recession or inflation,gearing portfolio

[mathjak107]

looks like in my opinion we are reaching a point of stag-flation ..kind of balancing between recession and inflation..stag-flation is usually temporary leading to another economic climate ...soooo the question is which way are you all gearing your portfolios?....i think the fed is more inclined to raise their comfort zone for inflation to 3-5% rather than throw us into recession by tightning rates...although im very well diversified im holding back buying any bonds beyond buying my fidelity ultra short term bond*, floating rate high income,,new market income and capital and income..all hi-yield and short term......

[Nords]

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Originally Posted by mathjak107 looks like in my opinion we are reaching a point of stag-flation ..kind of balancing between recession and inflation..stag-flation is usually temporary leading to another economic climate

Geez, mathjak, were you investing during the 1970s?

I was only in my teens then but I remember "stagflation" a heckuva lot differently than you present it!

[dusk_to_dawn]

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Originally Posted by mathjak107 ...soooo the question is which way are you all gearing your portfolios?....

Do you remember the old Ron Popeil rotisserie oven commercials? That's how I gear my portfolio....."Set it and forget it!" I allocate among large, mid, small, reit, bonds, int'l and rebalance when necessary. I can never guess which way the market is headed, so I just stay put.

[Gone4Good]

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Originally Posted by Nords Geez, mathjak, were you investing during the 1970s?* I was only in my teens then but I remember "stagflation" a heckuva lot differently than you present it!

I agree. *We're a far cry from "stagflation". *Real stagflation during the late 70's and early 80's gave rise to a new economic measure called the Misery Index, which is simply the current inflation rate added to the unemployment rate. *The current Misery Index stands at 8.25% vs. a 22% peak in 1980. *For some additional perspective, the Misery Index has averaged 9.5% since 1948 (the median over the same time frame is 8.5%). *So I'd say we're pretty much where we're supposed to be in terms of inflation and unemployment (i.e. stagflation).

To the original question . . . I have no idea whether we are heading for recession or expansion, inflation or deflation, so I try not to fiddle with my portfolio based on whatever the flavor of the month panic/mania happens to be.

[Helen]

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Originally Posted by mathjak107 i think the fed is more inclined to raise their comfort zone for inflation to 3-5% rather than throw us into recession by tightning rates...

I disagree. Once inflation gets loose, it's hard to rein it back in. It's something the Fed wants to avoid. I believe they (the Fed) feel it's easier for the US to pull out of a recession than it is to curtail runaway inflation, the Fed has more tools to combat recessions.

[Leonidas]

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Originally Posted by 3 Yrs to Go I agree. We're a far cry from "stagflation". Real stagflation during the late 70's and early 80's gave rise to a new economic measure called the Misery Index, which is simply the current inflation rate added to the unemployment rate.

Oh, the horrible memories this all brings back. Gerald Ford and his WIN buttons (Whip Inflation Now)! And Jimmuh Cahtah, with that stupid sweater, telling us to lower the temperature on our thermostats. Mortgage rates at 22%!

I'll admit that a couple of years ago I was briefly worred that we might be heading toward stagflation, but while I'm not ruling out the possibility that it could happen I think we are still very far from that. Productivity growth is slowing but not going negative, competition is still strong, unemployment is low, inflation is a concern but not a problem. The fuel shortage and price jump from the oil embargo in the 70's was the spark that set it all to really burning, the current rise in oil prices is but a pimple (in terms of real inflation) compared to what that was.

The Fed has a much tighter line to walk now than in the past decade or two, but while I'm eyeing inflation closely I don't think we are even close to putting "stag" on the front end of "flation".

[d]

in all likelihood the Fed would target inflation rather than unemployment ... the lesson learned from the last time, was a painful one.* best guess it that they will target a max core CPI (ex food and energy) to be 2-2.5%

BTW, while the 70's were indeed painful, it was in retrospect a great time to be accumulating equities.

[unclemick]

Hmmm

The long shadow of military action overseas(spending), lack of fiscal disipline by Congress, high oil prices - it's different this time - Right?

You betcha - this time I'm older and don't intend to do stupid stuff like I did back then - buy gold, silver, international stocks, timberland and real estate. Luckily - largely un-noticed by me - auto deduct(DCA) into S&P 500 via 401k basically funded my ER - after a loooong flat period.

This time -ala Bogle: 'Hurry up, just stand there!'

110- my age handgrenade wise. Led sled dog is VG Target Retirement 2015 - aka MPT lite. With a few putz dividend stocks on the side.

De Gaul and the Norwegian widow ride on!

heh heh heh heh - can't find the Bogle quote handy but the 70's were one of the best decades for earnings growth along with low P/E in the post 1946 period.

