Hi! I'm high inflation. Nice to meet you.

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
nigel_ht
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nigel_ht »

burritoLover wrote: Fri Nov 19, 2021 11:44 am
nedsaid wrote: Fri Nov 19, 2021 11:32 am
burritoLover wrote: Fri Nov 19, 2021 11:20 am Market timing the bond market is just a futile as the stock market. Not sure why it is viewed as something that is more likely to work.
If I need toilet paper and see that a local store has some for sale at 50% off, I would happily take advantage of the lower price. I would not be writing academic papers regarding the efficiency of toilet paper markets and poo-pooing the idea of stores putting items on sale.

As an opposite example, you have bond yields of maybe 2% with 6% inflation. Our Central Bank is intervening in the bond market, buying billions of bonds each month. So not only are bonds mostly guaranteed to lose you purchasing power over time but their price has been pushed up by Central Bank intervention.

You can't be arguing that bonds are efficiently priced right now because clearly they are not. Seven plus Trillion dollars of Fed intervention since 2008 has had a big impact on the markets. The market could be signaling that inflation is temporary or it could be signaling that the Fed has purchased a whole lot of bonds! The late Senator Everett Dickson might have said, "A Trillion here and a Trillion there and pretty soon you are talking real money." Fed intervention has so distorted the bond market that whatever it is signaling is just not accurate.
If it were that easy to adjust your portfolio based on your expectations of future inflation then it begs the question why you didn't predict this current round of high inflation and make the appropriate changes prior to it occurring? If you didn't do anything, then what makes you think you can make appropriate portfolio adjustments now based on your expectation of future inflation, bond yields, impact of fed intervention, etc?
There’s a difference between the ability to react to market changes and the ability to predict them.

To further use his analogy, I can’t predict when toilet paper goes on sale but when I see the 50% off ad I can go buy some.

Why would you assume that you need to predict anything to correctly adjust for current conditions?
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

burritoLover wrote: Fri Nov 19, 2021 11:44 am
nedsaid wrote: Fri Nov 19, 2021 11:32 am
burritoLover wrote: Fri Nov 19, 2021 11:20 am Market timing the bond market is just a futile as the stock market. Not sure why it is viewed as something that is more likely to work.
If I need toilet paper and see that a local store has some for sale at 50% off, I would happily take advantage of the lower price. I would not be writing academic papers regarding the efficiency of toilet paper markets and poo-pooing the idea of stores putting items on sale.

As an opposite example, you have bond yields of maybe 2% with 6% inflation. Our Central Bank is intervening in the bond market, buying billions of bonds each month. So not only are bonds mostly guaranteed to lose you purchasing power over time but their price has been pushed up by Central Bank intervention.

You can't be arguing that bonds are efficiently priced right now because clearly they are not. Seven plus Trillion dollars of Fed intervention since 2008 has had a big impact on the markets. The market could be signaling that inflation is temporary or it could be signaling that the Fed has purchased a whole lot of bonds! The late Senator Everett Dickson might have said, "A Trillion here and a Trillion there and pretty soon you are talking real money." Fed intervention has so distorted the bond market that whatever it is signaling is just not accurate.
If it were that easy to adjust your portfolio based on your expectations of future inflation then it begs the question why you didn't predict this current round of high inflation and make the appropriate changes prior to it occurring? If you didn't do anything, then what makes you think you can make appropriate portfolio adjustments now based on your expectation of future inflation, bond yields, impact of fed intervention, etc?
What I have been saying is that I am not buying any more bonds at this time. Within the bond portion of my portfolio, I did a modest shift towards TIPS. Not selling bonds either.

No one could have predicted the Covid-19 pandemic. I actually had been thinking about buying more TIPS earlier but real yields were either very low or negative and had been for some time. Also since 2008, there was concern about deflation. I do regret not putting half of my bonds into TIPS earlier but I didn't and that is water under the bridge. I have an aversion to overpaying for assets.

When did I ever say or imply that it was easy to predict future events? You are putting words in my mouth and I won't have it. What I have said is that it is difficult to know when to stay the course or to make adjustments in light of changes in the markets and the economy. I started a whole thread on this topic and there was a lot of good discussion.

My gosh, I made changes as better and cheaper investment vehicles became available. If I were never to make changes, I would still be paying 8 1/2 percent sales loads to buy Stock Mutual Funds. I adjusted and gradually shifted to indexing more and more of my portfolio and also using low cost Index Mutual Funds and ETFs based on indexes.

What I am pointing out is that one of the underlying assumptions that Bogleheads have held, disinflation and falling interest rates, may not hold true anymore. We may well be going from a time where bonds were terrific to a time where they just stink. I suppose I have committed a cardinal sin here by pointing out that the markets and the economy change over time and that perhaps in that light that perhaps investors should reconsider the investing assumptions that they have held.

If the facts on the ground change, I reserve the right to change my mind or at least rethink what I have been doing. What do you do?

For heaven's sake, you would think that I have been providing a market timing service and that I am trying to sell subscriptions to unwitting Bogleheads. No such service exists.
A fool and his money are good for business.
prioritarian
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Re: Hi! I'm high inflation. Nice to meet you.

Post by prioritarian »

burritoLover wrote: Fri Nov 19, 2021 11:20 am Market timing the bond market is just a futile as the stock market. Not sure why it is viewed as something that is more likely to work.
Actively trading the yield curve and duration, often using a cross currency carry trade, is hardly futile. It's just not something that applies to 99.9% of retail investors.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

jebmke wrote: Fri Nov 19, 2021 11:40 am Sounds like a good time to sell ALL the bonds, then
Be my guest.

For the record, I am not selling bonds, just not buying any more.
A fool and his money are good for business.
jebmke
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Re: Hi! I'm high inflation. Nice to meet you.

Post by jebmke »

nedsaid wrote: Fri Nov 19, 2021 12:17 pm
jebmke wrote: Fri Nov 19, 2021 11:40 am Sounds like a good time to sell ALL the bonds, then
Be my guest.

For the record, I am not selling bonds, just not buying any more.
I'm not buying more either -- but not because of any view on whether they are fairly priced or not. If I believed they were not fairly priced I would not hold them. Holding=buying in today's zero txn cost world. Stopped re-balancing two+ years ago. When RMDs kick in will dump bonds in large quantities.
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prioritarian
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Re: Hi! I'm high inflation. Nice to meet you.

Post by prioritarian »

nigel_ht wrote: Fri Nov 19, 2021 12:01 pm
burritoLover wrote: Fri Nov 19, 2021 11:44 am
nedsaid wrote: Fri Nov 19, 2021 11:32 am
burritoLover wrote: Fri Nov 19, 2021 11:20 am Market timing the bond market is just a futile as the stock market. Not sure why it is viewed as something that is more likely to work.
If I need toilet paper and see that a local store has some for sale at 50% off, I would happily take advantage of the lower price. I would not be writing academic papers regarding the efficiency of toilet paper markets and poo-pooing the idea of stores putting items on sale.

As an opposite example, you have bond yields of maybe 2% with 6% inflation. Our Central Bank is intervening in the bond market, buying billions of bonds each month. So not only are bonds mostly guaranteed to lose you purchasing power over time but their price has been pushed up by Central Bank intervention.

You can't be arguing that bonds are efficiently priced right now because clearly they are not. Seven plus Trillion dollars of Fed intervention since 2008 has had a big impact on the markets. The market could be signaling that inflation is temporary or it could be signaling that the Fed has purchased a whole lot of bonds! The late Senator Everett Dickson might have said, "A Trillion here and a Trillion there and pretty soon you are talking real money." Fed intervention has so distorted the bond market that whatever it is signaling is just not accurate.
If it were that easy to adjust your portfolio based on your expectations of future inflation then it begs the question why you didn't predict this current round of high inflation and make the appropriate changes prior to it occurring? If you didn't do anything, then what makes you think you can make appropriate portfolio adjustments now based on your expectation of future inflation, bond yields, impact of fed intervention, etc?
There’s a difference between the ability to react to market changes and the ability to predict them.

To further use his analogy, I can’t predict when toilet paper goes on sale but when I see the 50% off ad I can go buy some.

Why would you assume that you need to predict anything to correctly adjust for current conditions?

Toilet paper inflation was a @#%show a year ago and now toilet paper inflation has, largely, evaporated.

Actively trading bonds based on highly volatile toilet paper inflation (or any kind of inflation) is, probably, best left to professionals with massive carry trades that fund synthetic levered bets on steepness, flatness, convexity, barbells etc.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

nigel_ht wrote: Fri Nov 19, 2021 12:01 pm
burritoLover wrote: Fri Nov 19, 2021 11:44 am
nedsaid wrote: Fri Nov 19, 2021 11:32 am
burritoLover wrote: Fri Nov 19, 2021 11:20 am Market timing the bond market is just a futile as the stock market. Not sure why it is viewed as something that is more likely to work.
If I need toilet paper and see that a local store has some for sale at 50% off, I would happily take advantage of the lower price. I would not be writing academic papers regarding the efficiency of toilet paper markets and poo-pooing the idea of stores putting items on sale.

As an opposite example, you have bond yields of maybe 2% with 6% inflation. Our Central Bank is intervening in the bond market, buying billions of bonds each month. So not only are bonds mostly guaranteed to lose you purchasing power over time but their price has been pushed up by Central Bank intervention.

You can't be arguing that bonds are efficiently priced right now because clearly they are not. Seven plus Trillion dollars of Fed intervention since 2008 has had a big impact on the markets. The market could be signaling that inflation is temporary or it could be signaling that the Fed has purchased a whole lot of bonds! The late Senator Everett Dickson might have said, "A Trillion here and a Trillion there and pretty soon you are talking real money." Fed intervention has so distorted the bond market that whatever it is signaling is just not accurate.
If it were that easy to adjust your portfolio based on your expectations of future inflation then it begs the question why you didn't predict this current round of high inflation and make the appropriate changes prior to it occurring? If you didn't do anything, then what makes you think you can make appropriate portfolio adjustments now based on your expectation of future inflation, bond yields, impact of fed intervention, etc?
There’s a difference between the ability to react to market changes and the ability to predict them.

To further use his analogy, I can’t predict when toilet paper goes on sale but when I see the 50% off ad I can go buy some.

Why would you assume that you need to predict anything to correctly adjust for current conditions?
The efficient market fanatics would insist that the toilet paper markets are so efficient that 50% off sales were not possible. Such a person wouldn't be caught dead buying Tee Pee at 50% off.

