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

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
sc9182
Posts: 775
Joined: Wed Aug 17, 2016 7:43 pm

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

Post by sc9182 »

Jeremy may have gone a bit (or lot) off the kilter. isn’t this the case we find with many a current TV/news-hogging professor/ex-big-title Characters been doing, of late !? Have you noticed ?

When things go up - every one makes lot of noise - but when they do go down - nobody bothers to mention. Lumber - any takers? Yes - many industries are genuinely trying to raise and curtail inflation at different points of time - but they eventually have to come down to base reality. Sorry, if one lumber goes up - we all use aluminum in construction - yes, sightly costlier but not gone up 6x like lumber did. We will find alternatives if it’s a genuine shortage. Not every industry can emulate Diamond industry to raise and keep prices high - where nearly a single company controls supply chain end-to-end FULLY. Even in Diamonds - the man-made diamonds of late have been getting better and better and nearly reaching/toppling natural diamonds in desirability spectrum.

There will be some pockets of inflation/industries which remain slightly high prices - due to genuine/underlying issues. We will see and work thru those over the time — - not as fast as flip of a switch though.
Robot Monster
Posts: 2847
Joined: Sun May 05, 2019 11:23 am

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

Post by Robot Monster »

willthrill81 wrote: Fri Nov 19, 2021 10:28 pm
Northern Flicker wrote: Sun May 16, 2021 1:13 pm
willthrill81 wrote: Sun May 16, 2021 9:39 am
typical.investor wrote: Sun May 16, 2021 6:21 am In any case, 20% inflation suggests a perhaps 22% overnight rate.
I don't know that the current Fed has the wherewithal to raise the overnight rate to something like 8% if inflation rises to 6%.
It would not be a preconceived target, but the rate needed to tame the inflation, which likely is much lower than 8%. For one thing, they won't wait for inflation to hit 6% to start raising rates and tapping the brakes.
This didn't age well.
That's epic. It might be worthwhile to look back at something Powell said six months ago, quoted below. He said if inflation moved materially above their 2% target in a persistent way, the Fed would act. In retrospect, we should have known the Fed might not act on high inflation if it was seen as transitory.

"We understand our job we will do our job and we are focused as you seen for many years We have been focused on inflation 'deviating' below 2%, and we used our tools aggressively to put it back up at 2% if we do see inflation moving materially above 2% persistent way the risks of inflation expectation drifting up then we will use our tools to guide inflation and expectation back down to 2% no one should doubt that we will do that this is not what we expect but no one should doubt that in the event we will be prepared to use our tools."
YouTube video link
Begins at the 4:30 mark.
"The downs are part of the long term upward trend." -- our favorite golfer
User avatar
drumboy256
Posts: 229
Joined: Sat Jun 06, 2020 2:21 pm

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

Post by drumboy256 »

Honestly, the way the Fed looks at "inflation" is flawed. We're at 8.5% nominal inflation across USD currency, goods, services aside from their 1.5-2.25 points of inflation for treasuries. The fact that they don't take into account to me is a freaking joke. At this point, I would imagine we'll hit 10% before they start to pump the brakes on bond purchases but by then, it will be too late to salvage any type of recovery effort they were going for.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | // VASGX + AOA // 80/20 // Chill
User avatar
willthrill81
Posts: 27089
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 »

sc9182 wrote: Sat Nov 20, 2021 8:54 am Jeremy may have gone a bit (or lot) off the kilter.
I don't know why you think that. So far, he's been pretty much spot on.
“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
Topic Author
invest2bfree
Posts: 407
Joined: Sun Jan 12, 2020 9:44 am

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

Post by invest2bfree »

drumboy256 wrote: Sat Nov 20, 2021 1:28 pm Honestly, the way the Fed looks at "inflation" is flawed. We're at 8.5% nominal inflation across USD currency, goods, services aside from their 1.5-2.25 points of inflation for treasuries. The fact that they don't take into account to me is a freaking joke. At this point, I would imagine we'll hit 10% before they start to pump the brakes on bond purchases but by then, it will be too late to salvage any type of recovery effort they were going for.
Fed is not intentionally pumping the brakes.

They are letting inflation eat away the debt which would be crushing even with a small increase in interest rates.
AOR - 100%
Robot Monster
Posts: 2847
Joined: Sun May 05, 2019 11:23 am

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

Post by Robot Monster »

invest2bfree wrote: Sun Nov 21, 2021 11:24 pm
drumboy256 wrote: Sat Nov 20, 2021 1:28 pm Honestly, the way the Fed looks at "inflation" is flawed. We're at 8.5% nominal inflation across USD currency, goods, services aside from their 1.5-2.25 points of inflation for treasuries. The fact that they don't take into account to me is a freaking joke. At this point, I would imagine we'll hit 10% before they start to pump the brakes on bond purchases but by then, it will be too late to salvage any type of recovery effort they were going for.
Fed is not intentionally pumping the brakes.

They are letting inflation eat away the debt which would be crushing even with a small increase in interest rates.
I believe you meant, "Fed is intentionally not pumping the breaks"?

I'd like to think the Fed isn't tightening for exactly the reason they say, that they believe the current spike in inflation is transitory, e.g. Chicago Federal Reserve President Charles Evans, a leading dove at the central bank, said "I’m more uneasy about us not generating enough inflation in 2023 and 2024 than the possibility that we will be living with too much". link

But then again, who knows. If I knew for certain that the Fed wouldn't let inflation heat up over a 2-3% average over time, I wouldn't have felt the necessity to load up on TIPS (especially the stomach churning long-term ones).
"The downs are part of the long term upward trend." -- our favorite golfer
inbox788
Posts: 8280
Joined: Thu Mar 15, 2012 5:24 pm

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

Post by inbox788 »

drumboy256 wrote: Sat Nov 20, 2021 1:28 pm Honestly, the way the Fed looks at "inflation" is flawed. We're at 8.5% nominal inflation across USD currency, goods, services aside from their 1.5-2.25 points of inflation for treasuries. The fact that they don't take into account to me is a freaking joke. At this point, I would imagine we'll hit 10% before they start to pump the brakes on bond purchases but by then, it will be too late to salvage any type of recovery effort they were going for.
Which inflation is at 8.5% that you're quoting? Is that a monthly figure annualized? What's the average inflation last 12 months? Many of those measures are likely still below 2%, and unless we get several more high months, will not shoot past too fast. If we have 12 months or a full calendar at 8.5% or 10%, that would be troublesome, but I expect something dramatic would be done before we reach anywhere near that. I'm pretty sure the Fed won't allow 20% to happen no matter what, though a month at an annualized rate of 10-20% (i.e. 1-2% inflation in a single month) might be the panic trigger for the Fed to act.
Robot Monster wrote: Mon Nov 22, 2021 9:46 amBut then again, who knows. If I knew for certain that the Fed wouldn't let inflation heat up over a 2-3% average over time, I wouldn't have felt the necessity to load up on TIPS (especially the stomach churning long-term ones).
The Fed has said it will let inflation go over 2% for "some time", just not how far over or how long. The market is guessing.
JEROME POWELL: Well we've said that we would look at raising interest rates when the labor market recovery is just about complete, when inflation is at 2% and on track to run moderately above 2% for some time. That's what we've said. I don't have a particular calendar date for that. But we would consider raising rates at that time.

SCOTT PELLEY: So all the way through the end of this year, you wouldn't see rates increasing?

JEROME POWELL: I think it's highly unlikely we would raise rates anything like this year, no.

SCOTT PELLEY: 2022?

