Hi! I'm high inflation. Nice to meet you.

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

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BigJohn wrote: Sat Nov 20, 2021 4:38 pm
nedsaid wrote: Fri Nov 19, 2021 1:50 pm TIPS have been pretty expensive for a while now, otherwise I would have jumped into them with both feet.
I keep seeing comments like this but don’t understand. Why do you think TIPS are more expensive than nominal treasuries of the same duration? At the breakeven inflation rate they deliver the same result.
Here is the deal, TIPS are supposed to protect your purchasing power. With negative real yields, TIPS now guarantee that you will lose purchasing power to inflation though you will fare better than nominal bonds if inflation is above the breakeven rate. It is all about preserving the purchasing power. I am not the only one with a bit of heartburn over this.
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Robot Monster
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Re: Hi! I'm high inflation. Nice to meet you.

Post by Robot Monster »

nedsaid wrote: Sat Nov 20, 2021 4:27 pm We can't really discuss tactical asset allocation here...

...So each time I hear the phrase "higher inflation is transitory", I get more nervous. So that is about all I will say.

Let's see what the November CPI numbers are, see if there are signs of the trend of higher inflation abating. I may go in and switch more nominal bonds for TIPS as I am concerned that certain things could spiral out of control.
If inflation really started to spiral out of control, would the Fed finally start taking inflation seriously, and tighten? The Schwab 2022 Fixed Income Outlook says, "Our expectation is that the Fed will take a gradual approach to tightening monetary policy as long as inflation expectations do not remain significantly above the 2.5% to 3.0% level." link Of course, Schwab isn't necessarily reliable with their predictions e.g. link I'm leery talking about tactical because how do very unreliable predictions are. So, it's probably best to ignore, let's say, BlackRock's tactical allocation of underweight nominal Treasuries, overweight TIPS. link

I will admit I sinned against Boglehead philosophy a little, listened to the noise (below), and put some money in Vanguard Consumer Staples Fund, and the Utilities Fund.
The inflationary backdrop, according to Siegel, may set-up underperformers utilities and consumer staples, known for their dividends, for a strong run.

“They may have their day in the sun finally,” said Siegel. “If you have a dividend, firms can raise their prices and historically dividends are inflation-protected. They’re not as stable, of course, as a government bond. But they have that inflation protection and a positive yield.”
link
"The downs are part of the long term upward trend." -- our favorite golfer
BigJohn
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Re: Hi! I'm high inflation. Nice to meet you.

Post by BigJohn »

nedsaid wrote: Sat Nov 20, 2021 7:14 pm
BigJohn wrote: Sat Nov 20, 2021 4:38 pm
nedsaid wrote: Fri Nov 19, 2021 1:50 pm TIPS have been pretty expensive for a while now, otherwise I would have jumped into them with both feet.
I keep seeing comments like this but don’t understand. Why do you think TIPS are more expensive than nominal treasuries of the same duration? At the breakeven inflation rate they deliver the same result.
Here is the deal, TIPS are supposed to protect your purchasing power. With negative real yields, TIPS now guarantee that you will lose purchasing power to inflation though you will fare better than nominal bonds if inflation is above the breakeven rate. It is all about preserving the purchasing power. I am not the only one with a bit of heartburn over this.
I understand that the guaranteed negative real yield gives lots of people heartburn but…. nominals can have any even higher negative real yield and do right now. So you’re losing more purchasing power hold nominals. There are no guarantees, that’s just the price of inflation insurance as it does have a cost/risk even when the real rates of both are positive.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
MindBogler
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Re: Hi! I'm high inflation. Nice to meet you.

Post by MindBogler »

Robot Monster wrote: Sat Nov 20, 2021 8:38 pm If inflation really started to spiral out of control, would the Fed finally start taking inflation seriously, and tighten?
I think the answer is yes. And I also think history tells us they will react too late. I think they should be tapering their bond purchases at 2-3x the current pace and then begin raising rates immediately. The longer they let this go on the more pain that will be required to bring it under control.
finite_difference
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Re: Hi! I'm high inflation. Nice to meet you.

Post by finite_difference »

MindBogler wrote: Sat Nov 20, 2021 8:57 pm
Robot Monster wrote: Sat Nov 20, 2021 8:38 pm If inflation really started to spiral out of control, would the Fed finally start taking inflation seriously, and tighten?
I think the answer is yes. And I also think history tells us they will react too late. I think they should be tapering their bond purchases at 2-3x the current pace and then begin raising rates immediately. The longer they let this go on the more pain that will be required to bring it under control.
On the other hand, if they tighten too fast the economy will go into recession.
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Wricha
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sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
And if I can get long term T-bills at 18% my AA is going to change irrespective of what personal financial statement said.
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nedsaid
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Wricha wrote: Sat Nov 20, 2021 9:46 pm
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
And if I can get long term T-bills at 18% my AA is going to change irrespective of what personal financial statement said.
From now on, I will use the Nedsaid secret code so that only my loyal followers can be up to date on my latest thinking. After all of the flak I am getting. :wink:
Se longtempaj interezoprocentoj iras ĝis 18%, vi pli bone kredu, ke mia valoraĵa atribuo ŝanĝiĝos eĉ se miaj kunuloj Bogleheads akuzas min pri merkata tempo.
The decoder rings will be yours, if you just send in three box tops.
A fool and his money are good for business.
BigJohn
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Re: Hi! I'm high inflation. Nice to meet you.

Post by BigJohn »

nedsaid wrote: Sun Nov 21, 2021 9:47 am From now on, I will use the Nedsaid secret code so that only my loyal followers can be up to date on my latest thinking. After all of the flak I am getting. :wink:
Well, I hope you don’t go to the secret code, I enjoy reading and engaging in your posts. I also hope you don’t think I’m giving you flak. Just trying to present an alternate way to “think” about TIPS. It may or may not help but here’s where I got before I made the change to 50/50.

I buy home owners insurance. If my house doesn’t burn down, I am not upset or angry that I lost money. I recognize that it’s just a cost of home ownership to protect myself against catastrophic loss. I’d really rather it was wasted money because I don’t want my house to burn down. If I had assets worth 100x my house value, I might chose a different path and self-insure rather than pay that cost. Either way, since you never know if/when you house is going to burn down, you make the decision and accept the consequences.

