-report it

Many of us feel the official inflation rate is out of sync with reality. If you do your shopping, pay your rent, go to the hospital, its easy to see something doesn’t add up. Many of us actually do not understand why there’s inflation and what its implications are. It used to mean price increase but the world changed dramatically in the last decades and inflation has evolved into other variations. In this blog post I’ll try to explain what inflation is in the XXI century, why do we have it, why do governments artificially suppress it, how can we measure it and how can we protect ourselves against it.


What is inflation?

Inflation is the generally perceived as price increase of goods and services .. but a more correct way to describe it is – the depreciating in the purchase power of a currency. Since the creation of the FED in 1913 and most notably since 1971, inflation has picked up relentlessly. But inflation is not only reflected in prices: Corporations today offer less quality / less quantity in order to increase profits – which essentially means higher inflation to consumers.

Why do we have/need inflation? 

First and foremost we need inflation (i.e. money supply expansion) to cope with population growth. Imagine we were only 10 people in the world with a combined $10 .. we’d have $1 per capita. If population grows to 20, we’d have only $0,50 each and deflation would kick in. If you think prices will be lower tomorrow, you delay consumption and if you delay consumption the economy crashes. So in today’s world which evolves around consumption and population growth .. we need money supply expansion to keep pace with population growth. It’s only when money supply grows faster than population growth (which is the case since the FED was created in 1913) that we get inflation.

Why are Governments increasing money supply faster than population growth?

Because they want to stay in power. As such they’re forced to over-promise their citizens with ever growing social welfare plans and pensions. In order to pay for these promises they go deep into debt which needs to be repaid with cheaper/devalued currency. You can’t really blame them as they’re simply trying to maintain social stability. Either we as a society accept to change the rules of the game (lower social spending, lower pensions, less government, etc) or we can’t blame governments for underreporting inflation. Perhaps a better alternative would be to shrink Governments and give them less power, but that’s a different topic altogether.


But why do Governments underreport inflation?

1. First and foremost to artificially boost economic growth (or GDP). It’s my belief that the US economy has been contracting since 2007, along with every other developed world country. Real inflation has probably been around 8-10% annually. Considering the GDP numbers they report are real growth numbers (already discounting for inflation), if they were to report real inflation .. they’d need to admit that the developed world is not growing but is actually shrinking 2-3% a year. (tax revenues are probably a better proxy for growth).

2. Paint a rosier picture about real wage growth numbers. Median US household income was ~57k in 1999 and ~53k today (adjusted for inflation). Now imagine instead of using 1% official inflation numbers, they’d use a more realistic 5%. That alone would bring real household income to 27k today (instead of 53k). People feel it in their day-to-day lives that something doesn’t add up but if the official numbers say otherwise .. they they must be right and I must be wrong. Imagine if people were to find out that their purchase power is >50% lower today than 16 years ago. There would be a revolution tomorrow!

3. Less social spending. Many of the government expenses are linked to the official inflation numbers. Pensions, salary increases, benefits, etc. If governments around the world were to report real inflation numbers, they’d be bankrupt now.

4. More tax collected. By underreporting inflation, the tax brackets are artificially set at a low level, which generates more revenue to governments. In the Netherlands for example everything you earn above 56k you pay 52% income tax. Next year they’ll probably report 1% inflation, which means  the threshold will move to 56,560 EUR. If they were to report a more realistic number of 5% inflation .. the threshold would move to 58,800 EUR, meaning less taxes to the Dutch government.

5. Suppress price of gold / silver. If real inflation was properly captured by the CPI (inflation index), Gold would be much much higher, which would challenge fiat currencies and consequently the establishment. Many people argue Gold price is being manipulated. Not that I doubt that, but even if they’re not outright manipulating it (via the futures paper market) .. they may well be doing it by underreporting CPI inflation. As we know the main gold price drivers are: 1) direction of USD 2) real interest rates. By suppressing inflation they inflate the real interest rate, which favours paper yield-generating assets.


What are the other non-price variations of inflation?

Less quantity: Companies are finding creative and subtle ways to offer offer less quantities to disguise inflation, in ways that consumers don’t notice. People wouldn’t accept price increases of 5-10% a year but they do accept 19 tea bags (instead of 20 the year before, meaning 5% inflation) or smaller sizes for the same price.

Less Quality: A more subtle way to boost profits and hide inflation is to offer less quality. Chocolates have less cocoa, more water is added to foods (wines, meat, milk, etc), we use less good ingredients in food production. Not to mention the introduction of genetically modified foods (GMO), which cause cancer in the long term. How is this captured in the inflation rate? It’s not!

