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Old 12-12-2009, 09:27 PM   #221
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To paraphrase Your Money or Your Life, it's not inflation that's the problem; it's that our standard for the standard of living has gone up.

"In 1970 staying trim and fit meant doing your own yard work - mowing your lawn with a human-powered mower and raking leaves. In 1990 it required a health club membership and a $300 ergonometric stationary bicycle - and these for the person who also has a 12 horsepower riding mower and a 140-decibel leaf blower.

As the standard of living has risen, so has the standard for the standard of living. Once, we were well-to-do if we didn't have to borrow our neighbor's push mower; now we feel poor if we don't have a riding mower. In other words, we have excelled at creating our own experience of inflation - apart from the CPI numbers."
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Old 12-13-2009, 01:38 PM   #222
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Feel free to go back and do the same work I did for the past 20 years, or 10 years or whatever floats your boat. The results are the same.
Except that the lynchpin of your argument was that by going back 50 years a 7% bias would show the absurdity of any systematic inaccuracy. Which it would. But a 1% bias over 10 years would only be a 10% difference, which given the method of comparison (a New Jersey Newspaper advertising a sale flyer being converted to
"today's prices" using a national average), would not be nearly so obvious.

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This would tend to agree with my point, which was $52k would only work for a starting Chem E. But the Chem E salary listed in the table doesn't say 'starting', nor does it for EE. In the absence of a qualifier, one would assume an experienced person--in the parlance, a 'starting' engineer is often referred to as an 'engineer-in-training' although whether or not that was true in the 1950s, who knows?.

I agree that people buy bigger houses, and carry more debt. I agree that people are wasteful. I partially agree with Joe Dominguez that inflation is not that much of a problem if you are creative and adaptable (but if you really believe it like he did, have you put your money where your mouth is by putting everything you own into long-term T-bonds? And do you want to live like he did?). His argument may hold over 10 years. It won't hold over 30 with even moderate inflation. Unless you think living on 1/3 of what you take in now is not a problem. But ultimately, I don't think either me nor YTG are arguing about whether or not inflation is significant. We both know it is. Our discussion is about how it is measured. So my comment in a previous post about dual incomes was 'unscientific' (and I admitted at the time). That being said, I think CPI notwithstanding, it's much harder for a single-income family to get by now than in the 1950s. When I was a kid, say about 1958, my father pulled in less than $10k/year gross (in Western Washington). My mom was stay-at-home. We bought a $20k house (try buying even that same physical house now for $140k or whatever the CPI says it would be worth). We had a freezer, 2 cars, one fairly new, and the house was about 1200 SF finished, 2400 SF with full basement--my father finished out about half the the basement to about 1800 sf. finished. Could that be done now on the roughly $70k/year single income that $10k translates into? Pretty unlikely. Maybe with extreme frugality.....if the house could be had for $140-$150k. It can't in that neighborhood. We did not have a boat, snow-machine, many of the toys that people have nowadays.

My point, at its most basic, is that although the series stretches quite a ways back in time, there have been relatively recent changes to the methodology of the calculation. Therefore it no longer measures exactly what it used to. The continuity of the series has been broken. I don't see how this is disputable.

What is up for discussion is the net effect of the methodology changes, and who they were intended to benefit. Anytime a government agency has a huge financial stake in the outcome of a study or methodology change, I am suspicious. I am suspicious of the "substitution" procedure.

But even if the CPI-U scrupulously tracks inflation for the average urban consumer, it probably will not work for you. It definitely won't work for you if you are older and covering your own medical costs (read FIREed). So track you own expenses and create your own CPI. Then figure out what to do. Then when the CPI-U substitutes beef cat-food in for hamburger because they are both beef and that's the behavior the average consumer is exhibiting, you won't have to go along with it.
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Old 05-23-2010, 08:30 AM   #223
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"The future cannot be based on past performance."

You can't look at the last 30 years of inflation data and draw too many conclusions about the future.

Economists predict what they can predict, and when they fail, they come up with new models.

The failures are what bite us in the arse every time.

It's probably becoming clearer by the day to most people that currencies around the world are being debased.

That's the scenario that FIRE models, etc., aren't equipped to handle... because it's never happened on a global scale like this before.
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Old 05-23-2010, 08:35 AM   #224
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The world economy is weakening. Why on earth would someone follow a model that says to keep 20%+ of one's money in equities?

I don't get it.

The only place to be right now is in cash and cash equivalents.

A small return is better than a huge loss.
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Old 05-23-2010, 09:11 AM   #225
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Old 05-23-2010, 09:27 AM   #226
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So you have already made up your mind and want our approval. Good luck!
And it is still made up...

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Old 05-23-2010, 03:14 PM   #227
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The world economy is weakening. Why on earth would someone follow a model that says to keep 20%+ of one's money in equities?

I don't get it.

The only place to be right now is in cash and cash equivalents.

A small return is better than a huge loss.
I'm not retired yet but have set aside a decent retirement portfolio. I keep this in a 60/40 diversified portfolio of equity & bond index ETF's. I tend a little more to the conservative side for preservation of principal since I don't need to swing for the fences and score huge returns.

