Inflation could be 20% in the next three years [Sell bonds?]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by DB2 »

I really don't see with the amount of massive debt out there how increasing rates would be feasible. Can someone paint for a picture of how our economy could survive, say, 6% mortgage rates on a 30-year-fixed loan? Or large increases in credit card interest rates, corporate debt, state and federal debt (which is near WWII levels only we have no war). Individuals and corporates are pretty levered up. When the Fed tried to modestly increase rates and taper QE, the markets went nuts in the Q4 of 2018 forcing the Fed to change course. To me, it seems like this massive amount of debt has only been sustainable because of very low interest rates. Once rates go up, it's like a house of cards that falls. I have heard how inflation can inflate away some of this debt - but I am trying to picture it.
User avatar
watchnerd
Posts: 13614
Joined: Sat Mar 03, 2007 10:18 am
Location: Gig Harbor, WA, USA

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by watchnerd »

DB2 wrote: Mon May 17, 2021 11:17 am I really don't see with the amount of massive debt out there how increasing rates would be feasible. Can someone paint for a picture of how our economy could survive, say, 6% mortgage rates on a 30-year-fixed loan? Or large increases in credit card interest rates, corporate debt, state and federal debt (which is near WWII levels only we have no war). Individuals and corporates are pretty levered up. When the Fed tried to modestly increase rates and taper QE, the markets went nuts in the Q4 of 2018 forcing the Fed to change course. To me, it seems like this massive amount of debt has only been sustainable because of very low interest rates. Once rates go up, it's like a house of cards that falls. I have heard how inflation can inflate away some of this debt - but I am trying to picture it.
You wouldn't do it in one go.

You ramp it up slowly over time.

Only under duress would you "pull a Volcker".
Last edited by watchnerd on Mon May 17, 2021 11:28 am, edited 1 time in total.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Maverick3320
Posts: 1115
Joined: Tue May 12, 2015 2:59 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Maverick3320 »

I'm just curious to hear what the Modern Monetary Theory crowd has to say about this. After all, inflation doesn't matter...right?
User avatar
watchnerd
Posts: 13614
Joined: Sat Mar 03, 2007 10:18 am
Location: Gig Harbor, WA, USA

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by watchnerd »

Maverick3320 wrote: Mon May 17, 2021 11:26 am I'm just curious to hear what the Modern Monetary Theory crowd has to say about this. After all, inflation doesn't matter...right?
Say about what?

So far, we have asset inflation. Which is known and expected.

TBD if we have increased long term consumer inflation, as opposed to an anticipated transitory YoY uptick off recessionary prices.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

Maverick3320 wrote: Mon May 17, 2021 11:26 am I'm just curious to hear what the Modern Monetary Theory crowd has to say about this. After all, inflation doesn't matter...right?
No, that's not what MMT theory says at all, closer to the opposite actually. See this thread for an explanation.
The Sensible Steward
Robot Monster
Posts: 4215
Joined: Sun May 05, 2019 11:23 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Robot Monster »

"Key Inflation Gauge Overstating Prices, Harvard’s Cavallo Says" link

Capello details his take on this in a Twitter thread. link
Tommy
Posts: 317
Joined: Mon Mar 07, 2016 10:47 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Tommy »

DB2 wrote: Mon May 17, 2021 11:17 am I really don't see with the amount of massive debt out there how increasing rates would be feasible. Can someone paint for a picture of how our economy could survive, say, 6% mortgage rates on a 30-year-fixed loan? Or large increases in credit card interest rates, corporate debt, state and federal debt (which is near WWII levels only we have no war). Individuals and corporates are pretty levered up. When the Fed tried to modestly increase rates and taper QE, the markets went nuts in the Q4 of 2018 forcing the Fed to change course. To me, it seems like this massive amount of debt has only been sustainable because of very low interest rates. Once rates go up, it's like a house of cards that falls. I have heard how inflation can inflate away some of this debt - but I am trying to picture it.
6% mortgage rates on a 30-year-fixed loan - I bought house in 2000 and rate was 8.3%. I survived.
Rates will go up - house prices will go down and became reasonable.
Credit card interest rates - who cares? I'm not using CC to finance purchase. At one point people should understand if you don't have money to buy something - you don't buying, not finance purchase with outrages rate.
Corporate debts? Let corporations use money to R&D or similar, not to new employee perks. Even layoff some people (in my mega corp at least 15% must be let go).
Broken Man 1999
Posts: 8626
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, near Champa Bay !

