I was on the Falling Knives board and saw mungofitch write the following:I think the TIPS yield curve is suggesting that people are expecting material inflation for a few years, and little to none thereafter.Jim If true, is there anything you can do to capitalize on a few years of inflation? It has been so long since we've had anything other than low or declining inflation it is hard to remember :)Would annuity payouts increase during higher inflation and make them look "less bad" if the inflation was only short term? I suppose buying things that are interest rate sensitive during the period of higher inflation would pay off in the long run if low inflation returned.
Anything which adjusts with inflation, such as real estate, would be a good investment. Anything which provides a fixed return, such as bonds, bad.If you can successfully time any aspect of the market, such as interest rate changes means you can quickly make a fortune by using leverage, however, get it wrong and you can quickly lose a larger fortune. For most people timing the market doesn't help.
You can do bonds in a ladder ed maturity bond portfolio. New bonds will reflect the higher rate giving you some benefit. The portfolio return is a moving average which trails but tracks rising interest rates.This is preferable to bond funds where the hit can be long term.
If you believe the inflation prediction, load up on debt. That is how governments paid off the costs of things like WWII and will pay off debt from recent tax cuts.
Counterintuitively, in every period of inflation above 3.5% since 1965 small cap stocks have outperformed every other asset class. But, there is no direct correlation! Meaning small-caps also outperformed in periods of low inflation. So, buy great growth companies. Second are commodities, outside of raw commodities (ie. Gold, Silver). So any ETF that tracks the CRB commodity index historically performed well. You would also believe that TIPS should be good hedges however, they only go back to around 2000 so little data to be definitive. However, if (big if) we see true inflationary pressure, this would the first time we have seen high inflation during a time of historically low rates. I understand macroeconomics preach the “low rates/high inflation” message but the data shows differently. We have had inflation ABOVE 4% only two years (1975,2007) when interest rates were BELOW 5% since 1954, the Fed’s formation year. When the fed rate was below 4% the highest inflation we have seen is 3.3% in 2004. Strange yet 100% true. The Fed rate is currently 0.25%.
DoctorEvil: ...since 1954, the Fed’s formation year.The Federal Reserve System was formed on 23 December 1913 when the Federal Reserve Act was signed by Woodrow Wilson.What happened in 1954 that made you think that was the year the Fed was formed?
Perhaps it was supposed to be 1951, when some sort of agreement “restored independence to the Fed”.https://en.wikipedia.org/wiki/History_of_the_Federal_Reserve...
What happened in 1954 that made you think that was the year the Fed was formed? </snip>I'm guessing Brown vs. Board of Education.Major events of 1954.http://www.thepeoplehistory.com/1954.htmlintercst
Should have said the "modern" Fed as in Feb 1954 the Supreme Court separated it from what was then The Revenue Dept (the independent Fed). 1954 also marked the first time that The Reserve began publishing their Federal Reserve Bullitin and the Effective Federal Funds rate tracking data that I used for the posts data points.
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