T'was the Worst of Times — Case Study of 1973-1985

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dodecahedron
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Re: T'was the Worst of Times — Case Study of 1973-1985

Post by dodecahedron »

Marseille07 wrote: Tue May 10, 2022 5:16 pm Excellent post.

Personally I'm surprised by the poor performance by 100/0 here. People often say equities beat inflation but that doesn't appear to hold water here.
All the moreso when you think of the high transactions costs (non-competitive minimum commissions and high bid-asked spreads) required to assemble the original portfolio AND the fact that dividend tax drag was much higher because dividends were taxed as ordinary income and dividend yield rates were higher at the time than they are today.
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dodecahedron
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Re: T'was the Worst of Times — Case Study of 1973-1985

Post by dodecahedron »

SimpleGift wrote: Thu May 12, 2022 10:52 am Suffice to say, the double-digit inflation era of the 1970s was not kind to most financial assets.
Indeed! And taxflation was an exacerbating issue for pretty much all financial assets. Top marginal federal rate was 70% and brackets were not indexed for inflation. And neither IRAs nor 401k accounts were available at the beginning point of the graph.

If the graph in the OP were modified to take taxes into account, it would look quite even more abysmal for all financial asset classes.
halfnine
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Re: T'was the Worst of Times — Case Study of 1973-1985

Post by halfnine »

SimpleGift wrote: Fri May 13, 2022 11:03 am
halfnine wrote: Fri May 13, 2022 8:35 am Here is the data I have from the 1970s...
Interesting. Gold prices did accelerate in line with the two inflation spikes in the 1970s — and remarkably so.

However, the takeaway shouldn't be that gold in the free-floating era since 1971 has been a reliable inflation hedge. Yes, it did spectacularly well in the 1970s, but has been an unreliable inflation hedge ever since (chart below):
Investors seeking an inflation hedge (beyond TIPS, which just protect themselves) might be better served with an allocation to commodities, energy stocks, or REITs — or a 30-year fixed rate mortgage.
Yes, I agree that investors shouldn't rely on gold (solely by itself) as an inflation hedge. There is plenty of data to indicate this to be true. Although, the chart above in many ways is a bit disingenuous in making the case. Simply because there was no split in inflationary periods betwen 1973 and 1984. It is one entire inflationary period and anyone who had an asset allocation with gold and stuck to it got the inflation protection they needed. If any lesson is to be learned during that period it would be that it is too late to buy insurance during the middle of a storm. As to the 1988-1991 period equities more than offset any need for gold to ballast a diversified portfolio.

So what happens when both inflation is high and the stock market is going down. Historically, in the USA, gold seems to accelerate relative to the CPI

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Elsebet
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Re: T'was the Worst of Times — Case Study of 1973-1985

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Booglie wrote: Wed May 11, 2022 5:03 am If anything, today has the potential to be worse due to an aging population and world economy deceleration.

Also, weak unionizing works both ways. Because workers are in a scenario where their jobs are being automated, this pressures against wage adjustments. If wages don't rise but inflation does, it means that people's purchasing power will diminish, and consumption will decelerate further.

In other words, if no one can afford anything because everyone's unemployed, who will support the economy?

On the top of THAT, we have COVID (which has not totally gone away) and war.
I have a more optimistic view. More and more advanced technology is going to be required to make space travel an everyday occurrence, and I am admittedly bullish on that idea considering mankind's historic insatiable wanderlust. I feel like we are on the cusp of a space revolution similar to the industrial revolution as we near becoming a Type 1 civilization on the Kardashev scale. Being able to harvest resources outside of our planet will change the economy and culture in amazing ways I cannot even begin to fathom and it is my hope I can live along enough to see some of that, for good or ill. People will need to build/invent this and I think it's good the boring work gets automated so we can indeed focus our energies elsewhere. We have our modern lifestyle only because of this relentless pursuit.
"...the man who adapts himself to his slender means and makes himself wealthy on a little sum, is the truly rich man..." ~Seneca
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Re: T'was the Worst of Times — Case Study of 1973-1985

Post by Valuethinker »

Elsebet wrote: Tue May 17, 2022 3:55 pm
Booglie wrote: Wed May 11, 2022 5:03 am If anything, today has the potential to be worse due to an aging population and world economy deceleration.

Also, weak unionizing works both ways. Because workers are in a scenario where their jobs are being automated, this pressures against wage adjustments. If wages don't rise but inflation does, it means that people's purchasing power will diminish, and consumption will decelerate further.

In other words, if no one can afford anything because everyone's unemployed, who will support the economy?

On the top of THAT, we have COVID (which has not totally gone away) and war.
I have a more optimistic view. More and more advanced technology is going to be required to make space travel an everyday occurrence, and I am admittedly bullish on that idea considering mankind's historic insatiable wanderlust. I feel like we are on the cusp of a space revolution similar to the industrial revolution as we near becoming a Type 1 civilization on the Kardashev scale. Being able to harvest resources outside of our planet will change the economy and culture in amazing ways I cannot even begin to fathom and it is my hope I can live along enough to see some of that, for good or ill. People will need to build/invent this and I think it's good the boring work gets automated so we can indeed focus our energies elsewhere. We have our modern lifestyle only because of this relentless pursuit.
Timescales.

We are not yet at the technology Sir Walter Raleigh had available for his Roanoke Island colony (which failed, due to a drought; the final ending of its colonists remains a mystery).

So maybe in 100 years this is big. Even with robots powered by solar sails (which we have not demonstrated at anything like the necessary scale and capability) -- we are not going to exploit the Solar System with any speed. Humans in space? You'd really only do it if your robots couldn't do the particular mission.

Meanwhile there are a number of existential challenges - climate, spread of nuclear weapons and potential use - that we will need to address (& survive) first.

It's also not a given that western civilization exploits these things. China and India both have a number of advantages -- particularly if they ally with the likes of Brazil.
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