Oh crap - I forgot - did own some - psst! Wellesley in the 80's, early 90's - which was ok.

[mathjak107]

well looks to me like the starting stages of stag flation...i think stag flation is when the economy slows and prices are rising..i think unemployment has to creep higher for the true meaning but after yesterdays jobs report who knows......im just a little gun shy about commiting to bonds yet

[d]

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looks to me like the starting stages of stag flation

by all counts inflationary expectations are modest and, while moderating, the economy is also in good shape --unemployment at 4.6%. (though things could change, we seem to have managed to absorb $70+/barrel oil without major disruption.) so .... what's the cause for concern?

[Brat]

I think the inflation will be the result of higher oil prices working through the economy, not demand. I don't think the Fed would be wise to push interest rates up... the market will do that.

Were I they I would keep a light finger on the economy.

[mathjak107]

lets face it if everything was fine the federal reserve wouldnt have looked at each other at the last meeting and as described basically said HUH??

each report seemed to point first one way (inflation) and then onother (slow down to possible recessionary).......theres very little consistant clues for even the professionals of the professionals to grasp and come to a conclusion....
* at this stage its very easy for them to tighten to much and throw us over the edge....my personal feeling is they would prefer to raise their inflation targets from 2 to 3% to 3-5%...not a big problem but i think they would prefer that to overtightning and throwing us into a recession.

[Nords]

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Originally Posted by mathjak107 lets face it if everything was fine the federal reserve wouldnt have looked at each other at the last meeting and as described basically said HUH??

No, that was caused by the reports of TH's car purchases this year (so far)...

[Maximillion]

Differance between a Long Term Government Bond and a certain poseur/poster?

The Bond will eventually mature.

Post election, rates will go up in U.S, Greenback is continuing to decline, foreigners will not want to hold a declining currency, rates must go up to defend it, R.E will start to deflate.

Mortgage Rates will be 10% within 2 years.

[Tadpole]

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Originally Posted by mathjak107 lets face it if everything was fine the federal reserve wouldnt have looked at each other at the last meeting and as described basically said HUH?? each report seemed to point first one way (inflation) and then onother (slow down to possible recessionary).......theres very little consistant clues for even the professionals of the professionals to grasp and come to a conclusion.... * at this stage its very easy for them to tighten to much and throw us over the edge....my personal feeling is they would prefer to raise their inflation targets from 2 to 3% to 3-5%...not a big problem but i think they would prefer that to overtightning and throwing us into a recession.

Sounds like Mauldin's latest newsletter. Slowdown - yes; inflation -yes; fed increase - yes.

[audreyh1]

The Fed might raise a little more - who knows?!?!, but according to ECRI, inflation pressures have peaked and are starting to back off. And the economy will slow down later this year. A slowing economy will reduce inflationary pressures. http://www.thestreet.com/_tscs/marke.../10289029.html I've followed ECRI for many years - they are very good at predicting macro conditions 6 months out (but only 6 months out - no further).

It's hard to know if the Fed will "push" the economy into recession, but there is a ways to go yet. The Fed can cause a slow-down without causing a recession. In either case - recession or slow-down - bonds are usually a good investment.

I brought my bond allocation up to full investment (rebalanced) in mid-April 2006 when the 10-year first crossed 5%. I had let my bond allocation dwindle over the past couple of years as interest rates moved up. So far I am feeling pretty good about this move. I only hold short-term bond funds by the way - these are a better diversifier against equities than long-term bonds.

Audrey

[brewer12345]

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Originally Posted by mathjak107 well looks to me like the starting stages of stag flation...i think stag flation is when the economy slows and prices are rising..i think unemployment has to creep higher for the true meaning but after yesterdays jobs report who knows......im just a little gun shy about commiting to bonds yet

Eh, then buy TIPS and make sure you have some commodities exposure, simple as that.

[d]

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TIPS and ... commodities

TIPS would handle the inflation ... but don't believe commodities would help in stagflation.* commodities are led by econ growth, so if that slows commodities would likely fall.

[mathjak107]

commodities may get a little kick while stocks may drop a bit if we head to the 3-5% range..remember the markets always react like we are going to the moon ....just speculation ,who knows.....
i think im just gearing my fixed income portion a little towards the higher inflation option...over all i still stay put in my equities....im a terrible market timer

[brewer12345]

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Originally Posted by d TIPS would handle the inflation ... but don't believe commodities would help in stagflation.* commodities are led by econ growth, so if that slows commodities would likely fall.

Go look at the history. IIRC, commodities did quite well in the bad old days of the 1970s.