Battery spams / malfunctions: iPhones and MacBooks for example have short battery spams. After 1 year usage, the battery of both your computer and iPhone stars eroding much faster. This is certainly not a coincidence. There are very smart people at Apple designing batteries that will speed up battery deterioration faster than they otherwise should. If you buy an iPhone every 2 years instead of every 4 years .. that’s 100% inflation right there!

Geological inflation: It’s getting harder and harder to pull minerals / metals out of the ground. The low hanging fruit has been picked .. now it requires more expensive technology and labour force to extract these metals (they’re getting lower grade, getting harder to find, deeper and more expensive to mine). We are exhausting the planet Earth’s capacity to regenerate natural resources, thereby reducing the incremental marginal benefits.

Technological improvements: Farmers use better and better techniques to produce food, generating higher yield from same amount of land. But if we manage to do things cheaper, why are prices to the consumer not cheaper then? Why do companies keep all these productivity gains?  Assuming their productivity is 2% higher each year and price to consumer remains the same as last year .. is inflation really 0% or rather 2%? Some food for thought…


What is the real rate of inflation today?

No one really knows. There are strong inflationary forces but also some deflationary ones.

Basic needs that take 70-80% of your income (rents, food, healthcare, insurance premiums) have been growing at 8-10% a year. In contrast, the price of “nice-to-have” items such as plasma TVs, cars, computers, etc are shrinking (though by constantly introducing new models every year, corporations induce consumers to rush and buy items more often than they really need .. leading indirectly to higher inflation).

The advent of the internet and the sharing economy exert powerful deflationary forces in the economy. It led to the disintermediation of banks, hotels, taxis, housing, insurance, travelling, trading, essentially removing the middle man. Estimates suggest corporations are capturing 90% of the value of this disintermediation (hence the higher than normal stock market valuations), with consumers benefiting only the remaining 10%. That also explains why structural unemployment shot up, as a lot of gate-keeper jobs have been permanently removed from the system. Globalisation also makes our non-essential products cheaper by moving production to ever cheaper countries.


How can we protect ourselves against inflation?

Make sure your savings grow faster than inflation. It’s not an easy task with banks paying 0% on your savings account (and soon to start charging when negative rates kick in) . Stocks and real estate were a good option in 2009-2014 period but it’s way too late & risky now. My favourite investment is education in yourself (expanding the mind & knowledge should yield results much faster than inflation, regardless of the economic environment). Precious metals are also an interesting option in the long term if you’re prepared to see them losing value in the short-term before the inevitable rise. Investing in small companies directly could also be a good investment though risky in these turbulent times. The worst you can do is to keep it in the bank, unless you intend to invest when there’s blood on the street (easier said than done). Also make sure the bank where you keep your savings is financially sound. In the next crisis I suspect few will survive. If you have >100k in cash, then you should be concerned as another Cyprus-style depositors theft is likely to occur. Governments chose this path of financial repression as the only politically acceptable path out of the gigantic debt levels we’ve accumulated. The other paths of inflation and / or default were not politically feasible and the population would rebel.


Follow me on Twitter @ricardo_afonso_


Wealth is merely transferred in crisis, not destroyed

If you want to make money in the next 6-12 months or if you’re an institutional investor .. you may want to stop reading now. The chances are .. you’ll lose some money and maybe your job. However, if you’re a retail investor (less sensitive to market volatility) and you want to position yourself for the next 20-30 years and come out on the winning side .. keep reading:


We often have a hard time understanding where does all the money go to in crisis. Does it simply disappear or does it change hands? Is it a zero-sum game? In order to answer that we must understand the monetary system in its entirety and how money (debt) is created. I don’t think many people in the world have a full grasp on this. I could give it a try but I don’t know enough to lecture you on that. The point I’ll try to make here is a different one: That wealth (not money) is merely transferred in a crisis, not destroyed.

So let’s first clarify what wealth is:

Most people consider wealth as the money in their bank accounts. That is the case in today’s paradigm. You sell your time by going to work and store your labor in a bank account, for future use. But things change (as they’ve always done in the past). Do you take a shower with money? Do you eat dollar bills? Money in your bank account is only wealth to the extent that people trust it to be worth something. The moment this trust evaporates (as it has many times throughout history) so does your wealth.

So wealth must be something else more tangible: A barrel of oil (which can heat up your house or take you from A to B), a house (provides you shelter) , a farm (feeds you), car (means of transport), ownership of a company (you partially own its output), gold (real money for 5000+ years), education (a skill you can convert into something tangible), freedom (the ability to spend your life doing the things you want), a patent / royalty, water, etc. That is wealth!

