Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
While economists debate whether the current spike is “transitory” or longer lasting, investors may want to review their inflation playbook, just in case.....
Roger Bootle: “It is the start of a sea change, I have to say. That’s not to say that we’re going to go back to the strong inflationary conditions of the 70s and early 80s. But at the very least, I think we are at the end of the crypto-deflationary period that we’ve been in for the last few years.
“The danger of deflation has passed, and the risks have definitely tilted in the other direction. How high inflation will go, and for how long, that’s debatable. But I’m not in much doubt myself that there’s been a sea change.”
As far as the list of “Assets for Protection Against Inflation”, proceed at your own risk. One might consider that there are shaper minds in the world than Ms, Peters who have already identified the potential and bid these assets up. Wish investing were as simple as opening a book and looking up “What to Buy” for any occasion that might present itself. Not to say these ideas won’t work - just that the game’s not as easy as it sounds nor the playing field as level as one might assume.
How about Katelyn Peters? Is she under any obligation not to invest in these areas first? Is she forbidden from sharing her list with her closest friends or family members before releasing it to the public?
#5 - S&P 500? Really? What a unique idea!
#10 - TIPS? In theory only. There’s been numerous articles in recent months attesting to their being wildly overbought. Some discussion here as well.
Best to keep in mind how today's inflation number is calculated - year over year - and what was happening a year ago.
Hank's right about the usual inflation-related investments having already been bid up, starting months ago. In the case of the analyst group I follow the closest, it was about nine months ago they recommended getting into inflation assets -- specifically with the jump in the official numbers in mind, the numbers that would be coming in the quarters ahead, set up by the lowflation/deflation of late Q1/Q2 of 2020.
I could be a little wealthier now if I'd gone into that trade more heavily back then, instead of cautiously.
I could be a little wealthier now if I'd gone into that trade more heavily back then, instead of cautiously.
This "trend" may persist. Good for you for paying attention and for acting on it. Some trends are short lived...some longer in duration. To me, this is where 3 month charts are helpful. Trends tend to persist. When they break down...they tend make "lower-lows" over a 1-3-6 month time frame. Go luck with your investments.
Here's an example using VIS over the last year...short lower-lows, but the trend shows longer "higher-lows". I try to look at trends this way. The red arrows are "lower Lows' and the green arrows are "higher-lows".
Yes, it sure may. My choice now, though, is not to put new money in. The big traders have already made a ton on that trade, and as far as it's run, the upside from here may be limited. Some of the commodities I watch (and own, in the case of one) either haven't recovered their previous highs or are just muddling along after losing mojo in May, so I'll be watching for what happens there.
On an every-day experience level we just came back from Safeway having purchased a favorite flavor of Hagen-Daz ice cream. I thought that the cartons looked a bit smaller than before. Sure enough, down from 1 pint (16 oz) to 14 oz. We have no idea what the price was before, but even if it hasn't increased at all, we just saw a 10% price increase.
I've been occasionally commenting on this sort of thing here on MFO for at least a year now, only to be reassured that the government statistics haven't picked up any major price increases in food, other than the usual variations due to supply issues.
You can say whatever you want to, but I loudly call BS on the government figures.
That very thing has made my blood boil for many years: deceptive packaging that gives the appearance (or almost the same appearance) as the last time you bought, but the CONTENTS of the package has shrunk. Price? Same or higher. Gov't inflation numbers are indeed BS. Ice cream. Triscuits. ANY box of crackers, really. Soup. You name it. ...
@OldJoe, dunno if you're responding to me or not, but I was talking about investing. All of us should expect to see prices going up on anything related to ag commodities; after six straight years of negative returns (which does NOT mean food prices didn't rise then), DBA is up 18% this year so far. Get ready for more.
Meanwhile, I'm sticking with my decision not to add to commodities or other inflation assets. If you're concerned about food prices, though, maybe you could think about buying some ag commodities to help offset your costs.
