Prices, Inflation/Deflation, Interest Rates & The Fed

cosine

Sparrow

Biden is going to immediately push another $1.9T on top of the $2.4T of foreign stimulus hooey that was approved in late 2020.

The money printing won't stop anytime soon; Ray Dalio is right, cash is trash. As soon as you make it, buy investments. Peter Schiff is right about the printing, but he's wrong in that he thinks it will all go into gold prices. It's going to go into tech stocks, just like the previous rounds.

And of course bonds are tied to $USD, so they're trash as well. They won't crash soon though since apparently the Fed wants to keep interest rates at zero until 2023 at least.

We are riding such an enormous wave of inflation, it's just taking a long time to show up in cheap plastic goods at Target. For now it will show up in healthcare, higher education, housing, and most of all tech stocks.
 

aynrus

Kingfisher

Biden is going to immediately push another $1.9T on top of the $2.4T of foreign stimulus hooey that was approved in late 2020.

The money printing won't stop anytime soon; Ray Dalio is right, cash is trash. As soon as you make it, buy investments. Peter Schiff is right about the printing, but he's wrong in that he thinks it will all go into gold prices. It's going to go into tech stocks, just like the previous rounds.

And of course bonds are tied to $USD, so they're trash as well. They won't crash soon though since apparently the Fed wants to keep interest rates at zero until 2023 at least.

We are riding such an enormous wave of inflation, it's just taking a long time to show up in cheap plastic goods at Target. For now it will show up in healthcare, higher education, housing, and most of all tech stocks.
Yup. And it's showing in plastic goods, I can assure, anything I used to buy online is up a lot and even more than the % they already printed.
Tech is the globalist technocratic cabal advancing its assault on the world/takeover, they're the ones driving the global coup, and they are the leg which the government stands on/the weapon of this government, makes sense for them to keep pumping them. While this government system lasts and before hyperinflation took hold and they headed to money reform and securities accounts confiscation.
 
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Arado

Pelican
Gold Member

Biden is going to immediately push another $1.9T on top of the $2.4T of foreign stimulus hooey that was approved in late 2020.

The money printing won't stop anytime soon; Ray Dalio is right, cash is trash. As soon as you make it, buy investments. Peter Schiff is right about the printing, but he's wrong in that he thinks it will all go into gold prices. It's going to go into tech stocks, just like the previous rounds.

And of course bonds are tied to $USD, so they're trash as well. They won't crash soon though since apparently the Fed wants to keep interest rates at zero until 2023 at least.

We are riding such an enormous wave of inflation, it's just taking a long time to show up in cheap plastic goods at Target. For now it will show up in healthcare, higher education, housing, and most of all tech stocks.
Not sure if tech is the best way to deal with inflation. Here is a decent article on it

While periods of rising inflation have tended to provide no support to nominal earnings growth, they have shown a very reliable tendency to result in declining valuation multiples as outlined in 'SP500: Low Bond Yields Do Not Justify High Equity Valuations'. The chart below shows the positive correlation between our favored valuation metric - the payout-adjusted dividend yield - and the 5-year average inflation rate. As inflation pressures have risen in the past, investors have effectively driven up the required rate of return on stocks.

There are numerous explanations for this inverse correlation between inflation and equity valuations, one being that rising inflation increases uncertainty about the future causing investors to require a higher equity risk premium. Another is that expansionary fiscal and monetary policies in the prior years create simultaneous inflation potential and extreme equity valuations. Policymakers tend to support asset values with expansionary policies at the expense of real wealth creation up until a point where rising inflation sends them a signal to engage in tighter policy. Either way, we would not bet on this time being different.
During the 1970's, stocks lost ground to inflation. Even if tech companies have rising revenues, high inflation makes those future earnings growth worth less in the present. In addition, the social unrest caused by high inflation may hurt advertising and consumerism centric businesses like FAANG. If those companies disappeared tomorrow, there would be disruptions but civilization would continue (and would likely be better off). Couldn't say the same about agriculture, energy, and mining companies and other value stocks.
 

cosine

Sparrow
Not sure if tech is the best way to deal with inflation. Here is a decent article on it


I really think this woman is spot on in a bunch of areas. She did a great job predicting not just if Tesla would take off, but why, and specifically because of its data prowess.