I look at TIPS in exactly the same way. With a fairly high bond allocation, I decided that a few years of very high inflation represented a significant risk. To protect myself from that risk, I went to 50/50 TIPS/nominals. When inflation was below breakeven, it was just the cost of that insurance. Obviously, I’m glad to have it now but I would have been just as glad to continue to pay the premium and see inflation at a stable 2%.

You already have some allocation to TIPS. So my advice is to look at your personal situation and decide whether you need more inflation insurance or whether you can afford to self-insure. If you really need more, then waiting just adds risk that your house burns down in the interim. If you can afford to self-insure, stay the course knowing you’ll might take a hit but that it won’t be catastrophic and you’ll survive. Then go back to enjoying your retirement and not worrying about this too much. :beer
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
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Wricha
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Re: Hi! I'm high inflation. Nice to meet you.

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nedsaid wrote: Sun Nov 21, 2021 9:47 am
Wricha wrote: Sat Nov 20, 2021 9:46 pm
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
And if I can get long term T-bills at 18% my AA is going to change irrespective of what personal financial statement said.
From now on, I will use the Nedsaid secret code so that only my loyal followers can be up to date on my latest thinking. After all of the flak I am getting. :wink:
Se longtempaj interezoprocentoj iras ĝis 18%, vi pli bone kredu, ke mia valoraĵa atribuo ŝanĝiĝos eĉ se miaj kunuloj Bogleheads akuzas min pri merkata tempo.
The decoder rings will be yours, if you just send in three box tops.
No disrespect intended I just want another shot at an 18% government bond :D
Last edited by Wricha on Sun Nov 21, 2021 11:13 am, edited 1 time in total.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

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BigJohn wrote: Sun Nov 21, 2021 10:54 am
nedsaid wrote: Sun Nov 21, 2021 9:47 am From now on, I will use the Nedsaid secret code so that only my loyal followers can be up to date on my latest thinking. After all of the flak I am getting. :wink:
Well, I hope you don’t go to the secret code, I enjoy reading and engaging in your posts. I also hope you don’t think I’m giving you flak. Just trying to present an alternate way to “think” about TIPS. It may or may not help but here’s where I got before I made the change to 50/50.

I buy home owners insurance. If my house doesn’t burn down, I am not upset or angry that I lost money. I recognize that it’s just a cost of home ownership to protect myself against catastrophic loss. I’d really rather it was wasted money because I don’t want my house to burn down. If I had assets worth 100x my house value, I might chose a different path and self-insure rather than pay that cost. Either way, since you never know if/when you house is going to burn down, you make the decision and accept the consequences.

I look at TIPS in exactly the same way. With a fairly high bond allocation, I decided that a few years of very high inflation represented a significant risk. To protect myself from that risk, I went to 50/50 TIPS/nominals. When inflation was below breakeven, it was just the cost of that insurance. Obviously, I’m glad to have it now but I would have been just as glad to continue to pay the premium and see inflation at a stable 2%.

You already have some allocation to TIPS. So my advice is to look at your personal situation and decide whether you need more inflation insurance or whether you can afford to self-insure. If you really need more, then waiting just adds risk that your house burns down in the interim. If you can afford to self-insure, stay the course knowing you’ll might take a hit but that it won’t be catastrophic and you’ll survive. Then go back to enjoying your retirement and not worrying about this too much. :beer
Your comments were very thoughtful. You sound a lot like Vineviz, and that is a complement.

I view TIPS as a long term commitment certainly not trying to time this. It is just that I had a hard time buying them with either very, very low real yields or outright negative real yields. Other folks on the forum that I greatly respect were not sure what to do either. Also, we were concerned about deflation, indeed the economy toyed with it, "whiffs of deflation", but we never really experienced it beyond maybe one quarter. In that environment, and with all bonds expensive, you can see why I didn't load up on TIPS. Didn't feel the urgency. Once I started getting concerned about possible higher inflation, maybe 1 1/2 years ago, I wondered if I was "too late" to get TIPS. So I took a middle course.

I know that longer term, I am willing to sacrifice a little yield in exchange for inflation protection, so that is not a problem. Really, it boiled down to valuation of asset classes.

Weird, but as part of trying to buy cheaper asset classes I find that I have been running in place. Man, thinking that I had run several miles only to find that I was on a treadmill. A good example of this has been U.S. Stocks to International Stocks rebalancing, an expensive to cheap rebalance. The relative performance of U.S. Stocks compared to International has been strong so that my U.S. to International Stock ratio has remained about the same. The needle is stuck at International being at 28% of my equities.

So all those folks who think that I have been doing all of this market timing haven't seen me on the treadmill huffing and puffing thinking that I have actually gone somewhere. Alluding to Shakespeare, all that huffing and puffing signifying not much.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

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Wricha wrote: Sun Nov 21, 2021 11:12 am
nedsaid wrote: Sun Nov 21, 2021 9:47 am
Wricha wrote: Sat Nov 20, 2021 9:46 pm
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
And if I can get long term T-bills at 18% my AA is going to change irrespective of what personal financial statement said.
From now on, I will use the Nedsaid secret code so that only my loyal followers can be up to date on my latest thinking. After all of the flak I am getting. :wink:
Se longtempaj interezoprocentoj iras ĝis 18%, vi pli bone kredu, ke mia valoraĵa atribuo ŝanĝiĝos eĉ se miaj kunuloj Bogleheads akuzas min pri merkata tempo.
The decoder rings will be yours, if you just send in three box tops.
No disrespect intended I just want another shot at an 18% government bond :D
Me too.

No need to send in box tops. I used Google translate to put my message into Esperanto, a language that I don't think anyone really speaks. Someone invented it with the hope it would be a universal language but it never caught on. It sort of looks like a combination Spanish and maybe Czech to me.

Here is the decoded message:
If long term interest rates go up to 18%, you better believe that my asset allocation will change even if my fellow Bogleheads accuse me of market timing.
A fool and his money are good for business.
BigJohn
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Re: Hi! I'm high inflation. Nice to meet you.

