Diversification is not always, automatically, a free lunch

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nedsaid
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Re: Diversification is not always, automatically, a free lunch

Post by nedsaid » Tue Jan 14, 2020 10:18 am

rossington wrote:
Tue Jan 14, 2020 4:49 am
nedsaid wrote:
Sat Jan 11, 2020 10:03 pm
Part of the problem here is the fight the last war problem. Larry Swedroe is old enough to remember the inflation from the 1970's and I am too. I am an inflation hawk from way back. Larry's memories of the oil shocks and the bear market of 1973-74 are pretty well seared into his consciousness and this was reflected in earlier recommendation for Collateralized Commodity Futures and the Pimco Real Return fund. Somehow the Maginot Line designed for a repeat of World War I wasn't much of a defense against General Guderian's Panzer Divisions in World War II. What would have worked great in World War I didn't work so great in World War II. In Larry's case, then Federal Reserve Chief Paul Volcker slayed the inflation dragon and the dreaded 1970's era Stagflation never returned. In retrospect, Larry looks a bit like those French Generals and the designer of the Maginot Line.

So I am a bit like that, I have my REITs and TIPS locked and loaded and ready to fire at inflation when I see the whites of its eyes. So I stick with my old fashioned investments while my fellow Bogleheads have mostly moved on. Inflation seems pretty tame now and it has been for some time. Indeed, we were actually starting to worry about deflation. But by golly, I remember the 1970's. Inflation will rear its ugly head any minute now!
But now we are energy independent as the largest producer of oil in the world.
Inflation will rear its ugly head any minute now!
Not from energy.... as was the primary inflation driver in the the 70's. Fracking, drilling, technology has replaced our "Maginot Line" and defeated the Mideast OPEC "Panzers".
I have my REITs and TIPS locked and loaded and ready to fire at inflation when I see the whites of its eyes.

REITS ("Quality" REIT companies) and TIPS (....maybe) seem fine to me.
The question is where is the inflation coming from anytime soon?
So I stick with my old fashioned investments while my fellow Bogleheads have mostly moved on.
To what? (Do you mean....just curious).
Yes, the threat from inflation coming from the energy sector seems remote now because of fracking. We now that low prices tend to spur higher consumption so hard to say if energy inflation is dead. I don't believe energy inflation to be dead but I don't see it in the near future.

One of drivers of inflation has been wage pressures, unemployment is very low but wage inflation is rather mute. A couple of reasons for this, I think. First, we are still seeing outsourcing and off-shoring. This is happening to white collar workers now. Second, lots of people are working but below their potential, particularly older workers. Lots of jobs are temp jobs now. There are also a lot of what I call crummy jobs out there, shorter term, low wages, and no benefits.

We have experienced declining inflation for so many years now, since 1982, we have become complacent. I don't see inflation roaring back in the near future for the reasons listed above but the unexpected has a way of happening.

Bogleheads have just simply dropped REITs and TIPS, going from a five fund to a three fund portfolio in a drive for simplicity.
A fool and his money are good for business.

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