Inflation

[Tim]

my point is it’s not just what a basket of goods cost. there are numerous levers which can be adjusted. and my sense is that i’m experiencing inflation more than 3.56% semiannual

but i will also say as i’ve said before inflation currently being experienced helps more than hurts me at least in terms of the number on the balance sheet bc asset inflation > liability inflation. plus i’m comfortable maintaining a modest amount of low cost leverage

I am not sure 3.56 semi annual equates to more than 7,12% annual. About the only thing I noted is gas and food. I bought a new microwave, but that was peanuts. Those increased but my housing and cars are locked in. On a weighted average basis, things seem to be running along. Of course this crazy market makes it seem to be insignificant. Just saying almost every adjustment the the BLS makes to their measurements has a very good reason. I forgot, the pricing of beer is crazy. A case is $1 more than and 18 pack. And it is cheaper than before. I don't buy everything in the basket and I doubt you do either.

The big spike is the problem. It definitely hurts immediately those that live paycheck to paycheck and spend all their income. Vendors are able to pass on increases without incurring significant resistance from customers. Please note that no one bothered to define "transient". Does it mean it will settle down in one month, a quarter or a year or two? Reminds me of when someone says "this won't hurt much".

[Tangler]

or, a forum of debt averse folks may feel as though gov should not be able to continue a process of endless and ever increasing debt. maybe that can't go on forever?

Yes.

Inflation, not good.

Crazy spending, not good.

Massive National Debt, not good.

Debt = Risk.

“There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.”
John Adams 1826

[Tangler]

6% inflation is high, but not crushing by historical standards. No doubt flooding the economy with trillions in printed funds for fiscal stimulus (against a true need - the pandemic) was not judged correctly. I might ague the final round of stimulus was completely unnecessary, but in fairness the policy was a bit of a sledgehammer and stimulus is difficult to predict. Another important factor causing inflation has been the disruptions in our pre-pandemic supply chains. It is just harder to get things right now, and that drives up costs. We have also done a complete shift in energy policy that has hit us at home and at the pump. Finally, it is clear that interest rates have been artificially suppressed for some time now across multiple administrations. However, that has been a difficult gravy train to derail given the salutary effect on equity markets.

As for policy prescriptions, there are a number of logical but not necessarily popular steps that could be taken.
1. The Fed knows they need to raise interest rates. They also know that the last time the Fed set out to break endemic inflation (Voelker in 1981), interest rates went up so fast and high that it caused a severe recession. So they are trying to thread the needle.
2. Another important long term move would be to adjust policies to encourage reshoring manufacturing to shorted supply trains. Now would actually be a good time for American companies to invest since interest rates are low, and this would lead to more American jobs, but it would take years and in the meanwhile companies would pass costs on to consumers.
3. Probably not popular here on WCI, but the government needs to stop using the pandemic to make it hard for people to work. Sure, push for vaccinations, but stop threatening to fire people that don't get them. (And why just companies with over 100 employees?) Educate and persuade would work better with stiff necked Americans.
4. What else? Stop the insanity of punishing the use of natural gas. Repeat after me: natural gas is green! Biden caused the current energy crisis, and he could fix it by reversing his attacks on oil and gas. (You don't have to give up if you are a greenie; just develop a transition plan that does not involve doubling gas prices.)
5. As much as I hate to say it, taxes need to go up to help fund debt as interest rates increase. But it would be great if we could pair this with expenses going down. I don't know about you, but at a micro level I am not terribly interested in dramatic tax increases when Congress randomly drops a trillion here or there on a partisan basis, or spends a trillion fighting in a foreign country just to abandon the effort...

I know, blah, blah. But for my part, it is not that solutions aren't readily apparent; just that they are hard to agree to - much less implement.

On that post alone i would put you in charge. Why can’t we have someone like you?

[Tim]

On that post alone i would put you in charge. Why can’t we have someone like you?

Because human beings always (if such a thing is possible in humans) make their choices based upon self (interest, fear, health, safety or wealth). That is balanced behaviorally with the concept of give until it hurts. When it hurts, the giving stops.
I call this the "Top 10% mentality". Satisficing is a decision-making strategy that aims for a satisfactory or adequate result, rather than the optimal solution. Instead of putting maximum exertion toward attaining the ideal outcome, satisficing focuses on pragmatic effort when confronted with tasks. Top 10 Stupid Pet Tricks is good enough.

