Anyone here concerned about inflation?

[joeea]

That was brutal. We increased prices quarterly. It was a chore updating all the price lists. Interest rates at 15%.

And, that's when I bought my first house and got fired from my first job!

Brutal.

For part of that time I worked in a grocery store. We changed prices several times a week. I had one customer throw a can at me for changing prices. She seemed to think it was illegal.

A few years later, I had an IT job. I quit because they were offering a 12% annual raise that wasn't keeping up with inflation.

My mortgage started at 14%, but I refinanced several times over the years to get into the single digits.

Strange times. Glad I wasn't on a fixed income back then.

 

[OldShooter]

... For those relying on TIPS as a hedge, what is your logic (e.g. What % of portfolio is allocated to TIPS and why)?

We have never looked at it as a percentage of anything. We have been fortunate enough that we could just slug serious six figures into TIPS with the general expectation that would be enough as the rest of the portfolio will not go to zero. In fact we hope that those who expect equities to be an inflation shelter are right, although IIRC that wasn't the case during the 1970s/80s excitement.

& if the high-impact/probably low-probability event happens, I expect that Treasury will stop selling TIPS to avoid pouring gas on a fire and I expect that panic-stricken people will bid them up into negative yield territory. So by selling into the panic we will do better than one would expect just cranking yield and inflation numbers. Hard to know, since nothing like this has ever happened before.

& if our TIPS insurance policy is not needed, that will not bother us any more than the fact that our home fire insurance has never been needed either.

 

[MarieIG]

Only in conjunction with fixed retirement income.

 

[braumeister]

I don’t expect out of control, runaway, supernova type inflation anytime soon.

Nobody expects it.

 

[GravitySucks]

It's a good thing the elected officials know their stuff, or I'd be worried...

+1
Not expecting a Venezuela like run up, but even a few years of in the low teens inflation would have me doing some serious reevaluation.

 

[joeea]

+1
Not expecting a Venezuela like run up, but even a few years of in the low teens inflation would have me doing some serious reevaluation.

Anyone in or contemplating retirement in the near future will need to keep an eye on inflation. If it gets into the teens many of us will need to significantly alter our investment plans.

That said, there will always be ways to somewhat mitigate inflation effects should that come to pass.

 

[OldShooter]

Anyone in or contemplating retirement in the near future will need to keep an eye on inflation. If it gets into the teens many of us will need to significantly alter our investment plans. ...

Again, we're talking about a high-impact, low-probability event, but I think after it happens it will be too late to alter plans.

And, as far as prediction is concerned, I think Galbraith's comment applies: "The only function of economic forecasting is to make astrology look respectable." Sorry, @audreyh1.

 

[joeea]

Again, we're talking about a high-impact, low-probability event, but I think after it happens it will be too late to alter plans.

As someone who lived through the last time, I have to disagree.

I don't know about you, but if I see inflation start to take off, I'm changing my investments to include more inflation-proof and inflation-tracking vehicles.

I think if/when the time comes others would be wise to look into their investments as well or risk having inflation erode the purchasing power of everything they saved and worked for.

 

[REWahoo]

I don't know about you, but if I see inflation start to take off, I'm changing my investments to include more inflation-proof and inflation-tracking vehicles.

What metrics will you use to determine inflation is starting to take off? Are you seeing signs now?

 

[joeea]

What metrics will you use to determine inflation is starting to take off? Are you seeing signs now?

The inflation rates are public record.

I'm not trying to time the rate of inflation any more than I'm trying to time the market, so while inflation is clearly rising, I don't see any signs that action is currently needed.

In 1972-73 inflation jumped from 3.4% to 8.7%. Should that kind of jump happen again, it will be obvious to anyone who cares to notice.

 

[MichaelB]

What metrics will you use to determine inflation is starting to take off? Are you seeing signs now?

+1

Metrics matter, as do absolute levels. We currently have inflation, usually do, and for most people most of the time, inflation is preferable vs deflation.

 

[REWahoo]

In 1972-73 inflation jumped from 3.4% to 8.7%. Should that kind of jump happen again, it will be obvious to anyone who cares to notice.

And by the time it happens (jumps that high) it will likely be too late to do anything about it.

My question is what do you think would be your trigger point, when inflation gets to 4%? 5%? Or will you be watching the month over month change in rates, using a particular trend point to take action?

 

[joeea]

And by the time it happens it will likely be too late to do anything about it.

High inflation isn't a one-time hit or miss event. It won't be "too late to do anything" if high inflation happens again.

The last time it happened it wasn't too late to react to inflation by seeking higher-rate CDs, for example. Those considering paying of their low-rate mortgages would likely react by holding on to them in the face of high inflation rates and consequent high mortgage rates.

I'm not sure what others will do, but I'll certainly evaluate all of the then-current options available and choose the ones that mitigate inflation if it starts getting out of hand.

I have no magic numbers in mind. Long-term US inflation has been a little over 3% over the past century or so. If/when inflation gets much higher than that, most of us will be paying more attention to it, I suspect.

 

[REWahoo]

The last time it happened it wasn't too late to react to inflation by seeking higher-rate CDs, for example. Those considering paying of their low-rate mortgages would likely react by holding on to them in the face of high inflation rates and consequent high mortgage rates.

