The Collapse in Global Inflation Expectations

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Topic Author
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

The Collapse in Global Inflation Expectations

Post by SimpleGift »

Due in part to the expected economic impacts of the coronavirus pandemic, but also to various longer-term secular trends (aging populations, low GDP growth rates, etc.), the expectations for inflation in the developed world over the next ten years have collapsed to historically low levels.

For context, the first chart below shows the lowest inflation rate in any 10-year period for each of 7 developed nations since 1950. The average lowest rate during the past 70 years was 1.20%.
  • Image
    Data source: Jorda-Schularick-Taylor database.
The second chart below shows the expected inflation rates in these same countries for the coming 10 years, based on their current breakeven inflation rates (nominal yield minus real yield on 10-year bonds). The average expected inflation rate for the decade ahead is just below 0.50%.
At these low rates of expected inflation, it's likely that the Fed and other central banks around the world will not come close to meeting their 2% inflation targets in the coming decade. It's also increasingly possible that long-term inflation expectations in the developed world might permanently reset lower, into the 0.5%-1.0% range.

Implications for investors in the years ahead?
Last edited by SimpleGift on Thu Apr 30, 2020 2:51 pm, edited 1 time in total.
aristotelian
Posts: 8090
Joined: Wed Jan 11, 2017 8:05 pm

Re: The Collapse in Global Inflation Expectations

Post by aristotelian »

I would expect low bond yields and low nominal returns from all assets. If true, one of the principal threats to retirement longevity will be removed, so the big question will be whether investment returns will be enough to sustain the same rates as they have in the past.
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

OP,

Why do you believe those inflation expectations are reasonable? With the amount of QE that is going on, it is unlikely to be true.

KlangFool
Robot Monster
Posts: 1544
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: The Collapse in Global Inflation Expectations

Post by Robot Monster »

SimpleGift wrote: Thu Apr 30, 2020 12:34 pm It's also increasingly possible that long-term inflation expectations in the developed world might permanently reset lower, into the 0.5%-1.0% range.

Implications for investors in the years ahead?
Yes. 2% is "consistent with a healthy economy...achieving modest, steady inflation of around 2% keeps a nation away from a negative spiral of falling prices, declining wages and weak demand."

Source:
https://www.wsj.com/articles/japan-offe ... 1578837600
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
User avatar
Topic Author
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: The Collapse in Global Inflation Expectations

Post by SimpleGift »

KlangFool wrote: Thu Apr 30, 2020 1:00 pm Why do you believe those inflation expectations are reasonable? With the amount of QE that is going on, it is unlikely to be true.
See this analysis by the Bureau of Labor Statistics of the accuracy of Treasury breakeven inflation rates (TBI) to approximate actual inflation before and after the 2008-09 Financial Crisis:
Bureau of Labor Statistics wrote:The analysis finds that TBI breakeven rates reasonably approximated inflation reality before and after the financial crisis of 2008-09. Moreover, the dispersion of deviations, as measured by standard deviation and range, decreases as maturity horizon increases.

Thus, inflation expectations, as measured by TBI rates, reasonably approximated inflation reality during the years before and after the crisis, with greater precision for long-term rates than short-term rates. This was true even at the height of the financial crisis in the early months of 2009, though tracking risk was high for the 6-month and 1-year horizons.
Tracking error was higher for the shorter-term breakeven rates (less than one year), but had greater precision on the longer-term rates — which is the subject of the OP, as it looks at 10-year breakeven rates.

Breakeven inflation rates are being set every day around the world by investors with real money in the game. One has to expect a certain degree of inaccuracy in any projection, but this is the best outlook on inflation we have at present.
Last edited by SimpleGift on Thu Apr 30, 2020 1:37 pm, edited 2 times in total.
Coltrane75
Posts: 199
Joined: Wed Feb 06, 2019 2:32 pm

Re: The Collapse in Global Inflation Expectations

Post by Coltrane75 »

I read Nomi Prens and in other articles that the Fed's inflation target, as well as the ECB inflation target, are basically bogus. In other words, the banks keep bringing it up, never meet it, and never act on it meaningfully.

So I kind of just ignore it with regards to investment decisions, its just noise.
User avatar
abuss368
Posts: 21637
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: The Collapse in Global Inflation Expectations

Post by abuss368 »

There is a lot to this. One has to consider the collapse of oil with talk that it never goes above $40 a barrel again.

Do TIPS have as much of a role in portfolio's as 10 years ago?
John C. Bogle: “Simplicity is the master key to financial success."
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

SimpleGift wrote: Thu Apr 30, 2020 1:28 pm
KlangFool wrote: Thu Apr 30, 2020 1:00 pm Why do you believe those inflation expectations are reasonable? With the amount of QE that is going on, it is unlikely to be true.
See this analysis by the Bureau of Labor Statistics of the accuracy of Treasury breakeven inflation rates (TBI) to approximate actual inflation before and after the 2008-09 Financial Crisis:
game.