JEROME POWELL: You know, I don't want to put a date on it. It really comes down to outcome-based guidance is what we call it. And it will not depend on the calendar. It will depend on the progress of the economy toward the goals that we've set, which are 2% inflation and maximum employment. When we get to that place and inflation is expected to run moderately above 2% for some time, then we'll look at raising interest rates. And that day will come.
https://www.cbsnews.com/news/jerome-pow ... ranscript/
User avatar
drumboy256
Posts: 229
Joined: Sat Jun 06, 2020 2:21 pm

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

Post by drumboy256 »

inbox788 wrote: Tue Nov 23, 2021 3:54 am
drumboy256 wrote: Sat Nov 20, 2021 1:28 pm Honestly, the way the Fed looks at "inflation" is flawed. We're at 8.5% nominal inflation across USD currency, goods, services aside from their 1.5-2.25 points of inflation for treasuries. The fact that they don't take into account to me is a freaking joke. At this point, I would imagine we'll hit 10% before they start to pump the brakes on bond purchases but by then, it will be too late to salvage any type of recovery effort they were going for.
Which inflation is at 8.5% that you're quoting? Is that a monthly figure annualized? What's the average inflation last 12 months? Many of those measures are likely still below 2%, and unless we get several more high months, will not shoot past too fast. If we have 12 months or a full calendar at 8.5% or 10%, that would be troublesome, but I expect something dramatic would be done before we reach anywhere near that. I'm pretty sure the Fed won't allow 20% to happen no matter what, though a month at an annualized rate of 10-20% (i.e. 1-2% inflation in a single month) might be the panic trigger for the Fed to act.
Robot Monster wrote: Mon Nov 22, 2021 9:46 amBut then again, who knows. If I knew for certain that the Fed wouldn't let inflation heat up over a 2-3% average over time, I wouldn't have felt the necessity to load up on TIPS (especially the stomach churning long-term ones).
The Fed has said it will let inflation go over 2% for "some time", just not how far over or how long. The market is guessing.
JEROME POWELL: Well we've said that we would look at raising interest rates when the labor market recovery is just about complete, when inflation is at 2% and on track to run moderately above 2% for some time. That's what we've said. I don't have a particular calendar date for that. But we would consider raising rates at that time.

SCOTT PELLEY: So all the way through the end of this year, you wouldn't see rates increasing?

JEROME POWELL: I think it's highly unlikely we would raise rates anything like this year, no.

SCOTT PELLEY: 2022?

JEROME POWELL: You know, I don't want to put a date on it. It really comes down to outcome-based guidance is what we call it. And it will not depend on the calendar. It will depend on the progress of the economy toward the goals that we've set, which are 2% inflation and maximum employment. When we get to that place and inflation is expected to run moderately above 2% for some time, then we'll look at raising interest rates. And that day will come.
https://www.cbsnews.com/news/jerome-pow ... ranscript/
As I understand it, and I'll let everyone else school me on this--- but the Fed only cares about the "inflation rate" when it comes to the bond rate based on treasuries offered. They look at KPI's that indicate "where it should be" and either the bond buy-backs will increase or decrease the inflation that ultimately eats the debt. The inflation I'm talking about is big-mac economics. 8.5% is the fact that a big mac one year ago is 8.5% MORE than it was last year--- and that is even considering that we're in an endemic environment. This of course comes from various factors:

- The bond buying action of the Fed devalues the USD currency simply because it adds "more" to the circulation pool. In that, reduces overall consumer buying power

- Due to pandemic / endemic conditions, costs have either gone from 3x - 100x+ due to industries having to absorb supply chain, manufacturing, materials and labor costs. Companies aren't stupid and have passed (most) of this cost onto the consumer which has added to their bottom line.

- Labor (that the Fed seems so fixated on mid-pandemic) has then gone from minimum wage jobs of $9.50-$11/hour jobs to now base floor jobs of $15-$30 an hour. Having worked in the service industry prior to starting my career, I get why more money per hour is needed because of points 1 + 2 above.

- Bonus round: Purchasing power has been lowered (even tho the dollar is stronger, globally) even more when it comes to real estate and assets that are not stocks. Cars, boats, RV trailers, etc. all have suffered the same fate as real estate which risks pricing people out of being able to purchase anything outside of debt.

While of course the above is one mans opinion, it grinds my gears that inflation is only viewed at a 1.5%-2% when costs of everything across the board is in fact, more expense.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | // VASGX + AOA // 80/20 // Chill
Robot Monster
Posts: 2847
Joined: Sun May 05, 2019 11:23 am

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

Post by Robot Monster »

inbox788 wrote: Tue Nov 23, 2021 3:54 am The Fed has said it will let inflation go over 2% for "some time", just not how far over or how long. The market is guessing.
JEROME POWELL: Well we've said that we would look at raising interest rates when the labor market recovery is just about complete, when inflation is at 2% and on track to run moderately above 2% for some time...
The Fed also said it wouldn't raise rates till the labor market recovery is complete. Employment has been doing very nicely, but who knows what kind of inflation the Fed will allow if it doesn't achieve its employment objective. Now, as I noted upthread, Powell did say that "if we do see inflation moving materially above 2% persistent way the risks of inflation expectation drifting up then we will use our tools to guide inflation and expectation back down to 2%." The problem is there is simply no guarantee on this. Also, it's a bit nebulous what qualifies as persistent. How high will the Fed allow inflation to go in a non-persistent way, especially if the employment situation does a 180, and starts getting worse. (Larry Summers gives the US economy only a 15% chance of working out well.)

Siegel anticipates rising prices will stretch out over several years, with cumulative inflation reaching 20% to 25%. link Is it not possible the Fed will allow this, and not raise rates, if there's a simultaneous problem with unemployment, or if they believe this high inflation is only a temporary, transitory burst that doesn't need be be dealt with?

Also, this is leaving aside what happens if the Fed changes its mind down the road. It wasn't that long ago that the Fed would have been thought to immediately raise rates if its 2% inflation threshold was breached while unemployment was below 6%. Now look where we're at. The folks of yesteryear would have definitely thought the Fed would be hiking rates now given the current conditions, no?

So, that's why I hold TIPS, folks, which is 50% of my portfolio! (25% in money markets and CDs, 25% stocks with a touch of commodities).
"The downs are part of the long term upward trend." -- our favorite golfer
User avatar
novolog
Posts: 214
Joined: Tue Jan 30, 2018 6:24 pm

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

Post by novolog »

drumboy256 wrote: Tue Nov 23, 2021 10:03 am
inbox788 wrote: Tue Nov 23, 2021 3:54 am
drumboy256 wrote: Sat Nov 20, 2021 1:28 pm Honestly, the way the Fed looks at "inflation" is flawed. We're at 8.5% nominal inflation across USD currency, goods, services aside from their 1.5-2.25 points of inflation for treasuries. The fact that they don't take into account to me is a freaking joke. At this point, I would imagine we'll hit 10% before they start to pump the brakes on bond purchases but by then, it will be too late to salvage any type of recovery effort they were going for.
Which inflation is at 8.5% that you're quoting? Is that a monthly figure annualized? What's the average inflation last 12 months? Many of those measures are likely still below 2%, and unless we get several more high months, will not shoot past too fast. If we have 12 months or a full calendar at 8.5% or 10%, that would be troublesome, but I expect something dramatic would be done before we reach anywhere near that. I'm pretty sure the Fed won't allow 20% to happen no matter what, though a month at an annualized rate of 10-20% (i.e. 1-2% inflation in a single month) might be the panic trigger for the Fed to act.
Robot Monster wrote: Mon Nov 22, 2021 9:46 amBut then again, who knows. If I knew for certain that the Fed wouldn't let inflation heat up over a 2-3% average over time, I wouldn't have felt the necessity to load up on TIPS (especially the stomach churning long-term ones).
The Fed has said it will let inflation go over 2% for "some time", just not how far over or how long. The market is guessing.
JEROME POWELL: Well we've said that we would look at raising interest rates when the labor market recovery is just about complete, when inflation is at 2% and on track to run moderately above 2% for some time. That's what we've said. I don't have a particular calendar date for that. But we would consider raising rates at that time.