OK, gotcha. Those are common-sense moves any prudent investor might make if inflation increases.

I also lived through the 70's and would like to have a plan in mind if we see something like that happening again. When I saw this...

I don't know about you, but if I see inflation start to take off, I'm changing my investments to include more inflation-proof and inflation-tracking vehicles.

...I thought I might learn a new strategy to keep pace with inflation. I've not yet found any investment I think is inflation-proof, but REITs, gold and (maybe) cryptocurrencies might be worth look. Any of those the vehicles you are considering?

 

[copyright1997reloaded]

I've not yet found any investment I think is inflation-proof, but REITs, gold and (maybe) cryptocurrencies might be worth look. Any of those the vehicles you are considering?

Maybe: Things we need vs things we want?

Things we need: Food, Oil, ...
Things we want: Non-durable goods, services
Typically we would first see pricing pressure on needs.

Another approach is to watch the dollar. If it starts to fall considerably, input costs may increase. Plus since we run a significant deficit, imported goods may quickly show increased pricing.

I just went to my favorite lunch time pizza place. For years now they've had two slices (any kind) + soda for $5.00. Today I found out the prices are now $5, $6, and $7. $5 for 2 plain cheese + soda, $6 for one-topping, $7 w/multiple toppings. So, using my pizza sample, inflation is here.

 

[OldShooter]

... I just went to my favorite lunch time pizza place. For years now they've had two slices (any kind) + soda for $5.00. Today I found out the prices are now $5, $6, and $7. $5 for 2 plain cheese + soda, $6 for one-topping, $7 w/multiple toppings. So, using my pizza sample, inflation is here.

That's the problem. Inflation is like getting nibbled to death by ants. Individual experiences do not necessarily extrapolate to national numbers. And, BTW, those public national numbers come from looking in the rear view mirror rather than from looking through the windshield. They are a history book, not a map.

So by the time the average schmo starts to think about buying inflation-resistant assets the professionals have already been there. Efficient market hypothesis, IOW. And looking for CDs is simply fighting the last war; their rates are based on the numbers in the rear view mirror and not on whatever might be ahead. The number of people seeking to buy them will keep the rates down too.

Regarding the dollar, IMO that is the biggest risk. All imports go up. All commodities go up. Stocks go down as margins come under pressure. The fed is powerless to stop it.

 

[NW-Bound]

At the auction by the US Treasury today, 2/20/2018, the 2-year note got a yield of 2.255%.

The super low inflation/low interest rate era is over.

 

[MichaelB]

At the auction by the US Treasury today, 2/20/2018, the 2-year note got a yield of 2.255%.

The super low inflation/low interest rate era is over.

What has it been replaced with?

 

[joeea]

What has it been replaced with?

Not-so-super-low inflation/low interest rates.

 

[NW-Bound]

In 2007, prior to the Great Recession, the 2-year note had a yield of 5%.

As I am not a borrower, it does not scare me if we return back to that rate.

What hurts me more is if the stock P/E returns to 17, where it was in 2007. It is right now at 25. My stocks would get a 30% hair cut. Ouch!

 

[audreyh1]

The 2yr treas is already where the 5yr was on Jan 1, and the 5 year is up where the 10 year was just a month ago!

These are fast moves.

It’s worth mentioning that inflation and interest rates are two different things. They don’t necessarily move in lock step.

 

[Freedom56]

Inflation? I'm more concerned about the alarming high default rates of commercial real estate loans tied to retail space and their impact on regional bank plus the high levels of consumer debt. People keep spending money they don't have. I was speaking to a wealth manager at Morgan Stanley private wealth management (we went to school together) and they are concerned about a 3000 to 4000 point drop in the Dow in one day that could cause widespread panic. I see a major correction coming. It's not a question of if, but when.

 

[haha]

At the auction by the US Treasury today, 2/20/2018, the 2-year note got a yield of 2.255%.

The super low inflation/low interest rate era is over.

A few weeks ago I bought one of these at auction, and thought I was lucky to get 2%. Definitely a move, but I think it may be hard to predict how much it backs and fills. Out economy and demographics are far different now from what they were in the 70s.

Ha

 

[traineeinvestor]

Absolutely. Even relatively low rates of inflation will have a significant impact on expenses over time. Quite frankly, I worry more about long term inflation than market volatility which is why most of our assets are in real estate and equities.

Over a potential time horizon of 50 years, even an annual rate of increase in our expenses of "only" 3 per cent will nearly quadruple the nominal cost of our outgoings by the end of it. And one of those pesky periods of very high inflation which have historically occurred at irregular intervals will do even more damage.

 

[scrabbler1]

Wouldn't a higher rate of inflation more quickly increase the maximum MAGI to qualify for an ACA subsidy? I have been near the MAGI limit so my ACA subsidy has been small; that is, until 2017 when I went over the cliff, costing me about $700. Even if my HI premiums rise more quickly with inflation, being able to stay under the MAGI limit would save me more.


A higher rate of inflation would boost interest rates and boost the monthly dividends per share on my big bond fund (even if the share price drops). In the last 9 years, that monthly DPS has fallen by 40%; only having nearly as many new shares has evened things out.