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

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

Post by FIREchief »

Northern Flicker wrote: Sun May 16, 2021 2:24 am
FIREchief wrote: Sun May 16, 2021 1:57 am In threads such as this, when people start mentioning liquidity risk of TIPS it's a sign that somebody has ran out of ammo. :twisted:

Bottom line is that some of us embrace TIPS as the true no-risk fixed income investment. If others wish to justify/rationalize clinging onto nominals, that's their fair choice. 8-)
I wasn't even discussing the choice of investing in nominal bonds vs. TIPS.
I really don't know how we can have a TIPS discussion without that being part of it. :D That said, I respect your inputs. 8-)
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by wolf359 »

willthrill81 wrote: Sat May 15, 2021 9:28 pm
greg24 wrote: Sat May 15, 2021 9:16 pm But I've also been hearing since 2008 that bonds are on the verge of being crushed, and that hasn't happened yet.
I agree that there have been many cries of 'wolf' regarding bonds that haven't materialized. Of course, in that story, the sheep wound up getting eaten because the genuine cry for alarm wasn't heeded. The general moral of the story is laid against the boy, but the townsfolk bore the cost.

The bigger point at hand for many to consider is this: even if inflation is a function of both the money supply and the velocity of money, how much can the money supply increase and inflation remain comparatively tame (i.e., 2-3%)?

Another relevant historic fact: bonds lost out to inflation from 1941 to 1981, approximately -1.6% annualized. Many have been lulled by the last 40 years of returns that nominal bonds will somehow turn out a positive real return come hell or high water. They should take notice that that is most definitely not true.
Did somebody call?

Another point is that stocks don't do that well when inflation is increasing, either. The most recent period when inflation was increasing at the rates predicted was 1973-1982, when it ranged between 6% and 13.5%. The 1970's were a terrible time for the economy, and stocks. By the end of the decade, BusinessWeek was lamenting "The Death of Equities."
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by typical.investor »

wolf359 wrote: Sun May 16, 2021 5:42 am
willthrill81 wrote: Sat May 15, 2021 9:28 pm
greg24 wrote: Sat May 15, 2021 9:16 pm But I've also been hearing since 2008 that bonds are on the verge of being crushed, and that hasn't happened yet.
I agree that there have been many cries of 'wolf' regarding bonds that haven't materialized. Of course, in that story, the sheep wound up getting eaten because the genuine cry for alarm wasn't heeded. The general moral of the story is laid against the boy, but the townsfolk bore the cost.

The bigger point at hand for many to consider is this: even if inflation is a function of both the money supply and the velocity of money, how much can the money supply increase and inflation remain comparatively tame (i.e., 2-3%)?

Another relevant historic fact: bonds lost out to inflation from 1941 to 1981, approximately -1.6% annualized. Many have been lulled by the last 40 years of returns that nominal bonds will somehow turn out a positive real return come hell or high water. They should take notice that that is most definitely not true.
Did somebody call?

Another point is that stocks don't do that well when inflation is increasing, either. The most recent period when inflation was increasing at the rates predicted was 1973-1982, when it ranged between 6% and 13.5%. The 1970's were a terrible time for the economy, and stocks. By the end of the decade, BusinessWeek was lamenting "The Death of Equities."

I’m not concerned about 70’s style inflation.

Pre-Volker, rates were set trying to promote full employment which really is a guessing game as it’s not entirely clear what the full employment rate is.

Actually, it turned out that raising rates to cook the economy and stabilize inflation was beneficial as the Fed can only achieve its goal of maximum sustainable employment if it is successful in achieving its goal of price stability.

Lower unionization rates and the globalization of the workforce also limit how much a repeated cycle of rising wages will fuel inflation.

And we haven’t even discussed the constraints of energy production at the time.

Sure, COVID introduced its own supply shock globally but I but if the Fed raised rates a couple points, stopped QE, and let bonds start rolling off its balance sheet that we’d be in a deflationary recession in short order.

In any case, 20% inflation suggests a perhaps 22% overnight rate. The overnight rate was 20% with 14% inflation in the the early 80’s.

I’m sensing hysteria here and think the economy would be chilled into shrinking long, long before rates even hit six or seven percent.

And just from a purely factual perspective here, I don’t think Siegel is being honest when he states “Money supply is up almost 30% since the beginning of the pandemic,” Siegel said. “That money won’t disappear.”