SimpleGift,

I do not believe their analysis to be based on any reality. So, back to my question again. Why do you think that it is reasonable?

We are heading towards a short-term deflation and a long-term inflation.

KlangFool
Northern Flicker
Posts: 6529
Joined: Fri Apr 10, 2015 12:29 am

Re: The Collapse in Global Inflation Expectations

Post by Northern Flicker »

TIPS breakeven inflation rates are believed to understate market expectations for future inflation because a varying liquidity risk premium is believed to be incorporated into TIPS yields.

It is likely that liquidity risk currently is heightened given the liquidity squeeze in March. Thus it is not unreasonable to assume that the gap between breakeven inflation and market expectations for inflation has widened.

Another point is that Fed treasury purchases may be distorting the market, also distorting the relationship between breakeven inflation rates and market expectations for inflation.
Risk is not a guarantor of return.
nif
Posts: 12
Joined: Mon Mar 02, 2020 8:46 pm

Re: The Collapse in Global Inflation Expectations

Post by nif »

KlangFool wrote: Thu Apr 30, 2020 1:39 pm We are heading towards a short-term deflation and a long-term inflation.
Why do you think this is so?
User avatar
Topic Author
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: The Collapse in Global Inflation Expectations

Post by SimpleGift »

KlangFool wrote: Thu Apr 30, 2020 1:39 pm I do not believe their analysis to be based on any reality. So, back to my question again. Why do you think that it is reasonable?

We are heading towards a short-term deflation and a long-term inflation.
Your belief and the OP are actually in agreement. The U.S. Treasury breakeven rates are indeed expecting deflation in 2020 and 2021, but then low inflation out to 2050 (chart below).
The OP analysis is about expected inflation in 10 years (circle above), which is currently about 0.95% for the United States. Your beliefs and the OP are in violent agreement!
Last edited by SimpleGift on Thu Apr 30, 2020 2:01 pm, edited 1 time in total.
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

SimpleGift wrote: Thu Apr 30, 2020 1:58 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm I do not believe their analysis to be based on any reality. So, back to my question again. Why do you think that it is reasonable?

We are heading towards a short-term deflation and a long-term inflation.
Your belief and the OP are in agreement. The U.S. Treasury breakeven rates are indeed expecting deflation in 2020 and 2021, but low inflation out to 2050 (chart below).
The OP analysis is about expected inflation in 10 years (circle above), which is currently about 0.95% for the United States. Your beliefs and the OP are in violent agreement!
SimpleGift,

I disagreed. We are heading towards hyperinflation after the short-term deflation.

KlangFool
User avatar
Topic Author
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: The Collapse in Global Inflation Expectations

Post by SimpleGift »

KlangFool wrote: Thu Apr 30, 2020 2:01 pm I disagreed. We are heading towards hyperinflation after the short-term deflation.
You're free to believe whatever you like of course, but just be aware that yours is an extreme outlier opinion, in comparison with all of the other bond market investors and traders around the world who are putting their own money on the line every day, determining expected inflation.

Good luck!
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

SimpleGift wrote: Thu Apr 30, 2020 2:06 pm
KlangFool wrote: Thu Apr 30, 2020 2:01 pm I disagreed. We are heading towards hyperinflation after the short-term deflation.
You're free to believe whatever you like, of course, but just be aware that yours is an extreme outlier opinion, in comparison with all of the other global bond market investors and traders who are putting their own money on the line every day, determining expected inflation.

Good luck!
SimpleGift,

I had asked you a simple question. Why do you think the opinion of this paper is correct in spite of the extreme amount of QE that is going on now?

<<but just be aware that yours is an extreme outlier opinion, in comparison with all of the other global bond market investors and traders who are putting their own money on the line every day, determining expected inflation.>>

See Telecom bust. It is the same group of people that invested in those Telecom companies. They had been wrong before and there is nothing to stop them to be wrong again.

KlangFool
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

nif wrote: Thu Apr 30, 2020 1:54 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm We are heading towards a short-term deflation and a long-term inflation.
Why do you think this is so?
1) We are printing a lot of currency via QE.

2) In the short-term, the demand is not there. -> Deflation.

3) In the longer-term, too much currency = hyper-inflation.

KlangFool
Broken Man 1999
Posts: 5081
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, inland on high ground!

Re: The Collapse in Global Inflation Expectations

Post by Broken Man 1999 »

I do find lower inflation rates and possibly even deflation is a possibility.

As a retiree, might be helpful. OTOH I'm not sure of the effects on DDs and their families.

Time will tell.