Look I am not arguing that markets are inefficient, I have said here many times that markets are mostly efficient. What I am saying is that our Central Bank has intervened in those markets and intervened on a massive scale. Massive Fed intervention might affect the markets, you think?

So just as I will take advantage of sales, I won't grossly overpay for things now. 2% Bond Yields vs. 6% Inflation hardly seems like a screaming bargain to me. It doesn't take someone with a PhD in math to see this. If we go 2% Bond Yields and 1% inflation from here, bond investors will be greatly relieved but even at those levels, Bonds won't be bargains there either, but at least I could hold my nose and buy more. One percent real yields seems like a better deal than 4% negative.

Not making complicated arguments. One doesn't need to be an economist or a mathematician to get the point I am trying but apparently failing to make.
A fool and his money are good for business.
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Beensabu
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Re: Hi! I'm high inflation. Nice to meet you.

Post by Beensabu »

nedsaid wrote: Fri Nov 19, 2021 11:32 am You can't be arguing that bonds are efficiently priced right now because clearly they are not. Seven plus Trillion dollars of Fed intervention since 2008 has had a big impact on the markets... Fed intervention has so distorted the bond market that whatever it is signaling is just not accurate.
This is a fairly commonly expressed sentiment. Every time I see it, I think of Grantham's whole "deranged monetary activism" rant. He's been so wrong about stocks for so long because he simply could not bring himself to believe that such actions would be taken and then could not (and still cannot) believe that they would continue for so long.

What is the point at which Fed intervention is accepted as just the way it is now, and just the way it's going to be? Is it really a distortion? Or is it a reconfiguration due to the entry of an additional very large market participant? And what are the long-term implications of that just continuing on indefinitely? I mean, as long as we're talking about adapting to changing market conditions.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Marseille07
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Re: Hi! I'm high inflation. Nice to meet you.

Post by Marseille07 »

prioritarian wrote: Fri Nov 19, 2021 12:23 pm Toilet paper inflation was a @#%show a year ago and now toilet paper inflation has, largely, evaporated.

Actively trading bonds based on highly volatile toilet paper inflation (or any kind of inflation) is, probably, best left to professionals with massive carry trades that fund synthetic levered bets on steepness, flatness, convexity, barbells etc.
I think you're taking it way out of proportion. Nedsaid suspending bond purchases for the next few months is not "actively trading bonds" as if they abandoned the BH philosophy completely and became a full-time fund manager or something.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

prioritarian wrote: Fri Nov 19, 2021 12:23 pm
nigel_ht wrote: Fri Nov 19, 2021 12:01 pm
burritoLover wrote: Fri Nov 19, 2021 11:44 am
nedsaid wrote: Fri Nov 19, 2021 11:32 am
burritoLover wrote: Fri Nov 19, 2021 11:20 am Market timing the bond market is just a futile as the stock market. Not sure why it is viewed as something that is more likely to work.
If I need toilet paper and see that a local store has some for sale at 50% off, I would happily take advantage of the lower price. I would not be writing academic papers regarding the efficiency of toilet paper markets and poo-pooing the idea of stores putting items on sale.

As an opposite example, you have bond yields of maybe 2% with 6% inflation. Our Central Bank is intervening in the bond market, buying billions of bonds each month. So not only are bonds mostly guaranteed to lose you purchasing power over time but their price has been pushed up by Central Bank intervention.

You can't be arguing that bonds are efficiently priced right now because clearly they are not. Seven plus Trillion dollars of Fed intervention since 2008 has had a big impact on the markets. The market could be signaling that inflation is temporary or it could be signaling that the Fed has purchased a whole lot of bonds! The late Senator Everett Dickson might have said, "A Trillion here and a Trillion there and pretty soon you are talking real money." Fed intervention has so distorted the bond market that whatever it is signaling is just not accurate.
If it were that easy to adjust your portfolio based on your expectations of future inflation then it begs the question why you didn't predict this current round of high inflation and make the appropriate changes prior to it occurring? If you didn't do anything, then what makes you think you can make appropriate portfolio adjustments now based on your expectation of future inflation, bond yields, impact of fed intervention, etc?
There’s a difference between the ability to react to market changes and the ability to predict them.

To further use his analogy, I can’t predict when toilet paper goes on sale but when I see the 50% off ad I can go buy some.

Why would you assume that you need to predict anything to correctly adjust for current conditions?

Toilet paper inflation was a @#%show a year ago and now toilet paper inflation has, largely, evaporated.

Actively trading bonds based on highly volatile toilet paper inflation (or any kind of inflation) is, probably, best left to professionals with massive carry trades that fund synthetic levered bets on steepness, flatness, convexity, barbells etc.
A year ago, I would buy the Tee Pee that I needed but I certainly did not stock up. Today would be a much better time to stock up. But that would be market timing and we can't have that. I guess I don't know that much, I just take bargains when they show up.
A fool and his money are good for business.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

Marseille07 wrote: Fri Nov 19, 2021 12:30 pm
prioritarian wrote: Fri Nov 19, 2021 12:23 pm Toilet paper inflation was a @#%show a year ago and now toilet paper inflation has, largely, evaporated.

Actively trading bonds based on highly volatile toilet paper inflation (or any kind of inflation) is, probably, best left to professionals with massive carry trades that fund synthetic levered bets on steepness, flatness, convexity, barbells etc.
I think you're taking it way out of proportion. Nedsaid suspending bond purchases for the next few months is not "actively trading bonds" as if they abandoned the BH philosophy completely and became a full-time fund manager or something.
I know, I know. I am some wild eyed market timer. I have insulted the honor of John Bogle and the entire forum by suspending purchases of bonds for a few months. Next thing, I will be recommending that people mortgage everything to the hilt and buy Tesla! :wink: This forum is going to Hades in a handbasket, I tell you.
A fool and his money are good for business.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

Beensabu wrote: Fri Nov 19, 2021 12:29 pm
nedsaid wrote: Fri Nov 19, 2021 11:32 am You can't be arguing that bonds are efficiently priced right now because clearly they are not. Seven plus Trillion dollars of Fed intervention since 2008 has had a big impact on the markets... Fed intervention has so distorted the bond market that whatever it is signaling is just not accurate.
This is a fairly commonly expressed sentiment. Every time I see it, I think of Grantham's whole "deranged monetary activism" rant. He's been so wrong about stocks for so long because he simply could not bring himself to believe that such actions would be taken and then could not (and still cannot) believe that they would continue for so long.

What is the point at which Fed intervention is accepted as just the way it is now, and just the way it's going to be? Is it really a distortion? Or is it a reconfiguration due to the entry of an additional very large market participant? And what are the long-term implications of that just continuing on indefinitely? I mean, as long as we're talking about adapting to changing market conditions.
What you are admitting is that things have changed, a "new normal" as it where. Isn't that what I am saying?

The thing is, even the "new normal" of continued Fed intervention can't be assumed if this triggers higher and higher inflation. The "new normal" might not be sustainable.

The economy and the markets are dynamic.
A fool and his money are good for business.
prioritarian
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Re: Hi! I'm high inflation. Nice to meet you.

Post by prioritarian »

nedsaid wrote: Fri Nov 19, 2021 12:33 pm
Marseille07 wrote: Fri Nov 19, 2021 12:30 pm
prioritarian wrote: Fri Nov 19, 2021 12:23 pm Toilet paper inflation was a @#%show a year ago and now toilet paper inflation has, largely, evaporated.

Actively trading bonds based on highly volatile toilet paper inflation (or any kind of inflation) is, probably, best left to professionals with massive carry trades that fund synthetic levered bets on steepness, flatness, convexity, barbells etc.
I think you're taking it way out of proportion. Nedsaid suspending bond purchases for the next few months is not "actively trading bonds" as if they abandoned the BH philosophy completely and became a full-time fund manager or something.
I know, I know. I am some wild eyed market timer. I have insulted the honor of John Bogle and the entire forum by suspending purchases of bonds for a few months. Next thing, I will be recommending that people mortgage everything to the hilt and buy Tesla! :wink: This forum is going to Hades in a handbasket, I tell you.
I actively swap bonds based on the business cycle (my rationale is informed by an economic literature that I've referenced elsewhere). I'm not necessarily criticizing active bond trading but rather the underlying assumptions behind these moves (e.g. timing a highly volatile economic statistic).
Last edited by prioritarian on Fri Nov 19, 2021 12:41 pm, edited 1 time in total.
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burritoLover
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Re: Hi! I'm high inflation. Nice to meet you.

Post by burritoLover »

nedsaid wrote: Fri Nov 19, 2021 12:12 pm
burritoLover wrote: Fri Nov 19, 2021 11:44 am
nedsaid wrote: Fri Nov 19, 2021 11:32 am
burritoLover wrote: Fri Nov 19, 2021 11:20 am Market timing the bond market is just a futile as the stock market. Not sure why it is viewed as something that is more likely to work.
If I need toilet paper and see that a local store has some for sale at 50% off, I would happily take advantage of the lower price. I would not be writing academic papers regarding the efficiency of toilet paper markets and poo-pooing the idea of stores putting items on sale.

As an opposite example, you have bond yields of maybe 2% with 6% inflation. Our Central Bank is intervening in the bond market, buying billions of bonds each month. So not only are bonds mostly guaranteed to lose you purchasing power over time but their price has been pushed up by Central Bank intervention.

You can't be arguing that bonds are efficiently priced right now because clearly they are not. Seven plus Trillion dollars of Fed intervention since 2008 has had a big impact on the markets. The market could be signaling that inflation is temporary or it could be signaling that the Fed has purchased a whole lot of bonds! The late Senator Everett Dickson might have said, "A Trillion here and a Trillion there and pretty soon you are talking real money." Fed intervention has so distorted the bond market that whatever it is signaling is just not accurate.
If it were that easy to adjust your portfolio based on your expectations of future inflation then it begs the question why you didn't predict this current round of high inflation and make the appropriate changes prior to it occurring? If you didn't do anything, then what makes you think you can make appropriate portfolio adjustments now based on your expectation of future inflation, bond yields, impact of fed intervention, etc?
What I have been saying is that I am not buying any more bonds at this time. Within the bond portion of my portfolio, I did a modest shift towards TIPS. Not selling bonds either.