2007-2008 Global Financial Crisis

In the last global financial crisis in 2008, a lot of paper and electronic currency disappeared, but the wealth remained. There were still the same barrels of oil, the same gold, the same commodities, the same housing, the same water, the same food at the end of the crisis as there was at the beginning. Prices were simply re-set lower, but the underlying wealth remained. But because we price everything in dollars, we tend to think we lost something when in reality you may have won purchase power. Everything else equal, if your house price dropped 30% but stocks crashed 60%, then you doubled your wealth. If your gold drops 50% but silver drops only 25%, then you halved your wealth.

We’re all too accustomed to look at prices in $ terms. A house costs $200,000, a car $20,000, an ounce of gold $1070, a barrel of oil $35. If you invest for the long-term though … you should think of prices differently: How many barrels of oil can I buy with an ounce of gold? How much bread can I buy if I sell my silver coins? So let’s look at a few ratios and try to gain some insights:


Gold / Dow Jones ratio: 

This graph shows the ratio fluctuating very wildly. Just before the 1930’s Great Depression the ratio was 17 and dropped to 2. In the 1960’s was close to 30 and came down to 1 (as gold peaked at $850). At the peak of the tech bubble, the ratio hit 43!! (but surprisingly didn’t drop that much when the tech bubble burst) and now stands at 16. Where’s the next move likely to take us? The honest answer is “I have no idea”. However in the long term (next 10-20 years) you know history is likely to repeat itself, meaning dropping <5, or maybe even parity, meaning either the Dow drops to $1100 as gold stays at $1100 .. or Gold increases to match the Dow’s value (at whatever value it may be). That means that at the end of the cycle, those holding gold will increase their wealth 16x versus those sitting on stocks. Can this ratio reach 20 or 30 in the next 6-12 months? Sure it can, in which case you’ll be bleeding big time. But again, think long term. In order to get long term gains you must endure short term pain.


Gold / Oil ratio:

With the ratio currently around 30 and historical heights, you can infer where its heading next.. DOWN! Gold today is too expensive today relative to oil. And I’m a gold bug so I don’t say this lightly. So either buy oil (or oil related assets such as Shell/BP, ETF on oil, NOK, Saudi Arabia stock index – Tadawul, etc) or short gold or both.


Gold / Silver ratio: 

This graph doesn’t fluctuate as wildly as others (as expected since gold and silver are related commodities), but you still see 10x difference between highest and lowest ratio (hit close to 100 in the 40s and 90’s and ~10 in the late 70s). With the ratio now close to 80, you know where the next big move will take us .. and that is DOWN, probably to around 20 area. Meaning either gold drops to $280 (at today’s $14 silver price) or silver increases to $53,5 (at today’s $1070 gold price).


Gold / Housing ratio: 

In 1980, when gold hit $850 peak, this ration hit the lowest point, meaning you’d need only 100 ounces of gold to buy an average US house. So either housing was cheap and gold was too expensive. I think the latter. In 2000 the ratio hit 565, meaning house was too expensive or gold too cheap (or both). With the benefit of hindsight, I think housing was cheap but gold was much cheaper. In 2011 gold hit $1900 and housing corrected significantly, hence we reached the bottom ratio of 100. The ideal would have been to sell gold and buy houses in 2011, but I think you’re not too late to take that train. With the ratio now around 200 (average single family home  around $220,000 for gold price around $1100), my take is that you should still sell gold to buy housing as the ratio is likely to go up from here.


There are many more ratios you can do to understand the massive wealth transfer that will take place in the years to come. Oil to stocks, housing to oil, oil to silver, among others.. shed some light on how to benefit from the times ahead.  Leave your contact on the comment section or “like” the post and I’ll send the full detailed analysis with exactly what you should buy / sell now so that you can prosper and become wealthier even when the hurricane hits. The hard part is being able to go against the flow and withstand the possible short-term pain. But if you invest for financial freedom, for retirement, for the very long term .. it shouldn’t matter if you’re down 5-10%. It’s actually more likely you’ll lose money in the short-term than winning. These long term trends don’t change overnight, there’s strong fundamental reasons why they are where they are and likely to continue. But I actually prefer when these distortions get more acute because it allows me to double down on my positions and make a disproportionally larger gains in the future. And even if it goes down .. its in $ terms anyway, not in real wealth terms.

You should also think that if a Great Depression 2.0 hits us, then would your $$ be safe in a bank? Probably not, so it may be good idea to start looking at paper fiat currency differently.