Her funds have truly taken off in 2020, especially ARKG.

In the late 1990's if you picked GE, Webvan, Enron, you'd be screwed, but if you also had 2-5% of your portfolio in Apple and Amazon, the winners would carry the team. Not everything Ark picks will win; but they'll have the next FAANG-type behemoths somewhere in their portfolio.
 

bucky

Ostrich
I skimmed through the last month or so of posts on this thread. Would the tl;dr for a finance dummy like me be "massive inflation is right around the corner, don't focus on saving USD, buy stuff with real value instead"? I realize that what constitutes stuff with real value that's preferable to savings in USD is a whole other debate.
 
The simplest approach is to hedge and diversify as usual.

Also, investing in your own skills and own business will be 10x-100x better returns than any asset.

Holding cash generates the lowest returns, so don’t hold that much. If you’re <35 it should probably be 12 months living expenses. That’s it.
 

Arado

Pelican
Gold Member
I skimmed through the last month or so of posts on this thread. Would the tl;dr for a finance dummy like me be "massive inflation is right around the corner, don't focus on saving USD, buy stuff with real value instead"? I realize that what constitutes stuff with real value that's preferable to savings in USD is a whole other debate.
It can get into the weeds and the smartest folks in the space who follow this can't even agree. Basically, it all comes down to whether the Fed is willing to tolerate a huge crash from letting the massive debt implode, or will they keep printing with changes to the law and sacrifice the currency (aka heavy inflation) to keep the bubble afloat and the money flowing to the people. Hedge for both scenarios, though i think given the political pain a crash will cause, it won't last for long so the latter scenario ultimately wins out. Plus we're already seeing price rises in most goods that people are still buying during the lockdown.
 

westernman

Sparrow

As soon as you make it, buy investments.
I agree. the question is what investments? Property values are still high, and it seems a lot of financial firms are gearing up for a big forclosure buy up. I have around 35-40k in savings now, and I feel like it's rotting. Investing in equipment for a business seems like a decent option, but then again, there are plenty of third world countries that have a peasant class of self-employed laborers
 

Eusebius Erasmus

Woodpecker
I agree. the question is what investments? Property values are still high, and it seems a lot of financial firms are gearing up for a big forclosure buy up. I have around 35-40k in savings now, and I feel like it's rotting. Investing in equipment for a business seems like a decent option, but then again, there are plenty of third world countries that have a peasant class of self-employed laborers

I don't know what others are doing, and I do provide financial advice, but I plan on investing in gold, silver, and cryptocurrency.

I'll also keep a stock market portfolio open, as key assets are inflated beyond recognition.
 

Eusebius Erasmus

Woodpecker
I don't know what others are doing, and I do provide financial advice, but I plan on investing in gold, silver, and cryptocurrency.

I'll also keep a stock market portfolio open, as key assets are inflated beyond recognition.
I apologize I mean, I do not provide financial advice.

That being said, I wonder what the members here think about holding onto interest-bearing assets like bonds? It goes against usury proscriptions.
 

Arado

Pelican
Gold Member
I agree. the question is what investments? Property values are still high, and it seems a lot of financial firms are gearing up for a big forclosure buy up. I have around 35-40k in savings now, and I feel like it's rotting. Investing in equipment for a business seems like a decent option, but then again, there are plenty of third world countries that have a peasant class of self-employed laborers
Commodities are quite cheap and do well during inflation.

 

cosine

Sparrow
I do not provide financial advice.

...I wonder what the members here think about holding onto interest-bearing assets like bonds? It goes against usury proscriptions.
And of course my opinions follow...

