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As seen in the median line, the food at home index has tracked the overall CPI extremely well since 1984. This confirms my opinion that hoarding canned goods is a fairly good short-term inflation hedge. Hindsight shows that it was also an excellent thing to do heading into the 1970s.
In 2008, we saw oil hit $145 per barrel. Some of that did temporarily trickle into food prices. In the grand scheme of things, we experienced a very minor episode of stagflation. What comes next is, as always, very difficult to predict.
I suspect that too many investors think stagflation is all but guaranteed right now. I could be wrong to think this way.
Predictions of the euro reaching parity were common a few months ago. Now the consensus is for a never ending decline in the dollar (again). Call me a contrarian, but I tend to shy away from what the consensus thinks in general.
About.com: Online Commodities Trading Versus Gambling
I don’t believe there is a wilder casino in the world than an online commodities account. You normally have at least 10-1 leverage on your money and all it takes is a click of the buy or sell buttons to make a bet. The decision you have to make is whether you are going to be a gambler or a disciplined trader.
I can't speak for others, but I have absolutely no desire to place heavily leveraged bets these days. For those who feel there are "sure things" to be found in the wildest casino, may luck be on your side. You might very well need it.
Source Data:
BLS: CPI Database
9 comments:
Wow! The prices of TIPS are just crazy. The yield on the 5 yr is negative 0.59! The yield on the 10 year is 0.35 - that's pretty much a loser after taxes.
The price on the 20 year is 123 and change. That's a serious capital gain.
This phony eCONomy just gets stranger and stranger. It's getting hard to take any of this seriously. What comes after a trillion?
mab,
I was working under the assumption that investors in the 1970s were not willing to accept negative real yields. Inflation just snuck up on them.
My bad. I've changed my opinion. Investors are willing. Amazing.
mab,
It would be interesting to see how the markets would price the I-Bonds I bought in 2000. They have nearly doubled since then due to inflation and the compounding of interest. They will continue to earn 3.4% over inflation tax deferred for the next 20 years.
The price chart might look amazingly similar to gold's chart.
History may show that I-Bonds bought today (at 0.2%) and gold bought today (at $1300+) may perform similarly poorly from here on out. Neither seem even remotely cheap to me. Of course, I-Bonds can be cashed out without a loss ir real yields someday rise again. The same cannot be said for gold.
Negative yields! Crap we should start our own fund worth 0% and just stash the cash under Marks mattress! We would kill the competition!
GYSC,
Let's not forget our 2% per year management advisory fees and my personal 0.5% cash storage fees! I'm not offering free mattress services here!
We should also think outside the box springs! Rather than charge the fees on an ongoing basis, let's charge them all up front assuming a 40 year holding period and use back of envelope math (2.5% x 40 = 100%)!
I checked my South African rand CD today. It started out paying 8% interest. Its now down to 4% interest.
South African inflation is around 3.7% this year...but supposed to get to 4.8%.
I hope there has been some currency appreciation to make it positive...or should I just be happy that its now making 0.3%?
This problem seems to be world-wide.
Coba
Coba,
Choose your pain. Small losses over time or big losses all at once?
They say the goal in a bear market is to simply lose less than the next guy. As Greenspan said in 1966, there is no safe store of value in a welfare state. Sigh.
It is possible for us all to lose simultaneously. In the 1970s, Buffett called inflation a tapeworm that feeds regardless of the health of its host. Although the tapeworm is small these days, the host is very, very sick.
Mark,
I love the way you think! No one even reads a prospectus anymore, maybe we can do it! We will rate it "AAA".
GYSC,
It deserves its AAA rating!
We guarantee up front that investors will get $0 for every $1 they invest. The only way we could possibly default on our promise is if we accidentally paid them any of their original money back. THAT is NOT going to happen if I have anything to say about it.
That said, perhaps we should offer default insurance.
"On the rare chance that we don't pay you what we originally promised, this leveraged insurance policy will give you 10x that amount!"
We'll need to set some reserves aside for that of course. What's ZERO times 10? :)
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