Sorry, you'll have to be more specific.
Ctrl-F GameStop shows your post as the first.
It’s in the image I posted a few posts back.
Thanks. That image didn't show for me (for those wondering, I found the link by quoting the post to see the text).
My point is that if you're going to make a case about CPI being inaccurate, it's nonsense to include things that aren't normal everyday expenses.000 wrote: ↑Wed Mar 31, 2021 9:10 pmThanks. That image didn't show for me (for those wondering, I found the link by quoting the post to see the text).
I'm not sure why Scott's takeaway from that image was GME and BTC when the main point of the image was various industrial / agricultural commidites are up 21% - 145% despite CPI being up 1%.
I think it's a greater nonsense to pretend that listing one or two irrelevant things on a list of 20 relevant things means inflation isn't real. It amazes me the cognitive hoops through which people will jump to rationalize their belief inflation doesn't exist.
Please show me where I said that. I'm all for a reasonable discussion about the extent to which inflation may be happening.
Sorry, that's what I thought you meant by criticizing the two things offered for reference / scale and omitting the other twenty things in that chart.
I'm willing to accept temporary supply chain disruptions for many of the price spikes, like steel and lumber. It's well-documented that supply isn't keeping up with demand in the housing market. Remember that CPI is computed from a wide range of prices, some of which have gone down (likely also temporarily) in the last year. Of course it doesn't serve a tinfoil hat "the government is hiding inflation" graphic to list anything that has gone down!000 wrote: ↑Wed Mar 31, 2021 9:40 pmSorry, that's what I thought you meant by criticizing the two things offered for reference / scale and omitting the other twenty things in that chart.
So, with that out of the way, do you have a comment on industrial / ag commodities up >20%, housing and wages up many multiples of CPI, and CPI being 1%?
On the other hand, I got a Wendy's Biggie Bag for $5 the other day and that seemed like a heck of deal.
I misspoke. My question should have asked about high inflation. The kind of inflation which might take place as a result of money printing to pay debt. I’ll try to change my original post.watchnerd wrote: ↑Mon Mar 29, 2021 10:48 amDo you really mean hyper inflation (Weimar Germany, Zimbabwe)?thethinker wrote: ↑Mon Mar 29, 2021 7:39 am I suspect many here have a version of the 3 fund portfolio. Are there any specific tilts or alternations to this portfolio which would help reduce risk in an environment of United States hyperinflation?
Or are you just asking about 1970s style "high inflation"?
I think it may also be a good idea to clarify what one means by "money printing". While I'm aware that this term is used in the popular media to describe what the Fed is doing now, I think there's a difference between having something on the other side of the balance sheet vs. not. There ought to be two different terms for the two different things, because I think the effects are different, and therefore the response on the part of investors should be different.thethinker wrote: ↑Thu Apr 01, 2021 12:55 pm I misspoke. My question should have asked about high inflation. The kind of inflation which might take place as a result of money printing to pay debt. I’ll try to change my original post.
sourcePursuing inflation protection with commodities — Higher inflation may come sooner than many asset allocators expect. While value-oriented equities may provide some protection, commodities (excluding precious metals) have historically been the most inflation-sensitive asset class.
I wouldn't use the absolute phraseology 'the government is hiding inflation' but I would say they are pretty indisputably manipulating it. Now, if you want to say they are doing so responsibly and in good faith, then that is probably where the debate would be most appropriate. What is factual is that CPI has been altered in construct and will continue to be adjusted -- and materially influenced at times, when they substitute certain goods used in the methodology.Scott S wrote: ↑Wed Mar 31, 2021 10:05 pmI'm willing to accept temporary supply chain disruptions for many of the price spikes, like steel and lumber. It's well-documented that supply isn't keeping up with demand in the housing market. Remember that CPI is computed from a wide range of prices, some of which have gone down (likely also temporarily) in the last year. Of course it doesn't serve a tinfoil hat "the government is hiding inflation" graphic to list anything that has gone down!000 wrote: ↑Wed Mar 31, 2021 9:40 pmSorry, that's what I thought you meant by criticizing the two things offered for reference / scale and omitting the other twenty things in that chart.
So, with that out of the way, do you have a comment on industrial / ag commodities up >20%, housing and wages up many multiples of CPI, and CPI being 1%?