The Top 10% will definitely go for rational solutions.
In almost everything you will have the following results:
Top to bottom:
1% - great
90-99% - very favorable
50-90% - get screwed
0-50% - not much change, they need/want to get to the 50%, it is just better. No one wants to struggle below average.
https://awealthofcommonsense.com/202...tes-inflation/

Check out the charts for wealth.
Top 10 of anything is desirable, worth it.

However, that is logic. When you tally the votes the answer is math. 10% aye, 90% nay. The vast majority of votes or decisions are to appease the desires of 90% of the population. Regardless of the issue, the rationalization it "it's only fair". Self interest.

Larry would be tarred and feathered. Whatever suggestion is implemented is not enough for the 90%.

[Kamban]

When I say credit, I'm not talking about credit cards. Credit is interchangeable with debt. In other words, we live in a debt financed economy that has been refinanced multiple times over. So, some of these little to no to negative revenue companies (like Uber) could/would fail.

I am not sure how long you have been investing but I have invested here in US since 1988 and the Treasury Fed rate for that year for 7.8%. This trend for ultra low fed rate is a very recent one. Yes, if we do it slowly we can easily have interest rates at 4-5%.

As far as Uber failing, so what. It never had a proper business plan and if does not make money and fades away, it is one of million companies that have failed. Some one else with better business model will take its place. I invested before the dot com boom and have had $B+ paper money companies fail and go into bankruptcy. And yet the economy has gone on. All I got is to write off the losses against the gains.

[Larry Ragman]

Because human beings always (if such a thing is possible in humans) make their choices based upon self (interest, fear, health, safety or wealth). That is balanced behaviorally with the concept of give until it hurts. When it hurts, the giving stops.
I call this the "Top 10% mentality". Satisficing is a decision-making strategy that aims for a satisfactory or adequate result, rather than the optimal solution. Instead of putting maximum exertion toward attaining the ideal outcome, satisficing focuses on pragmatic effort when confronted with tasks. Top 10 Stupid Pet Tricks is good enough.

The Top 10% will definitely go for rational solutions.
In almost everything you will have the following results:
Top to bottom:
1% - great
90-99% - very favorable
50-90% - get screwed
0-50% - not much change, they need/want to get to the 50%, it is just better. No one wants to struggle below average.
https://awealthofcommonsense.com/202...tes-inflation/

Check out the charts for wealth.
Top 10 of anything is desirable, worth it.

However, that is logic. When you tally the votes the answer is math. 10% aye, 90% nay. The vast majority of votes or decisions are to appease the desires of 90% of the population. Regardless of the issue, the rationalization it "it's only fair". Self interest.

Larry would be tarred and feathered. Whatever suggestion is implemented is not enough for the 90%.

It is good that this is an anonymous forum

[JBME]

It is good that this is an anonymous forum

one specific self-interest Tim left out, though covered in his list if I take it broadly, is re-election. The #1 driver of any politician is how this will impact their re-election chances, both in the primary and in the general election. Larry's list is both good and bad for both sides of the ideological spectrum. Instead of everyone liking it and being willing to get hurt on some things so that the entire whole is made better, everyone will instead focus on the glass half empty instead. Very sad. Larry's list is reasonable, not to mention boring, which is why it'll never happen

[Tangler]

one specific self-interest Tim left out, though covered in his list if I take it broadly, is re-election. The #1 driver of any politician is how this will impact their re-election chances, both in the primary and in the general election. Larry's list is both good and bad for both sides of the ideological spectrum. Instead of everyone liking it and being willing to get hurt on some things so that the entire whole is made better, everyone will instead focus on the glass half empty instead. Very sad. Larry's list is reasonable, not to mention boring, which is why it'll never happen

I want a boring Larry. Tar and feathers? Really? sad.