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Broken Man 1999 »

Some companies, including tech, not only survived, but prospered thoughout the pandemic.

Hard to say how things will turn out over the short timeframe, even harder to predict long term.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Northern Flicker »

FIREchief wrote: Sun May 16, 2021 1:57 am In threads such as this, when people start mentioning liquidity risk of TIPS it's a sign that somebody has ran out of ammo. :twisted:
To reach closure on the discussion about whether or not TIPS yields/prices are independent of future inflation expectations, can I now assume that you are not going to offer any analysis or cite any research that would controvert the Fed's research result that future inflation expectations contribute to TIPS yields/pricing?
User avatar
FIREchief
Posts: 6916
Joined: Fri Aug 19, 2016 6:40 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by FIREchief »

Northern Flicker wrote: Mon May 17, 2021 3:57 pm
FIREchief wrote: Sun May 16, 2021 1:57 am In threads such as this, when people start mentioning liquidity risk of TIPS it's a sign that somebody has ran out of ammo. :twisted:
To reach closure on the discussion about whether or not TIPS yields/prices are independent of future inflation expectations, can I now assume that you are not going to offer any analysis or cite any research that would controvert the Fed's research result that future inflation expectations contribute to TIPS yields/pricing?
Yes. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
User avatar
9-5 Suited
Posts: 1307
Joined: Thu Jun 23, 2016 12:14 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by 9-5 Suited »

I predict there is a strong likelihood that in May 2024 this thread will be resurrected from the dead to show that no one knows much of anything about future inflation or interest rates.
PowderDay9
Posts: 1001
Joined: Fri Oct 12, 2018 12:29 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by PowderDay9 »

Freefun wrote: Sun May 16, 2021 7:02 am
avenger wrote: Sat May 15, 2021 3:02 pm Maybe an unpopular opinion: I feel like click bait such as this should be locked in this forum.
I benefit from the healthy discussion in this thread.

If it’s the title that’s misleading then perhaps a suggestion to improve it (?)
”Inflation could be 6% a year for the next 3 years"

If the headline is not click bait then it's at least sensationalized. Whatever you want to call it, CNBC (and other media outlets) does this a lot. Making bold predictions about topics people are concerned about will drive clicks.

Also, when did we start projecting inflation in 3 year time periods? Why not a decade then? Inflation could be 35% in the next decade!
IMO
Posts: 1569
Joined: Fri May 05, 2017 6:01 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by IMO »

Robot Monster wrote: Mon May 17, 2021 12:02 pm "Key Inflation Gauge Overstating Prices, Harvard’s Cavallo Says" link

Capello details his take on this in a Twitter thread. link
What's to say there isn't an understating of prices on categories? For example rent during the pandemic would likely make the CPI aspect for rent low given the significant number of individuals who had rent reduced or simply forgiven (is that the right word?) and apparently in large cities, rents had dropped from what I've heard/read.

From the bls.gov site: https://www.bls.gov/covid19/effects-of- ... -index.htm

"How does the CPI handle forgiveness, reduction, or nonpayment of rent in its shelter indexes?
To collect rent values, CPI data collectors identify respondents for each sampled housing unit when they are initiated into the sample. Respondents could include its occupant (the renter), its owner (the landlord), a property manager, or an authorized representative of the occupant. However, in a given month when the unit is priced, the data collector could attempt to contact more than one of these respondents to get data on a sampled housing unit. For example, if the occupant is unavailable, the property manager might be contacted.

Specifically, the respondent is asked:
1. How much rent (are you/is the tenant) paying for this (house/apartment) now?
2. What period of time does that rent cover?

Most often the answer to question 2 is 1 month, but occasionally rent might be for a different length of time, or rent for a part of a month may be prorated.

When an unusually large price change is reported by a respondent, the data collector typically attempts to investigate the situation and confirm the change. For instance, if a tenant reports a large decline, the data collector will attempt to confirm this with the landlord or property manager. Relevant to the COVID-19 pandemic, when a tenant reports being unable to pay rent, the data collector is instructed as follows (from the manual used by CPI data collectors):

Be sure to probe these situations to determine if any rent obligation will be forgiven.
If the landlord expects payment in full, regardless of when, enter the full rent amount that is due.
If some or all of the rent is being forgiven, enter the amount the landlord/manager has agreed to accept.
If the rent is not paid or not expected to be paid AND the landlord/manager is unsure about the future, enter $0.00.


These are all longstanding procedures, with the exception of the final bullet addressing situations of uncertainty, which have generally not arisen in the past.