Low inflation would make it easy to have my bond funds at the value level I want. Higher inflation would force me to add more to the bond fund side.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
fujiters
Posts: 396
Joined: Tue Mar 06, 2018 2:17 pm

Re: The Collapse in Global Inflation Expectations

Post by fujiters »

With expectations like this, EE bonds look great (assuming the Treasury doesn't change the 20 year doubling).
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham
User avatar
wassabi
Posts: 511
Joined: Sun Feb 02, 2014 8:06 am

Re: The Collapse in Global Inflation Expectations

Post by wassabi »

KlangFool wrote: Thu Apr 30, 2020 2:15 pm
nif wrote: Thu Apr 30, 2020 1:54 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm We are heading towards a short-term deflation and a long-term inflation.
Why do you think this is so?
1) We are printing a lot of currency via QE.

2) In the short-term, the demand is not there. -> Deflation.

3) In the longer-term, too much currency = hyper-inflation.

KlangFool
Doesn't the inflationary impact from printing currency depend on how the new currency is circulated/used? For example, if the currency never makes it into the working economy then the currency will not drive up inflation?
User avatar
Topic Author
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: The Collapse in Global Inflation Expectations

Post by SimpleGift »

KlangFool wrote: Thu Apr 30, 2020 2:11 pm Why do you think the opinion of this paper is correct in spite of the extreme amount of QE that is going on now?
The paper determined that breakeven inflation rates were reasonably accurate before, during and after the 2008-09 Financial Crisis, which had a comparable amount of quantitative easing as today's virus crisis. The monetary responses were not completely the same, but the relative accuracy of breakeven inflation rates is not invalidated.
KlangFool wrote: Thu Apr 30, 2020 2:15 pm 1) We are printing a lot of currency via QE.
2) In the short-term, the demand is not there. -> Deflation.
3) In the longer-term, too much currency = hyper-inflation.
See this recent Forum discussion: Does "Quantitative Easing" Lead to Higher Inflation?

The OP study looked at 22 instances around the world since 1990 in which countries doubled or triples their monetary base in response to a financial crisis. None of them experienced high inflation. Don't forget that central banks can also easily do "quantitative tightening" if inflationary pressures arise in the years ahead.
Last edited by SimpleGift on Sat May 02, 2020 5:16 pm, edited 1 time in total.
EnjoyIt
Posts: 4774
Joined: Sun Dec 29, 2013 8:06 pm

Re: The Collapse in Global Inflation Expectations

Post by EnjoyIt »

KlangFool wrote: Thu Apr 30, 2020 2:01 pm
SimpleGift wrote: Thu Apr 30, 2020 1:58 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm I do not believe their analysis to be based on any reality. So, back to my question again. Why do you think that it is reasonable?

We are heading towards a short-term deflation and a long-term inflation.
Your belief and the OP are in agreement. The U.S. Treasury breakeven rates are indeed expecting deflation in 2020 and 2021, but low inflation out to 2050 (chart below).
The OP analysis is about expected inflation in 10 years (circle above), which is currently about 0.95% for the United States. Your beliefs and the OP are in violent agreement!
SimpleGift,

I disagreed. We are heading towards hyperinflation after the short-term deflation.

KlangFool
Klangfool,
I'm not saying you are right or wrong, but, what you are saying is the exact same thing people said in 2010. What makes you believe that this time you are right?
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
User avatar
Topic Author
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: The Collapse in Global Inflation Expectations

Post by SimpleGift »

wassabi wrote: Thu Apr 30, 2020 2:23 pm Doesn't the inflationary impact from printing currency depend on how the new currency is circulated/used? For example, if the currency never makes it into the working economy then the currency will not drive up inflation?
Exactly right. Even though the Fed has been expanding its balance sheet over the last decade, the money multiplier or the rate at which the monetary base is converted into the money supply has been falling rapidly since 2008 (chart below).
This is one of the primary reasons that huge monetary stimulus has not caused inflation worldwide in recent crises. There just hasn't been the aggregate demand for loans by consumers and corporations that would lead to high inflation. It's been the same situation across the entire developed world, most notably in Japan and Europe.
Last edited by SimpleGift on Thu Apr 30, 2020 2:39 pm, edited 1 time in total.
nif
Posts: 12
Joined: Mon Mar 02, 2020 8:46 pm

Re: The Collapse in Global Inflation Expectations

Post by nif »

KlangFool wrote: Thu Apr 30, 2020 2:15 pm
nif wrote: Thu Apr 30, 2020 1:54 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm We are heading towards a short-term deflation and a long-term inflation.
Why do you think this is so?
1) We are printing a lot of currency via QE.

2) In the short-term, the demand is not there. -> Deflation.

3) In the longer-term, too much currency = hyper-inflation.