I wouldn't be surprised if CPI comes up from it's current 1.7% as demand for all things roars back. Hyperinflation? Doubt it.
Robot Monster wrote: ↑Thu Apr 01, 2021 2:22 pmsourcePursuing inflation protection with commodities — Higher inflation may come sooner than many asset allocators expect. While value-oriented equities may provide some protection, commodities (excluding precious metals) have historically been the most inflation-sensitive asset class.
Commodities get pitched a lot as inflation hedges, but their recent track record vs inflation over recent decades has been one of the worst compared to other assets.DB2 wrote: ↑Mon Mar 29, 2021 4:02 pm A commodity index fund (I have no idea about these, but I think there is a futures component to them?) would be an option along with precious metals and those mining companies, and some international equity holdings - especially emerging markets - is one guess to diversify against such a situation.
SourceIn the exhibit we also include commodities, which are sometimes hawked as a hedge against inflation; as we can see, they failed to deliver on that count in a spectacular fashion. (In fairness, the S&P Goldman Sachs Commodity Index we are using is dominated by energy exposure, which has been extraordinarily volatile over the past two decades).
A little healthy skepticism about these things is good. Like scrutinizing what "unemployment" means in an official sense. It's very possible that government departments may find ways to make the numbers look a little better -- it's human nature for them to try!BJJ_GUY wrote: ↑Thu Apr 01, 2021 8:18 pmI wouldn't use the absolute phraseology 'the government is hiding inflation' but I would say they are pretty indisputably manipulating it. Now, if you want to say they are doing so responsibly and in good faith, then that is probably where the debate would be most appropriate. What is factual is that CPI has been altered in construct and will continue to be adjusted -- and materially influenced at times, when they substitute certain goods used in the methodology.
I also think it's telling that a lot of the very best investors in the world have long criticized CPI-U, which is one of the reasons many of the top endowments and foundations (and other large allocators) ultimately soured on the efficacy of TIPS. I'm not saying CPI isn't going to be directionally accurate, at least most of the time, especially when there is traction at some point, but I don't think it's saying something incredibly controversial to point out that it's flawed at a minimum. And yes, there is certainly the more draconian view everyone should at least acknowledge as a greater than 0% chance that the government does in fact (or already is) manipulating the calculation for the wrong reasons -- and it's prudent to at least understand why they might have motivation to act in bad faith.
This may only be a matter of semantics, but your statement that inflation protect bonds right now would lock negative real yields is not entirely correct. What really happens is that the premium you pay up front is high enough to allow you to buy a TIPS bond that provides positive real yields. The lowest TIPS bonds you can buy deliver inflation plus 0.15%.aristotelian wrote: ↑Mon Mar 29, 2021 10:32 am Long term, the best bet to beat inflation is stocks. The biggest risk with stocks is market risk, of course. Bonds are to hedge against market risk and are most subject to inflation risk. You can buy inflation protect bonds but right now you would be locking in negative real yields. At best they are defense against inflation but not an actual hedge to go up in real terms should inflation spike.
Some people believe in gold as inflation hedge. Currency speculation?
No, "front loading" TIPS by paying more principal doesn't somehow turn a negative real yield bond into a positive real yield bond.Always passive wrote: ↑Fri Apr 02, 2021 1:19 am This may only be a matter of semantics, but your statement that inflation protect bonds right now would lock negative real yields is not entirely correct. What really happens is that the premium you pay up front is high enough to allow you to buy a TIPS bond that provides positive real yields. The lowest TIPS bonds you can buy deliver inflation plus 0.15%.
I think that I fully understand your comments and obviously you are right. However, I look at it as an “insurance” and insurance is not free. I pay more up front to assure that the bonds I buy cover inflation. It is just a matter of the way you look at things.watchnerd wrote: ↑Fri Apr 02, 2021 4:58 amNo, "front loading" TIPS by paying more principal doesn't somehow turn a negative real yield bond into a positive real yield bond.Always passive wrote: ↑Fri Apr 02, 2021 1:19 am This may only be a matter of semantics, but your statement that inflation protect bonds right now would lock negative real yields is not entirely correct. What really happens is that the premium you pay up front is high enough to allow you to buy a TIPS bond that provides positive real yields. The lowest TIPS bonds you can buy deliver inflation plus 0.15%.
