How worried are you about inflation?

[24601NoMore]

Quote:

Originally Posted by NW-Bound The above numbers are bad, but I am going to check them against their pre-Covid values. Many commodities went down because of lack of demand, and their recovery may make the price increase looks bad.

Fair point..let us know what you find..

That said, pumping trillions of $$s into the economy is gonna have an effect. Another analyst I watched said the other day that COVID created a roughly $800B hole in GDP that was filled with over $6B in spending. And that's BEFORE the $4T+ additional spending currently being talked about..

[SnowballCamper]

Perhaps "worry" isn't a very good term in this forum, as most here seem to do their own risk management for retirement funds. If one truly doesn't have any concern about inflation volatility, then it's a simple calculation to determine how much you need for retirement (expenses X planned time horizon = required funds). I see more inflation than the CPI tells me is happening, and as a (mostly) pensioner I wonder how soon I'll have to start drawing down from the retirement investment account. Inflation would have to be pretty high to beat out the typical asset allocation. I'm aware that is a possibility, but the only alternative I'm aware of is TIPS (or I bonds)...too conservative for me.

[youbet]

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Originally Posted by NW-Bound Speaking of materials, copper price is now $4.5/lb (was 1/2 that last year), and expected to go to almost $6/lb in a few months.

I was at Home Depot yesterday picking up a few things. I checked on copper wire prices out of curiosity (ham radio antennas) and found 500 ft spools of #16 stranded at about 16 cents a foot. It seems like a short time ago it was a dime. Sheeesh........ And the CEO of FBX was on CNBC yesterday and was smiling broadly over the share price rising dramatically over the past few months and predicting demand for copper to stay very high.

Quote:

Speaking of labor, there's a headline on the Web about a trucking company offering pay of $14,000/week for truck drivers. Repeat, that's $14K/week, not per month. Crazy!

I was curious about job demand around here and signed up with a couple of those on-line job services. Being a long retired geezer who hasn't had a penny of earned income in 16 years, I checked some boxes indicating I'd be willing to work as a driver. I wasn't thinking CDL, just delivery or something. My inbox has been flooded with invitations to come in for an interview, many for high paying CDL jobs (for which I'm not qualified). Nothing at $14,000 a week though!

It's rare you drive by a store or restaurant or through the local industrial park that you don't see "help wanted" signs around here. At the Home Depot yesterday, the geezer employee who was helping me (another geezer ) get a heavy object off the shelf apologized for my long wait and said they are less than half staffed.

Interesting times in the economy!

[Car-Guy]

Quote:

Originally Posted by youbet My inbox has been flooded with invitations to come in for an interview, many for high paying CDL jobs (for which I'm not qualified). Nothing at $14,000 a week though!

I saw the headlines today for the 14k/wk truck driver but I didn't read the article since it sounded totally absurd to me... Now that would be inflationary.... Or maybe it was for hauling nitro on (IRT) Ice Road Truckers.

[GravitySucks]

Quote:

Originally Posted by NW-Bound The above numbers are bad, but I am going to check them against their pre-Covid values. Many commodities went down because of lack of demand, and their recovery may make the price increase looks bad.

Agreed. Milk is up in 2021 over 2020 when they were giving it away. Some farmers reduced capacity so it is at a probably temporary bump which is about 2019 levels.
I hear people complain about gas prices but it's still in the normal price range (https://www.statista.com/statistics/...es-since-1990/) Lumber is way up as everyone trying to remodel and build at the same time right after the mills shut down last March - June thinking demand would be down. Autos are scares as manufacturers told their suppliers to expect reduced demand but that really didn't happen.
I am concerned about inflation as it's a permanent loss on the FI side of the AA. I also see it coming as a devaluation of the dollar instead of simple supply and demand. As Micheal pointed out, we are no where near capacity.

[jazz4cash]

I’m surprised there isn’t more inflation. The Fed has been trying for 2% for years with minimal results. Many of the specific examples cited result from a shutdown of the supply chain. Is that inflation? One of the benefits of living in a HCOL area with a paid off home (or a long fixed mortgage) is that you have pretty good insulation from general increases in the cost of living (not new cars). That leaves healthcare and taxes to worry about.

[DawgMan]

Not worried necessarily, but it sure feels like we are seeing real inflation hit and how soon it will start to really impact the man on the street, in terms of his buying decisions, not sure. Clearly, demand is still pretty strong, even at the higher prices. The most of the problems stem from the supply side whether it's materials or labor.

I do scratch my head and wonder if THIS TIME, I should move all of my bond allocation into short term treasuries as opposed to my current mix more heavily weighted in mid term bond funds. Oh well, as usual I will probably do nothing.

Anyone really making a strategic move... THIS TIME?

