I've often wondered what deflation meant. Just one question though: what is a "wage"?
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
The Big Inflation Scare - Oooooh, How Scary; Prove Him Wrong
- Thread starter ByLoSellHi
- Start date
I've often wondered what deflation meant. Just one question though: what is a "wage"?
Quote from makloda:
The best inflation hedge/"investment" for a longterm investor who doesn't want to trade himself that I can think of is a basket of 5-6 managed futures funds that trade all the most liquid currency/commodity/bond contracts.
That will give you a very good chance of benefiting from market volatility and de-/inflation/economic uncertainty over the coming years. No need to guess right on whether the theme for the next 10 years is inflation or deflation or a mix of both.
If commodities explode/bonds implode you likely do well with managed futures funds, if they both do the opposite you will likely also do very well.
Simply getting long commodities and thinking that shields you from rising consumer prices without any downside risk is very naive.
What if the markets just chop between the two? You could easily lose a lot. And you will be paying 2% per annum plus 20% of the "profits" during the good periods, with no clawback if they disappear during the bad periods. Don't forget you will get taxed at income/short-term capital gain rates - if inflation is 20% per annum and the funds make 30%, after tax your return will be negative in real terms. This assumes no blowups of course. Compare this to real estate or stocks on a buy & hold where gains will compound tax-free until you finally sell, or totally tax free if put in a pension/savings vehicle.
Trend-following funds are not a hedge for anything. They are a leveraged punt on market trends and volatility, with extremely high fees and a lopsided incentive structure. Given that the Turtle Rules are available for free online, if you really want to trend follow then it could be better to just trade those and keep 100% of the gains, if there are any.
IMO the best inflation hedge is a diversified portfolio of different investment assets trading at as deep a discount to fair value as possible. In an inflationary environment, there is no such thing as capital preservation - capital preservation requires high nominal returns whilst avoiding significant taxation. AFAIK TIPS returns are taxable so at a high enough inflation rate they will actually lose significant money in real terms. Also in a high inflation situation, TIPS yields will fall to very low levels due to high demand for an inflation hedge.
The great thing about deep value investment is that the investments most likely to preserve capital are the same investments most likely to provide superior returns.
The great thing about deep value investment is that the investments most likely to preserve capital are the same investments most likely to provide superior returns.
There's a lazy alternative to have a reasonably inflation-proofed portfolio, just split your capital between the major asset classes and use buy & hold. E.g.
20% domestic stocks
20% foreign stocks
20% real estate
20% bonds
20% commodities
Occasionally you will take a 20-30% drawdown once every generation, but you'll make decent investment returns after inflation and have a low chance of suffering permanent loss of capital over the long-term.
20% domestic stocks
20% foreign stocks
20% real estate
20% bonds
20% commodities
Occasionally you will take a 20-30% drawdown once every generation, but you'll make decent investment returns after inflation and have a low chance of suffering permanent loss of capital over the long-term.
Someone explain to me how a massive credit contraction can be inflationary? So if 2006 and 2007 during a growing economy we didn't see high inflation, suddenly after a massive bust in demand and a huge contraction in bank lending, we are going to see soaring prices? I don't really see how this makes sense.
Quote from Cutten:
Someone explain to me how a massive credit contraction can be inflationary? So if 2006 and 2007 during a growing economy we didn't see high inflation, suddenly after a massive bust in demand and a huge contraction in bank lending, we are going to see soaring prices? I don't really see how this makes sense.
Does anything make any sense anymore? All I know is that prices for basic necessities in life have been and are increasing rapidly.
Quote from Cutten:
Someone explain to me how a massive credit contraction can be inflationary? So if 2006 and 2007 during a growing economy we didn't see high inflation, suddenly after a massive bust in demand and a huge contraction in bank lending, we are going to see soaring prices? I don't really see how this makes sense.
Its pretty simple, you increase the supply of money without a proportionate increase in the amount/value of goods produced and you get inflation. In the short term, the velocity of money will cause distortions in that relationship, but in the long term, the relationship holds. The only sustainable way to have economic growth in real terms is through productivity gains. There has been practically none since the dotcom bubble burst.
There is more money out there than there was in 2006 and 2007. Bank lending is contracting but government spending and money printing are counteracting that. What is amazing to me in this environment is that you have the worst recession in 70 years and oil is only back to 2005-2007 levels when people thought oil was expensive at $70/barrel.
That is a huge warning sign. The level of inflation that will be showing up in the next 5 to 10 years will make heads spin. Bernanke will look like a total fool. There is no exit strategy, the goobers at the Fed only know one thing and that is to print their way out of a mess. Volcker was an anomaly.
The difference is obvious one of completely passive investment and then otherwise.
Quote from Cutten:
There's a lazy alternative to have a reasonably inflation-proofed portfolio, just split your capital between the major asset classes and use buy & hold. E.g.
20% domestic stocks
20% foreign stocks
20% real estate
20% bonds
20% commodities
Occasionally you will take a 20-30% drawdown once every generation, but you'll make decent investment returns after inflation and have a low chance of suffering permanent loss of capital over the long-term.
Quote from detective:
Its pretty simple, you increase the supply of money without a proportionate increase in the amount/value of goods produced and you get inflation. In the short term, the velocity of money will cause distortions in that relationship, but in the long term, the relationship holds. The only sustainable way to have economic growth in real terms is through productivity gains. There has been practically none since the dotcom bubble burst.
There is more money out there than there was in 2006 and 2007. Bank lending is contracting but government spending and money printing are counteracting that. What is amazing to me in this environment is that you have the worst recession in 70 years and oil is only back to 2005-2007 levels when people thought oil was expensive at $70/barrel.
That is a huge warning sign. The level of inflation that will be showing up in the next 5 to 10 years will make heads spin. Bernanke will look like a total fool. There is no exit strategy, the goobers at the Fed only know one thing and that is to print their way out of a mess. Volcker was an anomaly.
Lots of wisdom in a few words........well done. Stosh