SCOTT PELLEY: So all the way through the end of this year, you wouldn't see rates increasing?

JEROME POWELL: I think it's highly unlikely we would raise rates anything like this year, no.

SCOTT PELLEY: 2022?

JEROME POWELL: You know, I don't want to put a date on it. It really comes down to outcome-based guidance is what we call it. And it will not depend on the calendar. It will depend on the progress of the economy toward the goals that we've set, which are 2% inflation and maximum employment. When we get to that place and inflation is expected to run moderately above 2% for some time, then we'll look at raising interest rates. And that day will come.
https://www.cbsnews.com/news/jerome-pow ... ranscript/
As I understand it, and I'll let everyone else school me on this--- but the Fed only cares about the "inflation rate" when it comes to the bond rate based on treasuries offered. They look at KPI's that indicate "where it should be" and either the bond buy-backs will increase or decrease the inflation that ultimately eats the debt. The inflation I'm talking about is big-mac economics. 8.5% is the fact that a big mac one year ago is 8.5% MORE than it was last year--- and that is even considering that we're in an endemic environment. This of course comes from various factors:

- The bond buying action of the Fed devalues the USD currency simply because it adds "more" to the circulation pool. In that, reduces overall consumer buying power

- Due to pandemic / endemic conditions, costs have either gone from 3x - 100x+ due to industries having to absorb supply chain, manufacturing, materials and labor costs. Companies aren't stupid and have passed (most) of this cost onto the consumer which has added to their bottom line.

- Labor (that the Fed seems so fixated on mid-pandemic) has then gone from minimum wage jobs of $9.50-$11/hour jobs to now base floor jobs of $15-$30 an hour. Having worked in the service industry prior to starting my career, I get why more money per hour is needed because of points 1 + 2 above.

- Bonus round: Purchasing power has been lowered (even tho the dollar is stronger, globally) even more when it comes to real estate and assets that are not stocks. Cars, boats, RV trailers, etc. all have suffered the same fate as real estate which risks pricing people out of being able to purchase anything outside of debt.

While of course the above is one mans opinion, it grinds my gears that inflation is only viewed at a 1.5%-2% when costs of everything across the board is in fact, more expense.
agreed. inflation cannot be measured by one number. you would need to use vector math to measure inflation, and even then you would need infinite vectors.

CPI is probably fine as a metric as long as we are abundantly clear what it is supposed to be measuring: the basic biological needs for a life of serfdom. (no assets or high quality goods/services)

person A can experience 14% annual inflation and person B can experience 2% annual inflation at the same time. no two people in this world have the exact same basket of goods/services.
7x annual expenses, 68% equities, 13% bitcoin, 13% home equity, 6% cash (emergency fund)
inbox788
Posts: 8280
Joined: Thu Mar 15, 2012 5:24 pm

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

Post by inbox788 »

novolog wrote: Tue Nov 23, 2021 10:27 amperson A can experience 14% annual inflation and person B can experience 2% annual inflation at the same time. no two people in this world have the exact same basket of goods/services.
Core inflation doesn't include food and energy, so personally I've experienced core deflation while my food and energy costs have increased 50-100% at times. It takes me $75 vs $50 to fill the tank these days. I can't wait to see my winter heating bill and summer cooling bills next year. And what used to be $10 lunches + tax/tip are now $15 + tax/tip + service charge + app charge + recovery charge + delivery charge + pandemic surcharge + recycling charge.

Besides increasing wages, including minimum wages, which I've had trouble separating normal wage increases from wage inflation, there's automatic inflation adjustments that are kicking in that may contribute to inflation. iBonds adjust every 6 months (7.12% for bonds issued November 2021 - April 2022), so they're not a single month annualized figure. SS COLA is 5.9, and that's permanent, until the next adjustment, no? I'm learning about the difference between CSRS and FERS pension COLA adjustments (5.9 vs 4.9) vs 2% for some retiree pensions. https://www.calpers.ca.gov/page/retiree ... iving/cola
I don't think there is a catchup/banking provision, so if inflation is 1% next year, everyone only gets 1% and the extra 3-4% federal pensioners got is a permanent gap and loss of real purchasing power.

A lot of things are starting to align so we're going into an upward cost-push and demand-pull inflation cycle.
https://www.investopedia.com/terms/d/de ... lation.asp

All this discussion is making me feel like my current IPS is failing this current inflation stress test. Is there a ETF that invests in hospitals, medical practices, nursing homes, supermarkets (farms/food production?) and oil stocks/gas stations (or utilities/charging stations) that's aligned with our spending in retirement and would that help inflation and other risk? (Is this mostly small cap value?) A targeted goal oriented fund might also be desirable for home purchase, college, and other large expenses.
User avatar
steve r
Posts: 779
Joined: Mon Feb 13, 2012 8:34 pm

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

Post by steve r »

Delete
Last edited by steve r on Tue Nov 23, 2021 2:23 pm, edited 1 time in total.
"It's much easier than most investors expect to get satisfactory investment returns and it is much more difficult than they expect to get better results than that." Benjamin Graham
User avatar
steve r
Posts: 779
Joined: Mon Feb 13, 2012 8:34 pm

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

Post by steve r »

Somewhat of an update ... CNBC posted a piece titled "Market is ‘one more bad inflation report’ away from a correction, Wharton’s Jeremy Siegel warns"

The title is click bait(ish) as Siegel is historically strongly bullish. His suggestion. Keep equities. His logic was that you do not know how high stocks will go before they stop working and that stocks are real assets with real property, property rights etc.

https://www.cnbc.com/2021/11/21/market- ... erm=siegel
Last edited by steve r on Tue Nov 23, 2021 4:34 pm, edited 1 time in total.
"It's much easier than most investors expect to get satisfactory investment returns and it is much more difficult than they expect to get better results than that." Benjamin Graham
User avatar
mrspock
Posts: 1800
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

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

Post by mrspock »

invest2bfree wrote: Sun Nov 21, 2021 11:24 pm
drumboy256 wrote: Sat Nov 20, 2021 1:28 pm Honestly, the way the Fed looks at "inflation" is flawed. We're at 8.5% nominal inflation across USD currency, goods, services aside from their 1.5-2.25 points of inflation for treasuries. The fact that they don't take into account to me is a freaking joke. At this point, I would imagine we'll hit 10% before they start to pump the brakes on bond purchases but by then, it will be too late to salvage any type of recovery effort they were going for.
Fed is not intentionally pumping the brakes.

They are letting inflation eat away the debt which would be crushing even with a small increase in interest rates.
This is the right answer. They telegraphed this over a year ago with the shift to “average inflation” targets. Why everyone is surprised now, is beyond me. Bond holders are financing the debt, not tax payers. Until the bond market responds (demanding higher yields), this will continue. Sounds fine by me, if bond holders are in a charitable mood, why stop them?

So far this is going exactly to (the feds) plan IMO. About $150-200B being monetized away per year at this rate.
User avatar
willthrill81
Posts: 27089
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 »

mrspock wrote: Tue Nov 23, 2021 3:20 pm
invest2bfree wrote: Sun Nov 21, 2021 11:24 pm
drumboy256 wrote: Sat Nov 20, 2021 1:28 pm Honestly, the way the Fed looks at "inflation" is flawed. We're at 8.5% nominal inflation across USD currency, goods, services aside from their 1.5-2.25 points of inflation for treasuries. The fact that they don't take into account to me is a freaking joke. At this point, I would imagine we'll hit 10% before they start to pump the brakes on bond purchases but by then, it will be too late to salvage any type of recovery effort they were going for.
Fed is not intentionally pumping the brakes.