Post by BigJohn »

nedsaid wrote: Sun Nov 21, 2021 11:13 am Your comments were very thoughtful. You sound a lot like Vineviz, and that is a complement.
High praise indeed, thanks!
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
Robot Monster
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Post by Robot Monster »

nedsaid wrote: Sun Nov 21, 2021 11:13 am
BigJohn wrote: Sun Nov 21, 2021 10:54 am ...I buy home owners insurance. If my house doesn’t burn down, I am not upset or angry that I lost money. I recognize that it’s just a cost of home ownership to protect myself against catastrophic loss. I’d really rather it was wasted money because I don’t want my house to burn down....I look at TIPS in exactly the same way...
I view TIPS as a long term commitment certainly not trying to time this. It is just that I had a hard time buying them with either very, very low real yields or outright negative real yields.
TIPS are expensive, maybe very expensive, but, as they say, maybe they're expensive for a reason. Maybe BigJohn's home owner's insurance is very expensive, and keeps getting more expensive, but only because a nearby wildfire is creeping closer and closer to his house. Maybe, though expensive, that insurance is still worth buying?
"The downs are part of the long term upward trend." -- our favorite golfer
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Youngblood
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Post by Youngblood »

I wonder what Paul Volcker would say in regards to current inflation and Powell's transitory refrain?
"I made my money by selling too soon." | Bernard M. Baruch
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nedsaid
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Post by nedsaid »

Robot Monster wrote: Sun Nov 21, 2021 12:24 pm
nedsaid wrote: Sun Nov 21, 2021 11:13 am
BigJohn wrote: Sun Nov 21, 2021 10:54 am ...I buy home owners insurance. If my house doesn’t burn down, I am not upset or angry that I lost money. I recognize that it’s just a cost of home ownership to protect myself against catastrophic loss. I’d really rather it was wasted money because I don’t want my house to burn down....I look at TIPS in exactly the same way...
I view TIPS as a long term commitment certainly not trying to time this. It is just that I had a hard time buying them with either very, very low real yields or outright negative real yields.
TIPS are expensive, maybe very expensive, but, as they say, maybe they're expensive for a reason. Maybe BigJohn's home owner's insurance is very expensive, and keeps getting more expensive, but only because a nearby wildfire is creeping closer and closer to his house. Maybe, though expensive, that insurance is still worth buying?
Sort of reminds me of the old Jack Benny sketch where he is held up by an armed robber.

Robber: "Your money or your life."
(pause)
Robber: "Your money or your life."
Benny: "I'm thinking, I'm thinking."

Like Jack Benny, I'm thinking, I'm thinking.
A fool and his money are good for business.
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Wricha
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nedsaid wrote: Sun Nov 21, 2021 11:19 am
Wricha wrote: Sun Nov 21, 2021 11:12 am
nedsaid wrote: Sun Nov 21, 2021 9:47 am
Wricha wrote: Sat Nov 20, 2021 9:46 pm
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
And if I can get long term T-bills at 18% my AA is going to change irrespective of what personal financial statement said.
From now on, I will use the Nedsaid secret code so that only my loyal followers can be up to date on my latest thinking. After all of the flak I am getting. :wink:
Se longtempaj interezoprocentoj iras ĝis 18%, vi pli bone kredu, ke mia valoraĵa atribuo ŝanĝiĝos eĉ se miaj kunuloj Bogleheads akuzas min pri merkata tempo.
The decoder rings will be yours, if you just send in three box tops.
No disrespect intended I just want another shot at an 18% government bond :D
Me too.

No need to send in box tops. I used Google translate to put my message into Esperanto, a language that I don't think anyone really speaks. Someone invented it with the hope it would be a universal language but it never caught on. It sort of looks like a combination Spanish and maybe Czech to me.

Here is the decoded message:
If long term interest rates go up to 18%, you better believe that my asset allocation will change even if my fellow Bogleheads accuse me of market timing.
Yes you nailed it.
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JoeRetire
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Youngblood wrote: Sun Nov 21, 2021 12:48 pm I wonder what Paul Volcker would say in regards to current inflation and Powell's transitory refrain?
Mr. Volker isn't available for comments on the current situation.
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nedsaid
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Youngblood wrote: Sun Nov 21, 2021 12:48 pm I wonder what Paul Volcker would say in regards to current inflation and Powell's transitory refrain?
No way to know for certain, my suspicion is that Volcker would be aghast at Powell's comments. He was an inflation hawk, Powell seems more dovish. But hard to say, the current situation is unlike the late 1970's to early 1980's, there are honest disagreements about the "transitory" part. My concern is that we have been in a declining interest rate and declining inflation environment for so long that we can't imagine anything different. I remember how so many experts, people I respect, were caught off guard by the Subprime Crisis which led to a broader and systemic financial crisis. I have a similar concern about the current inflation spike. Experts are not always right.
A fool and his money are good for business.
BigJohn
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Post by BigJohn »

nedsaid wrote: Sun Nov 21, 2021 11:13 am Also, we were concerned about deflation, indeed the economy toyed with it, "whiffs of deflation", but we never really experienced it beyond maybe one quarter.
Nedsaid, one more thought on this comment.

Much of my thinking on portfolio risk management comes from reading William Bernstein’s “Deep Risk” book. He talks very specifically about different risks in terms of insurance including both probability of the event as well as the cost. Here’s a couple of paragraphs on deflation.
The investor faces a far more complex problem insuring against the four horsemen (inflation, deflation, confiscation, and devastation), since they carry not only differing probabilities but also differing consequences and insurance costs. The easiest way to understand this difficult problem is to think about insuring against what, we shall soon see, is a relatively unlikely possibility, prolonged severe deflation. The most direct way to do this is by purchasing long government bonds, which rise dramatically in price during deflationary crises, as they did in 2007–2009.

The problem with long bonds, of course, is that the most likely disaster scenario is in fact severe inflation, which savages bonds. Between January 1941 and September 1981, a period of over four decades of American inflation that was relatively tame by international historical standards, long Treasuries experienced deep risk by losing 67.3% of their real value (with interest reinvested) before recovering nearly half a century later; in the U.K., the losses were even greater, around 73%. 16 In other words, long Treasuries are a potentially extremely expensive way of insuring against a relatively unlikely long-term outcome, deflation. Far better to weight your “insurance budget” towards a more likely outcome, inflation, that has lower insurance costs, and to spend less insuring against the unlikely risk of deflation, which carries potentially large costs. (Note also that although the near 90% falls in United States stocks between 1929 and 1932 were worse in terms of amplitude than the falls in bond returns, they repaired themselves more quickly than the recovery in bond prices after 1981; that is to say, the deep risk of bonds is of much greater concern than the deep risk of stocks in both the United States and England, a pattern we shall encounter in several other developed nations as well.)
So, based on history I’ve chosen to worry less about long term persistent deflation than high unexpected inflation. However, that’s not a guarantee which is why I only went 50/50. The nominal (but not long term) bond component will hopefully see me through until my stocks can recover.