KlangFool
We have been increasing our money supply for decades, but that has not materialized into hyper-inflation.
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

nif wrote: Thu Apr 30, 2020 2:38 pm
KlangFool wrote: Thu Apr 30, 2020 2:15 pm
nif wrote: Thu Apr 30, 2020 1:54 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm We are heading towards a short-term deflation and a long-term inflation.
Why do you think this is so?
1) We are printing a lot of currency via QE.

2) In the short-term, the demand is not there. -> Deflation.

3) In the longer-term, too much currency = hyper-inflation.

KlangFool
We have been increasing our money supply for decades, but that has not materialized into hyper-inflation.
nif,

Bingo! The bubble just burst.

KlangFool

P.S.: The oil price had just gone negative. This had never happened in the 150+ years of oil price history.
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

EnjoyIt wrote: Thu Apr 30, 2020 2:27 pm
KlangFool wrote: Thu Apr 30, 2020 2:01 pm
SimpleGift wrote: Thu Apr 30, 2020 1:58 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm I do not believe their analysis to be based on any reality. So, back to my question again. Why do you think that it is reasonable?

We are heading towards a short-term deflation and a long-term inflation.
Your belief and the OP are in agreement. The U.S. Treasury breakeven rates are indeed expecting deflation in 2020 and 2021, but low inflation out to 2050 (chart below).
The OP analysis is about expected inflation in 10 years (circle above), which is currently about 0.95% for the United States. Your beliefs and the OP are in violent agreement!
SimpleGift,

I disagreed. We are heading towards hyperinflation after the short-term deflation.

KlangFool
Klangfool,
I'm not saying you are right or wrong, but, what you are saying is the exact same thing people said in 2010. What makes you believe that this time you are right?
Do you think that we are in normal time?

A) An unprecedented level of unemployment.

B) The oil price went negative.

C) All central banks have gone into QEs.

Anyone of them would be incredible. All of them at the same time?

KlangFool
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

wassabi wrote: Thu Apr 30, 2020 2:23 pm
Doesn't the inflationary impact from printing currency depend on how the new currency is circulated/used? For example, if the currency never makes it into the working economy then the currency will not drive up inflation?
wasabi,

That is true if we were not printing currency over the last 10+ years. It is the straw that breaks the camel's back.

KlangFool
EnjoyIt
Posts: 4774
Joined: Sun Dec 29, 2013 8:06 pm

Re: The Collapse in Global Inflation Expectations

Post by EnjoyIt »

KlangFool wrote: Thu Apr 30, 2020 2:49 pm
EnjoyIt wrote: Thu Apr 30, 2020 2:27 pm
KlangFool wrote: Thu Apr 30, 2020 2:01 pm
SimpleGift wrote: Thu Apr 30, 2020 1:58 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm I do not believe their analysis to be based on any reality. So, back to my question again. Why do you think that it is reasonable?

We are heading towards a short-term deflation and a long-term inflation.
Your belief and the OP are in agreement. The U.S. Treasury breakeven rates are indeed expecting deflation in 2020 and 2021, but low inflation out to 2050 (chart below).
The OP analysis is about expected inflation in 10 years (circle above), which is currently about 0.95% for the United States. Your beliefs and the OP are in violent agreement!
SimpleGift,

I disagreed. We are heading towards hyperinflation after the short-term deflation.

KlangFool
Klangfool,
I'm not saying you are right or wrong, but, what you are saying is the exact same thing people said in 2010. What makes you believe that this time you are right?
Do you think that we are in normal time?

A) An unprecedented level of unemployment.

B) The oil price went negative.

C) All central banks have gone into QEs.

Anyone of them would be incredible. All of them at the same time?

KlangFool
Have you ever heard "this time it is different?"

It appears that there is always something that is different, but at the end it ends up being the same. To be honest with you, I predicted inflation in 2010. it just made sense. Every country was printing money, lenders were going broke, it was an unprecedented time. It was definitely different then, but it turned out that we had low inflation and markets did great thereafter.

So why is this time somehow different?
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
User avatar
Topic Author
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: The Collapse in Global Inflation Expectations

Post by SimpleGift »

KlangFool wrote: Thu Apr 30, 2020 2:01 pm I disagreed. We are heading towards hyperinflation after the short-term deflation.
Seriously, what changes to your investment portfolio have you been making in light of your expectations for the hyperinflation to come? Or are you just trolling this thread?
ballons
Posts: 441
Joined: Sun Aug 18, 2019 3:05 pm

Re: The Collapse in Global Inflation Expectations

Post by ballons »

SimpleGift wrote: Thu Apr 30, 2020 2:24 pm The OP study looked at all 22 instances around the world since 1990 in which countries doubled or triples their monetary base in response to a financial crisis. None of them experienced high inflation. Don't forget that central banks can also easily do "quantitative tightening" if inflationary pressures arise in the years ahead.
"Easily?" They tried QT in 2018 which sent the economy heading towards the toilet.