[Car-Guy]

I'm wondering if the supply side (or lack of) is driving higher costs as much/more than actual inflation itself... I remember telling the DW in the past few weeks that I've been noticing some of the stores (e.g. Walgreens and Walmart) have been noticeably under stocked and in some cases missing some items/products altogether. At first I thought I had just caught them before the stock boys had caught up but this has been going on a while and I have seldom noticed it before... Now I'm wondering.


Still not worried too much about inflation at my age.... Yet...

[DawgMan]

Quote:

Originally Posted by Car-Guy I'm wondering if the supply side (or lack of) is driving higher costs as much/more than actual inflation itself... I remember telling the DW in the past few weeks that I've been noticing some of the stores (e.g. Walgreens and Walmart) have been noticeably under stocked and in some cases missing some items/products altogether. At first I thought I had just caught them before they stock boys had caught up but this has been going on a while and I have seldom noticed it before... Now I'm wondering.

That's my read by looking around/hearing the stories, but most of us here are A-typical. That said, those who are invested in the market, are homeowners and have jobs in industries that are not hospitality/restaurant/store front retail are probably feeling a "wealth effect". That, combined with 12+ months of Covid lock down has created strong demand, and apparently stronger demand to come based on the stock market. You would think once supply catches up, things might settle down, but the pent up demand may continue to stoke price increases until "we get all this demand out of our system!" But what do I know.

[NW-Bound]

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Originally Posted by 24601NoMore Here are some sobering YTD inflation stats.. Beef: + 12.40% Poultry: +18.80% Lean Hogs: +58.52% Canola: +59.35% Wheat: +19.48% Coffee: +16.57% Sugar: +13.49% Corn: +57.02% Wool: +12.64% Lumber: +90.47% (!!) after a crazy 2020 on top of that..roughly triple 2 years ago Milk: +21.20% Gas: +50.03% Heating Oil: +34.35% ...etc. More at https://tradingeconomics.com/commodity/gasoline Pretty much, no matter WHAT any of us do with our portfolios or investing strategy, we're all pretty much in a heap of trouble with numbers like that. And with that many moving pieces and parts, predicting an "average" future rate - or even a range - becomes darn near impossible, IMHO. In terms of actionable to-dos..I recently bought PIMCO's Inflation Protection (Instl) fund and some IAU (Gold-backed ETF), but wish I bought more of both as they've both increased in price quite a bit since I bought and I'm now wishing I had more than I do of both. I also have little faith in US growth going forward and am pretty convinced we're going to be looking at the mother of all market meltdowns in 2021 or 2022..so am investing in International Value, US Value, China, Utilities and other areas to diversify away from US large-cap growth. I heard a good analyst say the other day that his strategy (and one he advocates for clients) is to shift from capital growth to capital preservation given what he anticipates coming (also huge market melt-down in the near term). I personally think there's a lot to be said for that and plan to shift my own assets largely this way..

Instead of YTD increase, I wanted to know the price increase since pre-Covid time.

I went to the above Web site to look at the current prices of the above commodities, plus their prices on Jan 2020 (pre-Covid).

I then computed the price increases shown in the table below. It is bleak, unless you are a user of wool and heating oil.

Commodity	Price 5/6/2021	Price 1/1/2020	% Increase
Beef	20.39	14.21	43%
Poultry	7.14	5.35	34%
Lean Hog	111.4	68.55	63%
Canola	1003	545	84%
Wheat	765	554	38%
Coffee	149	103	45%
Sugar	17.58	13.31	32%
Corn	760	392	32%
Wool	1319	1558	-15%
Lumber	1645	407	304%
Milk	23.57	16.93	39%
Gasoline	2.1171	1.7155	23%
Heating Oil	1.989	2.02	-1.5%
Crude	64.93	63.54	2.2%

[W2R]

Worry is one thing, and in one sense I would say we are not worried.

But like many here, we are engineers and used to developing contingency plans in case they are needed. Frank and I often discuss what we would or could do in case of inflation. In fact, we had a great discussion along those lines last night. We have both been nearly broke earlier in life, and learned some pretty extreme LBYM behaviors at that time. We are OK with reverting to that type of life for a while if need be due to hyper-inflation.

We decided that if inflation is so bad that even the two of us can't get through it, it will be the end of civilization anyway and we'll just do what we can. Meanwhile we are not stressed or worried about it, just thinking and planning our "what if"s .

[24601NoMore]

Quote:

Originally Posted by NW-Bound Instead of YTD increase, I wanted to know the price increase since pre-Covid time. I went to the above Web site to look at the current prices of the above commodities, plus their prices on Jan 2020 (pre-Covid). I then computed the price increases shown in the table below. It is bleak, unless you are a user of wool and heating oil. Commodity Price 5/6/2021 Price 1/1/2020 % Increase Beef 20.39 14.21 43% Poultry 7.14 5.35 34% Lean Hog 111.4 68.55 63% Canola 1003 545 84% Wheat 765 554 38% Coffee 149 103 45% Sugar 17.58 13.31 32% Corn 760 392 32% Wool 1319 1558 -15% Lumber 1645 407 304% Milk 23.57 16.93 39% Gasoline 2.1171 1.7155 23% Heating Oil 1.989 2.02 -1.5% Crude 64.93 63.54 2.2%

Beat me to it..I just got around to trying to do the same thing.