Although some units in the rent sample, notably those under rent control, are excluded from owners’ equivalent rent calculation, a unit would not be excluded from the computation of owners' equivalent rent simply on the basis of a large decline in rent paid.


Note that a free or $0 price in the CPI is adjusted to a small positive value, typically a value equal to a 95-percent reduction from the previous price. (Prices of zero do not work well in the formulas used to compute the CPI.)
Robot Monster
Posts: 4215
Joined: Sun May 05, 2019 11:23 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Robot Monster »

9-5 Suited wrote: Mon May 17, 2021 7:13 pm I predict there is a strong likelihood that in May 2024 this thread will be resurrected from the dead to show that no one knows much of anything about future inflation or interest rates.
Yes, let's meet here again 5/24! I want to see how this resolves:

"At the heart of this debate is the conundrum, what's a bigger risk to markets right now - inflation running too hot or not hot enough to get out from under a mountain of debt & a history of slow growth? Many investors say the former. The Fed has indicated it's the latter." link
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

DB2 wrote: Mon May 17, 2021 11:17 am I really don't see with the amount of massive debt out there how increasing rates would be feasible. Can someone paint for a picture of how our economy could survive, say, 6% mortgage rates on a 30-year-fixed loan? Or large increases in credit card interest rates, corporate debt, state and federal debt (which is near WWII levels only we have no war). Individuals and corporates are pretty levered up. When the Fed tried to modestly increase rates and taper QE, the markets went nuts in the Q4 of 2018 forcing the Fed to change course. To me, it seems like this massive amount of debt has only been sustainable because of very low interest rates. Once rates go up, it's like a house of cards that falls. I have heard how inflation can inflate away some of this debt - but I am trying to picture it.
I share your thoughts. At all levels, our nation has gotten very accustomed to very cheap debt, and dramatically raising the cost of new debt could be exceptionally difficult, not the least of which being the reality that the Fed is certainly influenced by the politics involved.

It's one thing for someone to say that the Fed can just raise overnights rates to rein in inflation, but it's another matter entirely for the Fed to actually (1) raise rates sufficiently and (2) maintain those rates long enough to accomplish the goal. Regarding #2, I repeat that it took two years of Volcker raising rates before inflation started to go down. That was a painful time for many.
The Sensible Steward
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by DB2 »

willthrill81 wrote: Tue May 18, 2021 10:05 am
DB2 wrote: Mon May 17, 2021 11:17 am I really don't see with the amount of massive debt out there how increasing rates would be feasible. Can someone paint for a picture of how our economy could survive, say, 6% mortgage rates on a 30-year-fixed loan? Or large increases in credit card interest rates, corporate debt, state and federal debt (which is near WWII levels only we have no war). Individuals and corporates are pretty levered up. When the Fed tried to modestly increase rates and taper QE, the markets went nuts in the Q4 of 2018 forcing the Fed to change course. To me, it seems like this massive amount of debt has only been sustainable because of very low interest rates. Once rates go up, it's like a house of cards that falls. I have heard how inflation can inflate away some of this debt - but I am trying to picture it.
I share your thoughts. At all levels, our nation has gotten very accustomed to very cheap debt, and dramatically raising the cost of new debt could be exceptionally difficult, not the least of which being the reality that the Fed is certainly influenced by the politics involved.

It's one thing for someone to say that the Fed can just raise overnights rates to rein in inflation, but it's another matter entirely for the Fed to actually (1) raise rates sufficiently and (2) maintain those rates long enough to accomplish the goal. Regarding #2, I repeat that it took two years of Volcker raising rates before inflation started to go down. That was a painful time for many.
Agreed! Funny as I was going to reply about Volcker and those painful two years.
IMO
Posts: 1569
Joined: Fri May 05, 2017 6:01 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by IMO »

DB2 wrote: Tue May 18, 2021 10:20 am
willthrill81 wrote: Tue May 18, 2021 10:05 am
DB2 wrote: Mon May 17, 2021 11:17 am I really don't see with the amount of massive debt out there how increasing rates would be feasible. Can someone paint for a picture of how our economy could survive, say, 6% mortgage rates on a 30-year-fixed loan? Or large increases in credit card interest rates, corporate debt, state and federal debt (which is near WWII levels only we have no war). Individuals and corporates are pretty levered up. When the Fed tried to modestly increase rates and taper QE, the markets went nuts in the Q4 of 2018 forcing the Fed to change course. To me, it seems like this massive amount of debt has only been sustainable because of very low interest rates. Once rates go up, it's like a house of cards that falls. I have heard how inflation can inflate away some of this debt - but I am trying to picture it.
I share your thoughts. At all levels, our nation has gotten very accustomed to very cheap debt, and dramatically raising the cost of new debt could be exceptionally difficult, not the least of which being the reality that the Fed is certainly influenced by the politics involved.

