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"Inflation is hiding in plain sight"

Old_JoeOld_Joe
in Other Investing
Following is a letter to the editor of The Economist, in the January 16, 2021 weekly edition. It presents an interesting perspective on current asset pricing.
You continue to view inflation as a pricing phenomenon of products and services (“Will inflation return?”, December 12th). But this misses where inflation is hiding in plain sight: asset prices, notably in the increase in prices of investment assets such as property and speculative equity. The way we measure inflation and where we look for it needs a long-overdue change.

NAEEM HUKKAWALA
New York

Comments

  • CrashCrash
    thumbs up.
  • MarkMark
    Ope.
  • LewisBraham
    edited January 2021
    Except it is not the inflation most people care about or should care about: https://financialpost.com/investing/how-americas-1-came-to-dominate-stock-ownership
    The richest 1 per cent of Americans now account for more than half the value of equities owned by U.S. households, according to Goldman Sachs....As of September 2019, the bottom 90 per cent owned US$4.6 trillion of equities, or 12 per cent of the total, the analysts noted.
    Moreover, asset price inflation in bonds one could argue is good for the bottom 90% who more often have outstanding debt than own financial securities in any significant amount. Debt with low interest rates saves them money. The people low yielding high priced debt hurts the most are bankers, i.e., creditors.
  • CrashCrash
    1.99% car loan, just a year ago. But lately, bonds have been misbehaving. We make sure not to pay interest on anything except the car loan. 4 years to go with that. Paying interest is like paying a tax you aren't required to pay. Unless unavoidable, like on big-ticket items, like a car. Strategy: I could have plunked-down the full price in cash, and pay no interest on the car. But I'd then never be able to grow the portfolio back to where it was, beforehand. That would mean reduced monthly dividends and yearly cap gains forever, thus permanently hobbling ourselves. Meanwhile, the portfolio is growing well beyond 1.99%.
  • catch22catch22
    @Crash

    Paying interest is like paying a tax you aren't required to pay.
    So, you're stating that you would be willing to lend your money without fee (tax/interest)?

    My credit rating is about 20 points from the very top. What is your required paperwork for a personal loan?
  • CrashCrash
    @catch22 You're the first one today to tell me what I think.;)
    My credit rating is just below 800. There is a stated and publicly available method to that particular computation, but I'll be damned if it makes any sense to me.
    ...Were you bragging or complaining? I'm sorry, I just don't follow your non-sequitur.
  • LewisBraham
    edited January 2021
    Think of it this way: Inflation can be good for the seller and bad for the buyer. Investors, most of whom are high net worth, are the buyers of financial assets. But who is the seller in this case--the issuers of stocks and bonds. In the case of securitized assets for say credit cards, homes or auto loans, the sellers backing the issuers are people taking out loans and the more expensive the financial asset is for the buyer, the cheaper it is for the seller or issuer or in this case the debtor to finance their car or house or purchases or even their new businesses. Although sellers of equity are only corporations, there are advantages to having asset inflation there too, but to a lesser degree. High priced equity can be used to finance R&D or various other forms of growth in the right executive hands. Unfortunately, most CEOs haven't proven to be good long-term capital allocators and too often use their expensive equity to make equally expensive acquisitions, or to pay themselves rich bonuses.
  • catch22catch22
    Morn'in @Crash
    ...Were you bragging or complaining? I'm sorry, I just don't follow your non-sequitur.
    My write was not well formed; as I was prodding you in jest to offer me a zero interest loan of your money based on your statement:
    Paying interest is like paying a tax you aren't required to pay.
    I also traveled outside the nature of the original thread subject, which I should not have done.
  • CrashCrash
    catch22 said:

    Morn'in @Crash

    ...Were you bragging or complaining? I'm sorry, I just don't follow your non-sequitur.
    My write was not well formed; as I was prodding you in jest to offer me a zero interest loan of your money based on your statement:
    Paying interest is like paying a tax you aren't required to pay.
    I also traveled outside the nature of the original thread subject, which I should not have done.
    :) No worries, @catch22. I get it, now. I have indeed loaned to FAMILY at no interest. We figured out a "painless" way to get paid back: She'll cover a tiny portion of my rent each month, until the balance is paid.
    ...I was writing strictly as a consumer. Unless one is frikkin' independently wealthy, we must pay interest for big-ticket items. I'll never be a landlord, or on the selling end of a new car or home.
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