Bleak indeed for those of us in ER. If you're still working, hopefully your career and salary is keeping pace with double digit inflation across many different categories of commodities - most importantly, key food groups..

Short of Bitcoin or getting super lucky on some very risky investment, not sure how anyone's investment portfolio is gonna keep us with something like this. Hopefully it cools off and gets back more to 'normal', or it's gonna be "Welcome back, 70s!" time. Most of us "old coots" remember the 70s all too well..but there's a whole generation or two that have no idea what's about to hit them..

[braumeister]

Inflation has been prominent in my mind for many decades because I saw my grandfather retire in the 60s. He was relatively well off, but inflation pretty much wiped him out.

The graph below shows the enormous spikes of inflation in those years, and the two arrows show when he retired and when he died.

inflation.png

For myself, I'm OK because the bulk of my spending comes from pension and SocSec, both of which have a COLA. But I absolutely understand the concern of anyone who doesn't have that backup.

[Fermion]

I don't know the answer to how to combat inflation with one's portfolio, especially with interest rates at 1% to 2% for short term. Eventually, stocks *should* catch up with inflation but a lot of stocks are pretty dang pricey right now. I guess gold is still relatively cheap, if gold even still works.

[OldShooter]

Quote:

Originally Posted by Fermion ... Eventually, stocks *should* catch up with inflation ...

I think it will vary by sector. Consumer Staples will get hit in the P&L as prices lag inflation but will probably recover fairly quickly. Consumer durables, probably not so fast as people postpone purchases. Manufacturing probably hurts as raw material inputs become more expensive. Agriculture will do well if the dollar weakens and our exports become more competitive.

Longer term, assuming a weakened dollar, US manufacturing from Boeing on down will become more competitive on the world market despite inputs (aluminum, etc.) becoming more expensive.

But I think the connection between stock prices and inflation will be laggy and spotty. Even TIPS will lag by 6 months due to the way they are adjusted.

[Running_Man]

Inflation is a relative term, the best definiton is the cost of goods, and inflation happens when too much money chases too few goods causing prices to increase. GDP of the US is 21 Trillion, everyone knows that government debt has risen to 27 trillion What does that money do? Well look at the ratio of the value of companies in the economy versus the economy:

GDP Market Cap % to GDP
1995 7.5 6 80%
2001 10.5 13 124%
2008 14.3 16 112%
2011 15.5 24 155%
2021 21.0 64 305%


GDP has grown 13.5 Trillion in 25 years, the value of stock for the companies producing that GDP has grown 58 Trillion. If it could be cashed in for market price it would consume all the production of the economy for 3 years. The elimination of the bond market as an investment for everyone but Central Banks has aided this and when a few trillion start leaking out to crypto currencies and housing, the average person who is speculating is making spectacular prices on this transfer of asset dollars. It is a beautiful thing to watch. It gives everyone confidence in their investing abilities. Let's just hope they don't start looking for hard goods.

[GenXguy]

Inflation of my primary highest expenses had already been high, with my property tax and homeowners insurance going up 7% or so per year in recent years, even more this year, despite whatever the understated government figures for CPI were. My health insurance went up 60% with a 150% increase in my deductible. Car registration fee went up about 50%. Gas is way up. Now it seems like hyperinflation of everything else on top of the high inflation I've been experiencing on my largest bills for years.

[Montecfo]

With all of this rampant (though anecdotal) inflation, it certainly is curious that the 10 year Treasury yields under 1.6%, signaling exceedingly low inflation expectation.

[Fermion]

Quote:

Originally Posted by Montecfo With all of this rampant (though anecdotal) inflation, it certainly is curious that the 10 year Treasury yields under 1.6%, signaling exceedingly low inflation expectation.

Does it though? Does the Treasury yield even mean anything anymore in regards to inflation?

This feels like February of 2020 when everyone was still OK with that flu thing that China was having a problem with and just shrugging it off.

[yhoomajor]

Treasury yield is controlled around 1.6% because Federal Reserve keeps buying it. It's not a rate that correlates to real inflation in real world out there. At least not in this era of Fed managed economy.

In other words - don't expect (this time) to get 10%+ on your CD deposits even when real inflation rate is much higher than that.

That's like a kick to the guts of Savers of modest means. They get crushed by real inflation, yet have no other way but to risk it in more risky assets. "But they can eat cake".. aka invest in equities.