Sunday after trying to golf, I stopped at local retailer to purchase some candy. I picked up bag X & started looking for a different staple. Bag XX caught my eye. Same treat as bag X, only larger bag & for less money. I then found the other type of mini candy bar I was looking for. Low & behold same thing, two feet to the right & lower shelf. Lower price & more in the bag. Appears they were trying to clear their shelf of the bigger bags. Big time inflation , less in the bag & at a higher price !!! Stay Kool, Derf
Another view, about where from or how, inflation arises. 'Course, we all may find inflation in various products or services we tend to use. Some of these areas are more meaningful than others to a budget. A best bang for the buck is truly amazing with the technology sector (personal use items); and the monetary expense for one's budget may be a very small portion. OTOH, food, transportation, housing and similar areas with inflationary trends can have a significant impact on a budget. The below link is directed at bond reactions to inflation, but contains observations about inflation in general, too. Anyway, enough jabber from me.
Cathie Wood: "During the last nine months, in response to a V-shaped recovery, global equity markets rotated away from growth stocks toward value stocks. Commodity prices soared, increasing fears of inflation and higher interest rates, while the earnings growth of cyclically sensitive companies offered stiff competition to that of growth companies given the short-term time horizons of most investors in the public equity markets. Dramatizing these dynamics, during the three months ended March the 10-year US Treasury bond yield doubled to 1.74%,1 a record-breaking increase for such a short period of time.
While others extrapolated those trends into the future, ARK has maintained that inflation would prove temporary thanks both to the base effects caused by the price collapses last year and to supply chain bottlenecks that will cause double- and triple-ordering of supplies, a massive inventory overhang, and a commodity price collapse. With the exception of oil, we believe cracks in the commodity markets are becoming clear. During the past six weeks, lumber prices have dropped more than 46% from $1,686 to $897.90 per thousand board feet while copper prices have dropped roughly 12.78% from $4.77 per pound to $4.16." (Pricing Number Source: Bloomberg)
On an every-day experience level we just came back from Safeway having purchased a favorite flavor of Hagen-Daz ice cream. I thought that the cartons looked a bit smaller than before. Sure enough, down from 1 pint (16 oz) to 14 oz. We have no idea what the price was before, but even if it hasn't increased at all, we just saw a 10% price increase.
I've been occasionally commenting on this sort of thing here on MFO for at least a year now, only to be reassured that the government statistics haven't picked up any major price increases in food, other than the usual variations due to supply issues.
You can say whatever you want to, but I loudly call BS on the government figures.
Old_Joe : I think you had a price increase of 12.5 % , without paying more ! Enjoy the treat, Derf
The price increase due to shrinkage was 14.29% (1/7).
You are getting 7/8 as much for the same price. So you have to pay 8/7 as much to get the same amount. (If the size had shrunk by half, so that you were getting half a much for your dollar, I think people would agree that the price had doubled.)
Alternatively: For price $P, you were getting 16 oz, and you're now getting 14 oz. Old price per oz = $P/16. New price per oz = $P/14. New price/old price = ($P/14) / ($P/16) = (1/14) / (1/16) = 16/14 = 8/7 = 1 + 1/7.
Best to keep in mind how today's inflation number is calculated - year over year - and what was happening a year ago.
Hank's right about the usual inflation-related investments having already been bid up, starting months ago. In the case of the analyst group I follow the closest, it was about nine months ago they recommended getting into inflation assets -- specifically with the jump in the official numbers in mind, the numbers that would be coming in the quarters ahead, set up by the lowflation/deflation of late Q1/Q2 of 2020.
I could be a little wealthier now if I'd gone into that trade more heavily back then, instead of cautiously.
I listened to a number of "analysts" and the recommendation back last year to get into growth. Curious, which "analysts" do you follow, and do you find them reputable?
@Mav123 Curious, which "analysts" do you follow, and do you find them reputable? Barry Ritholtz. Josh Brown. Danielle Park. (Canada.) Mohamed El-Erian. Liz Ann Sonders. (Schwab.)
