nedsaid wrote:
I have stated that it is likely that inflation has already peaked but of course for the reasons you and others have cited, there is no way to know at this point. I also have discussed that we might be headed towards Stagflation, which is a nightmare for Bogleheads as Stagflation is tough on both Stocks and Bonds. As much as I can, I choose to be optimistic and choose to look for opportunities wherever they can be found. This current environment can make it hard to be optimistic but I am doing my very best. I don't have a crystal ball.
1+
My thoughts exactly mirror this.There is a lot of risk out there in both stock and bond markets now from known unknowns and from unknown unknowns. Unknown unknowns like the Ukraine War, the Great Resignation, and the Covid pandemic induced supply chain dispuptions--none of which anyone expected or predicted, have brought havoc on stocks, bonds, inflation expectations, and economies worldwide. These unpredictable events underline the critical role that blind chance and uncertainty play in the markets and in economies. All are unknown unknowns that created chain disruptions that aided and abetted inflation. Add to that to the known unknowns like 14 years of persistent zero rates and trillions in QE from the FED in addition to massive government debt driven fiscal stimulus. In spite of what modern monetary policy says, there is often a price to pay later down the road when you open the monetary floodgates in a financial emergency. It was the combination af all these plus others that drove the rapid, sudden and severe rebirth of inflation which after declining for 39 years, many presumed to be dead and gone for good. That resurgence of inflation in my view marks the start of a new and more difficult era for financial assets going forward.
Many thought during the boom times of 2009 - 2021, that both bond and stock markets were consistently performing far ahead of their fundamental expectations, but most of us were having too much fun enjoying the ride to consider that what goes up in excess can come down in excess. Highly speculative massive winner names like BTC, TSLA, ARKK stocks, MEME stocks, SPACS, etc., enjoyed massive bull runs. Those of us who retained some belief that underlying fundamentals are important to long term returns didn't climb on board that express train to riches. We are now glad that we were cautious about the get rich quick strategy which worked until it didn't. But we also were too optimistic about the future, just less so. We share the pain but less so. No one anticipates the near or intermediate term future accurately on a consistent basis.
It's hard to retain optimism when both stocks and bonds are suffering and the specter of possible stagflation in the future suddenly appears as a real risk. Those of us who have lived through stagflation know what a nightmare it can be. When the markets were booming we got excessively optimistic and neglect future risks. Now that markets are headed in the opposite direction, our perceptions of the future may likewise err on the pessimistic side. Like nedsaid, I struggle to remain optimistic. Pessimism is not a winning long term strategy. At some point in the future, inflation will be under control, rates will be headed down, the Ukraine War will be over, supply chain constrictions will disappear, and a long period of persistent real economic growth will stretch into the future. It's a question of when, not if. No one knows when reliably.
One of the hallmarks of long term successful investors is the ability to tolerate long periods of frustration, fear, and disappointment without departing from a sound diversified investment strategy which however continues to lose. As Bogle said, "Don't just do something, stand there." That's what I'm doing.
Garland Whizzer