Latest Inflation Numbers and Discussion

[jldavid47]

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Originally Posted by copyright1997reloaded Strictly speaking: No, from 1971 to 1980 it was negatively correlated with more beta. (Which is a good thing if you were holding it. )

No. It was positively correlated with inflation. Beta is just slope.

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Hedge: A hedge is an investment that is made with the intention of reducing the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting or opposite position in a related security. (emphasis added)

Yes, and the asset here is cash (i.e. value of the dollar), not inflation. The negative correlation was with cash, not inflation.

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So if gold went up at the same rate as inflation, it would be a perfect hedge. Gold was $37.33 at 1/1/71, $589.50 at 12/31/1980, which is much more change than inflation during that period. Just messing with you a bit. Sort of.

The effectiveness and performance of a hedge depends upon how much you put on. The fact that gold increased faster than inflation is not relevant. Gold was, in fact, a hedge against inflation in the 1970s. It was also a blow-out winner meaning if you had put your dollars in gold in 1971 and sold in 1980 you would have had more inflation-adjusted dollars than when you started. That made gold more than a hedge, it made it a great investment. hedges sometimes work out that way. It hasn't been a great investment (or hedge) since.

Good luck messing with me on statistical matters. I have a MS in Statistics and a minor in Economics.

[copyright1997reloaded]

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Originally Posted by jldavid47 No. It was positively correlated with inflation. Beta is just slope. Yes, and the asset here is cash (i.e. value of the dollar), not inflation. The negative correlation was with cash, not inflation.

Yes, you are correct. While I typed inflation, I was thinking cash. It sucks to get old.


My original point was that an asset that from 1971 to today had almost exactly the same % change as CPI is by definition a good hedge (as measured over that timeframe).

None of it really matters - past performance does not necessarily predict future results.

Speaking of the present, anyone out there noticing CDS activity on Credit Suisse? Their CDS's are approaching levels of 2008 near the Lehman collapse timeframe.

Things are starting to get "messy" in FX and bond land. $TLT (20-year corporate) off another 1.9% today and now decidedly below June lows:
http://tos.mx/eL3qkbo

[Koolau]

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Originally Posted by jldavid47 No. It was positively correlated with inflation. Beta is just slope. Yes, and the asset here is cash (i.e. value of the dollar), not inflation. The negative correlation was with cash, not inflation. The effectiveness and performance of a hedge depends upon how much you put on. The fact that gold increased faster than inflation is not relevant. Gold was, in fact, a hedge against inflation in the 1970s. It was also a blow-out winner meaning if you had put your dollars in gold in 1971 and sold in 1980 you would have had more inflation-adjusted dollars than when you started. That made gold more than a hedge, it made it a great investment. hedges sometimes work out that way. It hasn't been a great investment (or hedge) since. Good luck messing with me on statistical matters. I have a MS in Statistics and a minor in Economics.

Yeah, and you know what they say about statistics.

[copyright1997reloaded]

The Bank of England (BOE) has now restarted QE after their currency got wrecked and bond yields going parabolic.

Of course, it is "temporary and targeted" (perhaps they should have just said "transitory" ) opcorn

[Breedlove]

I seen today we could return to the 1970s where the markets go no where. …Be happy what you have .

[aja8888]

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Originally Posted by copyright1997reloaded The Bank of England (BOE) has now restarted QE after their currency got wrecked and bond yields going parabolic. Of course, it is "temporary and targeted" (perhaps they should have just said "transitory" ) opcorn

Love these Brits initiating a big tax cut for the wealthy. It blew up in their face:

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Professor Richard Murphy tweeted: "The Bank of England has restarted quantitative easing today precisely because the Truss government has failed to manage the economy – a staggering achievement in three weeks." The crisis was triggered by Kwarteng’s mini-budget on Friday when he unveiled a massive £45 billion tax cut funded by Government borrowing.

[11522914]

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Originally Posted by aja8888 Love these Brits initiating a big tax cut for the wealthy. It blew up in their face:

A huge tax cut, funded by additional debt, in a rising inflationary environment.

You just can't make this stuff up [emoji15]

[copyright1997reloaded]

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Originally Posted by 11522914 A huge tax cut, funded by additional debt, in a rising inflationary environment. You just can't make this stuff up [emoji15]

Don't worry, it will be repeated here.

Regardless of whether it is a tax cut funded by additional debt, or spending programs that increase debt, or just plain "old" MMT the net result is the same. It is fiscal stimulus and increases debt.

All good, the Brits have just turned that money printer back on....as will we.

[aja8888]

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Originally Posted by copyright1997reloaded Don't worry, it will be repeated here. Regardless of whether it is a tax cut funded by additional debt, or spending programs that increase debt, or just plain "old" MMT the net result is the same. It is fiscal stimulus and increases debt. All good, the Brits have just turned that money printer back on....as will we.

If that happens here (anytime soon), Powell is out and the market will go to the moon. Get your cash ready!

[copyright1997reloaded]

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Originally Posted by aja8888 If that happens here (anytime soon), Powell is out and the market will go to the moon. Get your cash ready!

Right. This *is* the main reason why I didn't sell more than I have (about 47% equities as of this past weekend, drifting downward as the market continues to sell off).

So far that (keeping about 50% in) has been a bad decision.

[ShokWaveRider]

Our grocery bill actually went down a little in September vs August.

[Turbo29]

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Originally Posted by copyright1997reloaded Don't worry, it will be repeated here. Regardless of whether it is a tax cut funded by additional debt, or spending programs that increase debt, or just plain "old" MMT the net result is the same. It is fiscal stimulus and increases debt. All good, the Brits have just turned that money printer back on....as will we.

