How to deal with Stagflation?

[Gearhead Jim]

Methinks that something similar to 1970's stagflation may be on the near horizon.  If that turns out to be true, what are some good investing stratagies for someone already retired?

Let's keep it fairly simple; I don't want exotic, risky, or difficult-to-execute plans.  Nor something that will suffer big losses if my prediction is wrong.

Right now I'm 50% in a variety of stocks funds (doing OK, considering) and 50% CD's laddered out to 3 years.

Someone said that buying for Qualified retirement account from Treasury Direct is not permitted.  True?  And does it make any difference?

 

[dex]

Why do you think that we will have stagflation similar to the 1970's?

 

[wabmester]

Cash and TIPS, in my opinion, would be the only investments to do reasonably well during a period of stagflation.   I believe even cash (short-term treasuries) had a negative real yield during much of the 70's, but obviously not as bad as longer-term bonds or stocks.

I have TIPS in my IRA with Vanguard as custodian.   IIRC, you can purchase new issues through them with no fee -- same as with TreasuryDirect.

 

[Gearhead Jim]

Not a guarantee, but:

Big stock market rise followed by decline, still below peak 5 years later.
Rapidly rising oil prices.
Expensive war & other govt spending.
Inflation and interest rates beginning to rise.

I have no problem with those who disagree but I'm interested in how to protect my money if the bad dream comes true.

 

[grumpy]

I have no problem with those who disagree but I'm interested in how to protect my money if the bad dream comes true.

Jim,

Sorry but you have to place your bet now. You don't get to wait to see if your bad dream comes true and then place your bet. Investment strategies that work well for that scenario probably would be poor performers under other scenarios. How confident are you in your ability to predict the future?

Grumpy

 

[Spanky]

Cash and gold

 

[wabmester]

Oh, yeah, I remember when gold was $800/ounce. It could happen again, I suppose. And Beanie Babies could become collectible again too. All you need to do is believe.

 

[yakers]

Well we all get to pay our money and make our choices. I think there will be inflation. So maybe someone else is figuring on stagflation and for some time some folks thought there would be deflation. The question was ....if you think there will be stagflation, where do you put your money?
The thing I would have thought abou in previous stagflation was real estate but that too seems overpriced, at least in southern California where I live. I guess ibonds, T bills, and short term bonds? Over longer times stocks will do OK but how long do you wait for that? Dividend paying stocks if you can just take the dividends and not sell them off?

 

[dex]

Not a guarantee, but:
Big stock market rise followed by decline, still below peak 5 years later.
Rapidly rising oil prices.
Expensive war & other govt spending.
Inflation and interest rates beginning to rise.
I have no problem with those who disagree but I'm interested in how to protect my money if the bad dream comes true.

A great quote on markets "The markets teach you to lose." We may get something similar to stagflation but whatever it is will be different so what worked in the past may not work in the future.
In the 70s hard assets did well - homes, gold, art. Then if you are good enough to time it - you sell your hard assets at the top of the interest peak and put your money into US 30 year bonds or strips.

 

[brewer12345]

Based on past history, commodities appear to be a very solid place to be in a highly inflationary environment. I'd add to that I-bonds and TIPS (the latter in a tax deferred account).

 

[dex]

I do not belive we will have stagflation (high unemployment and rising prices).

I'll go out here on a limb and say the USA we will have steady to slightly decling prices*
The factors contributing to keep inflation down are:
1. Exporting of jobs
2. Lower cost of business outside the USA
3. High debt held by individuals - will hold back purchases and cause slowdown in the economy to be more sevear
4. High debt of the USA - will keep interest rates about where they are if not slightly higner
5. Fear by US workers to do anything about it
6. Illegal workers in the USA keeping wages down

I will be locking into intermediate bond funds around the 1st qtr of next year.

*Note - I'm talking here about all prices including salaries

 

[Cut-Throat]

I do not belive we will have stagflation (high unemployment and rising prices).

I'll go out here on a limb and say the USA we will have steady to slightly decling prices*
The factors contributing to keep inflation down are:
1. Exporting of jobs
2. Lower cost of business outside the USA
3. High debt held by individuals - will hold back purchases and cause slowdown in the economy to be more sevear
4. High debt of the USA - will keep interest rates about where they are if not slightly higner
5. Fear by US workers to do anything about it
6. Illegal workers in the USA keeping wages down

I will be locking into intermediate bond funds around the 1st qtr of next year.

*Note - I'm talking here about all prices including salaries

So, you are only predicting an old fashioned Great Depression!

 

[dex]

So, you are only predicting an old fashioned Great Depression!

I'm sure the news media will call it that and manny people will say they are in a depression. (resession - my neighbor is out of work; depression - I'm out of work)

I'm just talking about a period of stable or the slow grinding of lowering prices overall.

 

[Gone4Good]

Inflation and interest rates beginning to rise.

That's the key.  It won't be stagflation if the Fed is committed to keeping inflation at bay - it will just be a plain old recession 

The only way to protect yourself from the unknown is to have a little bit of everything.

In addition to what others said (TIPs, Cash, Commodities, etc.) some foreign stocks and bonds might help (assuming the US doesn't drag the rest of the world with it). If inflation heats up it could become a problem for the US Dollar and having some FX exposure could do the trick for your portfolio. You have to make sure that your foreign funds don't hedge FX, or they won't be as effective.

 

[Ol_Rancher]

Stagflation can and should be avoided by the Fed if the lessons of the 80's were learned. I strongly suspect recession here would drag down China then other countries whose economies are centrally controlled and so dependent on exports.

I think the amazing boom in China is subject to disruption and  the consequences would be magnified by angry population becoming dependent on such a high growth rate. A potential house of cards.

My main problem with China however,is that until they take down the oversized portrait of the mass murderer,Chairman Mao smiling down from the facade of the forbidden palace, it is but a stumbling giant market with dangerous leadership.

 

[Gearhead Jim]

(Deleted my reply because it was off-topic)