I agree. the question is what investments? Property values are still high, and it seems a lot of financial firms are gearing up for a big forclosure buy up. I have around 35-40k in savings now, and I feel like it's rotting. Investing in equipment for a business seems like a decent option, but then again, there are plenty of third world countries that have a peasant class of self-employed laborers

I think bonds and cash are the worst and second worst investments anyone can have right now. The Fed can't stop printing money through Quantitative Easing, so I agree your $35-40k cash is effectively rotting.

By contrast, if you buy a rental property with a 30-year fixed mortgage, inflation will keep driving up the price of the house, but your debt becomes worth less and less. Ultimately inflation is how the gov't has to deal with its debt; so, debtors are in a strong position, at least if they hold fixed-rate debt against real assets like cash-flowing real estate. Your rents will go up slowly, the value of the home will go up slowly, your debt will become worthless, and then you can just re-mortgage the property and buy more if you want.

I really, really suggest you take the 2-3 hours to listen to both of these interviews with Michael Saylor. Keep in mind he has to invest hundreds of millions, if not billions, so purchasing residential real estate for example doesn't make sense for his company's value storage:

1:

2:

Some of my other favorite thought-leaders:
3. Scott Galloway predicts that healthcare and higher ed will be transformed - tech companies like Amazon will take over healthcare, and then tech giants like Google, Apple will pair with big name universities like Harvard, MIT, Stanford, Oxford...etc and distribute their degrees to the masses in a "platform" style:

4. Robert Kiyosaki doesn't have so much of a dog in the fight, but advocates buying gold, silver, bitcoin, just like @Eusebius Erasmus suggested. He's also been a supporter of commodities in general.

5. Cathie Wood and Ark Invest, as I mentioned earlier, have been making a bunch of technological innovation calls correctly:
www.ark-funds.com

To me, the solution is:
- Buy cash-flowing rental real estate with fixed-debt near good schools (check out biggerpockets.com)
- Buy legitimately innovative companies like those in the Ark funds (could also just buy the Ark funds, ARKK to keep it simple)
- Buy bitcoin
- Buy some gold, silver
- Buy some commodities (not really my thing, I'm uneducated here)

These asset classes all things people will want for a very long time(except crypto is unclear), so even if some are in bubbles, you should do well. Some will surely crash and etc, so you can mitigate risk by allocating a smaller % of your portfolio into the volatile ones. Ultimately it should work out dramatically better than bonds. Remember that in inflation scenarios, which we are in, fixed-rate debtors fare much better than fixed-rate lenders. And owning bonds makes you a lender.
 

jonNorth

Sparrow
And of course my opinions follow...



I think bonds and cash are the worst and second worst investments anyone can have right now. The Fed can't stop printing money through Quantitative Easing, so I agree your $35-40k cash is effectively rotting.

By contrast, if you buy a rental property with a 30-year fixed mortgage, inflation will keep driving up the price of the house, but your debt becomes worth less and less. Ultimately inflation is how the gov't has to deal with its debt; so, debtors are in a strong position, at least if they hold fixed-rate debt against real assets like cash-flowing real estate. Your rents will go up slowly, the value of the home will go up slowly, your debt will become worthless, and then you can just re-mortgage the property and buy more if you want.

I really, really suggest you take the 2-3 hours to listen to both of these interviews with Michael Saylor. Keep in mind he has to invest hundreds of millions, if not billions, so purchasing residential real estate for example doesn't make sense for his company's value storage:

1:

2:

Some of my other favorite thought-leaders:
3. Scott Galloway predicts that healthcare and higher ed will be transformed - tech companies like Amazon will take over healthcare, and then tech giants like Google, Apple will pair with big name universities like Harvard, MIT, Stanford, Oxford...etc and distribute their degrees to the masses in a "platform" style:

4. Robert Kiyosaki doesn't have so much of a dog in the fight, but advocates buying gold, silver, bitcoin, just like @Eusebius Erasmus suggested. He's also been a supporter of commodities in general.