They are letting inflation eat away the debt which would be crushing even with a small increase in interest rates.
This is the right answer. They telegraphed this over a year ago with the shift to “average inflation” targets. Why everyone is surprised now, is beyond me. Bond holders are financing the debt, not tax payers. Until the bond market responds (demanding higher yields), this will continue.
But since the Fed is buying bonds, they are creating artificial demand and pushing down bond yields. Current yields are not purely market-driven.
“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
User avatar
novolog
Posts: 214
Joined: Tue Jan 30, 2018 6:24 pm

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

Post by novolog »

invest2bfree wrote: Sun Nov 21, 2021 11:24 pm
drumboy256 wrote: Sat Nov 20, 2021 1:28 pm Honestly, the way the Fed looks at "inflation" is flawed. We're at 8.5% nominal inflation across USD currency, goods, services aside from their 1.5-2.25 points of inflation for treasuries. The fact that they don't take into account to me is a freaking joke. At this point, I would imagine we'll hit 10% before they start to pump the brakes on bond purchases but by then, it will be too late to salvage any type of recovery effort they were going for.
Fed is not intentionally pumping the brakes.

They are letting inflation eat away the debt which would be crushing even with a small increase in interest rates.
correct
mrspock wrote: Tue Nov 23, 2021 3:20 pm
This is the right answer. They telegraphed this over a year ago with the shift to “average inflation” targets. Why everyone is surprised now, is beyond me. Bond holders are financing the debt, not tax payers. Until the bond market responds (demanding higher yields), this will continue. Sounds fine by me, if bond holders are in a charitable mood, why stop them?

So far this is going exactly to (the feds) plan IMO. About $150-200B being monetized away per year at this rate.
bondholders will be the bagholders of the 2020's. i thank them in advance for their service.
7x annual expenses, 68% equities, 13% bitcoin, 13% home equity, 6% cash (emergency fund)
Robot Monster
Posts: 2847
Joined: Sun May 05, 2019 11:23 am

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

Post by Robot Monster »

steve r wrote: Tue Nov 23, 2021 2:23 pm ...His suggestion. Keep partying with equities. His logic was that you do not know how high stocks will go before they stop working.

https://www.cnbc.com/2021/11/21/market- ... erm=siegel
Keep partying with equities till they stop working? Err, well, my understanding is that his suggestion is to hold equities because they (quoting from the article) "are real assets...which in the long run is going to maintain value.”
"The downs are part of the long term upward trend." -- our favorite golfer
User avatar
steve r
Posts: 779
Joined: Mon Feb 13, 2012 8:34 pm

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

Post by steve r »

Robot Monster wrote: Tue Nov 23, 2021 4:16 pm
steve r wrote: Tue Nov 23, 2021 2:23 pm ...His suggestion. Keep partying with equities. His logic was that you do not know how high stocks will go before they stop working.

https://www.cnbc.com/2021/11/21/market- ... erm=siegel
Keep partying with equities till they stop working? Err, well, my understanding is that his suggestion is to hold equities because they (quoting from the article) "are real assets...which in the long run is going to maintain value.”
Good point. I made this post in another thread about hysterics. Cut and pasted here without much thought. Edit made on my post.
"It's much easier than most investors expect to get satisfactory investment returns and it is much more difficult than they expect to get better results than that." Benjamin Graham
User avatar
Flymore
Posts: 308
Joined: Tue May 31, 2016 1:31 pm

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

Post by Flymore »

I agree with Jeremy Siegel.

One thing we can see for certain is a sharp uptick in the M2 money supply. This was a bit of a surprise to me.
https://fred.stlouisfed.org/series/M2SL

Federal Reserve Asset Purchases have also increased.
https://www.federalreserve.gov/monetary ... trends.htm

A sharp rise in money supply is inflationary as it leads to the classic definition of inflation, too much money chasing too few goods. When money supply increases the value of money goes down. As the supply chain issue eases the goods supply will increase it's hard to imagine prices remaining high for those goods, but real-estate and asset prices will continue to rise...IMO.

As others have said, I cannot see how interest rates can rise due to the large federal debt. As long as the Fed can control the bond market, through quantitative easing etc. interest rates will stay low. IMO If the Fed looses control of the bond market...well.
Robot Monster
Posts: 2847
Joined: Sun May 05, 2019 11:23 am

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

Post by Robot Monster »

Flymore wrote: Tue Nov 23, 2021 7:26 pm As others have said, I cannot see how interest rates can rise due to the large federal debt. As long as the Fed can control the bond market, through quantitative easing etc. interest rates will stay low. IMO If the Fed looses control of the bond market...well.
Couldn't the Fed comfortably allow rates to go up, if the rates remained below inflation? If inflation is 3%, and rates are 2%, doesn't the debt still get inflated away at 1% (3%-2%)?
"The downs are part of the long term upward trend." -- our favorite golfer
dogagility
Posts: 1873
Joined: Fri Feb 24, 2017 6:41 am

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

Post by dogagility »

invest2bfree wrote: Sat May 15, 2021 10:57 am ... on CNBC.
clickbait!
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
Ed 2
Posts: 2022
Joined: Sat May 15, 2010 9:34 am

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

Post by Ed 2 »

dogagility wrote: Wed Nov 24, 2021 1:45 pm
invest2bfree wrote: Sat May 15, 2021 10:57 am ... on CNBC.
clickbait!
+1. Most of the time Sunday clickbait . Seagel was hysterical last couple of months. If he was right on the spot last decade doesn’t give him the status of “ I know it all “
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
inbox788
Posts: 8280
Joined: Thu Mar 15, 2012 5:24 pm

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

Post by inbox788 »

Flymore wrote: Tue Nov 23, 2021 7:26 pm I agree with Jeremy Siegel.

One thing we can see for certain is a sharp uptick in the M2 money supply. This was a bit of a surprise to me.
https://fred.stlouisfed.org/series/M2SL

Federal Reserve Asset Purchases have also increased.
https://www.federalreserve.gov/monetary ... trends.htm

A sharp rise in money supply is inflationary as it leads to the classic definition of inflation, too much money chasing too few goods. When money supply increases the value of money goes down. As the supply chain issue eases the goods supply will increase it's hard to imagine prices remaining high for those goods, but real-estate and asset prices will continue to rise...IMO.

As others have said, I cannot see how interest rates can rise due to the large federal debt. As long as the Fed can control the bond market, through quantitative easing etc. interest rates will stay low. IMO If the Fed looses control of the bond market...well.
The graphs look the same to me. Causal? Maybe.

Anyway, Fed doesn't really control anything. Monetary policy and changes in the Fed balance sheet play a part in bond and interest rates, sometimes with more weight. Same can be said of the Phillips curve discussions, where the slack is no longer there and it's now carrying more weight. IMO, it was never really gone. I liken it to flying a kite and changing wind conditions. And it's sure been windy lately.

I like the shapes of figures 6 and 7.
https://www.niskanencenter.org/is-the-p ... inflation/
lws
Posts: 356
Joined: Tue Apr 25, 2017 6:12 pm

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

Post by lws »

No. We must not sell our bonds.
User avatar
sunnywindy
Posts: 595
Joined: Sat Jan 18, 2014 4:42 pm
Location: Wilmington, NC

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

Post by sunnywindy »

Robot Monster wrote: Wed Nov 24, 2021 12:08 pm
Flymore wrote: Tue Nov 23, 2021 7:26 pm As others have said, I cannot see how interest rates can rise due to the large federal debt. As long as the Fed can control the bond market, through quantitative easing etc. interest rates will stay low. IMO If the Fed looses control of the bond market...well.
Couldn't the Fed comfortably allow rates to go up, if the rates remained below inflation? If inflation is 3%, and rates are 2%, doesn't the debt still get inflated away at 1% (3%-2%)?
Yes, the relationship between the Fed, the national debt, and inflation is something to keep in mind.