It's one thing for someone to say that the Fed can just raise overnights rates to rein in inflation, but it's another matter entirely for the Fed to actually (1) raise rates sufficiently and (2) maintain those rates long enough to accomplish the goal. Regarding #2, I repeat that it took two years of Volcker raising rates before inflation started to go down. That was a painful time for many.
Agreed! Funny as I was going to reply about Volcker and those painful two years.
Appreciate the comments/thoughts on the topic. Personally had to look up what you were discussing with Volcker to put your comments in context. I suspect most are not familiar with Volcker, unless they studied economic history. Here's a good link to a short quick easy read on the topic: https://www.stlouisfed.org/publications ... ht-us-much

I think/suspect politics unfortunately has become more of an influence in the past due to all of the new communication technology that wasn't around at the time of Volcker.

A good example of this type of effect is the current decision to extend Federal unemployment benefits until September. Who personally hasn't seen the massive request for employers to fill massive numbers of jobs (https://www.marketwatch.com/story/u-s-j ... 1620742194) that is competing against the current Federal decision. Surely wage inflation for those jobs will result? Maybe that's the plan? It seems plausible that there will in fact be a factor in further inflation, much akin to how higher gas prices are a factor to drive higher inflation.
User avatar
Oicuryy
Posts: 1959
Joined: Thu Feb 22, 2007 9:29 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Oicuryy »

IMO wrote: Tue May 18, 2021 1:32 pm Appreciate the comments/thoughts on the topic. Personally had to look up what you were discussing with Volcker to put your comments in context. I suspect most are not familiar with Volcker, unless they studied economic history. Here's a good link to a short quick easy read on the topic: https://www.stlouisfed.org/publications ... ht-us-much
Here is another piece on the Fed's roll in the Great Inflation.
https://www.federalreservehistory.org/e ... -inflation

And here is a long article on Arthur Burns, the Fed chair during much of the '70s. It is worth a read for those interested in getting a better understanding the inflation of that era.
https://www.richmondfed.org/publication ... ter/hetzel

Fed officials are talking about maintaining an accommodative monetary policy until unemployment comes down. But I very much doubt the Fed will repeat the mistake it made fifty years ago.

Ron
Money is fungible | Abbreviations and Acronyms
mrekvy491
Posts: 58
Joined: Wed Jul 29, 2020 10:43 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by mrekvy491 »

He has been saying this for months, almost for a year.

Maybe around 6% inflation per year, value stock outperformance, quality stock and gold as the conservative asset in portfolios. The end of the 30+ years of bull market for bonds.

Don’t think it is that outrageous. One may buy some inflation linked bonds and value stocks, or international stocks as a hedge. I don’t worry about inflation that much as I have all world portfolio and work in Europe. I just am not buying nominal bonds at the moment.

But if you only hold S&P500 or NASDAQ following index, it could be better to diversify more.
redmaw
Posts: 355
Joined: Mon Apr 22, 2019 7:20 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by redmaw »

fatcoffeedrinker wrote: Sun May 16, 2021 3:08 pm
willthrill81 wrote: Sun May 16, 2021 2:36 pm
Northern Flicker wrote: Sun May 16, 2021 1:13 pm
willthrill81 wrote: Sun May 16, 2021 9:39 am
typical.investor wrote: Sun May 16, 2021 6:21 am In any case, 20% inflation suggests a perhaps 22% overnight rate.
I don't know that the current Fed has the wherewithal to raise the overnight rate to something like 8% if inflation rises to 6%.
It would not be a preconceived target, but the rate needed to tame the inflation, which likely is much lower than 8%. For one thing, they won't wait for inflation to hit 6% to start raising rates and tapping the brakes.
CPI is already at 4.2%. Has the Fed even started discussing the possibility of raising the overnight rate in response? If they have, I'm not aware of it.