Explain to me what happens when the Fed lets bonds mature and roll off it’s balance sheet. I believe the money supply gets effectively shrunk.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by angelescrest »

avenger wrote: Sat May 15, 2021 3:02 pm Maybe an unpopular opinion: I feel like click bait such as this should be locked in this forum.
The title is very misleading.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Freefun »

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

If it’s the title that’s misleading then perhaps a suggestion to improve it (?)
Remember when you wanted what you currently have?
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by UpperNwGuy »

Note the title that MarketWatch gave to their story about the same Jeremy Siegel CNBC interview:

https://www.marketwatch.com/story/stock ... 1621006658
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Blue456 »

invest2bfree wrote: Sat May 15, 2021 10:57 am This is an eye opening interview with Jerey Seigel on CNBC.

https://youtu.be/t3ygJbJjocI

If this comes true we will see fixed income being crushed. Do we sell all your bonds?


The bigger question is how will this temporary money printing work against long term deflationary forces like technology, outsourcing and demographics?
This could be good for young people who are up to their ears in student debt.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Nowizard »

It just seems that in these increasingly polarized news cycles in many areas, it takes what appears to be outrageous statements to many in order to get publicized. As someone has said, predictions are difficult, particularly about the future.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by WarAdmiral »

invest2bfree wrote: Sat May 15, 2021 10:57 am This is an eye opening interview with Jerey Seigel on CNBC.

https://youtu.be/t3ygJbJjocI

If this comes true we will see fixed income being crushed. Do we sell all your bonds?


The bigger question is how will this temporary money printing work against long term deflationary forces like technology, outsourcing and demographics?
These extreme, fear inducing predictions are required if you want to remain in news and keep getting airtime.

You won't get invited to CNBC if you predict inflation will be 5% - that's boring everyday stuff.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Elysium »

Here is another forecast from Siegel:

"I think the stock market will have another winning year in 2008. For every percentage point that stock returns fall below 8% (my prediction) this year, they should exceed 8% next year (meaning, for example, if stocks gain 6% this year, they should finish 2008 up 10%)." - Jeremy Siegel, 2007

Seigel makes many such comments, that has no value, other than create headline news. The only reason it is getting attention here is perhaps many Bogleheads are also supportive of the narrative in the media that inflation is about to go up. Many here own or wish to own TIPS, and so is very curious to see how they behave in an event like this. Full disclosure: I do have TIPS and I Bonds.

That said, inflation is already up, which we should expect, and it will go up temporarily as the masks come off and people start going out to beach, restaurants, movies, travel, and when schools & colleges open up finally. It will go up temporarily for a year, two at most then come down baring any extraneous events. The current stimulus money, or coming out of Covid is not enough to cause the kind of inflation being talked about, for an economy as large as the US, IMO. But I am not an Ivy league academic, although we should know that while Ivy league economists are really good at their real work, they may be very poor at predictions like the rest of us.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

FIREchief wrote: Sun May 16, 2021 1:57 am In threads such as this, when people start mentioning liquidity risk of TIPS it's a sign that somebody has ran out of ammo. :twisted:

Bottom line is that some of us embrace TIPS as the true no-risk fixed income investment. If others wish to justify/rationalize clinging onto nominals, that's their fair choice. 8-)
I think that more BHs would gravitate toward TIPS if they somehow incorporated the word 'total' into the name. :P
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

typical.investor wrote: Sun May 16, 2021 6:21 am In any case, 20% inflation suggests a perhaps 22% overnight rate.
I don't know that the current Fed has the wherewithal to raise the overnight rate to something like 8% if inflation rises to 6%.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

Grt2bOutdoors wrote: Sat May 15, 2021 9:50 pm
willthrill81 wrote: Sat May 15, 2021 2:45 pm
Candor wrote: Sat May 15, 2021 2:38 pm He's not saying 20% per year. He's saying 20% over 3 years so 6+% per year.
Good point, though that would still result in big real losses for bonds, by bond standards at least.
That is dependent upon bond duration. Those who are on the short end of the spectrum would lose less and roll into higher coupons theoretically speaking.
Even short-term Treasuries lost 2.4% pre-tax to inflation annualized from 1977-1981.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by SteadyOne »

willthrill81 wrote: Sun May 16, 2021 9:40 am
Grt2bOutdoors wrote: Sat May 15, 2021 9:50 pm
willthrill81 wrote: Sat May 15, 2021 2:45 pm
Candor wrote: Sat May 15, 2021 2:38 pm He's not saying 20% per year. He's saying 20% over 3 years so 6+% per year.
Good point, though that would still result in big real losses for bonds, by bond standards at least.
That is dependent upon bond duration. Those who are on the short end of the spectrum would lose less and roll into higher coupons theoretically speaking.
Even short-term Treasuries lost 2.4% pre-tax to inflation annualized from 1977-1981.
Should investors increase allocation to GLD or similar?
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by KlangFool »

willthrill81 wrote: Sun May 16, 2021 9:40 am
Grt2bOutdoors wrote: Sat May 15, 2021 9:50 pm
willthrill81 wrote: Sat May 15, 2021 2:45 pm
Candor wrote: Sat May 15, 2021 2:38 pm He's not saying 20% per year. He's saying 20% over 3 years so 6+% per year.
Good point, though that would still result in big real losses for bonds, by bond standards at least.
That is dependent upon bond duration. Those who are on the short end of the spectrum would lose less and roll into higher coupons theoretically speaking.
Even short-term Treasuries lost 2.4% pre-tax to inflation annualized from 1977-1981.
willthrill81,

Just to complete the story. What the stock did in that period 1977 to 1981?