https://www.federalreserve.gov/monetary ... trends.htm

There is now two great depressions sitting on the Fed's balance sheet.
TheoLeo
Posts: 192
Joined: Mon Apr 02, 2018 11:39 am

Re: The Collapse in Global Inflation Expectations

Post by TheoLeo »

Always happy to see a new thread by simplegift.
The implication of low inflation for investors depends on why the inflation is low, I´d say.
If it is low due to low demand (low gdp growth, aging or declining population), then stock returns will be lower too.
If inflation is low because products can be produced cheaper (cheap oil, automation), stock returns should not be lower.
If inflation is low because of tighter monetary policy (money supply relative to economic activity), bond yields should go up and stock and real estate prices down.
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

SimpleGift wrote: Thu Apr 30, 2020 3:03 pm
KlangFool wrote: Thu Apr 30, 2020 2:01 pm I disagreed. We are heading towards hyperinflation after the short-term deflation.
Seriously, what changes to your investment portfolio have you been making in light of your expectations for the hyperinflation to come? Or are you just trolling this thread?
SimpleGift,

I am buying Gold and Silver as my hedge against hyper-inflation.

KlangFool
bgf
Posts: 1534
Joined: Fri Nov 10, 2017 9:35 am

Re: The Collapse in Global Inflation Expectations

Post by bgf »

KlangFool wrote: Thu Apr 30, 2020 1:00 pm OP,

Why do you believe those inflation expectations are reasonable? With the amount of QE that is going on, it is unlikely to be true.

KlangFool
Why do you believe QE is inflationary?
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
TheoLeo
Posts: 192
Joined: Mon Apr 02, 2018 11:39 am

Re: The Collapse in Global Inflation Expectations

Post by TheoLeo »

KlangFool wrote: Thu Apr 30, 2020 3:51 pm SimpleGift,

I am buying Gold and Silver as my hedge against hyper-inflation.

KlangFool
Through which mechanisms do you think consumers will get their hands on so much money that it will cause hyper-inflation? Or do you expect a severe shortage of products?
bgf
Posts: 1534
Joined: Fri Nov 10, 2017 9:35 am

Re: The Collapse in Global Inflation Expectations

Post by bgf »

KlangFool wrote: Thu Apr 30, 2020 2:49 pm
EnjoyIt wrote: Thu Apr 30, 2020 2:27 pm
KlangFool wrote: Thu Apr 30, 2020 2:01 pm
SimpleGift wrote: Thu Apr 30, 2020 1:58 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm I do not believe their analysis to be based on any reality. So, back to my question again. Why do you think that it is reasonable?

We are heading towards a short-term deflation and a long-term inflation.
Your belief and the OP are in agreement. The U.S. Treasury breakeven rates are indeed expecting deflation in 2020 and 2021, but low inflation out to 2050 (chart below).
The OP analysis is about expected inflation in 10 years (circle above), which is currently about 0.95% for the United States. Your beliefs and the OP are in violent agreement!
SimpleGift,

I disagreed. We are heading towards hyperinflation after the short-term deflation.

KlangFool
Klangfool,
I'm not saying you are right or wrong, but, what you are saying is the exact same thing people said in 2010. What makes you believe that this time you are right?
Do you think that we are in normal time?

A) An unprecedented level of unemployment.

B) The oil price went negative.

C) All central banks have gone into QEs.

Anyone of them would be incredible. All of them at the same time?

KlangFool
its interesting that you're preparing for hyperinflation when all 3 of those things you listed are more likely to be deflationary.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
Broken Man 1999
Posts: 5081
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, inland on high ground!

Re: The Collapse in Global Inflation Expectations

Post by Broken Man 1999 »

KlangFool wrote: Thu Apr 30, 2020 3:51 pm
SimpleGift wrote: Thu Apr 30, 2020 3:03 pm
KlangFool wrote: Thu Apr 30, 2020 2:01 pm I disagreed. We are heading towards hyperinflation after the short-term deflation.
Seriously, what changes to your investment portfolio have you been making in light of your expectations for the hyperinflation to come? Or are you just trolling this thread?
SimpleGift,

I am buying Gold and Silver as my hedge against hyper-inflation.

KlangFool
What form are you buying? The only thing I would trust so far as having gold or silver would be physical coins/bars.

Me, I like 1 oz silver rounds. Gold seems as though it would be difficult to actually use. Gold rounds are available, but if you wanted smaller portions of gold, the price is quite a premium compared to the one oz pieces. Not sure how practical an oz of gold would be.

