Inflation, winners and losers

Morgan3820

Morgan3820

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If inflation becomes an issue, What should I buy now while it is cheap? What should I hold off on until later?

Obligatory 'No politics'
 
Wouldn't it depend on what gets inflated?

"inflation" isn't spread evenly across all expenses, right?

And, there is the obligatory: "what kind of flying do you want to do?"
 
Bob Noel said:
Wouldn't it depend on what gets inflated?

"inflation" isn't spread evenly across all expenses, right?

And, there is the obligatory: "what kind of flying do you want to do?"
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Exactly, but I was not talking aviation specifically. I was trying to plan my future purchases.
 
honestly I think right now is the absolute worst time to buy into aviation. Prices are way over inflated. While most homebuilt airplanes don’t return a profit, I think now is the best time to buy a Vans RV kit. They are a relative bargain and with the price of metals ever increasing they will only go up. Not to mention fewer people want to build, they rather pay more for less work. So every subsequent model of RV seems to jump in price to reflect this. Most other kits on the market are almost twice the cost of an RV.
 
Morgan3820 said:
If inflation becomes an issue, What should I buy now while it is cheap? What should I hold off on until later?

Obligatory 'No politics'
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I am not a trader (I know myself well enough to know I don't have the temperament) and have had good success over my adult life identifying, studying and investing with the emerging multi-year macro trends.

I started buying what I considered very cheap inflation protection (essentially "insurance") early last year, and got more aggressive with that strategy when the COVID spending started ramping up in March and April. Other themes that are driving my portfolio at this time, long term, are the electrification of economies globally, and the potential for EM to outperform as the global economy finally starts to recover from the virus.

Bought gold, silver and copper miners to start. Some materials companies. Added aluminum and nickel a bit later. Missed the lumber play though. Sold down (reduced) positions and increased cash significantly a couple of weeks ago after the run some of the companies, such as FCX, have had. The nuttiness going on right now (e.g. GameStop/GME, etc.) looks (to me) like it might be the classic blow off indicator of this secular market cycle topping, so imo time to be more careful.

FWIW, I don't think the inflationary outcome thesis has been confirmed yet. There's plenty of deflationary/dis-inflationary forces active and in play at the moment, including increasing business closures/failures, capital destruction and permanent job/income losses.

An inflationary outcome implies a continued fall in the US$ exchange rate. Right now that's the consensus; but what if the US$ surprises the other way? The US 10-30 year Treasuries are the only developed economy sovereign bonds, other than gilts, currently paying a nominal interest rate that's much above zero (1.11% and 1.83%, respectively). If (when?) we get another international safe haven capital flow event it'll be USTs being bid. Heavily. All it would take is something like the underperformance of the vaccine efficacy, or a virus mutation that negates most or all of the available vaccines.
 
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Morgan3820 said:
Exactly, but I was not talking aviation specifically. I was trying to plan my future purchases.
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ah. I see now.

yeah, good question. what purchases are hedges against inflation?
 
GRG55 said:
I am not a trader (I know myself well enough to know I don't have the temperament) and have had good success over my adult life identifying, studying and investing with the emerging multi-year macro trends.

I started buying what I considered very cheap inflation protection (essentially "insurance") early last year, and got more aggressive with that strategy when the COVID spending started ramping up in March and April. Other themes that are driving my portfolio at this time, long term, are the electrification of economies globally, and the potential for EM to outperform as the global economy finally starts to recover from the virus.

Bought gold, silver and copper miners to start. Some materials companies. Added aluminum and nickel a bit later. Missed the lumber play though. Sold down (reduced) positions and increased cash significantly a couple of weeks ago after the run some of the companies, such as FCX, have had. The nuttiness going on right now (e.g. GameStop/GME, etc.) looks (to me) like it might be the classic blow off indicator of this secular market cycle topping, so imo time to be more careful.

FWIW, I don't think the inflationary outcome thesis has been confirmed yet. There's plenty of deflationary/dis-inflationary forces active and in play at the moment, including increasing business closures/failures, capital destruction and permanent job/income losses.

An inflationary outcome implies a continued fall in the US$ exchange rate. Right now that's the consensus; but what if the US$ surprises the other way? The US 10-30 year Treasuries are the only developed economy sovereign bonds, other than gilts, currently paying a nominal interest rate that's much above zero (1.11% and 1.83%, respectively). If (when?) we get another international safe haven capital flow event it'll be USTs being bid. Heavily. All it would take is something like the underperformance of the vaccine efficacy, or a virus mutation that negates most or all of the available vaccines.
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I was looking at the money supply, which looks like it is going asymptotic.
 
Morgan3820 said:
I was looking at the money supply, which looks like it is going asymptotic.
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There's many factors that interact to create secular inflation or disinflationary trends. Periods of rapid money supply increases have occurred before. Here's just one other factor that comes into play, as an example. So what's this telling us about the comparative effectiveness of monetary policy over the last decade or so? :D

upload_2021-1-30_14-26-46.png
 
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GRG55 said:
There's many factors that interact to create secular inflation or disinflationary trends. Periods of rapid money supply increases have occurred before. Here's just one other factor that comes into play, as an example. So what's this telling us about the comparative effectiveness of monetary policy over the last decade or so? :D

View attachment 93670
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upload_2021-1-30_17-49-52.png

I am no economist by any stretch, but...
 