By comparison, the short-term treasury is doing pretty well with a lower RISK.

The end value for US Stock market is $16,620. CAGR = 10.69%

The end value for the short-term treasury is $14,290. CAGR = 7.4%

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Portfolio Returns
Portfolio performance statistics
Portfolio Initial Balance Final Balance CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio US Mkt Correlation
Portfolio 1 $10,000 $16,620 10.69% 15.71% 33.15% -4.15% -14.12% 0.11 0.15 1.00
Portfolio 2 $10,000 $14,290 7.40% 6.16% 14.26% 2.91% -4.26% -0.39 -0.57 0.28

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by SteadyOne »

KlangFool wrote: Sun May 16, 2021 9:57 am
willthrill81 wrote: Sun May 16, 2021 9:40 am
Grt2bOutdoors wrote: Sat May 15, 2021 9:50 pm
willthrill81 wrote: Sat May 15, 2021 2:45 pm
Candor wrote: Sat May 15, 2021 2:38 pm He's not saying 20% per year. He's saying 20% over 3 years so 6+% per year.
Good point, though that would still result in big real losses for bonds, by bond standards at least.
That is dependent upon bond duration. Those who are on the short end of the spectrum would lose less and roll into higher coupons theoretically speaking.
Even short-term Treasuries lost 2.4% pre-tax to inflation annualized from 1977-1981.
willthrill81,

Just to complete the story. What the stock did in that period 1977 to 1981?

By comparison, the short-term treasury is doing pretty well with a lower RISK.

The end value for US Stock market is $16,620. CAGR = 10.69%

The end value for the short-term treasury is $14,290. CAGR = 7.4%

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Portfolio Returns
Portfolio performance statistics
Portfolio Initial Balance Final Balance CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio US Mkt Correlation
Portfolio 1 $10,000 $16,620 10.69% 15.71% 33.15% -4.15% -14.12% 0.11 0.15 1.00
Portfolio 2 $10,000 $14,290 7.40% 6.16% 14.26% 2.91% -4.26% -0.39 -0.57 0.28

KlangFool
And gold made 24+% CAGR for the same time period.
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

SteadyOne wrote: Sun May 16, 2021 9:54 am
willthrill81 wrote: Sun May 16, 2021 9:40 am
Grt2bOutdoors wrote: Sat May 15, 2021 9:50 pm
willthrill81 wrote: Sat May 15, 2021 2:45 pm
Candor wrote: Sat May 15, 2021 2:38 pm He's not saying 20% per year. He's saying 20% over 3 years so 6+% per year.
Good point, though that would still result in big real losses for bonds, by bond standards at least.
That is dependent upon bond duration. Those who are on the short end of the spectrum would lose less and roll into higher coupons theoretically speaking.
Even short-term Treasuries lost 2.4% pre-tax to inflation annualized from 1977-1981.
Should investors increase allocation to GLD or similar?
Gold certainly did well during that period, though some argue that it was only a fluke, an aberration following the unwinding of Bretton Woods. I personally doubt that, but I don't recommend anything. Investors should examine the data for themselves and determine what they believe is most appropriate for them.

A big problem with gold is that it can lose significant money for what seems like a long time to many. It lost nearly 5% annualized to inflation from 1982-1999; a $10k initial investment would have shrunk to $4k, adjusted for inflation. That's significantly worse than ex-U.S. stock has performed since 2007, yet many investors are considering abandoning ex-U.S. stock (or already have) due to poor performance. It would have taken serious conviction to keep rebalancing into gold for nearly two decades before seeing the payoff. Of course, we've seen stocks have zero returns for 20 years as well, so there's that to consider.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
KlangFool
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by KlangFool »

SteadyOne wrote: Sun May 16, 2021 9:59 am
KlangFool wrote: Sun May 16, 2021 9:57 am
willthrill81 wrote: Sun May 16, 2021 9:40 am
Grt2bOutdoors wrote: Sat May 15, 2021 9:50 pm
willthrill81 wrote: Sat May 15, 2021 2:45 pm

Good point, though that would still result in big real losses for bonds, by bond standards at least.
That is dependent upon bond duration. Those who are on the short end of the spectrum would lose less and roll into higher coupons theoretically speaking.
Even short-term Treasuries lost 2.4% pre-tax to inflation annualized from 1977-1981.
willthrill81,

Just to complete the story. What the stock did in that period 1977 to 1981?