I will not be buying ETFs for gold or silver. I just don't trust anyone to hold my gold or silver for me. Physical only for all my current stash. Small, but growing with occasional buys.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

Broken Man 1999 wrote: Thu Apr 30, 2020 4:24 pm
KlangFool wrote: Thu Apr 30, 2020 3:51 pm
SimpleGift wrote: Thu Apr 30, 2020 3:03 pm
KlangFool wrote: Thu Apr 30, 2020 2:01 pm I disagreed. We are heading towards hyperinflation after the short-term deflation.
Seriously, what changes to your investment portfolio have you been making in light of your expectations for the hyperinflation to come? Or are you just trolling this thread?
SimpleGift,

I am buying Gold and Silver as my hedge against hyper-inflation.

KlangFool
What form are you buying? The only thing I would trust so far as having gold or silver would be physical coins/bars.

Me, I like 1 oz silver rounds. Gold seems as though it would be difficult to actually use. Gold rounds are available, but if you wanted smaller portions of gold, the price is quite a premium compared to the one oz pieces. Not sure how practical an oz of gold would be.

I will not be buying ETFs for gold or silver. I just don't trust anyone to hold my gold or silver for me. Physical only for all my current stash. Small, but growing with occasional buys.

Broken Man 1999
Broken Man 1999,

1) I am buying gold and silver coins.

<<if you wanted smaller portions of gold, the price is quite a premium compared to the one oz pieces. >>

2) It is not a problem if you believe gold price is going up 10X to 30X in hyperinflation.

3) Keeping 1% of your portfolio in Gold/Silver as an hyperinflation insurance.

KlangFool
JonnyB
Posts: 688
Joined: Sun Jan 19, 2020 5:28 pm

Re: The Collapse in Global Inflation Expectations

Post by JonnyB »

KlangFool wrote: Thu Apr 30, 2020 2:15 pm
nif wrote: Thu Apr 30, 2020 1:54 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm We are heading towards a short-term deflation and a long-term inflation.
Why do you think this is so?
1) We are printing a lot of currency via QE.

2) In the short-term, the demand is not there. -> Deflation.

3) In the longer-term, too much currency = hyper-inflation.

KlangFool
No, the Fed is not printing currency with quantitative easing. It is "printing" bank reserves, electronic money. These reserves are just sitting in the accounts of commercial banks at the Federal Reserve going nowhere.

Some people have been saying for 10 years that these reserves will leak into the money supply and cause inflation. They have been consistently wrong for 10 years.
KlangFool
Posts: 17844
Joined: Sat Oct 11, 2008 12:35 pm

Re: The Collapse in Global Inflation Expectations

Post by KlangFool »

JonnyB wrote: Thu Apr 30, 2020 4:56 pm
KlangFool wrote: Thu Apr 30, 2020 2:15 pm
nif wrote: Thu Apr 30, 2020 1:54 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm We are heading towards a short-term deflation and a long-term inflation.
Why do you think this is so?
1) We are printing a lot of currency via QE.

2) In the short-term, the demand is not there. -> Deflation.

3) In the longer-term, too much currency = hyper-inflation.

KlangFool
No, the Fed is not printing currency with quantitative easing. It is "printing" bank reserves, electronic money. These reserves are just sitting in the accounts of commercial banks at the Federal Reserve going nowhere.

Some people have been saying for 10 years that these reserves will leak into the money supply and cause inflation. They have been consistently wrong for 10 years.
JonnyB,

And, the bull market will last forever after 10+ years.

KlangFool
7eight9
Posts: 1457
Joined: Fri May 17, 2019 7:11 pm

Re: The Collapse in Global Inflation Expectations

Post by 7eight9 »

Deflation would be a dream come true. Just put the money under the mattress and sleep well at night. No need to gamble, speculate, invest in the stock market.
I guess it all could be much worse. | They could be warming up my hearse.
rockthisworld
Posts: 301
Joined: Wed Oct 17, 2018 9:37 am

Re: The Collapse in Global Inflation Expectations

Post by rockthisworld »

We may see a period of deflationary pressure on the economy short term but the back end of this will probably lead to inflation due to rates at 0%, and all of this stimulus.

Once the feds see inflation rise above 2% they will act accordingly to scale things as needed to maintain steady 2% inflation target. The purpose of the fed is to promote maximum employment, stable prices, and moderate long term interest rates.
rockthisworld
Posts: 301
Joined: Wed Oct 17, 2018 9:37 am

Re: The Collapse in Global Inflation Expectations

Post by rockthisworld »

7eight9 wrote: Thu Apr 30, 2020 6:33 pm Deflation would be a dream come true. Just put the money under the mattress and sleep well at night. No need to gamble, speculate, invest in the stock market.
Actually it is the exact reason that deflation is scary for economic growth as it changes the behavior and instead of the money circulating in the economy it will be hoarded thus slowing growth.
User avatar
Topic Author
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: The Collapse in Global Inflation Expectations