During the recent market run up and subsequent crash I saw my portfolio rack up huge gains and then sustain huge losses but it was all mostly on paper as I never sold out. And we kept adding to it at regular intervals so that we bought a lot of shares cheap when the market was down. Looking back over the long haul though I've had decent long term growth.

Yes, taxes are probably going up in the near future. Inflation could well be a problem. Our dollars value will change relative to other currencies but I still think a diversified portfolio with regular re-balancing is the way to go.

You can't watch the day to day market gyrations and let that drive your investing strategy when you're investing for maybe a 25-30 year time frame.
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Old 05-24-2010, 01:25 AM   #228
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I'd be interested if anyone shares my view that keeping cash for the next couple years might be a good strategy. I've done well in gold and am willing to cash in, wait, and then buy government bonds at some point in the future. I don't have a good feeling about the typical asset allocation model which requires that one put money in stock index funds and bonds... at least right now.

Thanks
I share your view that it might be a good strategy. But I don't know that it would be a good strategy. I do think that it is worthy of respect, but I am not at all sure that it is worthy of the all-in confidence you seem to have about it.

Ha
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Old 05-24-2010, 06:29 AM   #229
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Ditto what haha said.
I agree that holding cash only might be a good idea.
So might not holding any.
This is why a good allocation is so important. Take the fear and greed out of investment decisions.
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Old 05-24-2010, 07:12 AM   #230
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This is why a good allocation is so important. Take the fear and greed out of investment decisions.
Having part of your allocation in equities might be a good idea for 'balance' reasons, but it doesn't take the fear out of it. I have less than ever allocated to stocks and I have plenty of fear going on these days.

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Old 05-24-2010, 07:29 AM   #231
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There are so many uncertainties with regard to the future that it's difficult to know how to plan.

Even the worst case scenario in FIRECalc may not be bad enough to reflect what the future may hold.
Ultimo, it seems to me the premise of your strategy is based on a fear that the future may be worse than the past. FIRECalc includes the Great Depression in it's calculations. Do you really believe we are going to see economic conditions worse than that? I really don't think any of us who did not experience the 1930's can really grasp how bad it was. I think it took 25 years for the DOW to get back to the high of 1929.

I would say you could be right, the worst case scenario in FIRECalc may not be bad enough, but by far odds are it is.
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Old 05-24-2010, 08:44 AM   #232
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Having part of your allocation in equities might be a good idea for 'balance' reasons, but it doesn't take the fear out of it. I have less than ever allocated to stocks and I have plenty of fear going on these days.
Perhaps not completely, but do you allow your fear/emotions to dictate your investments?

It is good to be concerned, and to track your investments, or at least be aware of the companies you are invested with. But to allow your emotions to dictate your investments generally, from what I have seen and heard, doesn't work out well.
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Old 05-24-2010, 09:02 AM   #233
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Perhaps not completely, but do you allow your fear/emotions to dictate your investments?
I allow it to dictate my med consumption.
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Old 05-24-2010, 03:22 PM   #234
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The only place to be right now is in cash and cash equivalents.
Could be. It certainly could be.

But please do tell us when it's time to move out of cash.
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Old 05-24-2010, 04:03 PM   #235
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An interesting internet forum behavior appears to be going on here - the "plate spinner". A poster drops by every few weeks or months to put up a few caustic comments designed to go against the grain and stir things up, then disappears until the plates need revving up again.

It was almost six months since his last visit, I wonder when he'll spin us again?
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Old 05-24-2010, 04:34 PM   #236
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You can always hedge stocks by going long/short...
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Old 05-24-2010, 11:32 PM   #237
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I allow it to dictate my med consumption.
me too ..
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Old 05-24-2010, 11:33 PM   #238
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You can always hedge stocks by going long/short...
No, thanks.
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Old 05-25-2010, 06:36 AM   #239
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And for anyone keeping score at home, I think that we have a self-sustaining recovery underway as long as the financial system does not come apart. BDI up another chunk yesterday and the freight futures market spiked even as equities dropped. Off in the background, containership rates have recovered in the last few months and continue to rise. PSVs in the North Sea have gone from laid-up ships (docked for lack of work) 3 months ago to a sold-out market as of yesterday. Yeah, the markets are dropping, but the real economy of moving "stuff" seems to be chugging along.
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Old 05-25-2010, 06:53 AM   #240
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And for anyone keeping score at home, I think that we have a self-sustaining recovery underway as long as the financial system does not come apart. BDI up another chunk yesterday and the freight futures market spiked even as equities dropped. Off in the background, containership rates have recovered in the last few months and continue to rise. PSVs in the North Sea have gone from laid-up ships (docked for lack of work) 3 months ago to a sold-out market as of yesterday. Yeah, the markets are dropping, but the real economy of moving "stuff" seems to be chugging along.
DOW futures off 209 this morning. I wish the markets would read your posts.
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