I read this today from some Riverfront staff (you can watch a short video of the discussion - https://www.riverfrontig.com/insights/w ... -grossman/

"Chris Konstantinos:

Despite inflation at its highest level in decades, bond yields seem stubbornly anchored at low levels relative to history. To what do you attribute this? How long do you think it could persist?

Adam Grossman:

We think the reason for low-interest rates is that the Federal Reserve has been a huge buyer of government bonds, deliberately keeping interest rates low. Our hope is that this will continue for a long enough period of time to allow some sustainable inflation generation, which will help all debtor nations. This may allow indebted sovereign nations, like the US, a chance to pay off their overwhelming debt in inflation-reduced future dollars. Inflation has historically caused currencies to decline. However, since inflation is a global problem and most central banks are running low-interest-rate policies, exchange rates are likely to remain relatively stable, in our opinion."
Powered by chocolate!
Robot Monster
Posts: 2847
Joined: Sun May 05, 2019 11:23 am

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

Post by Robot Monster »

sunnywindy wrote: Wed Nov 24, 2021 5:19 pm
Robot Monster wrote: Wed Nov 24, 2021 12:08 pm
Flymore wrote: Tue Nov 23, 2021 7:26 pm As others have said, I cannot see how interest rates can rise due to the large federal debt. As long as the Fed can control the bond market, through quantitative easing etc. interest rates will stay low. IMO If the Fed looses control of the bond market...well.
Couldn't the Fed comfortably allow rates to go up, if the rates remained below inflation? If inflation is 3%, and rates are 2%, doesn't the debt still get inflated away at 1% (3%-2%)?
Yes, the relationship between the Fed, the national debt, and inflation is something to keep in mind.

I read this today from some Riverfront staff (you can watch a short video of the discussion - https://www.riverfrontig.com/insights/w ... -grossman/

"Chris Konstantinos:

Despite inflation at its highest level in decades, bond yields seem stubbornly anchored at low levels relative to history. To what do you attribute this? How long do you think it could persist?

Adam Grossman:

We think the reason for low-interest rates is that the Federal Reserve has been a huge buyer of government bonds, deliberately keeping interest rates low. Our hope is that this will continue for a long enough period of time to allow some sustainable inflation generation, which will help all debtor nations. This may allow indebted sovereign nations, like the US, a chance to pay off their overwhelming debt in inflation-reduced future dollars. Inflation has historically caused currencies to decline. However, since inflation is a global problem and most central banks are running low-interest-rate policies, exchange rates are likely to remain relatively stable, in our opinion."
Very interesting, thanks. From that article: ‘financial repression’ – the slow steady suppression of long interest rates below the rate of inflation. So now I know the term for that.
"The downs are part of the long term upward trend." -- our favorite golfer
User avatar
HanSolo
Posts: 892
Joined: Thu Jul 19, 2012 3:18 am

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

Post by HanSolo »

Robot Monster wrote: Wed Nov 24, 2021 7:59 pm Very interesting, thanks. From that article: ‘financial repression’ – the slow steady suppression of long interest rates below the rate of inflation. So now I know the term for that.
Yes. When asked why he robs banks, Willie Sutton replied, "because that's where the money is".

Savers and retirees have money. That's why we go after them.
VBIAX and chill (in taxable)
andypanda
Posts: 886
Joined: Sun Nov 12, 2017 9:11 pm
Location: Richmond, Virginia

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

Post by andypanda »

"We understand our job we will do our job "

I'm 71 and I still don't know what they think their job is. It seems to be a moving target.

Every job I ever had came with a boss I answered to. Oh well, too many questions.

HAPPY THANKSGIVING !!!!!
Phyneas
Posts: 47
Joined: Tue Apr 27, 2021 9:10 pm

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

Post by Phyneas »

novolog wrote: Tue Nov 23, 2021 4:14 pm bondholders will be the bagholders of the 2020's. i thank them in advance for their service.
If the Fed is tapering their bond purchases, and planning on ending them by mid-2022, then how do bond holders become bag-holders for the entire 2020's? Doesn't the financial repression end when the Fed takes its foot off the scales, or do you feel they'll just continue QE throughout the 2020's in one form or another, or to one degree or another?
User avatar
novolog
Posts: 214
Joined: Tue Jan 30, 2018 6:24 pm

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

Post by novolog »

Phyneas wrote: Thu Nov 25, 2021 7:24 am
novolog wrote: Tue Nov 23, 2021 4:14 pm bondholders will be the bagholders of the 2020's. i thank them in advance for their service.
If the Fed is tapering their bond purchases, and planning on ending them by mid-2022, then how do bond holders become bag-holders for the entire 2020's? Doesn't the financial repression end when the Fed takes its foot off the scales, or do you feel they'll just continue QE throughout the 2020's in one form or another, or to one degree or another?
the goal of financial repression (fed keeping rates low by buying up all the debt at auction) is to monetize the existing government debt. it is extremely effective at this, the IMF agrees: https://www.imf.org/external/pubs/ft/fa ... inhart.pdf

debt is currently 130% of GDP

it seems highly likely that financial repression will continue at least until debt is below 100% of GDP.

it seems to me that it will take longer than 6 months to get debt down below 100% of GDP.

just because financial repression is occurring doesn't mean that inflation will happen. it just means that bondholders will not be protected from inflation if it does happen.

inflation could go in bursts for the next decade, but the result would be the same. an extreme loss of purchasing power for bondholders.

btw the only other time in US history that debt was over 100% of GDP, this exact scenario played out. this is effectively how the US financed WW2 in the 40's. debt was 122% of GDP and it was brought all the way down to 35% by the 60's. see here for reference: https://en.wikipedia.org/wiki/Financial ... rld_War_II

corresponding chart: https://www.longtermtrends.net/us-debt-to-gdp/

in sum, debt to GDP ratio is the indicator to watch. over 100%? seems likely we will have continued zero interest rate policy by the fed.

also - happy thanksgiving :sharebeer
7x annual expenses, 68% equities, 13% bitcoin, 13% home equity, 6% cash (emergency fund)
User avatar
novolog
Posts: 214
Joined: Tue Jan 30, 2018 6:24 pm

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

Post by novolog »

said another way... money printer go brrrrrrrrrrrrrrrrrrrrrr :D
7x annual expenses, 68% equities, 13% bitcoin, 13% home equity, 6% cash (emergency fund)
User avatar
novolog
Posts: 214
Joined: Tue Jan 30, 2018 6:24 pm

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

Post by novolog »

"Financial repression occurs when governments implement policies to channel to themselves funds that in a deregulated market environment would go elsewhere. Policies include directed lending to the government by captive domestic audiences (such as pension funds or domestic banks)"

source: https://www.imf.org/external/pubs/ft/fa ... inhart.pdf

financial repression is literally a transfer of purchasing power/wealth, from government debt holders (see: retirees/pension-holders) to other recipients.

to the bogleheads who are surprised by people halting their bond purchases: this is why people are so averse to purchasing bonds when financial repression is occurring. because in a roundabout way, if you are buying government debt, you are funding the government beyond the taxes you already pay.

but to echo mr. spock above - who am i to stop people from acting charitably?. i personally prefer not to fund the government beyond the taxes i already pay.
7x annual expenses, 68% equities, 13% bitcoin, 13% home equity, 6% cash (emergency fund)
Robot Monster
Posts: 2847
Joined: Sun May 05, 2019 11:23 am

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

Post by Robot Monster »

novolog wrote: Thu Nov 25, 2021 9:36 am ...but as mr. spock says above, who am i to stop people from acting charitably. i personally prefer not to fund the government beyond the taxes i already pay.
Financial repression hurts nominal fixed income (which includes cash, yes?), but since it helps stocks, seems the ones who should be truly concerned are those with portfolios that tilt heavy toward nominal fixed income, such as Wellesley. Indeed, might those who tilt toward stocks actually welcome financial repression??