If you’re concerned about the upcoming crisis … you should, it’s going to be ugly. 99,9% of us will be worse off (in $ terms). But what matters is not how much you’ll lose in dollar terms, but how your wealth performs against other forms of wealth. That’s why looking at historical graphs comes in handy. History does not always follow the same patterns, but it rhymes very strongly, specially when you look at a 20-50 year time horizons. Life is made of cycles, there’s day and night, summer and winter, recoveries and recessions, high and low prices…

A final note to recognise that this post adds nothing to the world. We’re simply thinking of ways of stealing existing claims on wealth from other people, not creating new wealth. A far more ambitious goal in life should be how to create new wealth to make this world a better place and a life worth living. I will address this in a future post.

A reflection on money, wealth and the turbulent economic times ahead

Some of the world’s most talented people spend their entire lives mastering the art of managing money. An additional 1% return separates winners from losers. But what are we really chasing? Material things? Peace of mind? Financial freedom? At which point is it enough? Is it ever enough?

Research shows that you need 75k per household to reach peak happiness .. yet, we keep pushing for more. Most people’s goal is to expand their bank account, yet few have a goal that goes beyond money itself. Its as if we’re spinning in a rat wheel too afraid to ask ourselves the questions that truly matter:

  1. Why am I alive?
  2. What was I born for?
  3. Would the world miss me if I’m gone tomorrow?
  4. What would I do tomorrow If I had all the money I wanted?
  5. What is the legacy I want to leave behind?


Many of us go through life without ever reflecting on this. I’ve been on this trap myself for up to 36 years. Pursuing money seemed satisfying in itself. I spent most of my life studying macro-economics, economic history, portfolio management, money management, etc .. but only recently I started questioning money itself.

And what led me to this path is the strong conviction that the next 20-30 years will be very different from the previous ones. The last 50-60 years have been the most peaceful decades in history (in the developed world). No major wars, no hyperinflation, no deflation, no money (gold) confiscation, no change in monetary system, no dictatorship, no major natural disasters, no major pandemic. Life’s been pretty good!. But it wasn’t always like that .. and most likely .. it won’t be for much longer.

Sky high debt levels (that can never be repaid), negative interest rates (how much lower can they realistically get!), central banks’ balance sheets swelling to historic levels, increasing geopolitical tensions, terrorist attacks, massive flow of refugees, resource depletion of the planet Earth, increasing levels of pollution and CO2 emissions, ever increasing healthcare costs, demographics time-bomb, poisonous foods (GMO, processed, etc), increasing infertility rates. This is an explosive mix, but sadly thats the current state of affairs.

We’re reaching a boiling point and I believe things are likely to change dramatically. I have no idea when that will happen or what the new world will look like. Metaphorically speaking, imagine today’s economy like a bridge with 1000 vehicles capacity. I look at the bridge and I see 4000 vehicles and the cracks appearing everywhere. At which point will the bridge collapse, 4001? 5000? 6000? No one knows, but it doesn’t take rocket science to understand the bridge will eventually collapse.

We can spend as much time as we want trying to make sense of the world and where its heading. Will we have deflation? Hyperinflation? Should I exchange currency (paper bills) for real money (gold)? Should I invest in Real Estate and take advantage of rock-bottom interest rates? Is bitcoin the future of money? Where are interest rates heading? But is that why your mother and father conceived you for? To spend your life collecting little domino pieces and give them all away when you die? Imagine a place where all the talented hedge fund managers, wall streeters, lawyers, physicians, consultants, etc dedicated their time to worthy causes .. rather than pursuing paper claims on future wealth?

In the last few months I came to realise that we’re all wasting too much of our lives pursuing money and worrying about the future. What if Governments confiscate all your wealth? You may think you’re hedged, but are you? And what is wealth anyway? Certainly not the money on your bank account .. that is currency at best, not wealth. At worst its a bank’s liability, as such it will be gone if the asset side of the bank’s balance sheet deteriorates.

Wealth is food, health, freedom, a shelter, friends, family. That is true wealth and that is what we should all worry about, not preserving or expanding currency because let’s face it:  The money chasers pull the levers and decide when we have crisis / recessions and ultimately all your savings can disappear if they want .. because what you perceive as “wealth”, it’s just debt .. and as such .. just promises.


Don’t get carried away if you made 10% return this year or if you made 20k because unless that translates into more wealth (more friends, more knowledge, better food, better healthcare, cleaner air), it doesn’t really matter. Focus on getting real life skills (teaching, farming, handyman, connecting, travelling, hunting, etc) because they may come handy in the new world that will emerge. Don’t take many things for granted anymore: Things like electricity, energy, hot water, food in the supermarkets shelves, gasoline at the pump station. We may not have this in the coming years. Understand that an extra zero in the bank account might not do much. It’s time to stop watching TV, watching football, drinking alcohol to run away from your life. It’s time to face the music, however ugly the music may sound like. Let’s all rise to the occasion and build a world our children can be proud of.