Post by SimpleGift »

One of the implications of the low expected inflation rates in the OP is that inflation is largely a global phenomenon today. Certainly the U.S. has a disproportionate influence on global inflation (since it's about 25% of global GDP) — but ever since the 1980s, U.S. inflation rates have moved more or less in synch with other advanced economies (chart below).
So one can't talk about future U.S. inflation in isolation, since its fate is tied in large part to inflation in other advanced economies. In short, we won't see hyperinflation in the U.S. at the same time as deflation in Japan and Europe.
typical.investor
Posts: 2300
Joined: Mon Jun 11, 2018 3:17 am

Re: The Collapse in Global Inflation Expectations

Post by typical.investor »

SimpleGift wrote: Thu Apr 30, 2020 8:48 pm One of the implications of the low expected inflation rates in the OP is that inflation is largely a global phenomenon today. Certainly the U.S. has a disproportionate influence on global inflation (since it's about 25% of global GDP) — but ever since the 1980s, U.S. inflation rates have moved more or less in synch with other advanced economies (chart below).
So one can't talk about future U.S. inflation in isolation anymore, since its fate is tied in large part to inflation in other advanced economies — i.e., we won't see hyperinflation in the U.S. at the same time as deflation in Japan and Europe.
I agree.

I believe Vanguard chooses hedged international bonds in its Target Retirement funds and Personal Advisory accounts on the premise that inflation will be localized. It may be that they won't provide the intended benefit of holding fixed income from someplace that won't lose NAV when inflation hits someplace else.

What would it take to see inflation globally? Is that something that could happen in my lifetime? I wonder what the consequences would be. Sadly beyond my desire or ability to contemplate.
User avatar
AerialWombat
Posts: 1798
Joined: Tue May 29, 2018 1:07 pm
Location: Cash Canyon / Cashville

Re: The Collapse in Global Inflation Expectations

Post by AerialWombat »

What impact might this have on arguments for or against investing in TIPS?
bgf
Posts: 1534
Joined: Fri Nov 10, 2017 9:35 am

Re: The Collapse in Global Inflation Expectations

Post by bgf »

KlangFool wrote: Thu Apr 30, 2020 5:02 pm
JonnyB wrote: Thu Apr 30, 2020 4:56 pm
KlangFool wrote: Thu Apr 30, 2020 2:15 pm
nif wrote: Thu Apr 30, 2020 1:54 pm
KlangFool wrote: Thu Apr 30, 2020 1:39 pm We are heading towards a short-term deflation and a long-term inflation.
Why do you think this is so?
1) We are printing a lot of currency via QE.

2) In the short-term, the demand is not there. -> Deflation.

3) In the longer-term, too much currency = hyper-inflation.

KlangFool
No, the Fed is not printing currency with quantitative easing. It is "printing" bank reserves, electronic money. These reserves are just sitting in the accounts of commercial banks at the Federal Reserve going nowhere.

Some people have been saying for 10 years that these reserves will leak into the money supply and cause inflation. They have been consistently wrong for 10 years.
JonnyB,

And, the bull market will last forever after 10+ years.

KlangFool
The bull market is dead if you haven't noticed... also, i don't see hyperinflation in Japan either. Why is that? QE has been going on in Japan for a very long time.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
typical.investor
Posts: 2300
Joined: Mon Jun 11, 2018 3:17 am

Re: The Collapse in Global Inflation Expectations

Post by typical.investor »

SimpleGift wrote: Thu Apr 30, 2020 12:34 pm At these low rates of expected inflation, it's likely that the Fed and other central banks around the world will not come close to meeting their 2% inflation targets in the coming decade. It's also increasingly possible that long-term inflation expectations in the developed world might permanently reset lower, into the 0.5%-1.0% range.

Implications for investors in the years ahead?
I would expect LTT to be in vogue for their rebalancing properties. If inflation is not feared, why not earn a tiny bit more and be able to rebalance effectively.

If inflation is low, I would expect leverage use to jump. And I would expect higher volatility whenever a downturn hits and deleveraging occurs.

I think we have seen those things.

If global hyperinflation occurs, I don't believe gold will be of that much value. If everyone is paying more money for food, rent and everything else, why would gold be valuable? I believe its value will be its value as set by the value of its use in industry and jewelry.

Rare stamps, collector cars, art and gold will surely all appreciate due to scarcity, but in globalized inflation, I think the only things to be valuable beyond inflation will be assets that are physically productive. Global inflation will be a true crisis, and in a true crisis things are priced by real necessity with a premium going to necessary things that are scare.
User avatar
Topic Author
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: The Collapse in Global Inflation Expectations

Post by SimpleGift »

typical.investor wrote: Thu Apr 30, 2020 8:55 pm What would it take to see inflation globally? Is that something that could happen in my lifetime?
One can imagine ways that we might see short-term bouts or spikes of global inflation in the next 10 or 20 years — for example, a war in the Middle East that blocked oil shipments through the Strait of Hormuz. But surely this would be temporary, as the military might of the developed world would not stand it for long.