My comment (which Andy cited) was based on background info from my general reading (WSJ, Barron’s mostly) and from investing in and watching some funds in the commodities / NR sectors. Also, it’s pretty general knowledge that NYMEX “bottomed out” at - (negative ) $30 per barrel 15-16 months ago and has now climbed to around $75 - a gain of over $100 on the futures markets in little over one year. If that’s not being “bid-up” I don’t know what is. Lumber doubled or tripled in price over the past year (but is now beginning to pull back). Copper’s been hot. Corn has sky-rocketed in the past year.
I don’t know much about growth funds. I’ve owned some DODBX for many years. That house is value focused. After many disappointing years value has turned up, and DODBX is reflective of that. One (but not the only) factor in value’s turn-around is that many bank stocks occupy that area. Banks do fine when interest rates are rising, and so with the expectation of higher rates, banks have turned up.
Hope this helps.
Analysts? I don’t trust any of them. But I enjoy Randall Forsyth’s column is Barron’s the most. This week he’s looking at bonds, which he considers at present valuations to represent “return free risk”. (take with grain of salt)
I also subscribe to Bill Fleckenstein’s daily “Market Rap“. But I don’t consider him an analysist. He’s more of a market “pundit” and a “contrarian” if ever there was one. His customarily bearish views on equities, central bankers, and the investing herd serve to keep me “sober” and perhaps prevent me from taking on too much market risk.
Curious, which "analysts" do you follow, and do you find them reputable?
@Mav123: A few, but the ones I pay most attention to are some guys who call themselves Hedgeye. They're data dependent and have a straightforward system. Their details are on a subscription basis, which was a bargain a few years ago and is less of a bargain now ... but all it takes to justify the fee is a couple of trades. I run only a small part of the portfolio based on their analysis, but also like to consider it in more of a macro sense.
Their projections are good a lot of the time, but of course nobody's perfect.
They're fee-only for the detailed advisory service; they don't run your money. (I assume that's where the "reputable" question is coming from?)
I have heard good things about Thomas Lee, who is also "data dependent", but don't know if it's worth paying for https://fsinsight.com/. Does anyone have experience with him?
Also, what "service/product" level, Hedgeye Pro for $899/yr?
@Mav123: Thanks, I'll check out McMillan and Lee. From a quick look, Lee seems to spend some effort on crypto, not something I'm into.
H'eye has a bunch of different packages, and they've changed them around quite a bit in the past. Pro is for other advisors, very much TMI for individuals. They are at the point of ramping up the cost every year, so I may not stick with them forever. What I have is pretty simple; last renewal was $200, easily made up by going selectively with their etf/asset class longs and shorts and trading ranges, updated weekly, or more often when they make a significant change.
A lot depends on exactly what you want, how specific the advice is that you're looking for, how actively you like to manage your investments, and what you think is worth paying for. For example, I wouldn't pay for just macro.
There’s 2 ways prices of these securities (fund, etf, stock) can fall back to a more reasonable valuation.
1) Prices of the underlying assets can fall over time. (Already evident with lumber.)
2) Nominal prices can remain high as inflation rises. In this case you’d be able to purchase those assets with cheaper dollars at some future time.
Above not limited to the inflation sensitive sectors. Any overvalued asset should either eventually experience a price decline or will eventually lose value in real dollar terms.
Note: The initial comment of mine (reposted here by others) in from June 9. In the 3 weeks since prices seem to have stabilized. Some have pulled back. I’d never vacate the inflation hedged sectors completely. Was just cautioning against initiating new positions at elevated prices. I’ve pulled back a bit. Rotated to some of the less expensive areas.
I think most investors should disregard it and most other "expert" opinions. Most should know their goals and risk tolerance and invest accordingly with min trading based on that. Most should stick to stocks+bonds and if you want to go crazy use 10%(maybe 20%) for other categories.
Lastly, even if you make changes, do it based on what happened lately. As a trader, I never make decisions based on prediction, I let the market tell me what has been going. How many times did you hear, stocks are over value, rates can only go up, inverted yield is..., PE+PE10 is too high, bonds will lose money (hint: not all bonds are treasuries) and the new thing, inflation panic/warning for months.