If such a magical thing happened, there would be little reason to buy any other type of fixed income right now (unless you're just trying to get greedy with junk).
TIPS are just being more 'honest' in making you pay for your negative returns up front, as opposed to nominals which make you pay for negative returns in the future when you try to buy something with your devalued money.
Both 10 YR nominals and TIPS have negative real yields right now.
And that negative real yield is the exactly same for both, as it must be via the breakeven inflation rate.
Break Even Inflation Rate: 2.35%
10 YR Treasury = 1.69% = -0.66 real yield = 10 YR TIPS real yield
Only 30 YR has a positive real yield right now of .07, and, as it must be, it is the same for both nominals and TIPS.
It's not the insurance cost, actually.Always passive wrote: ↑Fri Apr 02, 2021 5:30 am
I think that I fully understand your comments and obviously you are right. However, I look at it as an “insurance” and insurance is not free. I pay more up front to assure that the bonds I buy cover inflation.
I think it's important to be accurate when it comes to financial terminology.
If 'inflation' means CPI-U.aristotelian wrote: ↑Fri Apr 02, 2021 7:07 am I think it is fair to say that TIPS protect you from inflation (hence the name)
I think this is important to understand.aristotelian wrote: ↑Fri Apr 02, 2021 7:07 am but that does not mean they guarantee positive real return. Yes, TIPS will go up if inflation goes up, but with current rates you will still be locking in negative real return.
Inflation Protection:thethinker wrote: ↑Mon Mar 29, 2021 7:39 am I suspect many here have a version of the 3 fund portfolio. Are there any specific tilts or alternations to this portfolio which would help reduce risk in an environment of United States high inflation?
(I mistakenly used the term hyperinflation, and have now edited to more accurately ask my intended question)
Also:hudson wrote: ↑Fri Apr 02, 2021 7:53 amInflation Protection:thethinker wrote: ↑Mon Mar 29, 2021 7:39 am I suspect many here have a version of the 3 fund portfolio. Are there any specific tilts or alternations to this portfolio which would help reduce risk in an environment of United States high inflation?
(I mistakenly used the term hyperinflation, and have now edited to more accurately ask my intended question)
a job
social security
TIPS and ibonds
frugal living
Ha! You are probably on target!dodecahedron wrote: ↑Fri Apr 02, 2021 8:28 amAlso:hudson wrote: ↑Fri Apr 02, 2021 7:53 amInflation Protection:thethinker wrote: ↑Mon Mar 29, 2021 7:39 am I suspect many here have a version of the 3 fund portfolio. Are there any specific tilts or alternations to this portfolio which would help reduce risk in an environment of United States high inflation?
(I mistakenly used the term hyperinflation, and have now edited to more accurately ask my intended question)
a job
social security
TIPS and ibonds
frugal living
1) advance purchase contracts
e.g., I bought 20 solar panels in a Community Solar Array in 2017, which amounted to locking in a fixed price for my electricity needs for at least the next 20 years
2) more generally, investing by purchasing things NOW that will reduce your future needs to buy goods or services that may go up in cost
e.g., insulation, energy improvements, upgrading appliances and cars to models that will have lower ongoing operating costs (fuel, repairs, insurance)
3) to underscore observation above about "frugal living," I would include cultivating lifestyle habits that allow you to get a lot of joy at relatively low cost (e.g., walking, meditating, creative writing, reading library books, storytelling groups, yoga, etc.) and/or from things you already own or can acquire now at low/moderate cost (gardening tools, art supplies)
That index is currently 61.71% energy. link Unsure if energy dominated the index even more than that historically in that chart. Energy sure has been volatile these past two decades. I see crude oil hit a year high of $145.31 in 2008. In 2014 it had an average closing price of $93.17, sinking to half that the following year. The average closing price this year is $58.20. So, I'm gonna go ahead and agree that a commodity index dominated by energy has not tracked inflation well these last two decades.watchnerd wrote: ↑Thu Apr 01, 2021 8:29 pm Commodities get pitched a lot as inflation hedges, but their recent track record vs inflation over recent decades has been one of the worst compared to other assets.