By comparison, the short-term treasury is doing pretty well with a lower RISK.

The end value for US Stock market is $16,620. CAGR = 10.69%

The end value for the short-term treasury is $14,290. CAGR = 7.4%

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Portfolio Returns
Portfolio performance statistics
Portfolio Initial Balance Final Balance CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio US Mkt Correlation
Portfolio 1 $10,000 $16,620 10.69% 15.71% 33.15% -4.15% -14.12% 0.11 0.15 1.00
Portfolio 2 $10,000 $14,290 7.40% 6.16% 14.26% 2.91% -4.26% -0.39 -0.57 0.28

KlangFool
And gold made 24+% CAGR for the same time period.
SteadyOne,

A 60/40 portfolio would have capture most of the 100% US Stock return with a lowered RISK.

<< The end value for US Stock market is $16,620. CAGR = 10.69%

The end value for the short-term treasury is $14,290. CAGR = 7.4%>>

The end value for 60% US Stock and 40% short-term treasury is $15,829. CAGR = 9.62%

https://www.portfoliovisualizer.com/bac ... sisResults

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by typical.investor »

willthrill81 wrote: Sun May 16, 2021 9:39 am
typical.investor wrote: Sun May 16, 2021 6:21 am In any case, 20% inflation suggests a perhaps 22% overnight rate.
I don't know that the current Fed has the wherewithal to raise the overnight rate to something like 8% if inflation rises to 6%.
I have no doubt they do. It’s certain they are letting inflation pass the target so as to average over time as raising rates too soon in the past stifled the recoveries.

I guess we’ll see.

I guess Siegel meant 20% over three years. He got misquoted a little in the accounts I read. So yeah, as high as 6% a year might not be so off.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

typical.investor wrote: Sun May 16, 2021 10:15 am
willthrill81 wrote: Sun May 16, 2021 9:39 am
typical.investor wrote: Sun May 16, 2021 6:21 am In any case, 20% inflation suggests a perhaps 22% overnight rate.
I don't know that the current Fed has the wherewithal to raise the overnight rate to something like 8% if inflation rises to 6%.
I have no doubt they do. It’s certain they are letting inflation pass the target so as to average over time as raising rates too soon in the past stifled the recoveries.
I wish that I could share your optimism. The politics involved seem to me to be too likely to prevent that, but I cannot say more than that without running afoul of the forum's rules.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by NiceUnparticularMan »

SteadyOne wrote: Sun May 16, 2021 9:54 am
willthrill81 wrote: Sun May 16, 2021 9:40 am
Grt2bOutdoors wrote: Sat May 15, 2021 9:50 pm
willthrill81 wrote: Sat May 15, 2021 2:45 pm
Candor wrote: Sat May 15, 2021 2:38 pm He's not saying 20% per year. He's saying 20% over 3 years so 6+% per year.
Good point, though that would still result in big real losses for bonds, by bond standards at least.
That is dependent upon bond duration. Those who are on the short end of the spectrum would lose less and roll into higher coupons theoretically speaking.
Even short-term Treasuries lost 2.4% pre-tax to inflation annualized from 1977-1981.
Should investors increase allocation to GLD or similar?
So for unexpected high inflation, short term TIPS protect themselves. They just don't do much for the rest of your portfolio.

To provide more portfolio level insurance, you could consider a diversified commodities future fund. Some recent ones try to mitigate contango. I note buying a lot of such insurance may not be cheap, in the sense of drag on returns, if you don't end up needing much such insurance.

Finally, there are unmarketable products like the TSP G Fund, stable value funds, some cash balance or COLA pensions, and so forth. Plus Social Security! These again are somewhat protected themselves against unexpected inflation, but like short term TIPS probably don't provide much portfolio level insurance.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by invest4 »

Triple digit golfer wrote: Sat May 15, 2021 3:56 pm If inflation fears cause me to change my AA, then my AA was not right to begin with. No one can predict the future. Best to stay diversified and hold a portfolio that is acceptable in all conditions.
Agreed. I also consider the mortgage as part of my overall financial diversification.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by NiceUnparticularMan »

invest4 wrote: Sun May 16, 2021 10:29 am
Triple digit golfer wrote: Sat May 15, 2021 3:56 pm If inflation fears cause me to change my AA, then my AA was not right to begin with. No one can predict the future. Best to stay diversified and hold a portfolio that is acceptable in all conditions.
Agreed. I also consider the mortgage as part of my overall financial diversification.
Yeah, I should have mentioned long-term nominal debt as an unexpected inflation hedge. It is probably the one personal investors have the most of!
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by texnic »