Inflation Adjusted Return from Jan 2021 - Oct 2021
Wellington Fund, 66.51% stocks, +9.04%
Wellesley Income Fund, 39.34% stocks, +1.13%
Vanguard Total International, 100% meh stocks, +3.5%
link

The Wellington stocks/repression mix ain't bad! But, as you can see, Wellesley performed even worse than international. Now that's an atrocity! :wink:
"The downs are part of the long term upward trend." -- our favorite golfer
User avatar
willthrill81
Posts: 27089
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 »

Robot Monster wrote: Thu Nov 25, 2021 11:03 amBut, as you can see, Wellesley performed even worse than international. Now that's an atrocity! :wink:
But of course, a 35/65 fund lagging a 100/0 fund in a single year is fake news. :wink:

Since 2012, Wellesley and VXUS have had nearly identical time-weighted returns, but Wellesley's volatility was only a fraction of VXUS's.
“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
User avatar
novolog
Posts: 214
Joined: Tue Jan 30, 2018 6:24 pm

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

Post by novolog »

Robot Monster wrote: Thu Nov 25, 2021 11:03 am
novolog wrote: Thu Nov 25, 2021 9:36 am ...but as mr. spock says above, who am i to stop people from acting charitably. i personally prefer not to fund the government beyond the taxes i already pay.
Financial repression hurts nominal fixed income (which includes cash, yes?), but since it helps stocks, seems the ones who should be truly concerned are those with portfolios that tilt heavy toward nominal fixed income, such as Wellesley.
yes i suppose you are correct - any fixed income instrument or cash, not just government debt. btw the cash i hold is my emergency fund, i try to hold as little of it as possible.
Robot Monster wrote: Thu Nov 25, 2021 11:03 am Indeed, might those who tilt toward stocks actually welcome financial repression??
i have been wondering this myself. i think i might welcome financial repression up to a point. serious unchecked inflation is bad for everyone tho.
7x annual expenses, 68% equities, 13% bitcoin, 13% home equity, 6% cash (emergency fund)
Robot Monster
Posts: 2847
Joined: Sun May 05, 2019 11:23 am

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

Post by Robot Monster »

willthrill81 wrote: Thu Nov 25, 2021 11:06 am
Robot Monster wrote: Thu Nov 25, 2021 11:03 amBut, as you can see, Wellesley performed even worse than international. Now that's an atrocity! :wink:
But of course, a 35/65 fund lagging a 100/0 fund in a single year is fake news. :wink:

Since 2012, Wellesley and VXUS have had nearly identical time-weighted returns, but Wellesley's volatility was only a fraction of VXUS's.
Well, yes, but in a financially repressed environment as we've seen this past year, even international can beat a fixed-income tilted portfolio such as Wellesley.
Last edited by Robot Monster on Thu Nov 25, 2021 2:18 pm, edited 1 time in total.
"The downs are part of the long term upward trend." -- our favorite golfer
garlandwhizzer
Posts: 3285
Joined: Fri Aug 06, 2010 3:42 pm

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

Post by garlandwhizzer »

The real potential risk seems to me that the FED gets forced by inflation which is more severe and more persistent than expected to raise rates and remove the punch bowl from the equity party that we've enjoyed for the last 12 years. QE and zero rate policy have driven investments into real assets like stocks and real estate. Stocks and real estate have, like bonds, gotten very expensive by historical measures. In the face of increasing inflation (if it is perceived by the market to be long term), rates must rise and the PE of stocks will drop, especially especially the very expensive growth stock darlings. That LCG segment has driven much of the market gains for the last 12 years and when they exit the party, it's a new game.

Furthermore, increasing bond yields will also pull income seeking money out stocks and into bonds In short, rising inflation and rising rates, if persistent, may mark the end of the great outsized risk-adjusted returns that US equity has generated for the last 12 years. Many of us who have fully ridden this great wave have come to expect that this relatively smooth ever higher course for equity investing is its natural state. 2007-9 and 2000-3 are for many dim and distant memories.

The markets have boomed big time for 12 years while the economy has struggled for 14. How so? There was always a FED backstop ready to prop up the market with QE and even purchases of corporate bonds if necessary to maintain the stock and bond markets at high valuation levels. In the case of persistently rising inflation, that game is over. No QE and rising rates--our equity backstop will disappear. At that point, the market can get dicey. Valuations will come down likely more in growth than in value but everybody will get hurt.

Rolling over and refinancing our immense levels of government debt isn't so painful when you're doing at about an average of 1% yield which is well less than current inflation. It will become a nightmare if we have to pay 2%, 3%, or 4% or more to roll it over. In that case the percentage of the federal and state budget going to pay off past debt keeps getting higher and higher with no end in sight. All that money goes into a totally unproductive asset for the future. Paying off past excesses with money borrowed from future tax payers hits the latter group in the wallet and reduces future aggregate demand.

All this sounds very grim, but I believe the nightmare won't happen. I still believe that our current substantial inflation, although it will persist longer than many including the FED expect, will be temporary. There are multiple strong secular forces (globalization, tech advances increasing efficiency, massive debt, and aging demographics worldwide) that are powerful anti-inflationary forces. If those forces remain intact, I believe that inflation will at some point in the not too distant future return to its long term 2% target. Policy missteps or a self-sustaining wage-price spiral, however, could keep the inflation train running, but I believe we'll be successful avoiding that.

This is just my 2 cents worth, but my opinion about how the future will play out, and like everyone else's opinion about that, may turn out to be wrong.

Garland Whizzer
Socal77
Posts: 251
Joined: Thu Oct 19, 2017 1:14 pm

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

Post by Socal77 »

tetractys wrote: Sat May 15, 2021 7:07 pm I’m worried about high inflation because my pension will only be COLA’d to a maximum of 3% annually. 20% in three years is double that, so it could be really long term painful! What can I do though, short of continuing to work? I think I’ll just have to pretend JS never said that!
Match a mortgage payment to the pension.
Robot Monster
Posts: 2847
Joined: Sun May 05, 2019 11:23 am

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

Post by Robot Monster »

garlandwhizzer wrote: Thu Nov 25, 2021 1:54 pm The real potential risk seems to me that the FED gets forced by inflation which is more severe and more persistent than expected to raise rates and remove the punch bowl from the equity party that we've enjoyed for the last 12 years. QE and zero rate policy have driven investments into real assets like stocks and real estate. Stocks and real estate have, like bonds, gotten very expensive by historical measures. In the face of increasing inflation (if it is perceived by the market to be long term), rates must rise and the PE of stocks will drop, especially especially the very expensive growth stock darlings. That LCG segment has driven much of the market gains for the last 12 years and when they exit the party, it's a new game.

Furthermore, increasing bond yields will also pull income seeking money out stocks and into bonds In short, rising inflation and rising rates, if persistent, may mark the end of the great outsized risk-adjusted returns that US equity has generated for the last 12 years. Many of us who have fully ridden this great wave have come to expect that this relatively smooth ever higher course for equity investing is its natural state. 2007-9 and 2000-3 are for many dim and distant memories.

The markets have boomed big time for 12 years while the economy has struggled for 14. How so? There was always a FED backstop ready to prop up the market with QE and even purchases of corporate bonds if necessary to maintain the stock and bond markets at high valuation levels. In the case of persistently rising inflation, that game is over. No QE and rising rates--our equity backstop will disappear. At that point, the market can get dicey. Valuations will come down likely more in growth than in value but everybody will get hurt.