No one could have predicted the Covid-19 pandemic. I actually had been thinking about buying more TIPS earlier but real yields were either very low or negative and had been for some time. Also since 2008, there was concern about deflation. I do regret not putting half of my bonds into TIPS earlier but I didn't and that is water under the bridge. I have an aversion to overpaying for assets.

When did I ever say or imply that it was easy to predict future events? You are putting words in my mouth and I won't have it. What I have said is that it is difficult to know when to stay the course or to make adjustments in light of changes in the markets and the economy. I started a whole thread on this topic and there was a lot of good discussion.

My gosh, I made changes as better and cheaper investment vehicles became available. If I were never to make changes, I would still be paying 8 1/2 percent sales loads to buy Stock Mutual Funds. I adjusted and gradually shifted to indexing more and more of my portfolio and also using low cost Index Mutual Funds and ETFs based on indexes.

What I am pointing out is that one of the underlying assumptions that Bogleheads have held, disinflation and falling interest rates, may not hold true anymore. We may well be going from a time where bonds were terrific to a time where they just stink. I suppose I have committed a cardinal sin here by pointing out that the markets and the economy change over time and that perhaps in that light that perhaps investors should reconsider the investing assumptions that they have held.

If the facts on the ground change, I reserve the right to change my mind or at least rethink what I have been doing. What do you do?

For heaven's sake, you would think that I have been providing a market timing service and that I am trying to sell subscriptions to unwitting Bogleheads. No such service exists.
So you say you are just reacting to current conditions but then you make a whole host of predictions -> "disinflation and falling interest rates, may not hold true anymore. We may well be going from a time where bonds were terrific to a time where they just stink. " Presumably you are making changes based on those assumptions. The same predictions that have been made for multiple years now by others (and have been wrong). It isn't a new concept so what's changed? YOY inflation was high enough to convince you that this was a sudden possibility?
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

jebmke wrote: Fri Nov 19, 2021 12:21 pm
nedsaid wrote: Fri Nov 19, 2021 12:17 pm
jebmke wrote: Fri Nov 19, 2021 11:40 am Sounds like a good time to sell ALL the bonds, then
Be my guest.

For the record, I am not selling bonds, just not buying any more.
I'm not buying more either -- but not because of any view on whether they are fairly priced or not. If I believed they were not fairly priced I would not hold them. Holding=buying in today's zero txn cost world. Stopped re-balancing two+ years ago. When RMDs kick in will dump bonds in large quantities.
Your viewpoint is very reasonable. What you have expressed isn't far from my thinking.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

prioritarian wrote: Fri Nov 19, 2021 12:39 pm
nedsaid wrote: Fri Nov 19, 2021 12:33 pm
Marseille07 wrote: Fri Nov 19, 2021 12:30 pm
prioritarian wrote: Fri Nov 19, 2021 12:23 pm Toilet paper inflation was a @#%show a year ago and now toilet paper inflation has, largely, evaporated.

Actively trading bonds based on highly volatile toilet paper inflation (or any kind of inflation) is, probably, best left to professionals with massive carry trades that fund synthetic levered bets on steepness, flatness, convexity, barbells etc.
I think you're taking it way out of proportion. Nedsaid suspending bond purchases for the next few months is not "actively trading bonds" as if they abandoned the BH philosophy completely and became a full-time fund manager or something.
I know, I know. I am some wild eyed market timer. I have insulted the honor of John Bogle and the entire forum by suspending purchases of bonds for a few months. Next thing, I will be recommending that people mortgage everything to the hilt and buy Tesla! :wink: This forum is going to Hades in a handbasket, I tell you.
I actively swap bonds based on the business cycle (my rationale is informed by an economic literature that I've referenced elsewhere). I'm not necessarily criticizing active bond trading but rather the underlying assumptions behind these moves (e.g. timing a highly volatile economic statistic).
There are successful traders in both the stock and the bond markets. It is different from a longer term investing approach. It is a different mentality.

I have practiced milder forms of tactical asset allocation and *shock* market timing but looking back it was more about reducing risk than increasing returns. My thinking takes into account valuations of asset classes.

Actually, I have been thinking about the possibility of increased inflation for a while now, particularly after all of the fiscal and monetary stimulus in reaction to the Covid-19 pandemic. It isn't like I just saw the October 2021 inflation report and saw the 6% inflation number. Have been thinking this through for at least a year and a half now. TIPS have been pretty expensive for a while now, otherwise I would have jumped into them with both feet. What I did was take a milder course and in a year's time increase the TIPS allocation within my bonds from 12% to 18%. Not the boldest move imaginable, but then again I was born to be mild.
A fool and his money are good for business.
prioritarian
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Re: Hi! I'm high inflation. Nice to meet you.

Post by prioritarian »

nedsaid wrote: Fri Nov 19, 2021 12:50 pm
prioritarian wrote: Fri Nov 19, 2021 12:39 pm
nedsaid wrote: Fri Nov 19, 2021 12:33 pm
Marseille07 wrote: Fri Nov 19, 2021 12:30 pm
prioritarian wrote: Fri Nov 19, 2021 12:23 pm Toilet paper inflation was a @#%show a year ago and now toilet paper inflation has, largely, evaporated.

Actively trading bonds based on highly volatile toilet paper inflation (or any kind of inflation) is, probably, best left to professionals with massive carry trades that fund synthetic levered bets on steepness, flatness, convexity, barbells etc.
I think you're taking it way out of proportion. Nedsaid suspending bond purchases for the next few months is not "actively trading bonds" as if they abandoned the BH philosophy completely and became a full-time fund manager or something.
I know, I know. I am some wild eyed market timer. I have insulted the honor of John Bogle and the entire forum by suspending purchases of bonds for a few months. Next thing, I will be recommending that people mortgage everything to the hilt and buy Tesla! :wink: This forum is going to Hades in a handbasket, I tell you.
I actively swap bonds based on the business cycle (my rationale is informed by an economic literature that I've referenced elsewhere). I'm not necessarily criticizing active bond trading but rather the underlying assumptions behind these moves (e.g. timing a highly volatile economic statistic).
There are successful traders in both the stock and the bond markets. It is different from a longer term investing approach. It is a different mentality.

I have practiced milder forms of tactical asset allocation and *shock* market timing but looking back it was more about reducing risk than increasing returns. My thinking takes into account valuations of asset classes.

Actually, I have been thinking about the possibility of increased inflation for a while now, particularly after all of the fiscal and monetary stimulus in reaction to the Covid-19 pandemic. It isn't like I just saw the October 2021 inflation report and saw the 6% inflation number. Have been thinking this through for at least a year and a half now. TIPS have been pretty expensive for a while now, otherwise I would have jumped into them with both feet. What I did was take a milder course and in a year's time increase the TIPS allocation within my bonds from 12% to 18%. Not the boldest move imaginable, but then again I was born to be mild.
Are you going to hold the TIPS indefinitely or is this something that you will undo if inflation returns to ~2%?

As vineviz has noted here, there is an argument for holding more TIPs if one is targeting shorter durations* and/or has a high percentage of bonds.

*short duration bonds aren't really that useful for return so inflation protection makes more sense
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

burritoLover wrote: Fri Nov 19, 2021 12:40 pm
So you say you are just reacting to current conditions but then you make a whole host of predictions -> "disinflation and falling interest rates, may not hold true anymore. We may well be going from a time where bonds were terrific to a time where they just stink. " Presumably you are making changes based on those assumptions. The same predictions that have been made for multiple years now by others (and have been wrong). It isn't a new concept so what's changed? YOY inflation was high enough to convince you that this was a sudden possibility?
"May" does not imply ironclad predictions.

What predictions have I been making for multiple years? The only one I can think of is that I have been pounding the table for Value stocks for quite a while but that doesn't have much to do with the discussion of recent inflation trends. I have said that at some point that I expect the Growth trend in the market to give away to Value, I certainly don't know when that will happen.

I have not been making predictions of higher and higher inflation for years, to the contrary I have posted frequently about the economy experiencing "whiffs of deflation" since the 2008-2009 financial crisis. What I have said is that I have taken the possibility of higher inflation into account with my portfolio construction and that I am an inflation hawk since I remember the 1970's pretty clearly.

I have been wondering about higher levels of inflation given all the stimulus both Fiscal and Monetary in response to the pandemic, but that has been for maybe a year and a half, two years at the very most, hardly "multiple years."

I have expressed concerns about what I have been seeing, I suppose I am not supposed to believe my lying eyes. Again, I am not running a market timing service as a few here seem to suppose.

There are a lot of good ideas out there. But there gets to be a point where even a good idea can be taken to ridiculous extremes. One of them is "stay the course", which I mostly have done. If I am driving and see that the bridge in front of me is out, I will put on the brakes. I am not going to say to myself that if I apply the brakes that that constitutes market timing so I refuse to do it. Some here would say to hit the accelerator and try to jump the gap.

The thing is, this isn't just a "one" or "two" or an "on" or "off" world. Sometimes things aren't so clear as a binary choice. What I took a whole thread to express was my angst over higher inflation rates and my uncertainty about what to do about it, what I decided to do was to make a smaller and more modest adjustment. You make it sound like I make predictions with 100% certitude and that I throw opinions around here with 100% confidence with their correctness.

I suppose what I should have done was make one post and have reposted it over 15,000 times. It would have been boring but it would have "stayed the course" and remained utterly consistent. But silly me, I thought this forum was about expressing ideas. I have said a whole lot of things and have not been afraid to think aloud or to conduct thought experiments.

What you are doing is the classic strawman argument, taking what I have said to extremes and knocking down arguments that I really haven't made. You are expressing things that I have wondered about as 100% certain predictions and that is incorrect. It seems like a capital crime around here to express concerns.
Last edited by nedsaid on Fri Nov 19, 2021 2:52 pm, edited 2 times in total.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

prioritarian wrote: Fri Nov 19, 2021 1:00 pm
nedsaid wrote: Fri Nov 19, 2021 12:50 pm
prioritarian wrote: Fri Nov 19, 2021 12:39 pm
nedsaid wrote: Fri Nov 19, 2021 12:33 pm
Marseille07 wrote: Fri Nov 19, 2021 12:30 pm

I think you're taking it way out of proportion. Nedsaid suspending bond purchases for the next few months is not "actively trading bonds" as if they abandoned the BH philosophy completely and became a full-time fund manager or something.
I know, I know. I am some wild eyed market timer. I have insulted the honor of John Bogle and the entire forum by suspending purchases of bonds for a few months. Next thing, I will be recommending that people mortgage everything to the hilt and buy Tesla! :wink: This forum is going to Hades in a handbasket, I tell you.
I actively swap bonds based on the business cycle (my rationale is informed by an economic literature that I've referenced elsewhere). I'm not necessarily criticizing active bond trading but rather the underlying assumptions behind these moves (e.g. timing a highly volatile economic statistic).
There are successful traders in both the stock and the bond markets. It is different from a longer term investing approach. It is a different mentality.