Northern Flicker wrote: Sun May 16, 2021 12:56 am

If the Fed is distorting nominal yields, the TIPS market has a larger role in establishing breakevens.
Fed buys TIPS too. In fact, last year they bought much larger volume of TIPS than ever before. One might think that Fed also "adjusts" inflation expectations in this indirect way.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Northern Flicker »

willthrill81 wrote: Sun May 16, 2021 9:39 am
typical.investor wrote: Sun May 16, 2021 6:21 am In any case, 20% inflation suggests a perhaps 22% overnight rate.
I don't know that the current Fed has the wherewithal to raise the overnight rate to something like 8% if inflation rises to 6%.
It would not be a preconceived target, but the rate needed to tame the inflation, which likely is much lower than 8%. For one thing, they won't wait for inflation to hit 6% to start raising rates and tapping the brakes.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by JackoC »

JBTX wrote: Sat May 15, 2021 2:45 pm Did he specifically predict 20% cpi inflation, or was he referring to inflation in real assets?
Somebody provided a transcript but still unclear to me what quantitative prediction of annual CPI increase is being made. Money supply has expanded by X he says (fact). It's going to find its way into higher asset prices (real possibility though not predictable fact) and CPI (again, possible not strictly knowable).

But this is not particularly 'outrageous' IMO. Unprecedented monetary pump priming up to now has been offset by reduced monetary velocity. There is no 'plain common sense' axiom that this will always be true and the priming won't go too far. Obviously the market is only pricing slightly elevated inflation (still below the post 1913 average), 5 yr note 0.82% which the TIPS market implies is a -1.86% real return, around 2.7% (per year) CPI growth over 5 yrs, give or take the vagarious of TIPS breakeven v 'actual' inflation expectations. But even 5-6% per year inflation, that's not obviously going right back down, would IMO tank both the stock market and bond market, and hit the TIPS market also though not as much. 5 yr TIPS -1.86%; if the market believed the Fed would need to fight inflation with average 1% positive real FF rate you could expect TIPS yields to go to something like 1%, mid teens % drop in 5 yr TIPS price. That would not be as much as long nominals would drop, and I believe stock market would go down much more than that also. Stocks are a 'claim on real assets' but discounting their future cashflows at a given interest rate. If rates are much higher, not because of improved growth (therefore profit) prospects but uncontrolled inflation, stocks will sell off hard, especially from very high valuations like now

But of course he's not necessarily right, and market prices say that most participants (most $'s invested) disagree with him. But there's always that contradiction in any non consensus prediction. The prediction being true would have a big effect in part *because* it's not reflected in market pricing now. If you predict the consensus view (as reflected in prices) and turn out right, nothing happens. But anyone interpreting 'markets are efficient' as meaning 'the consensus is always right' needs to do more reading, thinking, and/or active participating in markets. :happy
Last edited by JackoC on Sun May 16, 2021 2:23 pm, edited 1 time in total.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by howard71 »

Why would I bother listening to something with a title like "Inflation could be 20% in the next three years"?

Of course it could. Could also be 50% in the next five years. Or only 1% next year.

All of those statements are logically true and falsifiable only after the predicted period of time has lapsed.

Or is my Asperger's showing?
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Mel Lindauer »

As part of a diversified portfolio, I invested heavily in I Bonds when they first came out, and over the years got them at fixed rates of 3.0, 3.3, 3.4 and 3.6%. Those have proven to be great all-weather investments in both up and down stock markets and some of them are now yielding over 7% with the new inflation adjustment. While the inflation part gets eaten away, the fixed rates are what provides a positive REAL return, and that's what really matters.

And, yes, I'm the one who recommended backing up the truck and loading up on I Bonds back then. I've seem recent posts poking fun at that recommendation, but the folks who listened and acted are very pleased that they followed that recommendation.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by willthrill81 »

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

Also, as I've already noted in this thread, during the Volcker era, it took two years of the Fed starting with a historically overnight rate and then raising it substantially before inflation started to shrink. The Fed's tools, while potentially effective, can be rather blunt and have significant lag.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Robot Monster »

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

Also, as I've already noted in this thread, during the Volcker era, it took two years of the Fed starting with a historically overnight rate and then raising it substantially before inflation started to shrink. The Fed's tools, while potentially effective, can be rather blunt and have significant lag.
Related to this discussion...