The green line is the Goldman Sachs Commodity index.
(In fairness, the S&P Goldman Sachs Commodity Index we are using is dominated by energy exposure, which has been extraordinarily volatile over the past two decades)
I've been trying to find a commodity index that has 0 energy.Robot Monster wrote: ↑Fri Apr 02, 2021 9:16 am
That index is currently 61.71% energy. link Unsure if energy dominated the index even more than that historically in that chart. Energy sure has been volatile these past two decades. I see crude oil hit a year high of $145.31 in 2008. In 2014 it had an average closing price of $93.17, sinking to half that the following year. The average closing price this year is $58.20. So, I'm gonna go ahead and agree that a commodity index dominated by energy has not tracked inflation well these last two decades.
Crude oil prices link
Not even Polyethylene....Robot Monster wrote: ↑Fri Apr 02, 2021 1:56 pmRelated to our commodities discussion above, look what I just found. "Relying on Federal Reserve data, the correlations of all commodity prices over the last decade with the rate of inflation are negative." source
In a high inflation scenario you would want to have as much fixed interest debt that is possiblestimulacra wrote: ↑Wed Mar 31, 2021 9:57 am Zero debt
Real tangible assets
Hold currencies outside of US dollar
I'm thinking of a truly significant inflationary situation - like 1970s. Look at commodities for that decade. Gold and Oil went through the roof - I'm thinking many other commodities did too.
I don't have high confidence that the same commodity pattern of the 1970s will be repeated.DB2 wrote: ↑Fri Apr 02, 2021 6:59 pm
I'm thinking of a truly significant inflationary situation - like 1970s. Look at commodities for that decade. Gold and Oil went through the roof - I'm thinking many other commodities did too.
We've been in a disinflationary environment since the 80s, so I wouldn't expect them to have done much. Gold was the exception in the 2000s leading to 2011, but certain factors were at play for it...not as much for other commodities.
Which factors?
Resurgence of sea pirates
Arrr!
I don't know what DB2 was thinking.
Calling DB2. Are you resting?watchnerd wrote: ↑Fri Apr 02, 2021 8:21 pmI don't know what DB2 was thinking.
ETF trading of gold?
Growing wealth of gold loving Asian countries?
The chart limited it's interpretation of inflation as excluding food and energy. They didn't tell us whether there's a positive or negative correlation between the oil/ag commodities and food/energy consumer price inflation.Robot Monster wrote: ↑Fri Apr 02, 2021 1:56 pm Related to our commodities discussion above, look what I just found. "Relying on Federal Reserve data, the correlations of all commodity prices over the last decade with the rate of inflation are negative."
Maybe the proper hedge to CPI-U is a commodity index that focuses heavily on food and energy?HanSolo wrote: ↑Fri Apr 02, 2021 9:31 pmThe chart limited it's interpretation of inflation as excluding food and energy. They didn't tell us whether there's a positive or negative correlation between the oil/ag commodities and food/energy consumer price inflation.Robot Monster wrote: ↑Fri Apr 02, 2021 1:56 pm Related to our commodities discussion above, look what I just found. "Relying on Federal Reserve data, the correlations of all commodity prices over the last decade with the rate of inflation are negative."
Perhaps we need to ask the OP whether they wanted to guard against inflation excluding food/energy, or including food/energy.
Back to the chart... if consumer price inflation is negatively correlated to commodity prices, then maybe a solution can be found in owning businesses that produce consumer products, and having pricing power, while the inputs in terms of production costs are more around commodities than labor and/or other products/services exhibiting price inflation.
In other words, if prices are going up, be on the receiving end of the payments that are going up, and not so much on the other end.
CPI excludes food and energy, so... yeah... If you want to look at PPI vs crude oil prices, here you go: https://fredblog.stlouisfed.org/2018/11 ... inflation/ plus here's an updated chart: https://fred.stlouisfed.org/graph/?g=CRxDHanSolo wrote: ↑Fri Apr 02, 2021 9:31 pmThe chart limited it's interpretation of inflation as excluding food and energy. They didn't tell us whether there's a positive or negative correlation between the oil/ag commodities and food/energy consumer price inflation.Robot Monster wrote: ↑Fri Apr 02, 2021 1:56 pm Related to our commodities discussion above, look what I just found. "Relying on Federal Reserve data, the correlations of all commodity prices over the last decade with the rate of inflation are negative."
