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06-26-2008, 05:38 PM
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#41
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Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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Quote:
Originally Posted by youbet
Rich....please help me understand. How is holding cash a hedge against inflation? Historically, that has not usually been the case.
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I was thinking having cash to spend when stocks were beaten down early in an inflationary period, and perhaps to rebalance back in when things started loosening up. As to fixed, that is probably when I would carve into my TIPs.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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06-26-2008, 06:19 PM
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#42
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2005
Location: Chicago
Posts: 13,186
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Quote:
Originally Posted by Rich_in_Tampa
I was thinking having cash to spend when stocks were beaten down early in an inflationary period, and perhaps to rebalance back in when things started loosening up. As to fixed, that is probably when I would carve into my TIPs.
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Having some cash to spend during inopportune times for liquidating stocks, bonds, real estate or other non-cash assets would be a good thing. But holding significant cash throughout a prolonged period of high inflation would probably be a bad thing, at least in my opinion. I sense a trade-off where inflation erodes (but doesn't necessarily eliminate) the advantages of holding a large cash allocation.
Regarding "when things started loosening up." ......... I know you're a lump sum rather than dollar cost average guy and I admire that courage. What's your plan to pull the trigger with that cash stash going forward?
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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06-26-2008, 07:16 PM
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#43
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Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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Quote:
Originally Posted by youbet
But holding significant cash throughout a prolonged period of high inflation would probably be a bad thing, at least in my opinion.
Regarding "when things started loosening up." ......... I know you're a lump sum rather than dollar cost average guy and I admire that courage. What's your plan to pull the trigger with that cash stash going forward?
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Actually, I wasn't thinking about cash to hold, but rather about cash to live on for a while. Buying back in later on, I expect that'll be an exercise in rebalancing. For now, it's all talk. What I actually do when it's no longer hypothetical remains to be seen, but I suspect pretty much what I said.
As to when I pull the trigger, well REWahoo has been urging me to hold off until I'm sure I have enough cushion. He wants me to be sure. So I'll just keep on stashing cash until he gives me the green light .
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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06-26-2008, 07:32 PM
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#44
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,022
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Quote:
Originally Posted by Rich_in_Tampa
As to when I pull the trigger, well REWahoo has been urging me to hold off until I'm sure I have enough cushion. He wants me to be sure. So I'll just keep on stashing cash until he gives me the green light .
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Quote:
Originally Posted by Rich_in_Tampa
For now, it's all talk.
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Understatement of the year...
__________________
Numbers is hard
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06-27-2008, 10:34 AM
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#45
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,726
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Quote:
Originally Posted by Rich_in_Tampa
It underscores the importance of having enough fixed equities and/or cash to hold out a while if necessary.
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Right. That and a good “Plan B”. If you have all that, seems IMHO to be a “better than average” time to FIRE, given all this negativity already being priced in the portfolio, the market, and hopefully your expectations.
Michael
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06-27-2008, 10:37 AM
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#46
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Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 2,020
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Quote:
Originally Posted by MichaelB
Right. That and a good “Plan B”.
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A good example of a Plan B is to work just one more year, or maybe 2 more years, for example. You never know, 2012 might be a much better time to FIRE than 2008. After all, time is money so spend some more time making more money.
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06-27-2008, 12:04 PM
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#47
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,726
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Quote:
Originally Posted by Marquette
A good example of a Plan B is to work just one more year, or maybe 2 more years, for example. You never know, 2012 might be a much better time to FIRE than 2008. After all, time is money so spend some more time making more money.
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That's more like delaying plan A. I see "plan B" more like - I'm ready to FIRE and the numbers add up. If something happens after I execute, well, we have an option. Could be sell the house, could be work part time, could be ... well, just about anything - as long as it's realistic and keeps us away from the worst case scenario.
It just pays to keep in mind that no plan is flawless, stuff happens, and mother nature has a very nasty sense of humor.
Michael
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06-27-2008, 12:29 PM
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#48
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2007
Location: Denver, Colorado
Posts: 6,258
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Quote:
Originally Posted by MichaelB
It just pays to keep in mind that no plan is flawless, stuff happens, and mother nature has a very nasty sense of humor.
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This quote is attributed to Colin Powell (but I suspect the truth of it has been known for a very long time).
"No battle plan survives contact with the enemy."
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06-27-2008, 02:09 PM
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#49
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Thinks s/he gets paid by the post
Join Date: Oct 2005
Posts: 4,898
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Quote:
Originally Posted by ziggy29
Inflation is great for debtors as long as your income more or less keeps up (or even close to it). It stinks for savers and lenders, though.
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But if interest rates go up, then your savings will keep pace or exceed inflation, a la 1970s with 14% bonds. Some people still have those bonds!