Also, as I've already noted in this thread, during the Volcker era, it took two years of the Fed starting with a historically overnight rate and then raising it substantially before inflation started to shrink. The Fed's tools, while potentially effective, can be rather blunt and have significant lag.
But 4.2% is using early COVID at the lowest CPI reading as a starting point. Go back 15 months to current and annualize and you get 2.8%. Go back 18 months to current and annualize and you get 2.5%. Time will only tell what comes next, but I don't think one can look at 4.2% (at least not yet) and predict any trend.
Sure you have a low starting point, but that's only half the story. 2.8% inflation was unthinkable 2 years ago, so that is still a high number, which is almost entirely attributable to then last year. And let's be clear the 4.2% was .6% higher than expectations and those expectations knew the low starting point.(if you believe CNBC articles from the day that number hit). I think the point stands that it will take a while at 4+% inflation to convince the feds that the inflation is more than transitory and start doing something about it, at which point it will take some time to reign it back in. A few years of elevated inflation doesn't seem out of line.
fatcoffeedrinker
Posts: 445
Joined: Mon Mar 23, 2020 2:03 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by fatcoffeedrinker »

Deleted
Last edited by fatcoffeedrinker on Wed Mar 02, 2022 10:14 am, edited 1 time in total.
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by retired@50 »

invest2bfree wrote: Sat May 15, 2021 10:57 am If this comes true we will see fixed income being crushed. Do we sell all your bonds?
I have no plans to sell all my bonds, unless of course I need the money, in which case, I'd probably only sell some of my bonds.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
User avatar
steve r
Posts: 1300
Joined: Mon Feb 13, 2012 7:34 pm
Location: Connecticut

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by steve r »

DB2 wrote: Mon May 17, 2021 11:17 am I really don't see with the amount of massive debt out there how increasing rates would be feasible. Can someone paint for a picture of how our economy could survive, say, 6% mortgage rates on a 30-year-fixed loan? Or large increases in credit card interest rates, corporate debt, state and federal debt (which is near WWII levels only we have no war). Individuals and corporates are pretty levered up. When the Fed tried to modestly increase rates and taper QE, the markets went nuts in the Q4 of 2018 forcing the Fed to change course. To me, it seems like this massive amount of debt has only been sustainable because of very low interest rates. Once rates go up, it's like a house of cards that falls. I have heard how inflation can inflate away some of this debt - but I am trying to picture it.
Not being feasible is the concern. But, interest rates, particularly long term interest rates, are determined by market forces.

Demand for loan from borrowers and supply of loans from lenders. Lenders will supply less loans if they expect inflation that is higher than the rate they change.

Yes, in recent decades the Fed has had considerable control over rates. The Fed's comments on inflation have been widely viewed as credible. This is hugely important.

But what happens if inflation is NOT transitory after Powell claims so strongly that it is. Will lenders be spooked and only lend out at higher rates? At that point of time, further quantitative easing will be widely unsupported by markets as it will only worsen inflation. It will be against part of the Fed's dual mandate which dictates that they fight inflation. The way they do that is to tighten -- not further easing.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
User avatar
watchnerd
Posts: 13614
Joined: Sat Mar 03, 2007 10:18 am
Location: Gig Harbor, WA, USA

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by watchnerd »

steve r wrote: Wed May 19, 2021 5:34 pm But what happens if inflation is NOT transitory after Powell claims so strongly that it is. Will lenders be spooked and only lend out at higher rates? At that point of time, further quantitative easing will be widely unsupported by markets as it will only worsen inflation. It will be against part of the Fed's dual mandate which dictates that they fight inflation. The way they do that is to tighten -- not further easing.
I think Powell has been pretty clear that he's willing to let inflation run hot for a little bit, and then decide what to do about it, presumably by tightening.

This won't come as a shock to the financial markets.

Unless 'running hot' becomes 'running too hot', i.e. well above the 3% range longer term that Powell has mentioned.

Of course, if rates tighten, it's reasonable to expect stock valuation contraction based on simple DCF modeling.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Robot Monster
Posts: 4215
Joined: Sun May 05, 2019 11:23 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Robot Monster »

Dear people of the future,

Here we have Siegel predicting higher inflation, and on the flip side, "Ark's Cathie Wood argues that the U.S. is set up for 'massive' deflation, with the recent correction in commodities prices providing a signal for what's to come."link So, how did it play out?

Love,
A robot of the past

Edit:
6/28/22
Bloomberg: "Cathie Wood Says She Got Inflation Wrong, Continues Ark Strategy" Bloomberg link
Last edited by Robot Monster on Tue Jun 28, 2022 9:30 am, edited 1 time in total.
User avatar
watchnerd
Posts: 13614
Joined: Sat Mar 03, 2007 10:18 am
Location: Gig Harbor, WA, USA

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by watchnerd »

Robot Monster wrote: Thu May 20, 2021 12:21 pm Dear people of the future,

Here we have Siegel predicting higher inflation, and on the flip side, "Ark's Cathie Wood argues that the U.S. is set up for 'massive' deflation, with the recent correction in commodities prices providing a signal for what's to come."link So, how did it play out?