[Tangler]

one specific self-interest Tim left out, though covered in his list if I take it broadly, is re-election. The #1 driver of any politician is how this will impact their re-election chances, both in the primary and in the general election. Larry's list is both good and bad for both sides of the ideological spectrum. Instead of everyone liking it and being willing to get hurt on some things so that the entire whole is made better, everyone will instead focus on the glass half empty instead. Very sad. Larry's list is reasonable, not to mention boring, which is why it'll never happen

Perhaps Larry can be vice president and Jocko Willink could be president?


Ok, sorry, off the politics.

Seriously, what actionable steps are you personally taking with inflation?

Things i can think of:

1. i-bonds (7% for next 6 mo, but only small sliver)

2. higher stock AA

3. Keep low interest debt (mortgage, student loans) and instead off paying debt < 3-4%, invest in stocks or RE.

I am doing 1 & 2.

Worried too many are doing 3 but I am boring and risk averse and remember the words of Charlie Munger:
”3 ways my friends have blown up: Ladies, Liquor, and Leverage……..”

What are you doing?

Is there anything else that would constitute intelligent behavior?

[JBME]

I did 1 and 3. Had been putting extra to mortgage (refied in March to an awesome rate of 2.5%) and now I'm putting extra to 529s instead. My AA is 90-10 so I don't really want to increase that to more than 90%

[Tangler]

I did 1 and 3. Had been putting extra to mortgage (refied in March to an awesome rate of 2.5%) and now I'm putting extra to 529s instead. My AA is 90-10 so I don't really want to increase that to more than 90%

That seems like intelligent behavior.

2.5% is so ridiculous. The Fed really should raise rates (slowly) and if that means that must decrease spending and increase taxes (Larry plan), ok.

Is there anything any of us can do other than 1-3?

I was really happy with POFs I-bonds recent post, and I would love to learn about other ingenious little schemes.

[jacoavlu]

one specific self-interest Tim left out, though covered in his list if I take it broadly, is re-election. The #1 driver of any politician is how this will impact their re-election chances, both in the primary and in the general election. Larry's list is both good and bad for both sides of the ideological spectrum. Instead of everyone liking it and being willing to get hurt on some things so that the entire whole is made better, everyone will instead focus on the glass half empty instead. Very sad. Larry's list is reasonable, not to mention boring, which is why it'll never happen

hard money fixes this. the guys who signed the constitution knew this. it forces honesty.

[StateOfMyHead]

I also bought I-bond, am paying off a rental property 5% mortgage and plan to add the rental income to VTSAX. Refi’d principle residence at 1.875% lowered term from 30 (28 years left) to 15. Choked on the closing costs but feel overall beneficial in terms of diversification, asset protection and peace of mind in the event I want to stay here for the first part of my retirement in 10 years.

[Random1]

What are you doing?

Is there anything else that would constitute intelligent behavior?

I am doing 1&2, and we have no debt. Having no debt on an individual level and an above average income gives the ability to weather most inflationary storms other than a hurricane, then we would all be in trouble. If need be , we go out to eat less and buy less stuff that we don't need anyway. A few extra dollars to go back to work and back does not affect us too much. Overall, we have a pretty low cost lifestyle.

It is much more a problem for my employees and other similar wage individuals who have a lot of debt and live pay check to pay check. They are going to get hurt financially, and they are all feeling it already. I hear it every day , when they fill up the car or go food shopping. Though I suspect they don't vote and really don't even know why it is happening , what they do know is that they want and need to get paid more.

I realize I can't beat market forces, including bulls and bears , along with inflation. So I just stay the course. Buying and selling and rearranging my assets in the past for what ever problem existed at the time, always seemed good at the time, but in retrospect was a bad idea, at least financially.

[Tangler]

I also bought I-bond, am paying off a rental property 5% mortgage and plan to add the rental income to VTSAX. Refi’d principle residence at 1.875% lowered term from 30 (28 years left) to 15. Choked on the closing costs but feel overall beneficial in terms of diversification, asset protection and peace of mind in the event I want to stay here for the first part of my retirement in 10 years.

Yeah, I have zero debt. Paid off house. Pay cash for cars etc. I agree the peace of mind is a real thing. I think it exists because dying with 20M is less important than increasing the risk of blowing up.

I do not think many (anyone?) on this forum is a huge risk of blowing up, but docs do it and many do it by getting on the wrong side of compound interest.