I have practiced milder forms of tactical asset allocation and *shock* market timing but looking back it was more about reducing risk than increasing returns. My thinking takes into account valuations of asset classes.

Actually, I have been thinking about the possibility of increased inflation for a while now, particularly after all of the fiscal and monetary stimulus in reaction to the Covid-19 pandemic. It isn't like I just saw the October 2021 inflation report and saw the 6% inflation number. Have been thinking this through for at least a year and a half now. TIPS have been pretty expensive for a while now, otherwise I would have jumped into them with both feet. What I did was take a milder course and in a year's time increase the TIPS allocation within my bonds from 12% to 18%. Not the boldest move imaginable, but then again I was born to be mild.
Are you going to hold the TIPS indefinitely or is this something that you will undo if inflation returns to ~2%?

As vineviz has noted here, there is an argument for holding more TIPs if one is targeting shorter durations* and/or has a high percentage of bonds.

*short duration bonds aren't really that useful for return so inflation protection makes more sense
I see TIPS as a long term holding. If inflation stays low, TIPS will underperform Total Bond Market Index a bit. If inflation runs ahead of expectations, TIPS will outperform Total Bond Market Index. This is not a timing exercise with TIPS. Looking back, I should have had a higher allocation to TIPS but most of the time since 2008-2009 have been relatively expensive, real yields have ranged from very low to negative.

I wish Vineviz was posting now, I would be asking him about TIPS. I think he would say, if you think you need them to buy them. He would probably also point out that nominal bonds trade at negative real yields too.

The core issue that caused this is my aversion to buying expensive asset classes. I suppose that I should have held my nose and bought anyways. I did not except in smaller amounts. Not going to rush into TIPS now but I might buy more in more modest quantities over time. I also know that this inflationary trend could reverse as quickly as it started, so I don't want to get whipsawed with TIPS.

A secondary issue is that I am cautious by nature, pretty rare that I make a bold shift in my asset allocation. I did such a shift in early 2000 with 15% of my portfolio, a move from stocks to cash. I have done a few more minor shifts since but again it was more about reducing risk than trying to boost returns. The idea that I am a bold market timer is just not accurate.
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burritoLover
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Re: Hi! I'm high inflation. Nice to meet you.

Post by burritoLover »

nedsaid wrote: Fri Nov 19, 2021 1:07 pm
burritoLover wrote: Fri Nov 19, 2021 12:40 pm
So you say you are just reacting to current conditions but then you make a whole host of predictions -> "disinflation and falling interest rates, may not hold true anymore. We may well be going from a time where bonds were terrific to a time where they just stink. " Presumably you are making changes based on those assumptions. The same predictions that have been made for multiple years now by others (and have been wrong). It isn't a new concept so what's changed? YOY inflation was high enough to convince you that this was a sudden possibility?
"May" does not imply ironclad predictions.

What predictions have I been making for multiple years? The only one I can think of is that I have been pounding the table for Value stocks for quite a while but that doesn't have much to do with the discussion of recent inflation trends. I have said that at some point that I expect the Growth trend in the market to give away to Value, I certainly don't know when that will happen.

I have not been making predictions of higher and higher inflation for years, to the contrary I have posted frequently about the economy experiencing "whiffs of deflation" since the 2008-2009 financial crisis. What I have said is that I have taken the possibility of higher inflation into account with my portfolio construction and that I am an inflation hawk since I remember the 1970's pretty clearly.

I have expressed concerns about what I have been seeing, I suppose I am not supposed to believe my lying eyes. Again, I am not running a market timing service as a few here seem to suppose.

There are a lot of good ideas out there. But there gets to be a point where even a good idea can be taken to ridiculous extremes. One of them is "stay the course", which I mostly have done. If I am driving and see that the bridge in front of me is out, I will put on the brakes. I am not going to say to myself that if I apply the brakes that that constitutes market timing so I refuse to do it. Some here would say to hit the accelerator and try to jump the gap.

The thing is, this isn't just a "one" or "two" or an "on" or "off" world. Sometimes things aren't so clear as a binary choice. What I took a whole thread to express was my angst over higher inflation rates and my uncertainty about what to do about it, what I decided to do was to make a smaller and more modest adjustment. You make it sound like I make predictions with 100% certitude and that I throw opinions around here with 100% confidence with their correctness.

What you are doing is the classic strawman argument, taking what I have said to extremes and knocking down arguments that I really haven't made. You are expressing things that I have wondered about as 100% certain predictions and that is incorrect. It seems like a capital crime around here to express concerns.
It's not - you are making these arguments plain as day - I'm not inventing anything. You're analogies are very telling - you can see the bridge being out so you put on the brakes. You can see what is about to happen (!) so you are going to make a change to prevent it. Now, it would be one thing if you've never heard of the possibility of a bridge being out - it was completely foreign to you - and then someone mentions it's a possibility and you then make changes to drive more carefully around bridges. But, in this case, the mayor has been telling everyone that bridges can get washed away in bad weather for many years - you were well aware of it, but you go happily speeding towards bridges in any weather because you've never seen it happen. Then, the next county over has a bridge get washed away and suddenly you are avoiding all bridges, coming in late to work, getting stressed for no reason. You are making yourself worse off because you suddenly believe that the chances of a bridge getting washed out have increased dramatically when nothing has really changed.
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

burritoLover wrote: Fri Nov 19, 2021 1:26 pm
nedsaid wrote: Fri Nov 19, 2021 1:07 pm
burritoLover wrote: Fri Nov 19, 2021 12:40 pm
So you say you are just reacting to current conditions but then you make a whole host of predictions -> "disinflation and falling interest rates, may not hold true anymore. We may well be going from a time where bonds were terrific to a time where they just stink. " Presumably you are making changes based on those assumptions. The same predictions that have been made for multiple years now by others (and have been wrong). It isn't a new concept so what's changed? YOY inflation was high enough to convince you that this was a sudden possibility?
"May" does not imply ironclad predictions.

What predictions have I been making for multiple years? The only one I can think of is that I have been pounding the table for Value stocks for quite a while but that doesn't have much to do with the discussion of recent inflation trends. I have said that at some point that I expect the Growth trend in the market to give away to Value, I certainly don't know when that will happen.

I have not been making predictions of higher and higher inflation for years, to the contrary I have posted frequently about the economy experiencing "whiffs of deflation" since the 2008-2009 financial crisis. What I have said is that I have taken the possibility of higher inflation into account with my portfolio construction and that I am an inflation hawk since I remember the 1970's pretty clearly.

I have expressed concerns about what I have been seeing, I suppose I am not supposed to believe my lying eyes. Again, I am not running a market timing service as a few here seem to suppose.

There are a lot of good ideas out there. But there gets to be a point where even a good idea can be taken to ridiculous extremes. One of them is "stay the course", which I mostly have done. If I am driving and see that the bridge in front of me is out, I will put on the brakes. I am not going to say to myself that if I apply the brakes that that constitutes market timing so I refuse to do it. Some here would say to hit the accelerator and try to jump the gap.

The thing is, this isn't just a "one" or "two" or an "on" or "off" world. Sometimes things aren't so clear as a binary choice. What I took a whole thread to express was my angst over higher inflation rates and my uncertainty about what to do about it, what I decided to do was to make a smaller and more modest adjustment. You make it sound like I make predictions with 100% certitude and that I throw opinions around here with 100% confidence with their correctness.

What you are doing is the classic strawman argument, taking what I have said to extremes and knocking down arguments that I really haven't made. You are expressing things that I have wondered about as 100% certain predictions and that is incorrect. It seems like a capital crime around here to express concerns.
It's not - you are making these arguments plain as day - I'm not inventing anything. You're analogies are very telling - you can see the bridge being out so you put on the brakes. You can see what is about to happen (!) so you are going to make a change to prevent it. Now, it would be one thing if you've never heard of the possibility of a bridge being out - it was completely foreign to you - and then someone mentions it's a possibility and you then make changes to drive more carefully around bridges. But, in this case, the mayor has been telling everyone that bridges can get washed away in bad weather for many years - you were well aware of it, but you go happily speeding towards bridges in any weather because you've never seen it happen. Then, the next county over has a bridge get washed away and suddenly you are avoiding all bridges, coming in late to work, getting stressed for no reason. You are making yourself worse off because you suddenly believe that the chances of a bridge getting washed out have increased dramatically when nothing has really changed.
I am using a couple of literary devices here. First, the analogy. No analogy that I am going to make will perfectly fit the arguments made here. We all know that at some point, all analogies break down. Second, the hyperbole. It is the use of somewhat exaggerated language to make a point. We see this in the Bible. Literary devices that have been used for centuries if not millennia. So this isn't absolutely literal language but most people understand what is being expressed.
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Robot Monster
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Re: Hi! I'm high inflation. Nice to meet you.

Post by Robot Monster »

nedsaid wrote: Fri Nov 19, 2021 1:16 pm I also know that this inflationary trend could reverse as quickly as it started, so I don't want to get whipsawed with TIPS.
If you take the Nisiprius rule of thumb to "plan on holding a bond fund for at least its average duration and you will be pretty safe" will that not prevent you from getting whipsawed?link

Nisiprius wrote a nice post examining what would happen to the Vanguard TIPS fund, VAIPX, if rates started rising. link
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

Robot Monster wrote: Fri Nov 19, 2021 2:10 pm
nedsaid wrote: Fri Nov 19, 2021 1:16 pm I also know that this inflationary trend could reverse as quickly as it started, so I don't want to get whipsawed with TIPS.
If you take the Nisiprius rule of thumb to "plan on holding a bond fund for at least its average duration and you will be pretty safe" will that not prevent you from getting whipsawed?link

Nisiprius wrote a nice post examining what would happen to the Vanguard TIPS fund, VAIPX, if rates started rising. link
Thank you. I will look at those posts again. Always more to learn.
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lws
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Re: Hi! I'm high inflation. Nice to meet you.

Post by lws »

OP,
Inflation is an element of the economy.
Not changing anything.
Lived through many bouts of it since the 70's.
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burritoLover
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Re: Hi! I'm high inflation. Nice to meet you.