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06-27-2008, 02:15 PM
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#50
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by Oldbabe
But if interest rates go up, then your savings will keep pace or exceed inflation, a la 1970s with 14% bonds. Some people still have those bonds!
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Any such double-digit bonds issued today in a very inflationary environment would be callable -- guaranteed -- and probably in as little as 5 years.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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06-27-2008, 02:53 PM
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#51
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Full time employment: Posting here.
Join Date: Feb 2006
Posts: 987
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Quote:
Originally Posted by Rich_in_Tampa
Actually, I wasn't thinking about cash to hold, but rather about cash to live on for a while.
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Exactly. I started modifying my retirement portfolio two years before my "planned departure" date (early last year) and to get my cash/income position set.
As far as retiring based upon the current market, I look at that as a bit of "short-term" thinking (IMHO). I made the plan, executed the plan (invested 25+ years for retirement and modified my portfolio along the way to reflect the "stage" I was in). During that 25+ year period, there was a lot of times that I said to myself (OK, I listened to other folks ) that it was a good time "not" to retire.
In reality, I know that "these times" would come. I made plans for that (several years of income in a MM fund - which is secondary to my SPIA and VA disability income) and a healthy dose of equities for my "early retirement years".
Looking back, would I have retired May 1, '08 (I actually retired May 1, '07) during this "challanging investment period"? I believe the current "situation" would have not changed that decision. Why I say that is now that I'm in "early retirement", do I get nervous and question myself and say "I should have worked another "X" years"? The answer comes quickly, simply. NO
If you have a (good) plan, you execute it. If not, you hold on till you have a retirement plan you can feel comfortable with, regardless of the market conditions now, and in the future.
Sorry about not keeping with the OP's question (inflation/retirees) but I thought this was appropriate since it referred to the "cash comment" and no, inflation has very little to do with my "retirement life" (answered previously)
- Ron
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06-28-2008, 03:36 AM
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#52
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2007
Posts: 5,072
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Quote:
Originally Posted by MichaelB
That's more like delaying plan A. I see "plan B" more like - I'm ready to FIRE and the numbers add up. If something happens after I execute, well, we have an option. Could be sell the house, could be work part time, could be ... well, just about anything - as long as it's realistic and keeps us away from the worst case scenario.
It just pays to keep in mind that no plan is flawless, stuff happens, and mother nature has a very nasty sense of humor.
Michael
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2012 is my plan A... Hope things sort themselves out by then.
If the general securities markets and housing market have recovered and stablized by then, the planets align for the chinaco household... at least in terms of financial circumstances.
I will have access to pension, retirement health care, and we will be able to downsize the house.
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06-28-2008, 05:17 AM
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#53
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,501
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Quote:
Originally Posted by chinaco
2012 is my plan A... Hope things sort themselves out by then.
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I hope they do, too.
Late 2009 is my plan A (and plans B, C, and Z, since I am 60 and just plain tired!). I am so ready for ER and it would be pretty difficult for the economy to derail my finances at this point. Since I haven't got to where I am just by luck, actually I have been expecting the market to drop or collapse, along with significant inflation. So, none of this is a surprise to me and actually I have been expecting a lot worse.
I admit the housing crisis was not something I had thought of in advance or prepared for. It won't stop me, though. I am keeping my eye steadily on that goal, with only 497 days to go.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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06-28-2008, 08:23 AM
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#54
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Thinks s/he gets paid by the post
Join Date: Dec 2003
Posts: 1,375
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ReWahoo: If you are planning on continuing to be an active member of this "Soap Box", probably a good idea to keep an eye out for somebody else warming up in the "Bull-Pen", just in case Rich actually retires.
(A good "straight man" is hard to find)
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06-28-2008, 08:50 AM
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#55
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,022
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Quote:
Originally Posted by Jarhead*
ReWahoo: If you are planning on continuing to be an active member of this "Soap Box", probably a good idea to keep an eye out for somebody else warming up in the "Bull-Pen", just in case Rich actually retires.
(A good "straight man" is hard to find)
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Maybe I should take your advice - find a 30-something to start grooming as a replacement. I figure Rich is good for at least another decade.
__________________
Numbers is hard
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06-28-2008, 10:28 AM
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#56
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,899
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Quote:
Originally Posted by Rich_in_Tampa
I was thinking having cash to spend when stocks were beaten down early in an inflationary period, and perhaps to rebalance back in when things started loosening up. ...
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Quote:
Originally Posted by youbet
Having some cash to spend during inopportune times for liquidating stocks, bonds, real estate or other non-cash assets would be a good thing.
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Perhaps I'm missing something - but doesn't all this ignore another basic methodology preached on this forum: Asset Allocation and Rebalancing?