The book is short and might be worth a read if you haven’t yet as you contemplate future changes.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
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Youngblood
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JoeRetire wrote: Sun Nov 21, 2021 1:17 pm
Youngblood wrote: Sun Nov 21, 2021 12:48 pm I wonder what Paul Volcker would say in regards to current inflation and Powell's transitory refrain?
Mr. Volker isn't available for comments on the current situation.
That's why I'm wondering and wish he were still around.
"I made my money by selling too soon." | Bernard M. Baruch
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nedsaid
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BigJohn wrote: Sun Nov 21, 2021 1:42 pm
nedsaid wrote: Sun Nov 21, 2021 11:13 am Also, we were concerned about deflation, indeed the economy toyed with it, "whiffs of deflation", but we never really experienced it beyond maybe one quarter.
Nedsaid, one more thought on this comment.

Much of my thinking on portfolio risk management comes from reading William Bernstein’s “Deep Risk” book. He talks very specifically about different risks in terms of insurance including both probability of the event as well as the cost. Here’s a couple of paragraphs on deflation.
The investor faces a far more complex problem insuring against the four horsemen (inflation, deflation, confiscation, and devastation), since they carry not only differing probabilities but also differing consequences and insurance costs. The easiest way to understand this difficult problem is to think about insuring against what, we shall soon see, is a relatively unlikely possibility, prolonged severe deflation. The most direct way to do this is by purchasing long government bonds, which rise dramatically in price during deflationary crises, as they did in 2007–2009.

The problem with long bonds, of course, is that the most likely disaster scenario is in fact severe inflation, which savages bonds. Between January 1941 and September 1981, a period of over four decades of American inflation that was relatively tame by international historical standards, long Treasuries experienced deep risk by losing 67.3% of their real value (with interest reinvested) before recovering nearly half a century later; in the U.K., the losses were even greater, around 73%. 16 In other words, long Treasuries are a potentially extremely expensive way of insuring against a relatively unlikely long-term outcome, deflation. Far better to weight your “insurance budget” towards a more likely outcome, inflation, that has lower insurance costs, and to spend less insuring against the unlikely risk of deflation, which carries potentially large costs. (Note also that although the near 90% falls in United States stocks between 1929 and 1932 were worse in terms of amplitude than the falls in bond returns, they repaired themselves more quickly than the recovery in bond prices after 1981; that is to say, the deep risk of bonds is of much greater concern than the deep risk of stocks in both the United States and England, a pattern we shall encounter in several other developed nations as well.)
So, based on history I’ve chosen to worry less about long term persistent deflation than high unexpected inflation. However, that’s not a guarantee which is why I only went 50/50. The nominal (but not long term) bond component will hopefully see me through until my stocks can recover.

The book is short and might be worth a read if you haven’t yet as you contemplate future changes.
I read Dr. Bernstein's book The Four Pillars of Investing and found it to be an amazing work. He has the sense of the broad sweep of history and he goes back hundreds of years, most financial authors seem to think that financial history started about 1926. It is also interesting that someone here did a series of threads on his earlier work, amazing how well that held up over time. I will just say that lots of stuff I read didn't hold up so well. His work is almost timeless and perhaps almost Biblical.

So you can't go too far wrong with Dr. Bill Bernstein, even the great John Bogle was in awe of him. No one here on the forum, except for Vineviz ever dared to tangle with him. Not saying he is 100% right on everything but I struggle to recall where I have disagreements. Both Bernstein and Bogle have the annoying habit of being right.
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Youngblood
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nedsaid wrote: Sun Nov 21, 2021 1:37 pm
Youngblood wrote: Sun Nov 21, 2021 12:48 pm I wonder what Paul Volcker would say in regards to current inflation and Powell's transitory refrain?
No way to know for certain, my suspicion is that Volcker would be aghast at Powell's comments. He was an inflation hawk, Powell seems more dovish. But hard to say, the current situation is unlike the late 1970's to early 1980's, there are honest disagreements about the "transitory" part. My concern is that we have been in a declining interest rate and declining inflation environment for so long that we can't imagine anything different. I remember how so many experts, people I respect, were caught off guard by the Subprime Crisis which led to a broader and systemic financial crisis. I have a similar concern about the current inflation spike. Experts are not always right.
Indeed, I wonder how this will all play out and wonder if the brakes will be applied on time. So much money sloshing around.

I haven't changed my allocations yet but am adding to our I Bonds.

Reactively, I no longer think eating out is worth the price of a meal so not doing that much if at all.

Thanks for the thoughtful response.
"I made my money by selling too soon." | Bernard M. Baruch
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nedsaid
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Youngblood wrote: Sun Nov 21, 2021 2:14 pm
nedsaid wrote: Sun Nov 21, 2021 1:37 pm
Youngblood wrote: Sun Nov 21, 2021 12:48 pm I wonder what Paul Volcker would say in regards to current inflation and Powell's transitory refrain?
No way to know for certain, my suspicion is that Volcker would be aghast at Powell's comments. He was an inflation hawk, Powell seems more dovish. But hard to say, the current situation is unlike the late 1970's to early 1980's, there are honest disagreements about the "transitory" part. My concern is that we have been in a declining interest rate and declining inflation environment for so long that we can't imagine anything different. I remember how so many experts, people I respect, were caught off guard by the Subprime Crisis which led to a broader and systemic financial crisis. I have a similar concern about the current inflation spike. Experts are not always right.
Indeed, I wonder how this will all play out and wonder if the brakes will be applied on time. So much money sloshing around.

I haven't changed my allocations yet but am adding to our I Bonds.

Reactively, I no longer think eating out is worth the price of a meal so not doing that much if at all.

Thanks for the thoughtful response.
It might be that in your case buying I Bonds and adjusting spending patterns will be enough. Everyone's situation is different.