Post by burritoLover »

nedsaid wrote: Fri Nov 19, 2021 1:38 pm
burritoLover wrote: Fri Nov 19, 2021 1:26 pm
nedsaid wrote: Fri Nov 19, 2021 1:07 pm
burritoLover wrote: Fri Nov 19, 2021 12:40 pm
So you say you are just reacting to current conditions but then you make a whole host of predictions -> "disinflation and falling interest rates, may not hold true anymore. We may well be going from a time where bonds were terrific to a time where they just stink. " Presumably you are making changes based on those assumptions. The same predictions that have been made for multiple years now by others (and have been wrong). It isn't a new concept so what's changed? YOY inflation was high enough to convince you that this was a sudden possibility?
"May" does not imply ironclad predictions.

What predictions have I been making for multiple years? The only one I can think of is that I have been pounding the table for Value stocks for quite a while but that doesn't have much to do with the discussion of recent inflation trends. I have said that at some point that I expect the Growth trend in the market to give away to Value, I certainly don't know when that will happen.

I have not been making predictions of higher and higher inflation for years, to the contrary I have posted frequently about the economy experiencing "whiffs of deflation" since the 2008-2009 financial crisis. What I have said is that I have taken the possibility of higher inflation into account with my portfolio construction and that I am an inflation hawk since I remember the 1970's pretty clearly.

I have expressed concerns about what I have been seeing, I suppose I am not supposed to believe my lying eyes. Again, I am not running a market timing service as a few here seem to suppose.

There are a lot of good ideas out there. But there gets to be a point where even a good idea can be taken to ridiculous extremes. One of them is "stay the course", which I mostly have done. If I am driving and see that the bridge in front of me is out, I will put on the brakes. I am not going to say to myself that if I apply the brakes that that constitutes market timing so I refuse to do it. Some here would say to hit the accelerator and try to jump the gap.

The thing is, this isn't just a "one" or "two" or an "on" or "off" world. Sometimes things aren't so clear as a binary choice. What I took a whole thread to express was my angst over higher inflation rates and my uncertainty about what to do about it, what I decided to do was to make a smaller and more modest adjustment. You make it sound like I make predictions with 100% certitude and that I throw opinions around here with 100% confidence with their correctness.

What you are doing is the classic strawman argument, taking what I have said to extremes and knocking down arguments that I really haven't made. You are expressing things that I have wondered about as 100% certain predictions and that is incorrect. It seems like a capital crime around here to express concerns.
It's not - you are making these arguments plain as day - I'm not inventing anything. You're analogies are very telling - you can see the bridge being out so you put on the brakes. You can see what is about to happen (!) so you are going to make a change to prevent it. Now, it would be one thing if you've never heard of the possibility of a bridge being out - it was completely foreign to you - and then someone mentions it's a possibility and you then make changes to drive more carefully around bridges. But, in this case, the mayor has been telling everyone that bridges can get washed away in bad weather for many years - you were well aware of it, but you go happily speeding towards bridges in any weather because you've never seen it happen. Then, the next county over has a bridge get washed away and suddenly you are avoiding all bridges, coming in late to work, getting stressed for no reason. You are making yourself worse off because you suddenly believe that the chances of a bridge getting washed out have increased dramatically when nothing has really changed.
I am using a couple of literary devices here. First, the analogy. No analogy that I am going to make will perfectly fit the arguments made here. We all know that at some point, all analogies break down. Second, the hyperbole. It is the use of somewhat exaggerated language to make a point. We see this in the Bible. Literary devices that have been used for centuries if not millennia. So this isn't absolutely literal language but most people understand what is being expressed.
You are putting on the brakes because you see something ahead. You are making portfolio changes cause you see something ahead.
You are buying toilet paper because you know 50% off is a good deal. You know what is expensive in the market and you're making active decisions to not buy the expensive asset.

This idea of making these tweaks based on market conditions is fantasy. The market is efficient enough to price in the unexpected inflation that has already happened and the expected future inflation. So, you have these concerns about future inflation because of the effect of increased gov't spending, etc. - acting on that is an effort to predict the future.

Let's say I decide to overweight emerging markets because their valuations are historically cheap relative to the rest of the world. I guess that's just reacting to current market conditions? How that different from avoiding buying more "expensive" bonds?
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

burritoLover wrote: Fri Nov 19, 2021 2:38 pm
nedsaid wrote: Fri Nov 19, 2021 1:38 pm
burritoLover wrote: Fri Nov 19, 2021 1:26 pm
nedsaid wrote: Fri Nov 19, 2021 1:07 pm
burritoLover wrote: Fri Nov 19, 2021 12:40 pm
So you say you are just reacting to current conditions but then you make a whole host of predictions -> "disinflation and falling interest rates, may not hold true anymore. We may well be going from a time where bonds were terrific to a time where they just stink. " Presumably you are making changes based on those assumptions. The same predictions that have been made for multiple years now by others (and have been wrong). It isn't a new concept so what's changed? YOY inflation was high enough to convince you that this was a sudden possibility?
"May" does not imply ironclad predictions.

What predictions have I been making for multiple years? The only one I can think of is that I have been pounding the table for Value stocks for quite a while but that doesn't have much to do with the discussion of recent inflation trends. I have said that at some point that I expect the Growth trend in the market to give away to Value, I certainly don't know when that will happen.

I have not been making predictions of higher and higher inflation for years, to the contrary I have posted frequently about the economy experiencing "whiffs of deflation" since the 2008-2009 financial crisis. What I have said is that I have taken the possibility of higher inflation into account with my portfolio construction and that I am an inflation hawk since I remember the 1970's pretty clearly.

I have expressed concerns about what I have been seeing, I suppose I am not supposed to believe my lying eyes. Again, I am not running a market timing service as a few here seem to suppose.

There are a lot of good ideas out there. But there gets to be a point where even a good idea can be taken to ridiculous extremes. One of them is "stay the course", which I mostly have done. If I am driving and see that the bridge in front of me is out, I will put on the brakes. I am not going to say to myself that if I apply the brakes that that constitutes market timing so I refuse to do it. Some here would say to hit the accelerator and try to jump the gap.

The thing is, this isn't just a "one" or "two" or an "on" or "off" world. Sometimes things aren't so clear as a binary choice. What I took a whole thread to express was my angst over higher inflation rates and my uncertainty about what to do about it, what I decided to do was to make a smaller and more modest adjustment. You make it sound like I make predictions with 100% certitude and that I throw opinions around here with 100% confidence with their correctness.

What you are doing is the classic strawman argument, taking what I have said to extremes and knocking down arguments that I really haven't made. You are expressing things that I have wondered about as 100% certain predictions and that is incorrect. It seems like a capital crime around here to express concerns.
It's not - you are making these arguments plain as day - I'm not inventing anything. You're analogies are very telling - you can see the bridge being out so you put on the brakes. You can see what is about to happen (!) so you are going to make a change to prevent it. Now, it would be one thing if you've never heard of the possibility of a bridge being out - it was completely foreign to you - and then someone mentions it's a possibility and you then make changes to drive more carefully around bridges. But, in this case, the mayor has been telling everyone that bridges can get washed away in bad weather for many years - you were well aware of it, but you go happily speeding towards bridges in any weather because you've never seen it happen. Then, the next county over has a bridge get washed away and suddenly you are avoiding all bridges, coming in late to work, getting stressed for no reason. You are making yourself worse off because you suddenly believe that the chances of a bridge getting washed out have increased dramatically when nothing has really changed.
I am using a couple of literary devices here. First, the analogy. No analogy that I am going to make will perfectly fit the arguments made here. We all know that at some point, all analogies break down. Second, the hyperbole. It is the use of somewhat exaggerated language to make a point. We see this in the Bible. Literary devices that have been used for centuries if not millennia. So this isn't absolutely literal language but most people understand what is being expressed.
You are putting on the brakes because you see something ahead. You are making portfolio changes cause you see something ahead.
You are buying toilet paper because you know 50% off is a good deal. You know what is expensive in the market and you're making active decisions to not buy the expensive asset.

This idea of making these tweaks based on market conditions is fantasy. The market is efficient enough to price in the unexpected inflation that has already happened and the expected future inflation. So, you have these concerns about future inflation because of the effect of increased gov't spending, etc. - acting on that is an effort to predict the future.

Let's say I decide to overweight emerging markets because their valuations are historically cheap relative to the rest of the world. I guess that's just reacting to current market conditions? How that different from avoiding buying more "expensive" bonds?
burritoLover, I am just done here. You started a thread and wanted opinions and I offered them. You are sort of like the host on the forum having started the thread. Instead of being a gracious host, you have been rude. I take the hint and I am out of here. Good-bye.
A fool and his money are good for business.
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Beensabu
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Re: Hi! I'm high inflation. Nice to meet you.

Post by Beensabu »

nedsaid wrote: Fri Nov 19, 2021 12:37 pm
Beensabu wrote: Fri Nov 19, 2021 12:29 pm
nedsaid wrote: Fri Nov 19, 2021 11:32 am You can't be arguing that bonds are efficiently priced right now because clearly they are not. Seven plus Trillion dollars of Fed intervention since 2008 has had a big impact on the markets... Fed intervention has so distorted the bond market that whatever it is signaling is just not accurate.
This is a fairly commonly expressed sentiment. Every time I see it, I think of Grantham's whole "deranged monetary activism" rant. He's been so wrong about stocks for so long because he simply could not bring himself to believe that such actions would be taken and then could not (and still cannot) believe that they would continue for so long.

What is the point at which Fed intervention is accepted as just the way it is now, and just the way it's going to be? Is it really a distortion? Or is it a reconfiguration due to the entry of an additional very large market participant? And what are the long-term implications of that just continuing on indefinitely? I mean, as long as we're talking about adapting to changing market conditions.
What you are admitting is that things have changed, a "new normal" as it where. Isn't that what I am saying?

The thing is, even the "new normal" of continued Fed intervention can't be assumed if this triggers higher and higher inflation. The "new normal" might not be sustainable.

The economy and the markets are dynamic.
Yes. But you're not looking at all of the moves together, even though you have been following them and spelled them out. You're disregarding the old narrative in favor of a new narrative, when it is all part of the same story. And it inevitably follows that the best thing to do, is not to do anything at all, because that story is always going to be changing in some new way that we can't anticipate. All we can do is either react or choose not to react.