Let's take a very simple example. A $1M portfolio, 50/50 eq/fixed, and a 4% WR. To keep it simple, we will do the 4% withdraw and the rebalance once a year, at the same time each year, and keep the $ in current $ (inflation washes as we don't increase the 4% either):
Start of Year One:
$500K EQ; $500K fixed
Start of Year Two: Market takes a 20% dive, so -
$400K EQ; $500K fixed
So we combine our $40K WD with our rebalancing, and we take all the $40K from fixed. Leaves us at:
$400K EQ; $460K fixed, so we buy $30K of EQ, which is what rebalancing theory is all about - buy when it is low. Leaves us at:
$430K EQ; $430K fixed
Rinse and repeat.
I put together a little spreadsheet, maybe will clean it up and post later, but at the end of 5 years of a 20% market drop every year (puts EQ at 33% their original value, or a 67% drop: 1- .8^5). Rebalancing, you are buying EQ as they drop. Pros/Cons versus straight cash WD:
With rebalance in a straight down market, of course your portfolio is lower than just taking cash. $403K rebal; $437K taking 100% cash. But with rebalance, at the end of five years, you have $202 in EQ, versus $157 in EQ, so assuming the market does revert to the mean, you are in a better position to take advantage of it with the rebalance.
IIRC, R_I_T is a proponent of the buckets? I have not looked at that in detail, but on the surface it looks like a bit of a mental 'shell game' that might be hiding the obvious from us? I mean, money is money, it is allocated to an investment type and I don't think calling it something else changes that.
-ERD50
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06-28-2008, 10:31 AM
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#57
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Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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Quote:
Originally Posted by Jarhead
ReWahoo: If you are planning on continuing to be an active member of this "Soap Box", probably a good idea to keep an eye out for somebody else warming up in the "Bull-Pen", just in case Rich actually retires.
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Quote:
Originally Posted by REWahoo
Maybe I should take your advice - find a 30-something to start grooming as a replacement. I figure Rich is good for at least another decade.
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A decade? I hadn't really thought of it being that long, but now that you mention it, probably not a bad idea -- this inflation/stagflation/recession/correction/bear market/depression thing should be bottoming out around then.
And by then, my golf swing should be pretty darn sweet.
Excuse me a second...[turns to DW in other room] Honey? wanna hear what the guys on the internet said??
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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06-28-2008, 10:43 AM
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#58
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Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 2,613
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Quote:
Originally Posted by ERD50
IIRC, R_I_T is a proponent of the buckets? I have not looked at that in detail, but on the surface it looks like a bit of a mental 'shell game' that might be hiding the obvious from us? I mean, money is money, it is allocated to an investment type and I don't think calling it something else changes that.
-ERD50
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I wouldn't call Buckets a mental 'shell game,' because it's really about asset allocation and cash management. But for some it's easier to think of it in terms of buckets. I'm not a real proponent of Lucia's system, but in terms of overall management of the nest egg is nicely summarizes what many here talk about :
Sufficient cash to hold you over during a market reversal phase (generally assuming 7 down years), so folks here talk about cash for 7 years of expenses in money market and short-term deposits (CDs, s/t bonds, TIPs, etc.).
Consideration of the balance of the portfolio in terms of mid-term and long-term growth needs (bonds/bond funds for mid-term, stocks/stock funds for long-term).
Your 50/50 example is no different -- how you arrive at getting the annual disbursement for living expenses while rebalancing is simply considering near-term, mid-term, and long-term investment needs.
The bigger consideration that we don't talk about as much is how to draw the funds -- taxable, tax-deferred, tax-free. I recently noticed that ORP now includes an analysis in the distribution table that advocates converting Roth when there is sufficient dollars in the taxable account to pay the income taxes. You'll find ORP here: Retirement Calculator
-- Rita
__________________
Only got A dimple, would have preferred 2!
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06-28-2008, 07:42 PM
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#59
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Thinks s/he gets paid by the post
Join Date: Mar 2007
Posts: 1,860
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Quote:
Originally Posted by Art G
Oil is cheap … at least in comparison with some other "liquids". According to USA TODAY, crude oil is a relative bargain on a per barrel (42 gallons) basis. For example,
Bud Light Beer
$302
Crude Oil
$124.31
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A bit misleading. I buy beer by the keg...I have a home bar. My beer costs about $60 for a "keg", which is 15.5 gallons...therefore a barrel of beer would be less than $180. Still higher than oil...but obviously USA today used a retail price when bought in 12 ounce cans....we as consumers are smarter than that.
Dave
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Mr. Bob Brinker today said:
06-28-2008, 07:56 PM
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#60
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Recycles dryer sheets
Join Date: Mar 2007
Posts: 121
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Mr. Bob Brinker today said:
that the 100% increase in oil cost over the last year is not causing inflation but rather a contraction of our ecomomy. He argues that dispite oils 100% rise, the core inflation rate is only 2.1%. Thus, high oil prices are not currently inflationary, according to Bob.
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