The Fed does have access to amazing amounts of economic data and has a staff of economists to continually evaluate the data. Let's hope they get things right.
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Post by Youngblood »

nedsaid wrote: Sun Nov 21, 2021 2:18 pm
Youngblood wrote: Sun Nov 21, 2021 2:14 pm
nedsaid wrote: Sun Nov 21, 2021 1:37 pm
Youngblood wrote: Sun Nov 21, 2021 12:48 pm I wonder what Paul Volcker would say in regards to current inflation and Powell's transitory refrain?
No way to know for certain, my suspicion is that Volcker would be aghast at Powell's comments. He was an inflation hawk, Powell seems more dovish. But hard to say, the current situation is unlike the late 1970's to early 1980's, there are honest disagreements about the "transitory" part. My concern is that we have been in a declining interest rate and declining inflation environment for so long that we can't imagine anything different. I remember how so many experts, people I respect, were caught off guard by the Subprime Crisis which led to a broader and systemic financial crisis. I have a similar concern about the current inflation spike. Experts are not always right.
Indeed, I wonder how this will all play out and wonder if the brakes will be applied on time. So much money sloshing around.

I haven't changed my allocations yet but am adding to our I Bonds.

Reactively, I no longer think eating out is worth the price of a meal so not doing that much if at all.

Thanks for the thoughtful response.
It might be that in your case buying I Bonds and adjusting spending patterns will be enough. Everyone's situation is different.

The Fed does have access to amazing amounts of economic data and has a staff of economists to continually evaluate the data. Let's hope they get things right.
I hope so too! In March 2020 when the market crashed I didn't have faith that the fiscal and monetary response would be fast enough or adequate
so I sold. It was only a few months ago that I finally surpassed the amount I had then.

The outcome I expected was wrong.
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Youngblood wrote: Sun Nov 21, 2021 2:44 pm
nedsaid wrote: Sun Nov 21, 2021 2:18 pm
It might be that in your case buying I Bonds and adjusting spending patterns will be enough. Everyone's situation is different.

The Fed does have access to amazing amounts of economic data and has a staff of economists to continually evaluate the data. Let's hope they get things right.
I hope so too! In March 2020 when the market crashed I didn't have faith that the fiscal and monetary response would be fast enough or adequate
so I sold. It was only a few months ago that I finally surpassed the amount I had then.

The outcome I expected was wrong.
That is why whatever shifts that I do are smaller and done over time. I know that I could be wrong. This move towards TIPS has been done over the last year and in three installments. It was about a 2% shift in my portfolio. Bold I am not, but then again I was born to be mild.
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BigJohn wrote: Sun Nov 21, 2021 1:42 pm
nedsaid wrote: Sun Nov 21, 2021 11:13 am Also, we were concerned about deflation, indeed the economy toyed with it, "whiffs of deflation", but we never really experienced it beyond maybe one quarter.
Nedsaid, one more thought on this comment.

Much of my thinking on portfolio risk management comes from reading William Bernstein’s “Deep Risk” book. He talks very specifically about different risks in terms of insurance including both probability of the event as well as the cost. Here’s a couple of paragraphs on deflation.
The investor faces a far more complex problem insuring against the four horsemen (inflation, deflation, confiscation, and devastation), since they carry not only differing probabilities but also differing consequences and insurance costs. The easiest way to understand this difficult problem is to think about insuring against what, we shall soon see, is a relatively unlikely possibility, prolonged severe deflation. The most direct way to do this is by purchasing long government bonds, which rise dramatically in price during deflationary crises, as they did in 2007–2009.

The problem with long bonds, of course, is that the most likely disaster scenario is in fact severe inflation, which savages bonds. Between January 1941 and September 1981, a period of over four decades of American inflation that was relatively tame by international historical standards, long Treasuries experienced deep risk by losing 67.3% of their real value (with interest reinvested) before recovering nearly half a century later; in the U.K., the losses were even greater, around 73%. 16 In other words, long Treasuries are a potentially extremely expensive way of insuring against a relatively unlikely long-term outcome, deflation. Far better to weight your “insurance budget” towards a more likely outcome, inflation, that has lower insurance costs, and to spend less insuring against the unlikely risk of deflation, which carries potentially large costs. (Note also that although the near 90% falls in United States stocks between 1929 and 1932 were worse in terms of amplitude than the falls in bond returns, they repaired themselves more quickly than the recovery in bond prices after 1981; that is to say, the deep risk of bonds is of much greater concern than the deep risk of stocks in both the United States and England, a pattern we shall encounter in several other developed nations as well.)
So, based on history I’ve chosen to worry less about long term persistent deflation than high unexpected inflation. However, that’s not a guarantee which is why I only went 50/50. The nominal (but not long term) bond component will hopefully see me through until my stocks can recover.

The book is short and might be worth a read if you haven’t yet as you contemplate future changes.
Good quote. 50/50 is what I am looking at. I am thinking 50% VGIT and 50% SCHIP, but could be convinced VTIP is better short term inflation protection. How did you end up?
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No changes. Seems to me that reasonable portfolio returns match or exceed inflation.

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Post by chuckb84 »

I think the issue is more appropriately called "supply chain induced shortages" and is likely transient. Krugman is pretty convincing on this POV with primary data sources:

https://www.nytimes.com/2021/11/19/opin ... Position=1
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PennyWise7 wrote: Sun Nov 21, 2021 5:20 pm Good quote. 50/50 is what I am looking at. I am thinking 50% VGIT and 50% SCHIP, but could be convinced VTIP is better short term inflation protection. How did you end up?
Intermediate and short term TIPS provide the same protection against inflation. See this discussion I started back in 2017 when I was making my decision on TIPS viewtopic.php?p=3375400#p3375400

As a result, my TIPS choice was based on the same duration and interest rate risk decisions as my nominal bonds, mostly intermediate term with some short term. For my intermediate term nominal bonds I use VG's IT bond index (VBILX) which is a 50/50 mix of treasuries and corporate bonds. So a secondary impact of my move to TIPS was that it also reduce my exposure to corporate bonds by 50% which I viewed as a good direction as well (ie bonds are for safety).
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chuckb84 wrote: Sun Nov 21, 2021 8:13 pm I think the issue is more appropriately called "supply chain induced shortages" and is likely transient. Krugman is pretty convincing on this POV with primary data sources:

https://www.nytimes.com/2021/11/19/opin ... Position=1
Except then, how do you explain the sharp spike in housing prices? Transitory? It is possible to have multiple sources of inflation.
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chuckb84 wrote: Sun Nov 21, 2021 8:13 pm I think the issue is more appropriately called "supply chain induced shortages" and is likely transient. Krugman is pretty convincing on this POV with primary data sources:

https://www.nytimes.com/2021/11/19/opin ... Position=1
My Econ 101 definition of inflation was too much money chasing too few goods. I have no doubt that too few goods due to supply chain issues are a major part of the problem but I can't see how anyone can ignore the too much money impact as well. I think the supply chain issue will likely start to abate soon but the too much money issues may persist for longer.

