There are a many people who do not believe the PPI is 2.3% or the CPI 4.0%. Here is one:
Shadow Government Statistics » Alternate Data Series
He does seem to be a reasonable thinker. He could be, and probably is wrong, he thinks inflation is around 12%. I have to admit, it does seem higher than 2.3% to me.
For conversation, let's say the real rate of inflation is really about double what the government is telling us, or around 6%.
What does this mean?
Here are a few thoughts:
1) It means the govenment is in much less debt than we think because they can pay off the national debt and SS/Medicare with delated dollars, that is the good news. (Would they fudge the numbers to make that happen? It seems to me that they would)
but, as investors doesn't it mean:
2) We have been in a recession for awhile. (GDP is growth minus inflation).
3) Tips are paying less than inflation and are very overvalued.
4) Bonds are paying less than inflation and are very overvalued
5) Stocks, since they are priced at a discount rate to future flows, are very overvalued. (Plug in a 6% discount rate instead of a 3% rate and the value would drop.)
6) Real assets such as houses and gold are not as overpriced as we think because our dollar is being devalued due to inflation much more than we think.
If we believe inflation is really being understated, how can we believe that a 60/40 buy and hold strategy of mostly stocks and bonds is a good investment? We really need to believe inflation is 3%, do we not? If we believe it is 6% do we need to be investing differently, i.e. possibly some stocks (they are an inflation hedge but are very overpriced now); but mostly in real assets?
Thoughts?
Shadow Government Statistics » Alternate Data Series
He does seem to be a reasonable thinker. He could be, and probably is wrong, he thinks inflation is around 12%. I have to admit, it does seem higher than 2.3% to me.
For conversation, let's say the real rate of inflation is really about double what the government is telling us, or around 6%.
What does this mean?
Here are a few thoughts:
1) It means the govenment is in much less debt than we think because they can pay off the national debt and SS/Medicare with delated dollars, that is the good news. (Would they fudge the numbers to make that happen? It seems to me that they would)
but, as investors doesn't it mean:
2) We have been in a recession for awhile. (GDP is growth minus inflation).
3) Tips are paying less than inflation and are very overvalued.
4) Bonds are paying less than inflation and are very overvalued
5) Stocks, since they are priced at a discount rate to future flows, are very overvalued. (Plug in a 6% discount rate instead of a 3% rate and the value would drop.)
6) Real assets such as houses and gold are not as overpriced as we think because our dollar is being devalued due to inflation much more than we think.
If we believe inflation is really being understated, how can we believe that a 60/40 buy and hold strategy of mostly stocks and bonds is a good investment? We really need to believe inflation is 3%, do we not? If we believe it is 6% do we need to be investing differently, i.e. possibly some stocks (they are an inflation hedge but are very overpriced now); but mostly in real assets?
Thoughts?
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