There's a Wall Street Journal article, "Even Short-Term Inflation Will Test the Fed" that begins,

"Just how much inflation would it take for the Federal Reserve to abandon its commitment to super-easy money and begin to talk about tightening? Markets think the answer is that the Fed will accept far more than consumers would like, and the market is probably right: Inflation could easily be at 5% early next year without prompting any change of strategy. So long as the Fed expects inflation to come back down and investors and workers have faith, it is under no pressure to move." link
"I think we may see a return to full employment next year." -- Janet Yellen, March 23rd 2021
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by fatcoffeedrinker »

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

Also, as I've already noted in this thread, during the Volcker era, it took two years of the Fed starting with a historically overnight rate and then raising it substantially before inflation started to shrink. The Fed's tools, while potentially effective, can be rather blunt and have significant lag.
But 4.2% is using early COVID at the lowest CPI reading as a starting point. Go back 15 months to current and annualize and you get 2.8%. Go back 18 months to current and annualize and you get 2.5%. Time will only tell what comes next, but I don't think one can look at 4.2% (at least not yet) and predict any trend.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by fishnskiguy »

Mel Lindauer wrote: Sun May 16, 2021 2:30 pm As part of a diversified portfolio, I invested heavily in I Bonds when they first came out, and over the years got them at fixed rates of 3.0, 3.3, 3.4 and 3.6%. Those have proven to be great all-weather investments in both up and down stock markets and some of them are now yielding over 7% with the new inflation adjustment. While the inflation part gets eaten away, the fixed rates are what provides a positive REAL return, and that's what really matters.

And, yes, I'm the one who recommended backing up the truck and loading up on I Bonds back then. I've seem recent posts poking fun at that recommendation, but the folks who listened and acted are very pleased that they followed that recommendation.
They are indeed. :D

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

Post by FIREchief »

fatcoffeedrinker wrote: Sun May 16, 2021 3:08 pm But 4.2% is using early COVID at the lowest CPI reading as a starting point. Go back 15 months to current and annualize and you get 2.8%. Go back 18 months to current and annualize and you get 2.5%. Time will only tell what comes next, but I don't think one can look at 4.2% (at least not yet) and predict any trend.
:oops: Best/smartest post in this thread! :beer

Unlike some of us, I guess you're drinking your coffee before posting. 8-)
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Northern Flicker »

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

Also, as I've already noted in this thread, during the Volcker era, it took two years of the Fed starting with a historically overnight rate and then raising it substantially before inflation started to shrink. The Fed's tools, while potentially effective, can be rather blunt and have significant lag.
4.2% is relative to depressed prices a year ago. Look at 2-yr changes in prices and annualize to get a more meaningful number. The bond market isn't buying the 4.2% number as relevant for inflation moving forward either btw.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Robot Monster »

The CPI might have chillingly cracked above 4%, but take a look at the median CPI and the 16 percent trimmed-mean CPI which "can provide a better signal of the underlying inflation trend than either the all-items CPI or the CPI excluding food and energy (also known as core CPI)." link

Also...isn't PCE the Fed's preferred measurement of inflation? We seem not to have a reading on that for April, but come May 28th we shall. link
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by fatcoffeedrinker »

FIREchief wrote: Sun May 16, 2021 3:22 pm
fatcoffeedrinker wrote: Sun May 16, 2021 3:08 pm But 4.2% is using early COVID at the lowest CPI reading as a starting point. Go back 15 months to current and annualize and you get 2.8%. Go back 18 months to current and annualize and you get 2.5%. Time will only tell what comes next, but I don't think one can look at 4.2% (at least not yet) and predict any trend.
:oops: Best/smartest post in this thread! :beer

Unlike some of us, I guess you're drinking your coffee before posting. 8-)
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Fat-Tailed Contagion »

watchnerd wrote: Sat May 15, 2021 3:51 pm
invest2bfree wrote: Sat May 15, 2021 10:57 am This is an eye opening interview with Jerey Seigel on CNBC.

https://youtu.be/t3ygJbJjocI

If this comes true we will see fixed income being crushed. Do we sell all your bonds?


The bigger question
is how will this temporary money printing work against long term deflationary forces like technology, outsourcing and demographics?
The bigger question is to you believe Siegel, who is just saying stuff, or what the bond market is predicting, where big pocket institutions vote with their wallets.

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

https://fred.stlouisfed.org/series/T5YIE
Did you get rid of your LTT position in your bond allocation?
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by typical.investor »

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

Also, as I've already noted in this thread, during the Volcker era, it took two years of the Fed starting with a historically overnight rate and then raising it substantially before inflation started to shrink. The Fed's tools, while potentially effective, can be rather blunt and have significant lag.
But 4.2% is using early COVID at the lowest CPI reading as a starting point. Go back 15 months to current and annualize and you get 2.8%. Go back 18 months to current and annualize and you get 2.5%. Time will only tell what comes next, but I don't think one can look at 4.2% (at least not yet) and predict any trend.
And why is the blame of that increase placed at the feet of monetary stimulus? Why don't you ask the lumber mills why they chose to close just as demand was going to pick up as everyone wanted to improve their homes.