The other factor moving against this as transient is people's expectations. Look at the recently settled John Deere contract that included a COLA adjustment. These were common back in the late 70's/early 80's but had essentially disappeared in a world of fairly stable 2% inflation. No reasons to think other contracts won't follow the same pattern which can contribute to a cost spiral that is more difficult to stop.

Just my opinion but I suspect that now that the genie is out of the bottle, we'll find it much more difficult to get it back in than many expect.
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Post by PennyWise7 »

BigJohn wrote: Mon Nov 22, 2021 8:37 am
PennyWise7 wrote: Sun Nov 21, 2021 5:20 pm Good quote. 50/50 is what I am looking at. I am thinking 50% VGIT and 50% SCHIP, but could be convinced VTIP is better short term inflation protection. How did you end up?
Intermediate and short term TIPS provide the same protection against inflation. See this discussion I started back in 2017 when I was making my decision on TIPS viewtopic.php?p=3375400#p3375400

As a result, my TIPS choice was based on the same duration and interest rate risk decisions as my nominal bonds, mostly intermediate term with some short term. For my intermediate term nominal bonds I use VG's IT bond index (VBILX) which is a 50/50 mix of treasuries and corporate bonds. So a secondary impact of my move to TIPS was that it also reduce my exposure to corporate bonds by 50% which I viewed as a good direction as well (ie bonds are for safety).
Thanks for sharing the link, interesting thread. I m still pondering this decision.
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steve r wrote: Mon Nov 22, 2021 8:41 am Except then, how do you explain the sharp spike in housing prices? Transitory? It is possible to have multiple sources of inflation.
I view the sharp spike in housing prices as a sharp spike in housing prices in certain areas.

2 of the 3 properties I own haven't gone up in price lately. I live in hope, though. Note: I don't really because I view the sharp spike in housing prices as just that.

@cryingshame, I also bought one of the three properties during the 2006-2007 real estate bubble in South Florida. The current bubble has finally brought its price above what I bought it for 14 years ago and then some so I'm looking at about a 1.6% annual return. Real estate as an asset class and more specifically residential rental real estate is a good portfolio diversifier and a good inflation hedge. As you probably know, it's is frequently an alternative to a diversified stock/bond portfolio to many individuals and I don't think it's a bad one. If you're willing to put in the work of sweat equity it's a great side-job. In the recent crisis the residential rental business has been really stress inducing, though. BTW, I tend to favor single-family home rentals, but "luxury" condos are also good. Note: I'm no real estate whiz.
BigJohn wrote: Sat Nov 20, 2021 4:38 pm
nedsaid wrote: Fri Nov 19, 2021 1:50 pm TIPS have been pretty expensive for a while now, otherwise I would have jumped into them with both feet.
I keep seeing comments like this but don’t understand. Why do you think TIPS are more expensive than nominal treasuries of the same duration? At the breakeven inflation rate they deliver the same result.
I have the same question. I thought the current price of TIPS implied the current breakeven inflation rate (BEI), so we should really be discussing the level of that BEI rate vs our expectations.
https://fred.stlouisfed.org/series/T10YIE
https://fred.stlouisfed.org/series/T7YIEM
https://fred.stlouisfed.org/series/T5YIE

That said, I recently learned that there is a convention in capital markets-speak to say that TIPS are "cheap" when the BEI rate is less than 2% and "expensive" when the BEI rate is greater than 2.5%. I suspect that this convention exists because the current target for the Fed is to maintain an average inflation rate of 2% over time. Is this really what people here mean?
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Post by BigJohn »

VaR wrote: Wed Nov 24, 2021 3:29 pm I have the same question. I thought the current price of TIPS implied the current breakeven inflation rate (BEI), so we should really be discussing the level of that BEI rate vs our expectations.

That said, I recently learned that there is a convention in capital markets-speak to say that TIPS are "cheap" when the BEI rate is less than 2% and "expensive" when the BEI rate is greater than 2.5%. I suspect that this convention exists because the current target for the Fed is to maintain an average inflation rate of 2% over time. Is this really what people here mean?
I personally had never heard of that convention. My opinion is that in the discussions on this board, "TIPS are expensive" is usually an expression that means they don't want to invest in something with a guaranteed negative real yield regardless of the expectations for the BEI vs actual.
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Post by chuckb84 »

steve r wrote: Mon Nov 22, 2021 8:41 am
chuckb84 wrote: Sun Nov 21, 2021 8:13 pm I think the issue is more appropriately called "supply chain induced shortages" and is likely transient. Krugman is pretty convincing on this POV with primary data sources:

https://www.nytimes.com/2021/11/19/opin ... Position=1
Except then, how do you explain the sharp spike in housing prices? Transitory? It is possible to have multiple sources of inflation.
Good point. Housing may be partly a supply chain thing, as building materials became so hard to get, but I think it's also a fundamental readjustment of work nearby, vs remotely. So, to some extent, I think that is also transitory. The system will adjust.
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Post by andypanda »

"The Fed does have access to amazing amounts of economic data and has a staff of economists to continually evaluate the data."

We can hope. Back in the dark ages I took one econ class as an undergrad because the professor was reportedly interesting and was an advisor of some sort to the White House on North African issues. His favorite comment on economists:

"If you laid all the economists in the world end to end they still wouldn't reach a conclusion."

He attributed it to George B. Shaw, but didn't really know where it came from.

But it was a fascinating class and he and his wife would take some of waterskiing that spring. :)
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Post by Chip »

BigJohn wrote: Sat Nov 20, 2021 4:38 pm
nedsaid wrote: Fri Nov 19, 2021 1:50 pm TIPS have been pretty expensive for a while now, otherwise I would have jumped into them with both feet.
I keep seeing comments like this but don’t understand. Why do you think TIPS are more expensive than nominal treasuries of the same duration? At the breakeven inflation rate they deliver the same result.
I think it's the guaranteed loss associated with TIPS that people can't accept. With nominals there's at least a chance that the loss won't occur.

