Vectors May 2021

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Vectors May 2021

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another great Vectors by George Sistri (this one for May 2021):

https://oncoursefp.com/images/Vectors%2 ... 0final.pdf

he talks about inflation:
Are these inflation fears justified? Perhaps, but the March 2021 CPI data is misleading. Last March, the CPI fell 0.2% from February, so the CPI rose just2.4% from February 2020 through March 2021.The CPI fell another 0.7% last April, so last week's Labor Department report that the April year-over-year CPI rose 4.2% is misleading.Year-over-year comparisons to months in which the CPI fell tend to overstate current inflation. Nevertheless,it produced large font, clickbait headlines proclaiming:The Highest Annual Inflation Rate In 13 Years! and gave inflation doomsayers, who will not mention the deflationary period of March through May last year, the opportunity to assert that higher inflation is upon us. They will also fail tomention that even after the high CPI numbers of the past two months,the CPI has increased at just a 2.2% annualized rate over the past 24 months
and inflation hedges like TIPS:
Every TIP bond has an implied inflation rate called the “breakeven rate.” In the first week of May, the 10-year nominal (non-inflation adjusted)Treasury note was yielding 1.6% and the 10-year TIP was yielding -0.8% . The difference, 2.4%, is the "breakeven rate"–what bond market participants expect inflation to be over the next decade.If inflation averages morethan 2.4% over the next decade, the TIP is the preferred investment. On the other hand, if inflation averages less than 2.4%, you will be better off owning the higher yielding nominal 10-year Treasury. Since nobody knows what inflation will be over the next decade, wise investors will own both nominal and inflation-protected Treasury securities.
stocks:
Stocks have been excellent inflation beaters.Over the past 90 years, large company domestic stocks have yielded an annualized rate of return about 7% greater than inflation. During times of elevated inflation,companies pass on their higher costs to consumers to maintain their profitability and it is these price increases that lead to increases in the CP
gold:
Contrary to what many people believe, gold has not been an effective inflation hedge.Annual inflation averaged 7.4% in the 1970s and peaked at 12.4% in 1980. Gold rose from about $100/oz. in 1976 to more than $700/oz.in 1980, making it appear to be a good inflation hedge. But at its May 1stprice of $1,770/oz. it has not kept up with inflation since 1980. It ishard to see how gold can act as an inflation hedge. It has no intrinsic value; does not grow over time,it generates no income or dividends,and its price suffers from random volatility
and finally...bitcoin:
Some people call bitcoin digital gold and see it as a hedge against inflation. But an asset with no intrinsic value cannot be an inflation hedge. Bitcoin is the most popular cryptocurrency, and the most hyped asset in the world. Greed, speculation, and naïve investors have had a big impact on the price of bitcoin and its price volatility makes it unsuitable as a replacement for government backed fiat money. Its price rose to near $65,000 on April 14th. Less than 10 days later, its price collapsed to below $50,000 -a 23% decline–calling into question claims that it is a good store of value. Bitcoin cannot be considered to be avalid currency as long as there are ongoing concernsabout safe custody, fraud and price manipulation. It is not legal tender for paying debts and taxes and the IRS considers it to be an asset, not a currency. Thus, each bitcoin transaction is a taxable event. One claim of bitcoin acolytes is that it will maintain its price because there are a limited number of bitcoins that can be "mined". But there are an unlimited number of other cryptocurrencies that can be "mined", including those that might be issued by central banks as legal tender. When there is an unlimited supply of anasset, it's hard to see how any price above zero can be justified.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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