Love,
A robot of the past

CPI-U is a trailing indicator.

Commodities futures are leading indicator.

But....

How much of a services economy is impacted by commodities as opposed to wages?
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Gaston
Posts: 1220
Joined: Wed Aug 21, 2013 7:12 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Gaston »

Inflation “could be” X% in the next three years. Pick whatever value you wish for X, and your prediction will be just as good as Mr Siegel’s.
“My opinions are just that - opinions.”
Robot Monster
Posts: 4215
Joined: Sun May 05, 2019 11:23 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Robot Monster »

Robot Monster wrote: Thu May 20, 2021 12:21 pm Dear people of the future,

Here we have Siegel predicting higher inflation, and on the flip side, "Ark's Cathie Wood argues that the U.S. is set up for 'massive' deflation, with the recent correction in commodities prices providing a signal for what's to come."link So, how did it play out?

Love,
A robot of the past
Bumping this thread in order to answer my own post, and things appear to be following Siegel's prediction vs Wood's. Indeed, from Bloomberg today, "Wharton’s Siegel Urges Faster Taper After Nailing Inflation Call".
The Federal Reserve needs to accelerate its timeline to tighten monetary policy because rising prices show no sign of easing anytime soon, said Jeremy Siegel, finance professor at the Wharton School of the University of Pennsylvania.

Siegel, who last year predicted a run-up in consumer prices when few others did, expects 20% to 25% of cumulative inflation over two to three years in the U.S. until it subsides.
link
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by nisiprius »

Fat-Tailed Contagion wrote: Sun May 16, 2021 10:11 pm Home Prices and Gas are up 20%-30% this year in my area.

Building Materials are up much more than that.

Food not quite as much.

I could see 20% this year if it takes into account what people normally spend their money on each year in a proportional way.
You imply that the CPI-U doesn't do this. What's your evidence?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
Fat-Tailed Contagion
Posts: 1251
Joined: Fri Mar 02, 2007 10:49 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Fat-Tailed Contagion »

Just sharing our local experience, not saying it applies everywhere in US.

The increases in fuel and rent/housing costs in our area is + 30% year over year.
nisiprius wrote: Thu Nov 18, 2021 6:25 pm
Fat-Tailed Contagion wrote: Sun May 16, 2021 10:11 pm Home Prices and Gas are up 20%-30% this year in my area.

Building Materials are up much more than that.

Food not quite as much.

I could see 20% this year if it takes into account what people normally spend their money on each year in a proportional way.
You imply that the CPI-U doesn't do this. What's your evidence?
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor (75/25 - 50/50 - 25/75)
frugalecon
Posts: 671
Joined: Fri Dec 05, 2014 11:39 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by frugalecon »

Fat-Tailed Contagion wrote: Thu Nov 18, 2021 7:13 pm Just sharing our local experience, not saying it applies everywhere in US.

The increases in fuel and rent/housing costs in our area is + 30% year over year.
nisiprius wrote: Thu Nov 18, 2021 6:25 pm
Fat-Tailed Contagion wrote: Sun May 16, 2021 10:11 pm Home Prices and Gas are up 20%-30% this year in my area.

Building Materials are up much more than that.

Food not quite as much.

I could see 20% this year if it takes into account what people normally spend their money on each year in a proportional way.
You imply that the CPI-U doesn't do this. What's your evidence?
Housing costs enter into the CPI in complex ways. See here: https://www.bls.gov/cpi/factsheets/owne ... d-rent.pdf

It isn’t as simple as just taking a snapshot of the units that are on the market today and putting that in the index.

Building materials may not be in the CPI at all, since they are more intermediate goods that go into the construction of new houses. (Though some are used for repair, including by DIYers, so maybe that would be considered a consumer purchase.)