Sure we are seeing inflation due to COVID induced supply side shortages, but show me the economic analysis that posits tightening policy and credit in a crisis is going keep suppliers operating. A lack of demand and/or a lack of credit for operations would surely result in suppliers going under, and probably a depression. But I guess some would prefer that to the modest inflation we have seen, and maybe think it would be better if everyone was in such a panic that no-one had any confidence to buy lumber for home improvements in the first place. In any case, history will tell us if the FED tightened too soon or waited too long.

I am not convinced that the inflation we are seeing is not primarily due to COVID supply difficulties.

Gas prices? In April 2020 OPEC+ announced the larger production cuts ever when there wasn’t anyplace to store excess supplies.... I see a bit of whiplash here.
Last edited by typical.investor on Sun May 16, 2021 10:28 pm, edited 2 times in total.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Fat-Tailed Contagion »

Home Prices and Gas are up 20%-30% this year in my area.

Building Materials are up much more than that.

Food not quite as much.

I could see 20% this year if it takes into account what people normally spend their money on each year in a proportional way.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by watchnerd »

Fat-Tailed Contagion wrote: Sun May 16, 2021 10:08 pm Did you get rid of your LTT position in your bond allocation?
Not exactly.

Now that I'm 4 years away from retirement, I built an LMP non-rolling ladder of TIPS and STRIPS. This covers to the year 2037.

The LTT mutual fund was replaced with long TIPS and long zero coupon STRIPS.

So I still have LTT, but switched to individual bonds.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Northern Flicker »

The Fed may get it wrong, but since 2009, lots of prognosticators of all levels of expertise to prognosticate on the issue have been predicting inflation to be much more robust than the Fed has predicted. So far, the Fed has been right.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by TheDDC »

Yes, sell all the bonds. But I did this a long time before this article came around. Bonds are losers. I wouldn't pay attention to such fearmongering articles, whether it be medical events of recent memory, inflation estimates, or total market returns.

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

Post by willthrill81 »

Northern Flicker wrote: Sun May 16, 2021 10:24 pm The Fed may get it wrong, but since 2009, lots of prognosticators of all levels of expertise to prognosticate on the issue have been predicting inflation to be much more robust than the Fed has predicted. So far, the Fed has been right.
That's true. A good deal of the increased money supply has simply been added to banks' balance sheets, increasing from $12 trillion in total assets held by commercial banks at the end of 2008 to $21 trillion today, along with mega corps. In September of 2008, Apple had $24B in cash. They currently have over $200B in cash. Berkshire Hathaway has more than doubled their cash on hand since 2008. Amazon had fewer than $4B in cash at the end of 2008 but now has $73B. And this isn't limited to just these companies. Fifteen non-financial companies held over $1 trillion in cash and investments back in March.

But if/when that cash starts changing hands and the velocity of money starts going up or even just remains flat (remember that it's steadily declined for over 10 years now), inflation is practically guaranteed to occur. We just don't know for sure if/when that cash will start moving.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by typical.investor »

willthrill81 wrote: Sun May 16, 2021 10:57 pm But if/when that cash starts changing hands and the velocity of money starts going up or even just remains flat (remember that it's steadily declined for over 10 years now), inflation is practically guaranteed to occur. We just don't know for sure if/when that cash will start moving.
I don't believe you are factoring in the effect of the FED deleveraging when it starts again.

In any case, it should be remembered that "Unproductive investment is by nature ultimately deflationary" so if crypto goes to the moon with trillions invested only to crash as a better payment system or legal restrictions render it useless, then (to some degree) hello reduced inflation. See crypto is useful. Ha!
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by watchnerd »

typical.investor wrote: Sun May 16, 2021 11:42 pm
willthrill81 wrote: Sun May 16, 2021 10:57 pm But if/when that cash starts changing hands and the velocity of money starts going up or even just remains flat (remember that it's steadily declined for over 10 years now), inflation is practically guaranteed to occur. We just don't know for sure if/when that cash will start moving.
I don't believe you are factoring in the effect of the FED deleveraging when it starts again.

In any case, it should be remembered that "Unproductive investment is by nature ultimately deflationary" so if crypto goes to the moon with trillions invested only to crash as a better payment system or legal restrictions render it useless, then (to some degree) hello reduced inflation. See crypto is useful. Ha!
Yes, I'm helping to combat inflation with my small crypto allocation.