Rolling over and refinancing our immense levels of government debt isn't so painful when you're doing at about an average of 1% yield which is well less than current inflation. It will become a nightmare if we have to pay 2%, 3%, or 4% or more to roll it over. In that case the percentage of the federal and state budget going to pay off past debt keeps getting higher and higher with no end in sight. All that money goes into a totally unproductive asset for the future. Paying off past excesses with money borrowed from future tax payers hits the latter group in the wallet and reduces future aggregate demand.

All this sounds very grim, but I believe the nightmare won't happen. I still believe that our current substantial inflation, although it will persist longer than many including the FED expect, will be temporary. There are multiple strong secular forces (globalization, tech advances increasing efficiency, massive debt, and aging demographics worldwide) that are powerful anti-inflationary forces. If those forces remain intact, I believe that inflation will at some point in the not too distant future return to its long term 2% target. Policy missteps or a self-sustaining wage-price spiral, however, could keep the inflation train running, but I believe we'll be successful avoiding that.

This is just my 2 cents worth, but my opinion about how the future will play out, and like everyone else's opinion about that, may turn out to be wrong.

Garland Whizzer
Nicely stated, as always.

An article that might be of interest, "Rising Inflation May Be a Lesser Risk Than a Fed Mistake: Strategists" link
"The downs are part of the long term upward trend." -- our favorite golfer
inbox788
Posts: 8280
Joined: Thu Mar 15, 2012 5:24 pm

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

Post by inbox788 »

novolog wrote: Tue Nov 23, 2021 4:14 pmbondholders will be the bagholders of the 2020's. i thank them in advance for their service.
You're welcome. I went looking to see how things were distributed, but couldn't find much recent info. Used to be oil producing nations, but their slice in 2010's seem to have fallen below 10%, and I couldn't find anything current. BTW, total debt was around 18T a decade ago and now is reportedly 28T. (Ah, the debt ceiling ... https://en.wikipedia.org/wiki/United_St ... by_ceiling https://www.whitehouse.gov/cea/blog/202 ... explainer/) There were different report of public debt and total debt, which wasn't clear to me, but some of the pie chart breakdowns had government agencies (inter-agency) holding about a quarter or third (https://www.debt.org/government/ public marketable debt). China was reported to hold about a quarter or a third (and sometimes Japan was listed as having a significant slice). Domestic investors were in similar range. The Fed slice was running about 10% range (is it higher now?).

Our rich uncle seems to be deep in debt, and we might be inheriting as large a fortune as we though, but whatever steps help him get in a better financial hopefully will help us all.

In the mean time, whoever is holding this debt must find the risk/benefit/holding period worth the measly returns (market risk, bond risk, currency risk, etc.). And even if they were somehow able to get out (why haven't they already), where would they put the funds? Some are locked in (like those stuck with negative interest rates), and while I can swap $1000 US dollars between cash, money market accounts or Vanguard US Total Bond Fund ETF anytime I feel like it, those holding $1T don't have it so easy.

https://fredblog.stlouisfed.org/2014/05 ... deral-debt
https://www.treasury.gov/resource-cente ... -debt.aspx

Anyway, I did take some cash and bough bonds (BND) recently. Inflation risk vs. bond rates rising. Other risks? Was it a wise choice for 3 year outlook? What about 1 year or 5 years or more?

Some of this is market timing vs personal timing, but recently, a lot of folks have changed their personal situation (retired early, changed careers, etc.) amidst market mutability.

[here's some recent data of who some of the bagholders are these days]
U.S. Treasury Securities Holders by Type
https://www.thebalance.com/who-owns-the ... bt-3306124
So while many people believe that much of the U.S. national debt is owed to foreign countries like China and Japan, the truth is, most of it is owed to Social Security and pension funds right here in the U.S. This means U.S. citizens own most of the national debt.
Last edited by inbox788 on Thu Nov 25, 2021 7:23 pm, edited 2 times in total.
inbox788
Posts: 8280
Joined: Thu Mar 15, 2012 5:24 pm

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

Post by inbox788 »

novolog wrote: Thu Nov 25, 2021 8:34 amdebt is currently 130% of GDP

it seems highly likely that financial repression will continue at least until debt is below 100% of GDP.

it seems to me that it will take longer than 6 months to get debt down below 100% of GDP.

just because financial repression is occurring doesn't mean that inflation will happen. it just means that bondholders will not be protected from inflation if it does happen.

inflation could go in bursts for the next decade, but the result would be the same. an extreme loss of purchasing power for bondholders.

...
in sum, debt to GDP ratio is the indicator to watch. over 100%? seems likely we will have continued zero interest rate policy by the fed.
I'm not sure the Fed has public stated it ("financial repression"; have they?), but until recently, it's been lucky in not having to make hard choices (low inflation, low unemployment), and has used other technical language to justify it's policies that align.

Looking back, they've already done all the buying, and the taper should complete mid next year (or earlier if you read between the lines in the minutes).

zero rate? TBD

Current Fed estimates make 2023/2024 rates non-zero, but unless something drastically different happens, we're not getting debt to GDP below 100% in 6 years, let alone 6 months. On the current trajectory, it will still be over 110% in 6 years, and that's without taking into account increasing debt ceiling.

Do you include cash, CD and money markets among "extreme loss of purchasing power for bondholders"? Which of these would far worst?

Anyway, I don't think the zero rate will change that soon or that fast, but I think change is coming well before we reach 100%, and I don't see how we won't have to get used to seeing over 100% debt/GDP for over the next decade or two. In 2-3 years, these numbers will be decoupled. Is there a direct relationship I'm missing?

Code: Select all

Projected gdp growth +6%, +4%, +2.5%, +2% 
https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20210922.htm
22.1, 23, 23.6, 24, 24.5
127%, 122%, 119%, 117%, 114% (28T debt)
GDP 2019 $21.4T, 2020 20.9T
https://www.statista.com/statistics/1031678/gdp-and-real-gdp-united-states-1930-2019/
User avatar
tetractys
Posts: 4962
Joined: Sat Mar 17, 2007 3:30 pm
Location: Along the Salish Sea

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

Post by tetractys »

Socal77 wrote: Thu Nov 25, 2021 2:08 pm
tetractys wrote: Sat May 15, 2021 7:07 pm I’m worried about high inflation because my pension will only be COLA’d to a maximum of 3% annually. 20% in three years is double that, so it could be really long term painful! What can I do though, short of continuing to work? I think I’ll just have to pretend JS never said that!
Match a mortgage payment to the pension.
Funny, we have done that unintentionally, having recently bought a house. It doesn’t seem like the solution you’re suggesting though because we’re already compartmentalizing the advantage with rising rents.

But the good news: I’ve found out if inflation subsides back to target the 3% COLA will continue until it’s caught up. Someday we’ll see how that works out.
Socal77
Posts: 251
Joined: Thu Oct 19, 2017 1:14 pm

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

Post by Socal77 »

tetractys wrote: Thu Nov 25, 2021 10:36 pm
Socal77 wrote: Thu Nov 25, 2021 2:08 pm
tetractys wrote: Sat May 15, 2021 7:07 pm I’m worried about high inflation because my pension will only be COLA’d to a maximum of 3% annually. 20% in three years is double that, so it could be really long term painful! What can I do though, short of continuing to work? I think I’ll just have to pretend JS never said that!
Match a mortgage payment to the pension.
Funny, we have done that unintentionally, having recently bought a house. It doesn’t seem like the solution you’re suggesting though because we’re already compartmentalizing the advantage with rising rents.