Food Matters TV – here’s what I learned

Raw foods: It’s scientifically proven that raw foods heal the body from almost any disease (it’s actually the basis of Gerson’s treatment to cancer). Try to eat >50% raw in each meal.

Earthing: When we walk with bare feet on the ground and make direct contact with the Earth our bodies receive a charge of energy that makes us feel happier and better. It allegedly helps with back pain, paraplegia, autism, snoring, stress, immune system, etc. Think about the process by which fruits / vegetables grow on the soil… There’s clearly something magical about it.  

Vaccinations: The medical community argues vaccinations are administered for the Greater Good. There will a few victims along the way but so long as society as a whole benefits .. we’re good. It’s a fair point, after all disease outbreaks and child mortality rates have gone down dramatically. That said, there are considerable and untested side-effects and many young babies are being sacrificed for this Greater Good. There’s + and + autism in children and long term immune system degeneration. Plenty of them contain mercury and other metals which cause long term terrible effects. Certainly do not trust blindly your doctor and do your own research before putting anything inside your own or your children’s body.

Dental fillings: Most of us have 1-2 dental silver fillingsThey’re made up of amalgam which contain mercury. If this mercury is exposed to excessive heat it will release a toxic cancerogenous gas. This won’t kill you overnight but over the years it harms your body and causes cancer. Be very inquisitive the next time you visit your dentist and do your own research.

House pollution: It is estimated that the air quality in your house is up to four times worse than outside. That depends largely on the housing materials but even if you live in a luxury house .. you’re still exposed to harmful gases. Pay particular attention to mold and asbestos inside your walls, house corners and windows. They won’t kill your overnight but overtime they contribute to cancer and other diseases. Watch “Moldy” movie if you want to know more.

Alternative medicine: The elite members of our society understand conventional medicine does not respond to our health needs. For example when Ronald Reagan got cancer, he went to Mexico and got cured without using any chemotherapy or radiation. Same goes for Charlie Sheen who refused conventional medicine to cure his HIV (he’s now going to Mexico). The elites know “alternative” medicine is really THE only real medicine available. But they can’t tell the masses because that would cause social / financial chaos. Pharmaceuticals would go bankrupt (as people start refusing unnecessary drugs), Governments would go broke (as they needed to pay healthy pensioners until they die of old age). It hurts me to say this but in today’s paradigm, it’s in no one’s interest to have healthy people.

FDA: I don’t want to sound conspiracy theorist but after watching a few documentaries .. I urge you not to trust this institution. They are not looking after yourself. In fact they will do whatever it takes to destroy anyone who may threaten their clients’ cash flows. They tried to kill Max Gerson and imprison Stanislaw Burzynski (both discovered cures for cancer many decades ago). Have you ever thought how come we can go to the moon, build skyscrapers … but can’t find a cure to cancer? Of course we can, but it’s not to the benefit of the 1%. Watch “Dying to have known” movie, it will open your eyes to the dirty side of this industry and untrustworthy institution.

Cancer: The world already knows the cure to cancer and many other degenerative diseases such as diabetes and MS. However, there’s NO money in people being healthy. Cancer / diabetes is a multi-trillion dollar industry, so the job of Pharma industry is to turn you into a compliant, pill-popping, revenue-generation unit, as young as possible to guarantee a cash-flowing asset for life. Chemotherapy and radiation therapy only work for a small number of people, for all the others .. it is essentially a tool to enslave and transform them into perpetual money making machines. The cancer often reoccurs, which is ideal from a cash flow perspective. Same goes for diabetes, cholesterol, etc. The goal is that you take pills forever, not to cure you.

Pay the farmer now or the Pharma later: Most people save money throughout their lives, only to be forced to give it all away at the end to the Pharma industry when they get old and sick. Don’t fall into this trap. Pay a bit more now for your food to be able to have a drug-free life later.

Medical practise: When you meet the doctor, understand there’s a whole industry behind it. Most of them are indoctrinated to believe that the drugs they prescribe is the only solution. They believe if its FDA approved .. then it must be good. Don’t be fooled, question doctors why they prescribe what they prescribe .. and not something else. Have a little less respect for them and more for your grandmother’s opinions. Search for alternative medicine, and don’t forget that food is the medicine of the future.