Perhaps we need to ask the OP whether they wanted to guard against inflation excluding food/energy, or including food/energy.
You mean... *gasp* tilting to sectors based on economic conditions or in anticipation of certain economic conditions? Tread carefully... lol.Back to the chart... if consumer price inflation is negatively correlated to commodity prices, then maybe a solution can be found in owning businesses that produce consumer products, and having pricing power, while the inputs in terms of production costs are more around commodities than labor and/or other products/services exhibiting price inflation.
In other words, if prices are going up, be on the receiving end of the payments that are going up, and not so much on the other end.
A possible example of what I'm talking about: own a company that manufactures catalytic converters (which use platinum or palladium as an input). If consumer prices are going up, and commodities are going down, then it seems you'd come out ahead. There is no "gasp".Beensabu wrote: ↑Fri Apr 02, 2021 11:12 pmYou mean... *gasp* tilting to sectors based on economic conditions or in anticipation of certain economic conditions? Tread carefully... lol.HanSolo wrote: ↑Fri Apr 02, 2021 9:31 pm Back to the chart... if consumer price inflation is negatively correlated to commodity prices, then maybe a solution can be found in owning businesses that produce consumer products, and having pricing power, while the inputs in terms of production costs are more around commodities than labor and/or other products/services exhibiting price inflation.
In other words, if prices are going up, be on the receiving end of the payments that are going up, and not so much on the other end.
Gold can often (although not 100% of the time) be a barometer of the dollar.
You should try to understand what moves certain asset classes based on events.
Are you telling me you have inside knowledge on why pirates love gold?
I'm explaining some history and what moved gold. But you seem to think it was also just some kind of randomness. But, nope.
It was just a pirate joke.
Thank you!DB2 wrote: ↑Sat Apr 03, 2021 11:13 amGold can often (although not 100% of the time) be a barometer of the dollar.
The dollar significantly weakened from 2001 (was around $118 on the DXY) down to around $72 before the climax of the GFC in 2008. After 2008, the U.S. embarked upon major QE as Ben Bernanke promised it was only temporary (LOL!), that we were not monetizing debt (LOL), and gold reached it's price max in 2011. There was a lot of concern the dollar would crash upon embarking on QE and trillion dollar deficits and that we would have a double dip recession. There was a lot of skepticism. But they pulled it off. After it was clear things were stabilizing and given Bernanke's words...gold started to weaken while the dollar gradually began to strengthen as the recovery continued. In addition, 9/11, two middle eastern wars before the GFC..all added fear that helped gold during the 2000s. Interestingly enough, gold has surpassed stocks and bonds since 2000.
But that's *gasp* owning individual stock on the basis of the belief that you know something the market does not know.HanSolo wrote: ↑Fri Apr 02, 2021 11:50 pmA possible example of what I'm talking about: own a company that manufactures catalytic converters (which use platinum or palladium as an input). If consumer prices are going up, and commodities are going down, then it seems you'd come out ahead. There is no "gasp".Beensabu wrote: ↑Fri Apr 02, 2021 11:12 pmYou mean... *gasp* tilting to sectors based on economic conditions or in anticipation of certain economic conditions? Tread carefully... lol.HanSolo wrote: ↑Fri Apr 02, 2021 9:31 pm Back to the chart... if consumer price inflation is negatively correlated to commodity prices, then maybe a solution can be found in owning businesses that produce consumer products, and having pricing power, while the inputs in terms of production costs are more around commodities than labor and/or other products/services exhibiting price inflation.
In other words, if prices are going up, be on the receiving end of the payments that are going up, and not so much on the other end.
Ok fine.The OP asked a question. Do you have something to contribute on that?
I have an energy/utilities tilt. It's not in anticipation of high inflation, but it probably won't suck if that happens. I will also be buying some VWEHX in a month once I'm allowed to according to the stuff I wrote down.thethinker wrote: ↑Mon Mar 29, 2021 7:39 am I suspect many here have a version of the 3 fund portfolio. Are there any specific tilts or alternations to this portfolio which would help reduce risk in an environment of United States high inflation?