Overall, inflation is something that is very complex to measure.
User avatar
snackdog
Posts: 3102
Joined: Wed Nov 12, 2014 3:57 am
Location: PNW

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by snackdog »

I'll take inflation over stagflation any day.
BH Consumer FAQ: | Car? Used Toyota, Lexus or Miata. | House? 20% down and 3x salary. | Vacation house? No. | Umbrella? $1 million. | Goods? Costco.
User avatar
novolog
Posts: 450
Joined: Tue Jan 30, 2018 5:24 pm
Location: Greater Boston

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by novolog »

invest2bfree wrote: Sat May 15, 2021 2:28 pm With the amount of debt outstanding it is not possible to have interest rates go up.
this. rates mathematically cannot rise to save bonds. it's math. we would need to see GDP growth at like 10% per year in order to pay for rising rates.

i have never held bonds. i am young, but i don't expect to hold bonds in the future. rather hold real estate over bonds.
S&P 500 + Bitcoin
Robot Monster
Posts: 4215
Joined: Sun May 05, 2019 11:23 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Robot Monster »

novolog wrote: Thu Nov 18, 2021 8:53 pm
invest2bfree wrote: Sat May 15, 2021 2:28 pm With the amount of debt outstanding it is not possible to have interest rates go up.
this. rates mathematically cannot rise to save bonds. it's math. we would need to see GDP growth at like 10% per year in order to pay for rising rates.

i have never held bonds. i am young, but i don't expect to hold bonds in the future. rather hold real estate over bonds.
You might possibly make an exception for government I-bonds, which, at the moment, pay 7.2%. You are allowed to take out only a certain amount each year, so since you're young you've got lots of opportunities to take advantage of that annual opportunity.
bberris
Posts: 2420
Joined: Sun Feb 20, 2011 8:44 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by bberris »

SuperXmas wrote: Sat May 15, 2021 11:53 am That is an outrageous claim
I'm not going to watch the video. Did he claim 7 % per year to make 21 % over three? Not outrageous, just a continuation of current inflation.
Stormbringer
Posts: 1207
Joined: Sun Jun 14, 2015 7:07 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Stormbringer »

bberris wrote: Fri Nov 19, 2021 7:40 am
SuperXmas wrote: Sat May 15, 2021 11:53 am That is an outrageous claim
I'm not going to watch the video. Did he claim 7 % per year to make 21 % over three? Not outrageous, just a continuation of current inflation.
That wasn't clear from the video, but I looked at more recent things he has said which clarified that he felt prices would be 20-25% higher three years from now, not an annual inflation rate of 20+%.
“The greatest shortcoming of the human race is our inability to understand the exponential function.” - Albert Allen Bartlett
Tom_T
Posts: 4836
Joined: Wed Aug 29, 2007 2:33 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Tom_T »

Market reacts to Siegel's prediction by pushing up the price of the 10-year. :wink:
JDave
Posts: 591
Joined: Tue Oct 29, 2019 9:23 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by JDave »

He's wrong. Inflation could be 21%.
Robot Monster
Posts: 4215
Joined: Sun May 05, 2019 11:23 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Robot Monster »

Stormbringer wrote: Fri Nov 19, 2021 8:45 am
bberris wrote: Fri Nov 19, 2021 7:40 am
SuperXmas wrote: Sat May 15, 2021 11:53 am That is an outrageous claim
I'm not going to watch the video. Did he claim 7 % per year to make 21 % over three? Not outrageous, just a continuation of current inflation.
That wasn't clear from the video, but I looked at more recent things he has said which clarified that he felt prices would be 20-25% higher three years from now, not an annual inflation rate of 20+%.
Exactly. "Siegel, who last year predicted a run-up in consumer prices when few others did, expects 20% to 25% of cumulative inflation over two to three years in the U.S. until it subsides." link
Wanderingwheelz
Posts: 3145
Joined: Mon Mar 04, 2019 8:52 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Wanderingwheelz »

He’s probably right in his prediction. He has been so far. This interview is from June of last year, and I followed the advice to trim my bonds and add equities. Maybe it was a mistake, but not so far. Not by a long shot.

https://ritholtz.com/2020/06/transcript-jeremy-siegel/
Being wrong compounds forever.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

Tom_T wrote: Fri Nov 19, 2021 9:28 am Market reacts to Siegel's prediction by pushing up the price of the 10-year. :wink:
The OP was six months ago.
The Sensible Steward
inbox788
Posts: 8372
Joined: Thu Mar 15, 2012 5:24 pm

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by inbox788 »

Ron wrote: Sat May 15, 2021 2:58 pm
Candor wrote: Sat May 15, 2021 2:38 pmHe's not saying 20% per year. He's saying 20% over 3 years so 6+% per year.
Which a bit above the early prognostications for SS COLA next year:

https://www.thinkadvisor.com/2021/05/12 ... s%20League.