You eat what you are: Many people say you are what you eat, but I believe a better way to describe it is: YOU EAT WHAT YOU ARE. The fact that obese people eat junk food is not the problem, it is the solution to their problems. When people suffer from psychological imbalances, depression, loneliness, etc, they are more prone to succumb to the immediate gratifications of sugar & junk food. I suggest trying small things (start the day with water with lemon, have a healthier breakfast, 10 minute daily walk) and you’ll see everything gradually falling into place. You’ll start sleeping better, feeling better, eating better, improve your sexual vitality, less headaches, making better decisions, being kinder to people…

Be skeptical about “organic”: Though its better than the normal foods that you find in supermarkets, it may still get pesticides and other dubious sprays. It’s as if you replace diesel with benzine, but it’s still not a solar-power vehicle. If you really want to have full control over what you eat .. I’m afraid you have to start producing your own food.

Meat kills you: Not the meat our grandparents used to eat, but today’s meat. Cows are cannibals these days, they get fed mostly grains and powder of dead cows’ unsellable parts, which is horrible to think about. They are perpetually pregnant so that they keep producing milk. They’re full of antibiotics, vaccinations, drugs. And most likely your meat is made up of small scraps glued together with artificial substances detrimental to your health. Up to 25% is generally added water, so they can charge you more weight. We can still eat meat, just make sure it’s meat (grass-fed)

Milk: Think twice before you drink milk. Why would you drink milk that the adult cows produce (full of growth hormones) to their young calves? Do you still drink milk from your mom? So why would you do it from a cow? And why from a cow and not from a dog? Simple, because cows are the highest yielding cash-flow animal on the planet.


We spend most of the time focused on our jobs, careers and money, but overlook perhaps the most basic element of life, FOOD. We outsource it to corporations whose interest is not to feed us properly but to make as much profit from us as possible. I don’t blame them, that’s capitalism. But you should  understand the world we operate in, what the drivers of capitalism are .. and take your decisions accordingly. And don’t take my word for it. The whole point of the post was to instigate your curiosity to find out more about these topics. Start by watching the below 3 documentaries and make up your own mind. And don’t wait until you’re 60 to do it, it may be too late.

1. Hungry for Change

2. Dying to have known

3. Heal Yourself

Why are house prices cheaper today than ever before?

I decided to write this article because many people mistakenly think that house prices are more expensive today than they were last year. That is only the case if you pay cash. But if you borrow to buy a house, as 99% of home buyers do (not surprisingly with rates so low) you should look at house prices differently. Let’s look at one example:

If a house price costs 300k today and 341,8k next year, you’re tempted to say that the house is now 14% more expensive. However I believe this is the wrong way to look at it – at least from the buyer’s perspective. You need to look into mortgage interest rates to get the real picture.

Money is getting cheaper by the day, so what truly matters is how much you’ll end up paying the bank over the 30 years in both interest costs and principal repayments. By that measure, house prices are now lower than at any point in the last 15 years. 

Let’s pick the Netherlands as example: 30 year fixed mortgage rates were around 5% a year ago and 3,6% today (assuming 100% LTV). As you can see from the table below (last line), the total cost of buying a house remained the same even though the asking price went up by 14%.

1st graph

In both situations, you’ll end up paying the bank 532,500 EUR over 30 years. This means that buying today at 342k is essentially the same as having bought last year at 300k.

Want to know where house prices will move? Then you must form a view on where interest rates are likely to go. I’m a firm believer rates will keep coming down in the years to come. They have to. It’s the only way households, governments and corporates will be able to service their monstrous debt loads and keep up with interest payments. What this means for real estate prices is that they’ll keep moving up and up. Now, this is excellent news for home owners but not necessarily bad news for buyers (as demonstrated in the above example).

2nd graph

But what happens if & when mortgage rates go negative?

3nd graph

House prices will keep going up as mortgage rates drop into negative territory. Denmark is the classic example, they’ve had negative rates for 3 years now and guess what: House prices have gone up 40-60% since 2012! We’re just a few years behind in Western Europe and US, but that’s where we’re heading. That raises other questions such as why would investors be willing to lend at negative rates for 30 years? Probably we won’t get there but we’re heading close.  Sweden is also a classic example of what negative rates have done for home prices:



If you’re a buyer and assuming you can borrow 100% LTV, ignore how much house prices have gone up in the past. Look instead at how much you’ll pay the bank over the next 30 years. That is the true cost of your house, not the value today. Home owners should be thanking Draghi, Yellen, Kuroda for printing fiat currency at unprecedented levels. They’re capturing all the upside of these non-sense policies. But if home owners win and prospective buyers don’t lose .. who’s on the losing side of this? The young generation who’s forced to rent at ever higher prices .. and pensioners & savers who are indirectly funding the debt binges of home buyers – and see their pensions / returns diminish dramatically … This gigantic wealth transfer from savers to indebted home owners has made the latter rich at the expense of the former. What happens when rates drop below zero? Then we enter murky waters and it’s hard to predict, but everything seems to suggest house prices will keep creeping up until the system eventually collapses. When will that happen? That is the million $ question.