So, what have I done with my portfolio differently and especially based on inflation? nada.
Comments
inflation-outlook-economist-roger-bootle-sees-consumer-prices-surge-after-covid?
As far as the list of “Assets for Protection Against Inflation”, proceed at your own risk. One might consider that there are shaper minds in the world than Ms, Peters who have already identified the potential and bid these assets up. Wish investing were as simple as opening a book and looking up “What to Buy” for any occasion that might present itself. Not to say these ideas won’t work - just that the game’s not as easy as it sounds nor the playing field as level as one might assume.
How about Katelyn Peters? Is she under any obligation not to invest in these areas first? Is she forbidden from sharing her list with her closest friends or family members before releasing it to the public?
#5 - S&P 500? Really? What a unique idea!
#10 - TIPS? In theory only. There’s been numerous articles in recent months attesting to their being wildly overbought. Some discussion here as well.
Hank's right about the usual inflation-related investments having already been bid up, starting months ago. In the case of the analyst group I follow the closest, it was about nine months ago they recommended getting into inflation assets -- specifically with the jump in the official numbers in mind, the numbers that would be coming in the quarters ahead, set up by the lowflation/deflation of late Q1/Q2 of 2020.
I could be a little wealthier now if I'd gone into that trade more heavily back then, instead of cautiously.
Here's an example using VIS over the last year...short lower-lows, but the trend shows longer "higher-lows". I try to look at trends this way. The red arrows are "lower Lows' and the green arrows are "higher-lows".
45 % higher-lows over the last year.
I've been occasionally commenting on this sort of thing here on MFO for at least a year now, only to be reassured that the government statistics haven't picked up any major price increases in food, other than the usual variations due to supply issues.
You can say whatever you want to, but I loudly call BS on the government figures.
Enjoy the treat, Derf
Meanwhile, I'm sticking with my decision not to add to commodities or other inflation assets. If you're concerned about food prices, though, maybe you could think about buying some ag commodities to help offset your costs.
Big time inflation , less in the bag & at a higher price !!!
Stay Kool, Derf
Yes, big-time inflation is already here.
https://www.nytimes.com/2021/06/21/opinion/inflation-economy-biden-fed.html
Anyway, enough jabber from me.
ARTICLE
"During the last nine months, in response to a V-shaped recovery, global equity markets rotated away from growth stocks toward value stocks. Commodity prices soared, increasing fears of inflation and higher interest rates, while the earnings growth of cyclically sensitive companies offered stiff competition to that of growth companies given the short-term time horizons of most investors in the public equity markets. Dramatizing these dynamics, during the three months ended March the 10-year US Treasury bond yield doubled to 1.74%,1 a record-breaking increase for such a short period of time.
While others extrapolated those trends into the future, ARK has maintained that inflation would prove temporary thanks both to the base effects caused by the price collapses last year and to supply chain bottlenecks that will cause double- and triple-ordering of supplies, a massive inventory overhang, and a commodity price collapse. With the exception of oil, we believe cracks in the commodity markets are becoming clear. During the past six weeks, lumber prices have dropped more than 46% from $1,686 to $897.90 per thousand board feet while copper prices have dropped roughly 12.78% from $4.77 per pound to $4.16." (Pricing Number Source: Bloomberg)
You are getting 7/8 as much for the same price. So you have to pay 8/7 as much to get the same amount. (If the size had shrunk by half, so that you were getting half a much for your dollar, I think people would agree that the price had doubled.)
Alternatively: For price $P, you were getting 16 oz, and you're now getting 14 oz.
Old price per oz = $P/16. New price per oz = $P/14.
New price/old price = ($P/14) / ($P/16) = (1/14) / (1/16) = 16/14 = 8/7 = 1 + 1/7.
This shrinkage occurred a dozen years ago. It's not government figures one might call BS.
https://freakonomics.com/2009/03/12/the-pint-size-recession/
Stay Kool, Derf
Barry Ritholtz. Josh Brown. Danielle Park. (Canada.) Mohamed El-Erian. Liz Ann Sonders. (Schwab.)
https://ritholtz.com/
...Last I heard, Brown and Ritholtz were working together, though surely each one has his own singular gigs going on.
