Author Topic: Stocks are NOT an inflation hedge  (Read 5672 times)

pecunia

  • Handlebar Stache
  • *****
  • Posts: 1690
Re: Stocks are NOT an inflation hedge
« Reply #50 on: June 17, 2019, 05:15:33 AM »
Why are we giving equal consideration to the effects of deflation - something that has happened in only 3 or 4 of the last 300 quarters (i.e. is short lived and historically has occurred ~1% of the time)?
For the US one would have to go back to the 1930s to encounter an entire year that was deflationary.

The theory is that the U.S. is no longer growing its population like it did in the 20th century. Demographically the country is aging which reduces monetary velocity, and massive wealth inequality means most dollars are never circulated in a year and instead crowd into bubble investments. Put all that together (and tie a property bubble bow on top) and you have a Japan scenario. One has to admit the undertow is massive if we're holding unemployment under 4% with 2.5% 10 year treasury rates, record-low savings rates, decent consumer spending growth, ... and somehow inflation is still running at 2%. If that undertow increased even a tiny amount, we would be at ZIRP printing dollars like the Japanese are printing yen trying to escape deflationary gravity.

So,.....it sounds like if Federal policies were changed to spread the wealth around a bit, it would provide less risk of a potential  stagnant economy.

bacchi

  • Walrus Stache
  • *******
  • Posts: 5003
Re: Stocks are NOT an inflation hedge
« Reply #51 on: June 17, 2019, 09:36:05 AM »
Why are we giving equal consideration to the effects of deflation - something that has happened in only 3 or 4 of the last 300 quarters (i.e. is short lived and historically has occurred ~1% of the time)?
For the US one would have to go back to the 1930s to encounter an entire year that was deflationary.

The theory is that the U.S. is no longer growing its population like it did in the 20th century. Demographically the country is aging which reduces monetary velocity, and massive wealth inequality means most dollars are never circulated in a year and instead crowd into bubble investments. Put all that together (and tie a property bubble bow on top) and you have a Japan scenario. One has to admit the undertow is massive if we're holding unemployment under 4% with 2.5% 10 year treasury rates, record-low savings rates, decent consumer spending growth, ... and somehow inflation is still running at 2%. If that undertow increased even a tiny amount, we would be at ZIRP printing dollars like the Japanese are printing yen trying to escape deflationary gravity.

So,.....it sounds like if Federal policies were changed to spread the wealth around a bit, it would provide less risk of a potential  stagnant economy.

And that a younger, growing, population would also help.

vand

  • Handlebar Stache
  • *****
  • Posts: 1055
  • Location: UK
Re: Stocks are NOT an inflation hedge
« Reply #52 on: April 22, 2020, 04:04:19 AM »
I love this chart from pensioncraft's (a channel I highly recommend, especially for UK investors) video on inflation vs deflation, and why everyone shoots for a 2% inflation target to maximize asset pricing:




Buffaloski Boris

  • Handlebar Stache
  • *****
  • Posts: 2127
  • Displaying your outrage accomplishes nothing.
Re: Stocks are NOT an inflation hedge
« Reply #53 on: April 27, 2020, 06:14:54 PM »
I love this chart from pensioncraft's (a channel I highly recommend, especially for UK investors) video on inflation vs deflation, and why everyone shoots for a 2% inflation target to maximize asset pricing:



Thanks for the video idea.  One more thing on my info stack!