To have sustained, high inflation in the advanced countries in the years ahead, we'd need to see more rapid economic growth, higher aggregate demand from consumers and greater investment by corporations, I believe. But this would be in the face of strong demographic and technological headwinds that have been pushing down inflation for decades.

Personally, I can't be too optimistic about rapid future economic growth in the developed world. If interested in more on this, see a recent Forum discussion: BOOK: Fully Grown, Why a Stagnant Economy is a Sign of Success
Last edited by SimpleGift on Thu Apr 30, 2020 9:56 pm, edited 2 times in total.
Dink2018
Posts: 86
Joined: Wed Sep 26, 2018 11:55 pm

Re: The Collapse in Global Inflation Expectations

Post by Dink2018 »

KlangFool wrote: Thu Apr 30, 2020 4:38 pm
Broken Man 1999 wrote: Thu Apr 30, 2020 4:24 pm
KlangFool wrote: Thu Apr 30, 2020 3:51 pm
SimpleGift wrote: Thu Apr 30, 2020 3:03 pm
KlangFool wrote: Thu Apr 30, 2020 2:01 pm I disagreed. We are heading towards hyperinflation after the short-term deflation.
Seriously, what changes to your investment portfolio have you been making in light of your expectations for the hyperinflation to come? Or are you just trolling this thread?
SimpleGift,

I am buying Gold and Silver as my hedge against hyper-inflation.

KlangFool
What form are you buying? The only thing I would trust so far as having gold or silver would be physical coins/bars.

Me, I like 1 oz silver rounds. Gold seems as though it would be difficult to actually use. Gold rounds are available, but if you wanted smaller portions of gold, the price is quite a premium compared to the one oz pieces. Not sure how practical an oz of gold would be.

I will not be buying ETFs for gold or silver. I just don't trust anyone to hold my gold or silver for me. Physical only for all my current stash. Small, but growing with occasional buys.

Broken Man 1999
Broken Man 1999,

1) I am buying gold and silver coins.

<<if you wanted smaller portions of gold, the price is quite a premium compared to the one oz pieces. >>

2) It is not a problem if you believe gold price is going up 10X to 30X in hyperinflation.

3) Keeping 1% of your portfolio in Gold/Silver as an hyperinflation insurance.

KlangFool
I'm at 20% in gold...

Does that make me crazy?

Do you think 1% is really enough to do anything? I guess if things really blow up it will help, but man, 1% is not really going to move the needle much unless things really blow up.
wootwoot
Posts: 577
Joined: Tue Jan 27, 2009 7:37 pm

Re: The Collapse in Global Inflation Expectations

Post by wootwoot »

Op why do you put so much faith in a forecast? This, like every other forecast or prediction, means very little. Nobody knows the future and every forecast that I've seen gets it wrong, especially over longer timelines. Stay the course and tune out the noise.
absolute zero
Posts: 518
Joined: Thu Dec 29, 2016 4:59 pm

Re: The Collapse in Global Inflation Expectations

Post by absolute zero »

wootwoot wrote: Thu Apr 30, 2020 10:01 pm Op why do you put so much faith in a forecast? This, like every other forecast or prediction, means very little. Nobody knows the future and every forecast that I've seen gets it wrong, especially over longer timelines. Stay the course and tune out the noise.
The OP didn’t present a “forecast.” The OP presented breakeven inflation rates. While not a forecast, these numbers do represent the average “implicit” inflation expectation of millions of investors. Not the expectations of a bank, or an economist, or some guru. But instead, millions of investors. Ever heard the term “put your money where your mouth is?”

I get your point though, and agree that the data has to be treated as only a “hint” of what the future *may* look like. But I’d be inclined to trust this before I’d trust a forecast.
User avatar
Topic Author
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: The Collapse in Global Inflation Expectations

Post by SimpleGift »

wootwoot wrote: Thu Apr 30, 2020 10:01 pm Op why do you put so much faith in a forecast? This, like every other forecast or prediction, means very little.
If some off-the-wall economist was making a forecast of expected 10-year inflation, I would agree with you. In this case, looking at 10-year breakeven inflation rates from the major developed bond markets of the world (with 85% of all outstanding bonds), which are being determined by millions of global bond investors and traders with their own real money on the line, then yes, I at least pay attention.

Not to say that global bond markets are infallible — but along with all the other demographic, economic and technological trends that have been driving global inflation rates steadily lower for the past 30 years, there's quite a weight of evidence in the direction of low future inflation. But believe the evidence or not.
Post Reply