You have been quite good at mostly not reacting to plot twists thus far, which is why you're catching some flak now :wink:
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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burritoLover
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Re: Hi! I'm high inflation. Nice to meet you.

Post by burritoLover »

nedsaid wrote: Fri Nov 19, 2021 2:42 pm
burritoLover wrote: Fri Nov 19, 2021 2:38 pm
nedsaid wrote: Fri Nov 19, 2021 1:38 pm
burritoLover wrote: Fri Nov 19, 2021 1:26 pm
nedsaid wrote: Fri Nov 19, 2021 1:07 pm

"May" does not imply ironclad predictions.

What predictions have I been making for multiple years? The only one I can think of is that I have been pounding the table for Value stocks for quite a while but that doesn't have much to do with the discussion of recent inflation trends. I have said that at some point that I expect the Growth trend in the market to give away to Value, I certainly don't know when that will happen.

I have not been making predictions of higher and higher inflation for years, to the contrary I have posted frequently about the economy experiencing "whiffs of deflation" since the 2008-2009 financial crisis. What I have said is that I have taken the possibility of higher inflation into account with my portfolio construction and that I am an inflation hawk since I remember the 1970's pretty clearly.

I have expressed concerns about what I have been seeing, I suppose I am not supposed to believe my lying eyes. Again, I am not running a market timing service as a few here seem to suppose.

There are a lot of good ideas out there. But there gets to be a point where even a good idea can be taken to ridiculous extremes. One of them is "stay the course", which I mostly have done. If I am driving and see that the bridge in front of me is out, I will put on the brakes. I am not going to say to myself that if I apply the brakes that that constitutes market timing so I refuse to do it. Some here would say to hit the accelerator and try to jump the gap.

The thing is, this isn't just a "one" or "two" or an "on" or "off" world. Sometimes things aren't so clear as a binary choice. What I took a whole thread to express was my angst over higher inflation rates and my uncertainty about what to do about it, what I decided to do was to make a smaller and more modest adjustment. You make it sound like I make predictions with 100% certitude and that I throw opinions around here with 100% confidence with their correctness.

What you are doing is the classic strawman argument, taking what I have said to extremes and knocking down arguments that I really haven't made. You are expressing things that I have wondered about as 100% certain predictions and that is incorrect. It seems like a capital crime around here to express concerns.
It's not - you are making these arguments plain as day - I'm not inventing anything. You're analogies are very telling - you can see the bridge being out so you put on the brakes. You can see what is about to happen (!) so you are going to make a change to prevent it. Now, it would be one thing if you've never heard of the possibility of a bridge being out - it was completely foreign to you - and then someone mentions it's a possibility and you then make changes to drive more carefully around bridges. But, in this case, the mayor has been telling everyone that bridges can get washed away in bad weather for many years - you were well aware of it, but you go happily speeding towards bridges in any weather because you've never seen it happen. Then, the next county over has a bridge get washed away and suddenly you are avoiding all bridges, coming in late to work, getting stressed for no reason. You are making yourself worse off because you suddenly believe that the chances of a bridge getting washed out have increased dramatically when nothing has really changed.
I am using a couple of literary devices here. First, the analogy. No analogy that I am going to make will perfectly fit the arguments made here. We all know that at some point, all analogies break down. Second, the hyperbole. It is the use of somewhat exaggerated language to make a point. We see this in the Bible. Literary devices that have been used for centuries if not millennia. So this isn't absolutely literal language but most people understand what is being expressed.
You are putting on the brakes because you see something ahead. You are making portfolio changes cause you see something ahead.
You are buying toilet paper because you know 50% off is a good deal. You know what is expensive in the market and you're making active decisions to not buy the expensive asset.

This idea of making these tweaks based on market conditions is fantasy. The market is efficient enough to price in the unexpected inflation that has already happened and the expected future inflation. So, you have these concerns about future inflation because of the effect of increased gov't spending, etc. - acting on that is an effort to predict the future.

Let's say I decide to overweight emerging markets because their valuations are historically cheap relative to the rest of the world. I guess that's just reacting to current market conditions? How that different from avoiding buying more "expensive" bonds?
burritoLover, I am just done here. You started a thread and wanted opinions and I offered them. You are sort of like the host on the forum having started the thread. Instead of being a gracious host, you have been rude. I take the hint and I am out of here. Good-bye.
Not my intention. I'm just very curious why the same behavioral mistakes are made even among those that have been here awhile and have obviously heard that making changes to your portfolio based on current economic conditions/fears almost always does more harm than good.

“Don’t think that you know more than the market; no one does. And don’t act on insights that you think are your own but are usually shared by millions of others.”
— John C. Bogle

“Ask yourself: Am I an investor, or am I a speculator? An investor is a person who owns business and holds it forever and enjoys the returns that U.S. businesses, and to some extent global businesses, have earned since the beginning of time. Speculation is betting on price. Speculation has no place in the portfolio or the kit of the typical investor.”
— John C. Bogle

“Don’t do something—just stand there.”
— John C. Bogle
BH_RedRan
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Re: Hi! I'm high inflation. Nice to meet you.

Post by BH_RedRan »

I think I need to find and dust off my WIN! button * from the 70's

* Whip Inflation Now!
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

Beensabu wrote: Fri Nov 19, 2021 2:56 pm
nedsaid wrote: Fri Nov 19, 2021 12:37 pm
Beensabu wrote: Fri Nov 19, 2021 12:29 pm
nedsaid wrote: Fri Nov 19, 2021 11:32 am You can't be arguing that bonds are efficiently priced right now because clearly they are not. Seven plus Trillion dollars of Fed intervention since 2008 has had a big impact on the markets... Fed intervention has so distorted the bond market that whatever it is signaling is just not accurate.
This is a fairly commonly expressed sentiment. Every time I see it, I think of Grantham's whole "deranged monetary activism" rant. He's been so wrong about stocks for so long because he simply could not bring himself to believe that such actions would be taken and then could not (and still cannot) believe that they would continue for so long.

What is the point at which Fed intervention is accepted as just the way it is now, and just the way it's going to be? Is it really a distortion? Or is it a reconfiguration due to the entry of an additional very large market participant? And what are the long-term implications of that just continuing on indefinitely? I mean, as long as we're talking about adapting to changing market conditions.
What you are admitting is that things have changed, a "new normal" as it where. Isn't that what I am saying?

The thing is, even the "new normal" of continued Fed intervention can't be assumed if this triggers higher and higher inflation. The "new normal" might not be sustainable.

The economy and the markets are dynamic.
Yes. But you're not looking at all of the moves together, even though you have been following them and spelled them out. You're disregarding the old narrative in favor of a new narrative, when it is all part of the same story. And it inevitably follows that the best thing to do, is not to do anything at all, because that story is always going to be changing in some new way that we can't anticipate. All we can do is either react or choose not to react.

You have been quite good at mostly not reacting to plot twists thus far, which is why you're catching some flak now :wink:
My knowledge, experience, and perception are all limited. We all think differently and we all perceive things differently.

Not sure that anyone 100% understands how the markets and the economy work, we all know something. Sort of like Rumsfeld's comments about the known knowns, the known unknowns, and the unknown unknowns. Or as the Apostle Paul put it, we see through a glass darkly. So I know what I know, I know there are things I should know but don't, but I can't know what should know but don't.

One reason that good discussion can be enlightening. We all know different things and we all have different life experiences.

What you have said works but we have to assume certain things. If we experience civilizational collapse, then all bets are off. We are assuming that things will continue within a certain range of outcomes, though we know we don't know the future. Another thing we assume is that the Equity Risk Premium will continue, I don't see any reason it shouldn't, but it is possible that it goes away. Dr. Bernstein said that over very, very long periods of time that the returns of stocks and bonds are identical.

I suppose another issue is that I don't hide my errors and mistakes. Also not afraid to think aloud.

The thing is, as much as we admire and love John Bogle, he departed from time to time from his philosophies. His adherence to his stated principles was not perfect.

Bogle turned Wellington Management from a conservatively oriented management company into a Go-Go Aggressive Growth Company and got fired for it.

Bogle once wrote a paper under a pseudonym defending active management.

Bogle advocated for limited tactical asset allocation during times of market extremes.

Bogle invested in his son's Quant fund.

He also bought shares of T Rowe Price.

He loved his legacy Wellington Funds.

He suggested a 5% Gold holding for the Blair Academy Endowment Fund.

Bogle famously market timed around the time of early 2000 Stock Market peak, one version of the story said that he went from 70% stocks to 30% stocks and the other version was that he went from 70% stocks to 50% stocks over two years, Bogle isn't with us anymore so we can't ask him. He told a Morningstar conference about what he did or was going to do.

Bogle made projections of the future returns of stocks and of bonds.

Despite being down as "Mr. Age in Bonds", Bogle said that most investors, including retirees invested too conservatively. He said that a 65% stock/35% bond portfolio was good for most investors. "Most" included retirees. In that context, he talked about considering Social Security as a bond.

I could go on.

I try to tell people that Mr. Bogle had a fertile and flexible mind, that he would think aloud, and thus would say rather surprising things in his interviews. He was not as doctrinaire as people here seem to think he was. Over his life, he said and did surprising things.

My Gosh, Bogle had the good sense not to post here very often. I am convinced that had he posted extensively with a pseudonym, he would have drawn criticism for not following Boglehead principles enough. Bogle not being Bogle enough.

So I am not Bogle, didn't accomplish in my life what he accomplished. But I suppose that it is shocking to people that Nedsaid will say and do surprising things. Heaven knows Bogle did.
A fool and his money are good for business.
fisher0815
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Re: Hi! I'm high inflation. Nice to meet you.

Post by fisher0815 »

Real returns from bonds were negative from 1940-1979, because we had rising interest rates in combination with high inflation:

Image
Source: https://awealthofcommonsense.com/2020/0 ... thing-new/

Is this the solution?
"Over long horizons, equities have outperformed inflation, which may be the ultimate
protection against inflation. But for shorter-term offsets, commodities and short-term TIPS
may be the best alternatives."
Source: https://www.vanguardinvestments.se/docu ... dities.pdf
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nedsaid
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Post by nedsaid »

fisher0815 wrote: Fri Nov 19, 2021 3:55 pm Real returns from bonds were negative from 1940-1979, because we had rising interest rates in combination with high inflation:
This is what I try to tell people, the economy and the markets are dynamic. From 1982-2020, we had falling interest rates in combination with lower and lower rates of inflation. 39 years is a long time, as is 38 years. Secular trends can last a long time but they aren't forever. Sometimes, it really is different.
A fool and his money are good for business.
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Beensabu
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Re: Hi! I'm high inflation. Nice to meet you.