- Ron
It's official. It's 5.9%. So is it going to be like 1977 or 2009? Or something else altogether?
Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 5.9 percent in 2022.
Automatic Cost-Of-Living Adjustments received since 1975

July 1977 -- 5.9%
July 1978 -- 6.5%
July 1979 -- 9.9%
July 1980 -- 14.3%
July 1981 -- 11.2%
July 1982 -- 7.4%

January 2009 -- 5.8%
January 2010 -- 0.0%
January 2011 -- 0.0%
January 2012 -- 3.6%
January 2013 -- 1.7%
https://www.ssa.gov/news/cola/
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

watchnerd wrote: Sat May 15, 2021 3:51 pm The bigger question is to you believe Siegel, who is just saying stuff, or what the bond market is predicting, where big pocket institutions vote with their wallets.

5 Year Breakeven inflation is not even close to what Siegel is saying:

https://fred.stlouisfed.org/series/T5YIE
So far, Siegel has been far more right than the bond market purportedly was. To be honest, I don't lend much credence to Treasury yields having much to do with the market's forward inflation expectations right now due to the Fed artificially keeping the yields low.
The Sensible Steward
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by 000 »

inbox788 wrote: Fri Nov 19, 2021 8:38 pm It's official. It's 5.9%. So is it going to be like 1977 or 2009? Or something else altogether?
Yep. Either they let it run hot -> risk assets go parabolic or they flight inflation -> deflationary crash.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

000 wrote: Fri Nov 19, 2021 9:18 pm
inbox788 wrote: Fri Nov 19, 2021 8:38 pm It's official. It's 5.9%. So is it going to be like 1977 or 2009? Or something else altogether?
Yep. Either they let it run hot -> risk assets go parabolic or they flight inflation -> deflationary crash.
So stocks will go up or down. Bold prediction. :P
The Sensible Steward
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

Northern Flicker wrote: Sun May 16, 2021 1:13 pm
willthrill81 wrote: Sun May 16, 2021 9:39 am
typical.investor wrote: Sun May 16, 2021 6:21 am In any case, 20% inflation suggests a perhaps 22% overnight rate.
I don't know that the current Fed has the wherewithal to raise the overnight rate to something like 8% if inflation rises to 6%.
It would not be a preconceived target, but the rate needed to tame the inflation, which likely is much lower than 8%. For one thing, they won't wait for inflation to hit 6% to start raising rates and tapping the brakes.
This didn't age well.
The Sensible Steward
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by 000 »

willthrill81 wrote: Fri Nov 19, 2021 9:21 pm
000 wrote: Fri Nov 19, 2021 9:18 pm
inbox788 wrote: Fri Nov 19, 2021 8:38 pm It's official. It's 5.9%. So is it going to be like 1977 or 2009? Or something else altogether?
Yep. Either they let it run hot -> risk assets go parabolic or they flight inflation -> deflationary crash.
So stocks will go up or down. Bold prediction. :P
I am, however, willing to predict the magnitude will be high. In fact I am considering a long strangle.
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by 000 »

willthrill81 wrote: Fri Nov 19, 2021 9:28 pm
Northern Flicker wrote: Sun May 16, 2021 1:13 pm
willthrill81 wrote: Sun May 16, 2021 9:39 am
typical.investor wrote: Sun May 16, 2021 6:21 am In any case, 20% inflation suggests a perhaps 22% overnight rate.
I don't know that the current Fed has the wherewithal to raise the overnight rate to something like 8% if inflation rises to 6%.
It would not be a preconceived target, but the rate needed to tame the inflation, which likely is much lower than 8%. For one thing, they won't wait for inflation to hit 6% to start raising rates and tapping the brakes.
This didn't age well.
:oops: :oops:

Though it may soon pale in comparison to the multitude of predictions over the years about the Fed having our backs in the stonk market. :twisted:
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

000 wrote: Fri Nov 19, 2021 9:39 pm
willthrill81 wrote: Fri Nov 19, 2021 9:21 pm
000 wrote: Fri Nov 19, 2021 9:18 pm
inbox788 wrote: Fri Nov 19, 2021 8:38 pm It's official. It's 5.9%. So is it going to be like 1977 or 2009? Or something else altogether?
Yep. Either they let it run hot -> risk assets go parabolic or they flight inflation -> deflationary crash.
So stocks will go up or down. Bold prediction. :P
I am, however, willing to predict the magnitude will be high. In fact I am considering a long strangle.
Hmm. Perhaps you could buy options on both sides?
The Sensible Steward
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by 000 »

willthrill81 wrote: Fri Nov 19, 2021 9:44 pm Hmm. Perhaps you could buy options on both sides?
Yes, that is a long strangle.

https://www.optionseducation.org/refere ... guide.aspx
Post Reply