^^^ I'm well aware of what it looks like.
What exactly is your point? That absolute money supply alone is the only or most important factor? Or that rate of increase of money supply is a critical determining factor for inflation?

If either was the case your posted chart would suggest inflation in virtually any period since at least 1995 should have been far greater than we witnessed in the 1970s (remember those WIN buttons and COLA clauses :) ).
 
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Not trying make any point except that curve looks scary to me. Chemist...not economist. Just trying to figure out what is going on.
 
Morgan3820 said:
Not trying make any point except that curve looks scary to me. Chemist...not economist. Just trying to figure out what is going on.
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In a nutshell the Federal Reserve Bank (and its counterparts in the rest of the world) along with many governments are applying an unprecedented level of monetary + fiscal stimulus to try to offset the severe deflationary effects of entire sectors of their economies being locked down and shuttered. Some of that stimulus is venting into the credit and stock markets, some is venting into select housing markets.

This might be an early indication of an upcoming secular inflation. But not necessarily.
 
19 posts and nobody's answered "Bonanza" yet? :D
 
Two clichés come to mind:
Because something is inevitable does not mean it is imminent!

Don't fight the Fed!

The Fed wants inflation pretty badly, but so far are struggling to get any significant inflation. The real fear in my mind is what they do if they lose control.
 
ebetancourt said:
Two clichés come to mind:
Because something is inevitable does not mean it is imminent!

Don't fight the Fed!

The Fed wants inflation pretty badly, but so far are struggling to get any significant inflation. The real fear in my mind is what they do if they lose control.
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Why does the fed want inflation? I thought they wanted low inflation.
 
Morgan3820 said:
Why does the fed want inflation? I thought they wanted low inflation.
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They claim they want 2% but will let it run a little higher to catch up with these below 2% times. I forget - how many years does 2% compounded annually cut value in half? 16?
 
Deelee said:
Always a strong buy. Load up on Bonanzae. Short the high wings.
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Cessna 172 trainers FTW. :p So far. Hoocuddaknowd?

Morgan3820 said:
Why does the fed want inflation? I thought they wanted low inflation.
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Prisoners of history. Seemingly the most traumatic economic event in USA memory banks is the deflation of the Great Depression during the 1930s. That's what the Fed appears to fear most ever since (The Germans, on the other hand, seem most traumatized by the Weimar hyperinflation that peaked in 1923, and still influences anti-inflation biased policy at the Bundesbank and in Berlin).

If you want to gain some insight into the Federal Reserve Bank's thinking here is a link to one of the most influential speeches from the Fed, from Ben Bernanke less than 4 months after he became a member of the Board of Governors. It was an interesting read at the time because it described potential policy actions the Fed could take that it had never undertaken to that point. It's relevant today as much of it has since come to pass.

https://www.bis.org/review/r021126d.pdf

Ben S Bernanke: Deflation - making sure "it" doesn’t happen here.

Speech by Mr. Ben S Bernanke, Member of the Board of Governors of the US Federal Reserve System, before the National Economists Club, Washington, DC, 21 November 2002.
The references for the speech can be found on the website of the Board of Governors of the US Federal Reserve System.​
 
Land, especially if it’s income producing (farm, timberland).
 
Your speculation about inflation is wrong. You should acquire what you expect demand to increase. Over the last 15 years the few things that have steadily increased in price due to increased demand have been health care, long term care and education.
 
Clip4 said:
Over production of corn both domestically and internationally with reduced ethanol demand will devalue agricultural land over the next decade.
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I believe you know not of what you speak. That of course is my opinion, and I’m sure you’ll disagree.

Ethanol demand is and has been low due to petroleum prices the last few years. Up is more likely than more down.

China just started buying unbelievable amounts of corn (political). Long term? Who knows.

Over the next year or next decade or longer, there will be cycles. If you believe ag land values will drop soon, I assume you’re selling yours? Or longer term investor?
 
In the end, everyone loses with inflation. Some are better offsetting it than others.
 
Clip4 said:
I sure liked inflation in 1981 when the 30 year treasury yield was 13.4%.
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Factor inflation, and the yield was a lot less than 13.4%. Yes, it was still better than any kind of bank interest these days.
 
Sac Arrow said:
In the end, everyone loses with inflation.
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Not saying it’s ever a good thing, but some do win big - to wit, debtors, who can pay off their debt with smaller dollars. Or marks.

Which I mention because of a biography I read. The writer lived through the German hyperinflation of the 1930’s. He had sold a house and held the note. One day he received in the mail a single postage stamp, whose inflated value was equal to the balance of the mortgage he was owed. German courts had ruled “A mark is a mark”, so that was that. Of course, during “normal” inflation the effect is much smaller, but still there. Debtors win while creditors lose.

One takeaway is that if you really think inflation is going to rear its ugly head, take out the biggest fixed-rate mortgage you can find. Maybe one day you can pay it off with a postage stamp!
 
airdale said:
True enough, but they can only be bought in trivial amounts.
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re. I-bonds, we max out the $25k per year that’s allowed for a couple.* Over 10 years that will be $250k. Trivial for some, perhaps, but meaningful for most, as an allocation of retirement savings.

* we are each buying the maximum allowed $10k per year from TreasuryDirect (which they hold online) so that’s $20k per year as a couple. Plus we buy the maximum allowed $5k per year of paper I-bonds using our tax refund. Those are the only possible ways of buying.

We’re about age 60. Much younger people probably wouldn’t want to own I-bonds.
 
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