But the good news: I’ve found out if inflation subsides back to target the 3% COLA will continue until it’s caught up. Someday we’ll see how that works out.
I'm not sure I follow the compartmentalizing with rising rents. If you are saying matching a pension (cola adjusted or not) to a 30 year fixed rate mortgage note is not a clear and low risk way to financially engineer an inflation protection into ones budget, I would have to disagree.

Not only that, if one matches a non cola adjusted pension to a 30 year fixed rate mortgage, they have essentially turned the non cola adjusted pension into a financial instrument that actually has a chance to keep up with inflation, or create real income in excess of inflation because of rising rents over the long term.
Robot Monster
Posts: 2847
Joined: Sun May 05, 2019 11:23 am

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

Post by Robot Monster »

novolog wrote: Thu Nov 25, 2021 9:14 am said another way... money printer go brrrrrrrrrrrrrrrrrrrrrr :D
I wanted to make sure you saw what I posted in another thread. link
"The downs are part of the long term upward trend." -- our favorite golfer
User avatar
tetractys
Posts: 4962
Joined: Sat Mar 17, 2007 3:30 pm
Location: Along the Salish Sea

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

Post by tetractys »

Socal77 wrote: Sat Nov 27, 2021 3:20 pm
tetractys wrote: Thu Nov 25, 2021 10:36 pm
Socal77 wrote: Thu Nov 25, 2021 2:08 pm
tetractys wrote: Sat May 15, 2021 7:07 pm I’m worried about high inflation because my pension will only be COLA’d to a maximum of 3% annually. 20% in three years is double that, so it could be really long term painful! What can I do though, short of continuing to work? I think I’ll just have to pretend JS never said that!
Match a mortgage payment to the pension.
Funny, we have done that unintentionally, having recently bought a house. It doesn’t seem like the solution you’re suggesting though because we’re already compartmentalizing the advantage with rising rents.

But the good news: I’ve found out if inflation subsides back to target the 3% COLA will continue until it’s caught up. Someday we’ll see how that works out.
I'm not sure I follow the compartmentalizing with rising rents. If you are saying matching a pension (cola adjusted or not) to a 30 year fixed rate mortgage note is not a clear and low risk way to financially engineer an inflation protection into ones budget, I would have to disagree.

Not only that, if one matches a non cola adjusted pension to a 30 year fixed rate mortgage, they have essentially turned the non cola adjusted pension into a financial instrument that actually has a chance to keep up with inflation, or create real income in excess of inflation because of rising rents over the long term.
Well maybe just me, and I realize its philosophical, but rent and mortgage are related as housing cost, whereas saying a mortgage can offset a pension is like saying you can work to offset food expense.

Essentially it all balances out, money being fungible; but a loss of COLA is a loss.
Socal77
Posts: 251
Joined: Thu Oct 19, 2017 1:14 pm

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

Post by Socal77 »

tetractys wrote: Sat Nov 27, 2021 5:57 pm
Socal77 wrote: Sat Nov 27, 2021 3:20 pm
tetractys wrote: Thu Nov 25, 2021 10:36 pm
Socal77 wrote: Thu Nov 25, 2021 2:08 pm
tetractys wrote: Sat May 15, 2021 7:07 pm I’m worried about high inflation because my pension will only be COLA’d to a maximum of 3% annually. 20% in three years is double that, so it could be really long term painful! What can I do though, short of continuing to work? I think I’ll just have to pretend JS never said that!
Match a mortgage payment to the pension.
Funny, we have done that unintentionally, having recently bought a house. It doesn’t seem like the solution you’re suggesting though because we’re already compartmentalizing the advantage with rising rents.

But the good news: I’ve found out if inflation subsides back to target the 3% COLA will continue until it’s caught up. Someday we’ll see how that works out.
I'm not sure I follow the compartmentalizing with rising rents. If you are saying matching a pension (cola adjusted or not) to a 30 year fixed rate mortgage note is not a clear and low risk way to financially engineer an inflation protection into ones budget, I would have to disagree.

Not only that, if one matches a non cola adjusted pension to a 30 year fixed rate mortgage, they have essentially turned the non cola adjusted pension into a financial instrument that actually has a chance to keep up with inflation, or create real income in excess of inflation because of rising rents over the long term.
Well maybe just me, and I realize its philosophical, but rent and mortgage are related as housing cost, whereas saying a mortgage can offset a pension is like saying you can work to offset food expense.

Essentially it all balances out, money being fungible; but a loss of COLA is a loss.
I understand what you mean. I guess what I'm saying is you're better off deflating your mortgage payment along with a deflating pension (or in your case a 3% cola pension) instead of having rising rent payments almost surely eat up your pension. Alot of people have no such option to even consider.

I have a non cola adjusted pension available as soon as 50, just under 3 years from now and think about it like this:

If I match my pension amount to my mortgage I will essentially have two financial instruments that both deflate, for the most part offsetting each other where I can feel like "My housing cost is 0." Of course, there are other costs that may not necessarily deflate like insurance, taxes etc,

If you had not bought a house you would have an inflating rent payment that could surely outstrip your pension.

Yes, this is all philosophical semantics but most likely you have taken a great step in making sure your pension lasts better by not having housing costs in the form of rent rises eat it up even more.

I'm guessing you have cash/stocks/bonds in a three fund type portfolio for use in retirement too.
User avatar
novolog
Posts: 214
Joined: Tue Jan 30, 2018 6:24 pm

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

Post by novolog »

Robot Monster wrote: Sat Nov 27, 2021 3:37 pm
novolog wrote: Thu Nov 25, 2021 9:14 am said another way... money printer go brrrrrrrrrrrrrrrrrrrrrr :D
I wanted to make sure you saw what I posted in another thread. link
:sharebeer

great minds
7x annual expenses, 68% equities, 13% bitcoin, 13% home equity, 6% cash (emergency fund)
User avatar
cflannagan
Posts: 1193
Joined: Sun Oct 21, 2007 11:44 am
Location: Working Remotely

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

Post by cflannagan »

So with all the talks of "Financial repression", what do we think this means for bonds from a "flight to safety" role viewpoint?

As in some investors might not necessarily rely on bonds for returns (and in fact might be okay with slightly negative returns over long period of time), but are relying on bonds as a form of crash insurance. If we see another major crash like dotcom, housing, or COVID-19 crash.. how do we think bond funds would tend to react here, in times of "financial repression" that the govt is doing? Will this role become weaker, or will that role still be there? Will the positions in bond cushion the investor from downward movement (-50% becomes -30% or -20%) like they did before?
Kookaburra
Posts: 860
Joined: Thu Apr 02, 2020 11:14 pm

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

Post by Kookaburra »

novolog wrote: Thu Nov 25, 2021 9:14 am said another way... money printer go brrrrrrrrrrrrrrrrrrrrrr :D
Is it cold?
000
Posts: 6033
Joined: Thu Jul 23, 2020 12:04 am

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

Post by 000 »

cflannagan wrote: Sun Nov 28, 2021 10:01 pm So with all the talks of "Financial repression", what do we think this means for bonds from a "flight to safety" role viewpoint?

As in some investors might not necessarily rely on bonds for returns (and in fact might be okay with slightly negative returns over long period of time), but are relying on bonds as a form of crash insurance. If we see another major crash like dotcom, housing, or COVID-19 crash.. how do we think bond funds would tend to react here, in times of "financial repression" that the govt is doing? Will this role become weaker, or will that role still be there? Will the positions in bond cushion the investor from downward movement (-50% becomes -30% or -20%) like they did before?
Mightn't the role actually become stronger as there are more investors overextended into stocks who will run into bonds during bad times?

Unless the stock crash is related to inflation / default fears I guess.
Capitulation of bears is part of the market topping process.
Post Reply