Have different views? Would love to know why. If you want to play around with the numbers on the excel sheet.. let me know and I’ll send the sheet

Why we procrastinate on the things that are most important to us?

How often does another day pass by with you not doing the things you wanted to do? How often do you get distracted by all the noise around you which prevents you from doing the things that really matter? If that feels you, keep reading.

In a recent research study by William Pounds from MIT, managers in organisations were asked what were the most important issues they were facing in their companies. Then, they were asked to report their activities in the previous week. Turns out NO managers reported ANY actions which could be directly associated with the most important problems they described. Or said differently, what we to do everyday is often different than what we wanted to have done at the end of that day.

That begs the question: What’s holding us back? What is so tempting about short term distractions and what is to terrifying about focusing on our long-term goals and the things that really matter to us?

Turns our there’s 5 fundamental reasons: FOMO, perfect conditions delusion, fear of being interrupted, inability to put a time frame on our goals, and  invisible measurability . Let’s delve into each of them:

The first explanation is that we live under a permanent FOMO (fear of missing out), a desire to stay continuously connected with what others are doing. Whether we realise it or not, we’re seductively drawn to the mystery of what might be happening on the outside world. The world is moving forward and you don’t want to be left behind. So you constantly check Twitter, Instagram photos, online browsing, Facebook notifications, emails, etc. That’s the way we’re designed. It makes us feel we are on top of “it”. It gives us something to talk about when we socialise with our colleagues, our neighbours, our friends. But the reality is far different. It gives us a false sense of accomplishment that helps diverting our attention from the things that matter. Research shows the people that that have been a week without internet only miss it the first day, after which they feel more liberated and revitalised. Something to think about!

The second explanation is that we are always looking for the perfect conditions before we start. So we try to focus on getting all other outstanding small tasks out of the way. Its as if we want to remove all the excuses and all the noise around. What we fail to realise is that the noise won’t go away .. it’s always there and typically grows as days and weeks go by. A simple email leads to a chain of emails that last forever (when a simple 5 minute old fashioned call would do it), a Facebook browsing leads to an 1 hour watching Youtube amusing videos, a website leads to another website, a quick TV browsing leads to 90 minutes watching a football match .. and so forth. Before you know the day is gone, the week is gone, the year is gone.

The third explanation is that many of us avoid focusing on the things that really matter to us because we fear being interrupted. Research shows that we’re interrupted 4 times on average per hour and that when we are interrupted .. it takes an average of 15 minutes to get us back to where we were before. Now imagine you know upfront you’ll be interrupted 4 times an hour .. how are you supposed to get anything done? As a result, your brain is subconsciously wired to prioritise smaller tasks, those that give you small bursts of satisfaction and a sense of accomplishment. Metaphorically speaking, imagine you need to make a decision whether to jump to a cold swimming pool .. knowing that someone will suddenly interrupt you (with a whats’up message, email coming in, unexpected phone call, ..), after which you need to get out of the pool, dedicate time to whatever’s distracting you .. and then get back into the cold water again. So the thought of suffering multiple times to get into the cold water .. prevents us from even starting the activities that really matter. The result is that life passes by, you wake up at 45 or 50 and realise you didn’t live up to your potential because you were far too easily distracted by the ease, seductiveness and immediate gratification of the temptations that come our way.

The fourth reason is that to-do lists are far less effective than calendars. If you want to get something done, make sure you put it in the calendar with a specific deadline  and ideally tell your group of friends as well – as this will exert a positive peer & reputational pressure on you. Research shows that you’re much more likely to do something if you have to say WHEN you’ll do it, rather than if you simply say “I have to do at some point”. Said differently, it’s not real until you put a time frame on it.

The fifth reason is that it’s hard to see (and measure) results when you focus on a big goal or priority, especially if your goal is ambitious enough. It might take months or even years to start seeing the fruits of your hard labour. But humans (and the way we designed societies) are not really designed for long term gratification. We need immediate results now, not next year. No one’s willing to put it the invisible effort for the greater outcome. CEO’s need to show rising stock prices and increasing quarterly profits .. not that they are creating a better company in 5-10 years. Hence they resort to short term gimmicks of stock buy-backs that boost immediate results at the expense of tomorrow. Politicians is another example. Their priority is to get re-elected next year, not to undertake structural reforms that typically take 10-20 years to see visible results. Our eating habits is another example. We may want to eat more healthy and have a better body (in the long term) but if you’re hungry .. the appeal of a pizza pepperoni now weights much more heavily on our decision making than our long term goal. The emotions associated with short term payouts are more real and weight much more heavily on us than the real long term goals we may have established in the past.