I've mentioned it here before, but Kahnemann wrote about innate aversion to small guaranteed losses in "Thinking Fast and Slow". Most people seem willing to take unfavorable bets on the chance they'll avoid those guaranteed losses.

And I question what good it would do someone to have bought TIPS earlier at higher yields when making a decision today. Those TIPS have increased in value and also have a guaranteed real loss (from current prices) when held to maturity. The 20 year, 2.375% coupon TIPS I bought in 2005 are currently worth $1678 per $1000 and have a YTM of -2.36%. If one isn't happy with buying new bonds at negative real yields why be happy with holding old bonds that have a negative real yield?
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Post by BigJohn »

Chip wrote: Thu Nov 25, 2021 8:54 am
BigJohn wrote: Sat Nov 20, 2021 4:38 pm
nedsaid wrote: Fri Nov 19, 2021 1:50 pm TIPS have been pretty expensive for a while now, otherwise I would have jumped into them with both feet.
I keep seeing comments like this but don’t understand. Why do you think TIPS are more expensive than nominal treasuries of the same duration? At the breakeven inflation rate they deliver the same result.
I think it's the guaranteed loss associated with TIPS that people can't accept. With nominals there's at least a chance that the loss won't occur.

I've mentioned it here before, but Kahnemann wrote about innate aversion to small guaranteed losses in "Thinking Fast and Slow". Most people seem willing to take unfavorable bets on the chance they'll avoid those guaranteed losses.
A great book! I never thought about this “TIPS are expensive” issue in terms of loss aversion but it makes good sense. Thanks for that perspective.
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Post by EnjoyIt »

Is inflation actually elevated?

From trading economics.com
United States - 10-Year Breakeven Inflation Rate was 2.61% in November of 2021, according to the United States Federal Reserve. Historically, United States - 10-Year Breakeven Inflation Rate reached a record high of 2.76 in May of 2004 and a record low of 0.04 in November of 2008. Trading Economics provides the current actual value, an historical data chart and related indicators for United States - 10-Year Breakeven Inflation Rate - last updated from the United States Federal Reserve on November of 2021.
Looks like we are within the range the fed wants inflation to be. Between 2-3%.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
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EnjoyIt wrote: Thu Nov 25, 2021 9:33 am Is inflation actually elevated?

From trading economics.com
United States - 10-Year Breakeven Inflation Rate was 2.61% in November of 2021, according to the United States Federal Reserve. Historically, United States - 10-Year Breakeven Inflation Rate reached a record high of 2.76 in May of 2004 and a record low of 0.04 in November of 2008. Trading Economics provides the current actual value, an historical data chart and related indicators for United States - 10-Year Breakeven Inflation Rate - last updated from the United States Federal Reserve on November of 2021.
Looks like we are within the range the fed wants inflation to be. Between 2-3%.
Keep in mind this is market expectations, keep in mind that expectations are not always born out. Reality right now is about 6%.
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Post by Forester »

Most likely is inflation will be at a level for both sides of the debate to claim victory, so higher than the 2010s but much less than the 1970s. Inflation will be high enough to facilitate green economy projects, lower debt & relative wealth distribution from old to young, but low enough not to scare bond holders too much; real terms money loss on the one hand, but bonds still holding up whenever we have periodic stock sell offs.
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nedsaid wrote: Thu Nov 25, 2021 10:27 am
EnjoyIt wrote: Thu Nov 25, 2021 9:33 am Is inflation actually elevated?

From trading economics.com
United States - 10-Year Breakeven Inflation Rate was 2.61% in November of 2021, according to the United States Federal Reserve. Historically, United States - 10-Year Breakeven Inflation Rate reached a record high of 2.76 in May of 2004 and a record low of 0.04 in November of 2008. Trading Economics provides the current actual value, an historical data chart and related indicators for United States - 10-Year Breakeven Inflation Rate - last updated from the United States Federal Reserve on November of 2021.
Looks like we are within the range the fed wants inflation to be. Between 2-3%.
Keep in mind this is market expectations, keep in mind that expectations are not always born out. Reality right now is about 6%.
This second it is 6%. Last second it was 0.4% the next second it could be 3%.

I think it’s hard to say that we really do have high inflation. This may be a blip or it can be persistent. I think we will only know in retrospect.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
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EnjoyIt wrote: Thu Nov 25, 2021 1:51 pm
nedsaid wrote: Thu Nov 25, 2021 10:27 am
EnjoyIt wrote: Thu Nov 25, 2021 9:33 am Is inflation actually elevated?

From trading economics.com
United States - 10-Year Breakeven Inflation Rate was 2.61% in November of 2021, according to the United States Federal Reserve. Historically, United States - 10-Year Breakeven Inflation Rate reached a record high of 2.76 in May of 2004 and a record low of 0.04 in November of 2008. Trading Economics provides the current actual value, an historical data chart and related indicators for United States - 10-Year Breakeven Inflation Rate - last updated from the United States Federal Reserve on November of 2021.
Looks like we are within the range the fed wants inflation to be. Between 2-3%.
Keep in mind this is market expectations, keep in mind that expectations are not always born out. Reality right now is about 6%.
This second it is 6%. Last second it was 0.4% the next second it could be 3%.

I think it’s hard to say that we really do have high inflation. This may be a blip or it can be persistent. I think we will only know in retrospect.
I will believe my lying eyes.
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EnjoyIt wrote: Thu Nov 25, 2021 1:51 pm
nedsaid wrote: Thu Nov 25, 2021 10:27 am
EnjoyIt wrote: Thu Nov 25, 2021 9:33 am Is inflation actually elevated?

From trading economics.com
United States - 10-Year Breakeven Inflation Rate was 2.61% in November of 2021, according to the United States Federal Reserve. Historically, United States - 10-Year Breakeven Inflation Rate reached a record high of 2.76 in May of 2004 and a record low of 0.04 in November of 2008. Trading Economics provides the current actual value, an historical data chart and related indicators for United States - 10-Year Breakeven Inflation Rate - last updated from the United States Federal Reserve on November of 2021.
Looks like we are within the range the fed wants inflation to be. Between 2-3%.
Keep in mind this is market expectations, keep in mind that expectations are not always born out. Reality right now is about 6%.
This second it is 6%. Last second it was 0.4% the next second it could be 3%.