5. Cathie Wood and Ark Invest, as I mentioned earlier, have been making a bunch of technological innovation calls correctly:
www.ark-funds.com

To me, the solution is:
- Buy cash-flowing rental real estate with fixed-debt near good schools (check out biggerpockets.com)
- Buy legitimately innovative companies like those in the Ark funds (could also just buy the Ark funds, ARKK to keep it simple)
- Buy bitcoin
- Buy some gold, silver
- Buy some commodities (not really my thing, I'm uneducated here)

These asset classes all things people will want for a very long time(except crypto is unclear), so even if some are in bubbles, you should do well. Some will surely crash and etc, so you can mitigate risk by allocating a smaller % of your portfolio into the volatile ones. Ultimately it should work out dramatically better than bonds. Remember that in inflation scenarios, which we are in, fixed-rate debtors fare much better than fixed-rate lenders. And owning bonds makes you a lender.

What do you do if you own rapidly appreciating(inflating) single-family real estate but have only a medium/low income? Say your LTV is only something like 20%. Just refinance to lower payments and enjoy the low cost of living?
 

jonNorth

Sparrow

NoMoreTO

Ostrich
Is th

View attachment 28829

Is there a way to buy lumber now? I am looking into building a house and as crazy as it sounds it might help to lock in some paper lumber prices if they take another dip to hedge myself in case prices go up.
 

View attachment 28829

I knew the price had gone up but that's a good chart. I'm also seeing aluminum and steel shortages in the supply chain. Not sure how much of a trend it is.
 

NoMoreTO

Ostrich
Deflation Argument here.

7:20 in the Video as follows:
- inflation expectation is rising, so people are anticipating needing savings to cover higher costs.
- Jobs are not secure.
- people begin hoarding money as they are anticipating inflation and will need the money.
- savings rates are jumping in US, just like in Japan.
- This money hoarding, reverses the effect of inflation, and you actually end up with DEFLATION.

Also: All debt is going to consumption (eg. groceries, rona tests), not production (eg. equipment). At some point the debt has to be handled, purse strings need to be tightened, money saved.

 

cosine

Sparrow
What do you do if you own rapidly appreciating(inflating) single-family real estate but have only a medium/low income? Say your LTV is only something like 20%. Just refinance to lower payments and enjoy the low cost of living?
My advice would be to:

1. Refi, just like you said. I locked in 2.375% for a 30-year in fall 2020 with better.com found from nerdwallet.com. They literally lose money at that rate, and I had to send the salesman screenshots from Nerdwallet and they honored it. better.com is a tech company trying to prove concepts so can lose money since it's all VC funded or whatever.

2. Depends a bit on how old you are, or how aggressive you are. Personally, I would consider taking a second mortgage or massive cash-out refi, say to 50% LTV, and then use that money to purchase a rental property. This is Robert Kiyosaki style strategy; don't get educated, but get into debt!(good debt ONLY) If you have two homes you like, perhaps in different states or countries, you can always rent one out and switch as you like. Take advantage of the best weather and etc. You could purchase your retirement home years in advance, airbnb or rent it in the meantime, improve it, then by the time you want to retire, it's "matured" and you can rent out the old one and enjoy multiple income streams.

On the other hand, Dave Ramsey's advice to just pay it all off aggressively is not crazy. It can allow you the emotional(and cash-flow) freedom to make other, more risky changes to your life.

People who have multiple forms of debt can sometimes best be served by just paying off the smallest one first, even if it isn't the lowest interest rate. It isn't strictly logical, but you gain true satisfaction from fully closing out a line of debt; you have accomplished a task, and it may really motivate people to work harder to pay off the others.
 

Lime

Kingfisher
Are there any good books in the recent years about the post 2008-crisis economic situation of low interest rates and their implications? And about the current 'most hated bull market in history'?

In my language there are a few, but in English I always find books by gold bugs or permabears. For example I've read Harry Dent but he is also kind of a permabear.
 
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