Reminds me of a cartoon I saw almost 50yr ago during our last big inflationary stage.

Crowd [in the streets rioting]: What are you going to do about high prices?
King [up in a window of his palace]: Give you all more money.
Advisor [taps King on shoulder]: But sire, we can't give them more money.
King: Why not?
Advisor: Because we are all out of gold.
King [with a big sigh of relief]: Oh, for a moment I was worried you were going to tell me we were all out of paper.

[Sunset]

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Originally Posted by JoeWras Heck, I'm going to Canada next year and I'm wondering if my bills and coins for my 1992 trip will still work.

Same issue for me, with the British Pound, I went and got some years ago in Gibraltar so when we travelled to the UK, I'd have some to start.

Now.... I wonder if I'll be able to use it. Never mind the inflation has probably wiped 15% off it, and it would cost me another 15% less due to the strength of the greenback.

[braumeister]

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Originally Posted by Sunset Same issue for me, with the British Pound, I went and got some years ago in Gibraltar so when we travelled to the UK, I'd have some to start. Now.... I wonder if I'll be able to use it. Never mind the inflation has probably wiped 15% off it, and it would cost me another 15% less due to the strength of the greenback.

Not a problem. Even if they change the currency, as most countries do from time to time, the Bank of England has an ironclad policy that their money will always be valid. All you have to do is go into any bank and exchange it for the new currency.

Some years ago just before a trip I found some really old pound notes. Looked it up and saw that they were still legal tender, so I took them to a bank. Funniest 20 minutes of the trip, as two young bank employees tried to figure out what to do with them. They had never seen pounds as anything but coins, so I first had to convince them the notes were real. They made at least three phone calls to superiors, but were still unsure. Finally, one of them just reached into his pocket and handed me the equivalent in pound coins.

[JoeWras]

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Originally Posted by braumeister Not a problem. Even if they change the currency, as most countries do from time to time, the Bank of England has an ironclad policy that their money will always be valid. All you have to do is go into any bank and exchange it for the new currency. Some years ago just before a trip I found some really old pound notes. Looked it up and saw that they were still legal tender, so I took them to a bank. Funniest 20 minutes of the trip, as two young bank employees tried to figure out what to do with them. They had never seen pounds as anything but coins, so I first had to convince them the notes were real. They made at least three phone calls to superiors, but were still unsure. Finally, one of them just reached into his pocket and handed me the equivalent in pound coins.

I have a bunch of USA $2 bills I'm afraid to use because I think people would think it is funny money.

The USA's habits with currency and coinage are perplexing*. I guess the problem will self-heal as most transactions are going electronic anyway.

* - Not necessarily. I was reading up on the issue recently and apparently though the years when the mint made changes, people hoarded, and this changed behavior. $2 silver certificates were first to go away, so people hoarded the $2. Then when the quarter and half went to clad, people especially hoarded the extra heavy halfs. Then the mint came up with the gloriously huge Eisenhower $1, which was simply too heavy, even though it approximated a Morgan well. Problem was Morgans were from an age where $1 got you a lot, like a $20. So they were worth toting around. Eisenhowers? Not so much. Then of course, the Anthony that looked like quarter was next...

Anyway, sorry for the diversion. Back to your regularly scheduled inflation discussion.

[Koolau]

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Originally Posted by JoeWras I have a bunch of USA $2 bills I'm afraid to use because I think people would think it is funny money. The USA's habits with currency and coinage are perplexing*. I guess the problem will self-heal as most transactions are going electronic anyway. * - Not necessarily. I was reading up on the issue recently and apparently though the years when the mint made changes, people hoarded, and this changed behavior. $2 silver certificates were first to go away, so people hoarded the $2. Then when the quarter and half went to clad, people especially hoarded the extra heavy halfs. Then the mint came up with the gloriously huge Eisenhower $1, which was simply too heavy, even though it approximated a Morgan well. Problem was Morgans were from an age where $1 got you a lot, like a $20. So they were worth toting around. Eisenhowers? Not so much. Then of course, the Anthony that looked like quarter was next... Anyway, sorry for the diversion. Back to your regularly scheduled inflation discussion.

Here in the heartland, I'm seeing a lot of $2 bills. No problems with using them but YMMV.

[Chuckanut]

The Fed indicated yesterday that what it calls 'sticky' prices are still up there.

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Accelerating core costs show that high inflation is spreading increasingly to the services side of the economy, where prices tend to be sticky—meaning that once they rise, they are usually slow to reverse

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But higher prices for services, including rent, healthcare and utilities, can be harder to avoid. Services spending accounts for about two-thirds of household outlays.Services prices were up 0.6% in August from the prior month, and up 5% from a year earlier.

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There are signs that some of these pressures may be subsiding. The producer-price index, which generally reflects supply conditions in the economy, rose 8.7% higher in August than a year earlier, down from annual increases of 9.8% in July and 11.2% in June. Other supply-chain measures show backlogs easing, inventories increasing and shipping costs declining.

[explanade]

My last fill up at the gas station was $4.85 a gallon.

The one previous to that was 5.99.

Now it's back up to 5.79.

Supposedly some refineries are offline for maintenance.

[Breedlove]

It’s all transitory . Don’t sweat the small stuff.

[nap470]

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Originally Posted by JoeWras I have a bunch of USA $2 bills I'm afraid to use because I think people would think it is funny money.

I thought we were the only people on the planet with $2 bills. When we cleaned out my wife's parent's home after her mother's death (10 years ago), she had stacks of $2 bills in multiple places. At first, I thought it was monopoly money. I bet we have more than a hundred $2 bills in our basement. I had forgotten about them until your comment.