Post by Beensabu »

nedsaid wrote: Fri Nov 19, 2021 3:35 pm My knowledge, experience, and perception are all limited. We all think differently and we all perceive things differently.

...

One reason that good discussion can be enlightening. We all know different things and we all have different life experiences.
Definitely. One of the things I truly appreciate about this place.
What you have said works but we have to assume certain things. If we experience civilizational collapse, then all bets are off. We are assuming that things will continue within a certain range of outcomes, though we know we don't know the future. Another thing we assume is that the Equity Risk Premium will continue, I don't see any reason it shouldn't, but it is possible that it goes away. Dr. Bernstein said that over very, very long periods of time that the returns of stocks and bonds are identical.
There's some talk of the ERP being anticipated to be lower in the future than what we've been used to. I don't suppose that will affect portfolio construction unless it actually happens and has been a thing for awhile.
I suppose another issue is that I don't hide my errors and mistakes. Also not afraid to think aloud.
I'm pretty sure this is something that people appreciate about you.
But I suppose that it is shocking to people that Nedsaid will say and do surprising things.
It's probably uncomfortable to feel unduly scrutinized. You're a bit of a name, though. It's going to happen.

Anyway, thanks for consistently posting! I'm always interested to see what you have to say.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

Beensabu wrote: Fri Nov 19, 2021 4:39 pm
But I suppose that it is shocking to people that Nedsaid will say and do surprising things.
It's probably uncomfortable to feel unduly scrutinized. You're a bit of a name, though. It's going to happen.

Anyway, thanks for consistently posting! I'm always interested to see what you have to say.
I suppose I should set up a website and offer merchandise. Baseball caps, coffee mugs, and souvenir pens. Might still publish that market timing newsletter. Got to hire a graphic artist first to design the logo and a web designer for the website. :wink:
A fool and his money are good for business.
MindBogler
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Re: Hi! I'm high inflation. Nice to meet you.

Post by MindBogler »

Beensabu wrote: Fri Nov 19, 2021 12:29 pm What is the point at which Fed intervention is accepted as just the way it is now, and just the way it's going to be? Is it really a distortion? Or is it a reconfiguration due to the entry of an additional very large market participant? And what are the long-term implications of that just continuing on indefinitely? I mean, as long as we're talking about adapting to changing market conditions.
I think that there are many people trapped in the expectation that Fed intervention is a new normal. There have been countless predictions since 2008 that rampant inflation was imminent and bonds have nowhere to go but up. Those predictions have been horrendously wrong to this point. I think the counterpoint today is inflation. It finally happened, although it took over a decade to materialize.

Now the question becomes whether or not it is truly "transitory." If so, I think the Fed will continue financial engineering and this debate will be ongoing on this forum well into the next decade or generation. If inflation becomes systemic--which I believe it already is--the Fed will eventually fold under political pressures and exit the financial engineering program, likely too late and far too abruptly. The Fed has a poor record of responding to crises proactively. They are always too late and, as a result, too forceful.
phxjcc
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Re: Hi! I'm high inflation. Nice to meet you.

Post by phxjcc »

sailaway wrote: Wed Nov 17, 2021 9:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
Agreed.

Call me when mortgages get to 14%...and your annual salary review goes something like this...."Hey, JCC, we like your work and are giving you a 5% merit increase...and your cost of living increase is another 12% on top of that. Congratulations!"

Yes, really...happened...in a guvmint job!

/#end of story
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

burritoLover wrote: Fri Nov 19, 2021 2:59 pm I'm just very curious why the same behavioral mistakes are made even among those that have been here awhile and have obviously heard that making changes to your portfolio based on current economic conditions/fears almost always does more harm than good.

“Don’t think that you know more than the market; no one does. And don’t act on insights that you think are your own but are usually shared by millions of others.”
— John C. Bogle

“Ask yourself: Am I an investor, or am I a speculator? An investor is a person who owns business and holds it forever and enjoys the returns that U.S. businesses, and to some extent global businesses, have earned since the beginning of time. Speculation is betting on price. Speculation has no place in the portfolio or the kit of the typical investor.”
— John C. Bogle

“Don’t do something—just stand there.”
— John C. Bogle
It is right to question the things that I have asserted and the moves that I have made, too early to tell whether what I am doing constitute behavioral errors or not. I am aware of the possibilities of being wrong and the possibility of the problem being over by the time I respond to it. One reason that my moves over the years have been slow and cautious.

I have wanted to increase my allocation to TIPS for years but they have mostly been expensive since the 2008-2009 bear market and financial crisis. I asked people here that I respect like Grok87 and they were getting leery about adding to TIPS. I am not alone with those concerns. I e-mailed someone who helped design the DFA Target Date Retirement Funds, which are very TIPS heavy, and she agreed that TIPS were very expensive. That was earlier this year and done with the encouragement of Bobcat2. So this is why I didn't load up on them earlier.

So again, I chose a middle course, since December 2020, I have added to TIPS in three installments. Taking into consideration feedback that I got from others and weighing all the issues you have brought up, that is the course I decided upon. We will see if it was a behavioral error, really it was something that I wanted to do for a long time, this time I just held my nose and bought anyway.

My portfolio had inflation in mind in its construction, so it isn't like I got caught with my pants down when this happened. It was more like I wished that I owned more TIPS than I do now. On the other hand, buying TIPS when they were expensive seemed like performance chasing. Of course what happened was that an expensive asset class got even more expensive. One factor here is that the Fed bought a lot of TIPS. I was reluctant to buy TIPS with very low real yields, imagine how I felt when I saw negative real yields. I had to hold my nose really tight, TIPS seemed better than nominal bonds, the least dirty shirt in the laundry hamper.

Again, as stated above, John Bogle was remarkably consistent in his actions over the years and mostly followed his philosophies but there were notable exceptions. The thing is, there is more stock picking, tactical asset allocation, market timing and such going on around here than what is admitted. I am among a smaller group of people that admit to it though my practice of those disciplines is pretty mild. I seem to be paying for the sins of many other Bogleheads though my sins are relatively minor.

It isn't that we make constant predictions but we all have expectations of how our investments will perform or otherwise we would not invest. We assume that stocks, bonds, and cash will all outperform inflation over time and that stocks will outperform bonds which in turn will outperform cash. The process of forming expectations and underlying assumptions is actually a form of forecasting. We all do it whether consciously or subconsciously. We just can't call it forecasting on this forum so we are reducing to using euphemisms.

There is a whole lot of foecastin', market timin', poefomins' chasin', stock pickin', index pickin', buyin' and sellin' goin' on out they-ah but I reckon that good folk cain't admit to it. Lot's a shame-in' goin' on so good folk jist keep they-ah mouth shut. Some thangs you jist cain't talk about.
Last edited by nedsaid on Sat Nov 20, 2021 10:54 am, edited 5 times in total.
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prioritarian
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Re: Hi! I'm high inflation. Nice to meet you.

Post by prioritarian »

fisher0815 wrote: Fri Nov 19, 2021 3:55 pm
"Over long horizons, equities have outperformed inflation, which may be the ultimate
protection against inflation. But for shorter-term offsets, commodities and short-term TIPS
may be the best alternatives."
Source: https://www.vanguardinvestments.se/docu ... dities.pdf
Short term bonds were more negative than LTTs during periods of negative real bond yields. Moreover, LTTs and ITTs were far better diversifiers for equities.
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Beensabu
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Re: Hi! I'm high inflation. Nice to meet you.

Post by Beensabu »

MindBogler wrote: Fri Nov 19, 2021 5:55 pm
Beensabu wrote: Fri Nov 19, 2021 12:29 pm What is the point at which Fed intervention is accepted as just the way it is now, and just the way it's going to be? Is it really a distortion? Or is it a reconfiguration due to the entry of an additional very large market participant? And what are the long-term implications of that just continuing on indefinitely? I mean, as long as we're talking about adapting to changing market conditions.
I think that there are many people trapped in the expectation that Fed intervention is a new normal. There have been countless predictions since 2008 that rampant inflation was imminent and bonds have nowhere to go but up. Those predictions have been horrendously wrong to this point. I think the counterpoint today is inflation. It finally happened, although it took over a decade to materialize.
Absolutely. But they're trapped in the oddest way. There's the "propping up the stock market" expectation in counterpoint to "keeping yields low". And somehow a missing of the whole point, which is simply liquidity. And really, we've gotten to a place where we need to ask the question "just how much liquidity do we need?", and apparently, it's a lot. Okay. So why? Why do we need so much of it? What broke that's still broken? On the surface, it's our debt markets. But you start digging, and it turns out it's actually how our economy currently functions. Because it functions on debt, and it will fail if debt markets fail, so they simply cannot and will not be allowed to. It was theorized, and then it was shown, and then they did something about it, and now they have to keep doing it. Not to prop up the stock market. Not to keep yields low. To keep people being able to keep buying stuff. Because if people don't buy stuff, then people don't have jobs. And if people don't have jobs, then people can't buy stuff. The injection of liquidity is not causing an inflationary crisis because it's preventing a deflationary crisis, and that has always been the actual purpose.
Now the question becomes whether or not it is truly "transitory." If so, I think the Fed will continue financial engineering and this debate will be ongoing on this forum well into the next decade or generation. If inflation becomes systemic--which I believe it already is--the Fed will eventually fold under political pressures and exit the financial engineering program, likely too late and far too abruptly. The Fed has a poor record of responding to crises proactively. They are always too late and, as a result, too forceful.
We'll see. If it goes beyond a couple of high years, then perhaps we have a problem. But it won't be due to financial engineering. It will be due to good old supply and demand, where the failure of the supply chains is the culprit (not the Fed). And when demand outstrips supply for too long, that's when the liquidity will be removed, and the debt markets will be allowed a mini crisis, to reduce demand by limiting availability of credit. And when it evens out again to an acceptable level, in goes the next injection until who knows when.

It's not that "this particular intervention" is normal, but that the fact that intervention will absolutely happen as deemed necessary is normal. Adjusting to the new player is going to take decades and several business cycles, and we've barely got one under our belt so far.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
elfoolio999
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Re: Hi! I'm high inflation. Nice to meet you.