I think it’s hard to say that we really do have high inflation. This may be a blip or it can be persistent. I think we will only know in retrospect.
I will believe my lying eyes.
A fool and his money are good for business.
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Post by pascalwager »

burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation despite the numerous warnings littered throughout the BH philosophy about market timing and reacting to current economic conditions or future predictions.

Did you not realize that high inflation was a possibility when you constructed your portfolio? What if we actually see an extended period of low inflation and/or deflation - are you going to revert your portfolio changes or make new changes based on that environment?
In Deep Risk, W. Bernstein says you can't protect against both kinds of "flation". He thinks in-flation is the most important to protect against.
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Wricha wrote: Sat Nov 20, 2021 9:46 pm
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
And if I can get long term T-bills at 18% my AA is going to change irrespective of what personal financial statement said.
The longest-term T-bill is one-year. Is this what you're referring to?
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nedsaid wrote: Sun Nov 21, 2021 11:13 am
BigJohn wrote: Sun Nov 21, 2021 10:54 am
nedsaid wrote: Sun Nov 21, 2021 9:47 am From now on, I will use the Nedsaid secret code so that only my loyal followers can be up to date on my latest thinking. After all of the flak I am getting. :wink:
Well, I hope you don’t go to the secret code, I enjoy reading and engaging in your posts. I also hope you don’t think I’m giving you flak. Just trying to present an alternate way to “think” about TIPS. It may or may not help but here’s where I got before I made the change to 50/50.

I buy home owners insurance. If my house doesn’t burn down, I am not upset or angry that I lost money. I recognize that it’s just a cost of home ownership to protect myself against catastrophic loss. I’d really rather it was wasted money because I don’t want my house to burn down. If I had assets worth 100x my house value, I might chose a different path and self-insure rather than pay that cost. Either way, since you never know if/when you house is going to burn down, you make the decision and accept the consequences.

I look at TIPS in exactly the same way. With a fairly high bond allocation, I decided that a few years of very high inflation represented a significant risk. To protect myself from that risk, I went to 50/50 TIPS/nominals. When inflation was below breakeven, it was just the cost of that insurance. Obviously, I’m glad to have it now but I would have been just as glad to continue to pay the premium and see inflation at a stable 2%.

You already have some allocation to TIPS. So my advice is to look at your personal situation and decide whether you need more inflation insurance or whether you can afford to self-insure. If you really need more, then waiting just adds risk that your house burns down in the interim. If you can afford to self-insure, stay the course knowing you’ll might take a hit but that it won’t be catastrophic and you’ll survive. Then go back to enjoying your retirement and not worrying about this too much. :beer
Your comments were very thoughtful. You sound a lot like Vineviz, and that is a complement.
Yes, it is quite a compliment. While I didn't always agree with him, I miss Vineviz being around here.

Perhaps now you understand why I no longer discuss my own investment strategy on the open forum.

To be honest, I see both your point and BigJohn's. It's difficult to swallow a guaranteed negative real yield, but that is the price to be paid right now for 'safety' (as it has been for large swaths of the past as well).

We are in an interesting situation right now. Typical BH advice given to new folks trying to determine their AA is to set their stocks to the highest level that they can tolerate, but some now seem to be setting their bond allocation to the lowest level that they can tolerate. Some may be in a real pickle because they don't want stocks' volatility but they don't want bonds' negative returns either. Traditional BH dogma doesn't help such folks much.
Last edited by willthrill81 on Thu Nov 25, 2021 10:28 pm, edited 1 time in total.
“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
EnjoyIt
Posts: 6247
Joined: Sun Dec 29, 2013 8:06 pm

Re: Hi! I'm high inflation. Nice to meet you.

Post by EnjoyIt »

nedsaid wrote: Thu Nov 25, 2021 1:53 pm
EnjoyIt wrote: Thu Nov 25, 2021 1:51 pm
nedsaid wrote: Thu Nov 25, 2021 10:27 am
EnjoyIt wrote: Thu Nov 25, 2021 9:33 am Is inflation actually elevated?

From trading economics.com
United States - 10-Year Breakeven Inflation Rate was 2.61% in November of 2021, according to the United States Federal Reserve. Historically, United States - 10-Year Breakeven Inflation Rate reached a record high of 2.76 in May of 2004 and a record low of 0.04 in November of 2008. Trading Economics provides the current actual value, an historical data chart and related indicators for United States - 10-Year Breakeven Inflation Rate - last updated from the United States Federal Reserve on November of 2021.
Looks like we are within the range the fed wants inflation to be. Between 2-3%.
Keep in mind this is market expectations, keep in mind that expectations are not always born out. Reality right now is about 6%.
This second it is 6%. Last second it was 0.4% the next second it could be 3%.

I think it’s hard to say that we really do have high inflation. This may be a blip or it can be persistent. I think we will only know in retrospect.
I will believe my lying eyes.
Would you disagree that people make predictions based on current events and often times those predictions are wrong?

Would you disagree that average 10 year inflation is 2.7%?

Would you disagree that we can not predict the future?

So how do you know what inflation will be like tomorrow?

Don’t get me wrong, I am guessing inflation will be above 3% in 2022, but I also know that I can’t predict the future so I do very little about what I think. I guess if I had $0 in income (I work part time.) I may consider spending a bit less for safety. Other than that, I don’t think there is anywhere to run to.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
BigJohn
Posts: 2069
Joined: Wed Apr 02, 2014 11:27 pm

Re: Hi! I'm high inflation. Nice to meet you.

Post by BigJohn »

willthrill81 wrote: Thu Nov 25, 2021 9:18 pm We are in an interesting situation right now. Typical BH advice given to new folks trying to determine their AA is to set their stocks to the highest level that they can tolerate, but some now seem to be setting their bond allocation to the lowest level that they can tolerate. Some may be a real pickle because they don't want stocks' volatility but they don't want bonds' negative returns either. Traditional BH dogma doesn't help such folks much.
Yup, like the song says....
"Got nowhere to run to, baby
Nowhere to hide"

I think this situation is made even worse because stocks have been on such a long bull run many either don't know or have forgotten how a 50+% drop in the market really feels. I suspect that eventually some will discover that negative real rates are not as bad as they thought.

Now cue the music
https://www.youtube.com/watch?v=RQRIOKv ... bigdave706
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
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