D. Park: https://jugglingdynamite.com/
My comment (which Andy cited) was based on background info from my general reading (WSJ, Barron’s mostly) and from investing in and watching some funds in the commodities / NR sectors. Also, it’s pretty general knowledge that NYMEX “bottomed out” at - (negative ) $30 per barrel 15-16 months ago and has now climbed to around $75 - a gain of over $100 on the futures markets in little over one year. If that’s not being “bid-up” I don’t know what is. Lumber doubled or tripled in price over the past year (but is now beginning to pull back). Copper’s been hot. Corn has sky-rocketed in the past year.
Some one-year returns:
PRAFX +44% (I recently sold)
BRCAX +46% (still own)
PRNEX +48% (don’t own)
I don’t know much about growth funds. I’ve owned some DODBX for many years. That house is value focused. After many disappointing years value has turned up, and DODBX is reflective of that. One (but not the only) factor in value’s turn-around is that many bank stocks occupy that area. Banks do fine when interest rates are rising, and so with the expectation of higher rates, banks have turned up.
Hope this helps.
Analysts? I don’t trust any of them. But I enjoy Randall Forsyth’s column is Barron’s the most. This week he’s looking at bonds, which he considers at present valuations to represent “return free risk”. (take with grain of salt)
I also subscribe to Bill Fleckenstein’s daily “Market Rap“. But I don’t consider him an analysist. He’s more of a market “pundit” and a “contrarian” if ever there was one. His customarily bearish views on equities, central bankers, and the investing herd serve to keep me “sober” and perhaps prevent me from taking on too much market risk.
Their projections are good a lot of the time, but of course nobody's perfect.
They're fee-only for the detailed advisory service; they don't run your money. (I assume that's where the "reputable" question is coming from?)
The others I follow: Lawrence G. McMillan @optstrategist and Thomas Lee @fundstrat.
I have heard good things about Thomas Lee, who is also "data dependent", but don't know if it's worth paying for https://fsinsight.com/. Does anyone have experience with him?
Also, what "service/product" level, Hedgeye Pro for $899/yr?
@Crash: yes, Mohamed El-Erian is very good!!
H'eye has a bunch of different packages, and they've changed them around quite a bit in the past. Pro is for other advisors, very much TMI for individuals. They are at the point of ramping up the cost every year, so I may not stick with them forever. What I have is pretty simple; last renewal was $200, easily made up by going selectively with their etf/asset class longs and shorts and trading ranges, updated weekly, or more often when they make a significant change.
A lot depends on exactly what you want, how specific the advice is that you're looking for, how actively you like to manage your investments, and what you think is worth paying for. For example, I wouldn't pay for just macro.
Related regards
I do read El- Erian commentary
1) Prices of the underlying assets can fall over time. (Already evident with lumber.)
2) Nominal prices can remain high as inflation rises. In this case you’d be able to purchase those assets with cheaper dollars at some future time.
Above not limited to the inflation sensitive sectors. Any overvalued asset should either eventually experience a price decline or will eventually lose value in real dollar terms.
Note: The initial comment of mine (reposted here by others) in from June 9. In the 3 weeks since prices seem to have stabilized. Some have pulled back. I’d never vacate the inflation hedged sectors completely. Was just cautioning against initiating new positions at elevated prices. I’ve pulled back a bit. Rotated to some of the less expensive areas.
Lastly, even if you make changes, do it based on what happened lately. As a trader, I never make decisions based on prediction, I let the market tell me what has been going.
How many times did you hear, stocks are over value, rates can only go up, inverted yield is..., PE+PE10 is too high, bonds will lose money (hint: not all bonds are treasuries) and the new thing, inflation panic/warning for months.
So, what have I done with my portfolio differently and especially based on inflation? nada.
otoh, some smart diving into the dynamics:
https://www.nytimes.com/2021/06/29/upshot/markets-work-but-untangling-global-supply-chains-takes-time.html