TIPS are my hedge against inflation and crypto is my deflationary play to make my nominal bonds into winners.

It all balances out.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by McGowan »

Ron wrote: Sat May 15, 2021 11:29 am Could be,
Might be,
May be,
,,,,,,,,,,,,,,,,

Nobody knows nothing 🥴 ...

- Ron
+1

There will be more inflation in the short term.
Can the Fed manage it to be only temporary? Maybe.
Do they really want to? Maybe. They certainly don't want runaway inflation but a certain amount of inflation may be desirable.

Siegel has always been a one-trick pony. Now he's a two-trick pony.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by Forester »

watchnerd wrote: Sun May 16, 2021 11:48 pm
It all balances out.
Except that you aren't 10% gold; close but no cigar.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by watchnerd »

Forester wrote: Mon May 17, 2021 8:55 am
watchnerd wrote: Sun May 16, 2021 11:48 pm
It all balances out.
Except that you aren't 10% gold; close but no cigar.
It was a joke.

But your math lost me.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by JackoC »

willthrill81 wrote: Sun May 16, 2021 10:18 am
typical.investor wrote: Sun May 16, 2021 10:15 am
willthrill81 wrote: Sun May 16, 2021 9:39 am
typical.investor wrote: Sun May 16, 2021 6:21 am In any case, 20% inflation suggests a perhaps 22% overnight rate.
I don't know that the current Fed has the wherewithal to raise the overnight rate to something like 8% if inflation rises to 6%.
I have no doubt they do. It’s certain they are letting inflation pass the target so as to average over time as raising rates too soon in the past stifled the recoveries.
I wish that I could share your optimism. The politics involved seem to me to be too likely to prevent that, but I cannot say more than that without running afoul of the forum's rules.
That would be a very unwise application of 'rules' if so. The past is a different country. It cuts various ways, but comparison of a possible high inflation scenario now is not altogether comparable to 1966-early 80's in part for the reason you give. It's a fact not 'politics' that the debt load of the US federal government is far higher relative to GDP than then, though obviously that's the product of past political decisions to tax, spend and borrow in a given way. That's still quite affordable in terms of interest payments at very low rates, but there would be a serious issue of debt service costs driving the budget if the federal government's borrowing rates were far higher. That would surely have some effect on Fed's ability/willingness to raise rates a lot in case of high inflation that might be 'temporary'. And while that reluctance alone will not be evidence of a 'politicized Fed', that can't be 100% excluded either, see below. But politics aside, they will be realistically assessing the bigger negative side effects of fighting inflation with high rates with a much higher debt to GDP ratio.

However one way in which a future scenario could resemble that previous period is if we don't focus solely on the Volker Fed and relatively extreme actions which broke the inflationary cycle, or the immediately preceding events. Back in '66 one problem, in hindsight, was that a substantial tick up in inflation was discounted as transitory. After a somewhat troubling inflation surge after WWII (which caused realized real medium/longer term govt bond returns to be negative, investors had probably bought those bonds expecting less inflation, doubtful that real expected returns were negative then like they are now), it settled back into the 1's by late 50's-mid 60's. That presumed anchored expectation was a reason the Fed let inflation become an ingrained problem from the mid 60's on. And in some chapters of mid 60's pre-Volker story it does appear political pressure had an effect on how effectively inflation was countered by the Fed. Although also there were varying theories what was causing it ('The Vietnam War', 'The Oil Embargo' whereas monetarists would say bad monetary policy by the Fed is the only way to get sustained high inflation, and the eventual solution *was* monetary). There could be a parallel there to now. 'I believe inflation can't be high for blah, blah structural reasons' is repeated over and over on threads like this: that's what the media generally says, and there is some reason to believe it. But same was true as of mid 60's. Often conventional wisdom, with its strong tendency to smoothly extrapolate the recent past into the future, turns out right, sometimes not.
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Re: Inflation could be 20% in the next three years: Wharton's Jeremy Siegel

Post by drg02b »

avenger wrote: Sat May 15, 2021 3:19 pm
willthrill81 wrote: Sat May 15, 2021 3:15 pm
avenger wrote: Sat May 15, 2021 3:02 pm Maybe an unpopular opinion: I feel like click bait such as this should be locked in this forum.
What do you think makes it 'click bait'?

Siegel certainly isn't the average Joe Blow hack writing financial 'reporter'. He's one of the most brilliant minds in the finance space, though neither he nor anyone else is infallible.
noun: click bait
(on the internet) content whose main purpose is to attract attention and encourage visitors to click on a link to a particular web page.
Sadly, that's most of the internet these days... selling ads. Even one of my favorite journalism spots, The Atlantic, has succumbed to the click-baity headlines.
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