There are deep seeded reasons why we procrastinate on the things that are more important to us. We designed a world full of distractions and it’s hard to escape. Think when was the last time you were able to read a book for 1 hour straight? We’re bombarded with short term distractions that give us small bursts of satisfaction and help us going to bed with a clear conscious. The far more important goals are much harder to measure and the rewards are too far out in the future. This inevitably leads to a life you have little control over, one where another day passes by and you haven’t moved closer to where you want to be. The actionable points below:

1) Get past the fear of missing out because the reality is that you’re not really missing out on much. 2) Perfect conditions will never exist. The smaller tasks will always be there pulling you away from your top priorities. 3) Isolate yourself for one or two hours a day. Make sure there’s no internet, no colleagues, no skype, mute email notifications, whatsup, etc. 4) Put it on your calendar with a clear deadline and share it within your inner-circle. 5) Learn to forgo immediate results and be willing to go “invisible” for a few months or years.

More on Twitter @ricardo_afonso_

Are you who you think you are? The surprising ways your friends see yourself

Recently I asked some of my friends to define myself: What comes to mind when they think of me, how do they perceive me, what do my critics say, etc. I think we all assume that other people see us in a very uniform way, that the views will be somewhat similar to those we have of ourselves. Turns out the results were quite surprising.

If you ask a colleague at work, a neighbour, your squash mate, your client, they will have different views of yourself. That’s normal. You are supposed to behave differently in each of these settings. But when asking your inner circle of friends .. surely they all have similar views, right?

Not quite. The views were so divergent that you’d think they were talking about different people. I was so surprised that I decided to stop and reflect on the topic to understand the underlying causes – which I’m now sharing because I think it will help us being more cognizant of ourselves. After all, how can my inner circle of friends have so different views of myself? It’s not that I behave differently in different settings, I tend to be very authentic whomever I’m with or whichever context I am. But these are my friends, those that supposedly know me better. I even tried to make them comfortable by saying I’m not looking for love, that I was prepared to be confronted with harsh criticism. Their answers transformed the way I look at the myself, my actions and how I interact with other people.

Here’s what I learned:

1. That what they see and how they perceive me is a reflection of their own selves and their own past experiences. The way they interpret my tone of voice, my expressions, my facebook posts, my whats up messages, my emails, etc is impacted by how they themselves see the world, how they were brought up, their childhood traumas, their education, the people they met along the way, etc. They are wearing their own glasses when they interact with you, not the ones you wear.

2. Who you are at 20 is NOT who you are at 25, at 30 or 35. We are in constant transformation and your friends at 20 will have a very different view of yourself than those you met at 25 or 30. That also explains why you may not feel so connected anymore with the best friends you used to have a few years ago. Life evolves and if you’re not making new friends as you age, then you might be breathing but you’re not really alive.

3. Be mindful that every action you take (a simple “whats up” message, a Facebook post, a phone call you never made but you should, etc) has long lasting consequences in the way people perceive you, in ways you wouldn’t expect.

4. You don’t always have the opportunity to have face-to-face conversations anymore in this globalised, busy and high-tech world. Most of us have friends / acquaintances spread around the world, so physical interactions are rarer and rarer. Your selection of words in your written communications matter and becomes who you are.

5. People are busy and always looking for shortcuts. When you meet someone new, people will judge you and form opinions very quickly. As such, your 1st impressions and interactions with others matter more than in the past because you may not get a 2nd chance to explain yourself or to change someone’s impressions. They may carry a distorted image of you .. potentially forever (if you were having a bad day, if you said something sensitive, if you were wearing ugly clothes that day, if you asked the wrong question, etc). This actually reminds me of the MBA I took with a class of ~200 people. I found later that many of them based their opinion on one or two interactions we had (or rumours they heard). Whether those impressions are truthful or not, that’s it .. people have no time nor interest to validate them.

Final thoughts:

In the end make sure you live an authentic life and don’t dwell too much on what other people think of you. You can never please everyone (nor should you). What you should do is be aware of who you are, that’s all.

So I challenge you to do the same exercise. Put your pride aside, wear your bullet-proof jacket and be prepared to be confronted with some things you may not want to hear. Ignore judgements, some will think that you’re going through an existential crisis, that you’re wrestling with questions involving the meaning of life, etc .. but worry not about that. Better to be waken up now than a sleeping zombie for life.

Follow me on Twitter @ricardo_afonso_