Post by elfoolio999 »

All portfolios should be designed to deal with all economic conditions including inflation, but permanent portfolio, GB and all weather come to mind. have to let go to some extent. only so much can be done in dealing with uncertainty. otherwise always chasing your tail and never enjoy life. my two cents (not inflation adjusted :happy )
cryingshame
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Re: Hi! I'm high inflation. Nice to meet you.

Post by cryingshame »

This discussion confirms the fact I am market timing to some extent.

We own two Florida Condos bought our pre boglehead days one at the height of the real estate bubble. :oops: We got our act together now and would sell but the renters keep wanting to renew. Never had a problem finding renters. Our annual returns from this mistake made years ago considering everything is only 2.5to 3 percent. The reality is I don't want to make a decision on a large chunk of money and the small return plus hopefully the appreciation of property sounds better than Bonds.

We have a 60/40 portfolio the poorly performing real estate plus continuing to work my part time business right now seems the way to go instead of retiring early......
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Candor
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Post by Candor »

Well howdy high inflation! I wish I could say the same but that would be a lie. Your reputation precedes you, but I understand you're not supposed to be in town for long so as long as you don't go getting all hyper on us and leave town by dawn there won't be no trouble.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
rockstar
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Post by rockstar »

elfoolio999 wrote: Sat Nov 20, 2021 6:20 am All portfolios should be designed to deal with all economic conditions including inflation, but permanent portfolio, GB and all weather come to mind. have to let go to some extent. only so much can be done in dealing with uncertainty. otherwise always chasing your tail and never enjoy life. my two cents (not inflation adjusted :happy )
I don't think this is possible. We haven't had inflation this high in decades. How do you plan for it? Bonds have spent the better part of 30 years beating inflation by at least 2%. Now, that's not the case. Things have changed. What worked in the past isn't working now.
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Beensabu
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Post by Beensabu »

rockstar wrote: Sat Nov 20, 2021 2:12 pm
elfoolio999 wrote: Sat Nov 20, 2021 6:20 am All portfolios should be designed to deal with all economic conditions including inflation, but permanent portfolio, GB and all weather come to mind. have to let go to some extent. only so much can be done in dealing with uncertainty. otherwise always chasing your tail and never enjoy life. my two cents (not inflation adjusted :happy )
I don't think this is possible. We haven't had inflation this high in decades. How do you plan for it? Bonds have spent the better part of 30 years beating inflation by at least 2%. Now, that's not the case. Things have changed. What worked in the past isn't working now.
Really? What about the people who have been buying Ibonds and TIPS for the last 20 years? Sounds like a plan to me.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
rockstar
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Post by rockstar »

Beensabu wrote: Sat Nov 20, 2021 2:24 pm
rockstar wrote: Sat Nov 20, 2021 2:12 pm
elfoolio999 wrote: Sat Nov 20, 2021 6:20 am All portfolios should be designed to deal with all economic conditions including inflation, but permanent portfolio, GB and all weather come to mind. have to let go to some extent. only so much can be done in dealing with uncertainty. otherwise always chasing your tail and never enjoy life. my two cents (not inflation adjusted :happy )
I don't think this is possible. We haven't had inflation this high in decades. How do you plan for it? Bonds have spent the better part of 30 years beating inflation by at least 2%. Now, that's not the case. Things have changed. What worked in the past isn't working now.
Really? What about the people who have been buying Ibonds and TIPS for the last 20 years? Sounds like a plan to me.
How many people are actually buying actual TIPS? And with spending limits on I Bonds, it's hard to make a dent in your AA.

And you can't buy TIPS in 401k plans, so I would say most people haven't done either. Most people are in some retirement dated fund.

Finally, net of taxes, you need enough cushion to still come out ahead.
Robot Monster
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Post by Robot Monster »

nedsaid wrote: Fri Nov 19, 2021 8:14 pm I have wanted to increase my allocation to TIPS for years but they have mostly been expensive since the 2008-2009 bear market and financial crisis...Of course what happened was that an expensive asset class got even more expensive.
That's exactly what happened to me regarding stocks, for years I didn't buy them thinking they were expensive, but through this forum realized the error of my ways, and bought enough stocks to be diversified. From that lesson, when I realized I really ought to have more TIPS, I just held my nose and bought. Actually, looking through old posts, I found one I responded to you on this subject. link

I complete honest, I wish I bought even more TIPS than I did! The only thing that held me back was feeling queasy about all the volatility I was adding to my portfolio.
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Beensabu
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Post by Beensabu »

rockstar wrote: Sat Nov 20, 2021 2:29 pm
Beensabu wrote: Sat Nov 20, 2021 2:24 pm
rockstar wrote: Sat Nov 20, 2021 2:12 pm
elfoolio999 wrote: Sat Nov 20, 2021 6:20 am All portfolios should be designed to deal with all economic conditions including inflation, but permanent portfolio, GB and all weather come to mind. have to let go to some extent. only so much can be done in dealing with uncertainty. otherwise always chasing your tail and never enjoy life. my two cents (not inflation adjusted :happy )
I don't think this is possible. We haven't had inflation this high in decades. How do you plan for it? Bonds have spent the better part of 30 years beating inflation by at least 2%. Now, that's not the case. Things have changed. What worked in the past isn't working now.
Really? What about the people who have been buying Ibonds and TIPS for the last 20 years? Sounds like a plan to me.
How many people are actually buying actual TIPS? And with spending limits on I Bonds, it's hard to make a dent in your AA.

And you can't buy TIPS in 401k plans, so I would say most people haven't done either. Most people are in some retirement dated fund.

Finally, net of taxes, you need enough cushion to still come out ahead.
I have no idea how many people are actually buying individual TIPS. From the forum, it seems like quite a few are at least in TIPS funds.

It's hard to make a dent in your AA buying I Bonds now, if you have a large portfolio. But if you were buying them the whole time, that's something. And some people did. That's called planning. That's designing a portfolio that deals with higher inflation as a possible future economic condition.

You absolutely can buy TIPS funds in some 401k plans. Even my past crappy high ER plan had a TIPS option.

The fact remains, that it has indeed been possible to plan for the possibility of unexpectedly high inflation, and some people did indeed plan for it. Others did not, because they did not see it as a worthy enough potentiality. On the other hand, buying real estate turned out to be a good plan too, even if it wasn't intentionally for the purposes of dealing with future inflation.

Just because an individual or group of individuals did not plan for a certain possible future economic condition doesn't mean it wasn't possible to do so all along. And that's the point. Plan for everything to a certain extent. It's better than moaning about it or casting about for a source to blame later.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

Robot Monster wrote: Sat Nov 20, 2021 2:44 pm
nedsaid wrote: Fri Nov 19, 2021 8:14 pm I have wanted to increase my allocation to TIPS for years but they have mostly been expensive since the 2008-2009 bear market and financial crisis...Of course what happened was that an expensive asset class got even more expensive.
That's exactly what happened to me regarding stocks, for years I didn't buy them thinking they were expensive, but through this forum realized the error of my ways, and bought enough stocks to be diversified. From that lesson, when I realized I really ought to have more TIPS, I just held my nose and bought. Actually, looking through old posts, I found one I responded to you on this subject. link

I complete honest, I wish I bought even more TIPS than I did! The only thing that held me back was feeling queasy about all the volatility I was adding to my portfolio.
Yes, we meet again here at Bogleheads. We can't really discuss tactical asset allocation here because once we set our asset allocation, we are never supposed to change, to do otherwise is market timing. We aren't supposed to discuss valuations because we know the market 100% efficiently prices things at all times. :wink: So I will have to either figure out clever euphemisms or I will have to post in code so and send out decoder rings so that my loyal followers can be up to date on my latest opinions. Or I could post in Spanish or another foreign language and followers could use Google translate. How about Esperanto?

At risk of getting hooted off the forum, I will respond in English.

In retrospect, I should have bought TIPS when the real yields were slightly positive. I sort of draw the line at negative real yields, even though Vineviz told me that if I thought I needed TIPS to just go ahead and buy anyway. I couldn't bring myself to do that until December 2020 when I first started to get concerned.

The reason I got concerned is that certain guardrails that used to be observed have now been ignored. It seems that instead of addressing concerns, we get the old double-down and the same stale talking points. I get the sinking feeling that the experts who are supposed to know better really have no idea what they are doing. So each time I hear the phrase "higher inflation is transitory", I get more nervous. So that is about all I will say.

Let's see what the November CPI numbers are, see if there are signs of the trend of higher inflation abating. I may go in and switch more nominal bonds for TIPS as I am concerned that certain things could spiral out of control. I know, I know, this insults the honor of John Bogle and his loyal Bogleheads and that I shouldn't market time but my level of concern is rising. I read an article today that energy prices are trending down and that this should help the November CPI data, let's see if that article is correct.

I really hope this is all transitory...darn it...even I am saying it. Yet another reason to be concerned. :wink:

So I am monitoring the situation, don't plan to buy more TIPS right now but I reserve the right to change my mind.
A fool and his money are good for business.
BigJohn
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Re: Hi! I'm high inflation. Nice to meet you.

Post by BigJohn »

nedsaid wrote: Fri Nov 19, 2021 12:50 pm TIPS have been pretty expensive for a while now, otherwise I would have jumped into them with both feet.
I keep seeing comments like this but don’t understand. Why do you think TIPS are more expensive than nominal treasuries of the same duration? At the breakeven inflation rate they deliver the same result.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
BigJohn
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Joined: Wed Apr 02, 2014 11:27 pm

Re: Hi! I'm high inflation. Nice to meet you.

Post by BigJohn »

rockstar wrote: Sat Nov 20, 2021 2:12 pm
elfoolio999 wrote: Sat Nov 20, 2021 6:20 am All portfolios should be designed to deal with all economic conditions including inflation, but permanent portfolio, GB and all weather come to mind. have to let go to some extent. only so much can be done in dealing with uncertainty. otherwise always chasing your tail and never enjoy life. my two cents (not inflation adjusted :happy )
I don't think this is possible. We haven't had inflation this high in decades. How do you plan for it? Bonds have spent the better part of 30 years beating inflation by at least 2%. Now, that's not the case. Things have changed. What worked in the past isn't working now.
Sure it’s possible. I decide that unexpected high inflation like I experienced in my earlier carrier (late 70’s, early 80’s) was the biggest unmitigated risk to my portfolio several years ago and moved to 50/50 nominals/TIPS.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
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