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Inflation video

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Urbandreamer
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Inflation video

#404387

Postby Urbandreamer » April 15th, 2021, 7:30 am

This post is the result of the last couple of posts on the "Do you own Cryptocurrency" poll, juxtapositioned with stumbling on the following video.
https://www.youtube.com/watch?v=1HmGLV46L60

The rights and wrongs of crypto is probably best left to other threads, instead I'd like to consider inflation risk and investments.

Yes I know that he does say not to invest based upon his video. I find that somewhat refreshing.

Personally almost all of my wealth, including pension, is in equities. I have a small amount indirectly held in property and an even smaller amount in a bond fund.

What do people think of the video and what alternative investments would you recommend to produce a portfolio less subject to inflation?

Gold is an obvious choice, likewise capital preservation funds like Ruffer or Capital Gearing. Any other ideas?

NotSure
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Re: Inflation video

#404456

Postby NotSure » April 15th, 2021, 11:45 am

Strange times we live in. Based on the video, gear up to the max in property and farmland? (Or maybe marbles :D )

I too am concerned with assert allocation in the current circumstances. Luckily, I've little cash and a big mortgage, so in theory, quite well positioned for high inflation ;).

Most of the respected books seem to have been written before 'money printing' was unleashed on anything like the current scale. Should the 'rules' pertaining to finding a level of risk/reward one is comfortable be changed to reflect the post-Covid world?

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Re: Inflation video

#404475

Postby GrahamPlatt » April 15th, 2021, 12:40 pm

You will notice that you require a fixed-interest mortgage to pull this off though.

Urbandreamer
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Re: Inflation video

#404504

Postby Urbandreamer » April 15th, 2021, 1:46 pm

NotSure wrote:Should the 'rules' pertaining to finding a level of risk/reward one is comfortable be changed to reflect the post-Covid world?


I would certainly argue that the 'rules' are not permenant. My parents believed that property investment was the way. Their prime was the 50's-70's, which I believe certainly had high inflation and high interest rates. Mortgage capital was inflated away, while interest paid was tax exempt. That hasn't been the case the last couple of decades.

Currently bonds seem highly correlated to equities. Gold and cryptos are hitting highs. Possibly it's time to reappraise property as an investment. It's currently only 6% of my portfolio.

Ruffer, the investment trust, seem to have some interesting articles speculating upon the state of the world. It's not just youtube talking heads.

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Re: Inflation video

#404510

Postby GrahamPlatt » April 15th, 2021, 2:14 pm

I also note that the video suggests borrowing to buy “assets” such as property or a stock portfolio to guard against inflation. It makes sense to me that stocks & shares should outperform (or at least keep pace with) inflation, but we’re also given to believe that inflation is bad for stocks & shares.

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Re: Inflation video

#404514

Postby NotSure » April 15th, 2021, 2:34 pm

GrahamPlatt wrote:It makes sense to me that stocks & shares should outperform (or at least keep pace with) inflation, but we’re also given to believe that inflation is bad for stocks & shares.


I think it depends on which shares - 'growth' equities with very high P/E corrected the last time inflation expectations, and hence bond yields, rose. Their perceived value got get hit twice - they need to borrow heavily so rising IRs would restrict their growth potential. Also, the present value of their perceived future earnings got discounted to reflect those higher IRs. I would guess that 'old-fashioned' companies that already generate revenue and profit, and have some pricing power, would fare less badly? FTSE anyone ;)

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Re: Inflation video

#404522

Postby Urbandreamer » April 15th, 2021, 3:03 pm

GrahamPlatt wrote:I also note that the video suggests borrowing to buy “assets” such as property or a stock portfolio to guard against inflation. It makes sense to me that stocks & shares should outperform (or at least keep pace with) inflation, but we’re also given to believe that inflation is bad for stocks & shares.


Are you talking about the video or some other source? Certainly the Investors Chronicle often points out that inflation can be or signal both good or bad for equities. It all depends upon the cause. The "stagflation"* of the 70's was certainly bad for UK equities. More than one company went to the wall and many of the FTSE 100 of the day no longer exist.

*Stagflation: "persistent high inflation combined with high unemployment and stagnant demand in a country's economy."

I thought that the video was fairly clear in what it said. Inflation, in the sense of the video, is the value of money going down rather than demand for goods rising. If the price of raw materials rises (ie iron in the video) it increases the costs to the tinned bean manufacturers, while of course transfering money to the owners of the likes of RIO (of which I am one). Such a transfer would be great if the cause was an increased demand for iron. It would signal that the ecconomy was growing. However has there been an increase in demand for iron during the recent covid shutdown? More likely the price rise is a reduction in supply.

I work in engineering. We have seen HUGE increases in the price of lubricating oil. The demand hasn't increased. Why the price increase then? Well the costs of production have rocketed. It's normally a biproduct of making the likes of aviation fuel. Currently the aviation fuel is almost a waste product! Will it remain so for years or will things reset in a couple of years?

I'm not arguing that the video is "right", I'm arguing that it's worth watching and thinking about.

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Re: Inflation video

#404531

Postby Bubblesofearth » April 15th, 2021, 3:31 pm

It's probably easier to list what to avoid if there is inflation, i.e. cash and bonds. Most other assets should do OK as long as your time horizon is long enough. Except Bitcoin which is in a huge speculative bubble :D

BoE

Urbandreamer
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Re: Inflation video

#404535

Postby Urbandreamer » April 15th, 2021, 3:48 pm

Bubblesofearth wrote:It's probably easier to list what to avoid if there is inflation, i.e. cash and bonds. Most other assets should do OK as long as your time horizon is long enough. Except Bitcoin which is in a huge speculative bubble :D

BoE


So no RICA then? Sure Ruffer don't have a lot of exposure (3%), but they did decide to invest in Bitcoin. Oh, and news today. Coinbase has a bigger market cap than BP!
:lol:

Still as I said in the first post, crypto is probably best left to it's own threads. Let's assume that it doesn't exits for the sake of this thread.

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Re: Inflation video

#404538

Postby scrumpyjack » April 15th, 2021, 4:07 pm

Of course 'shares' are simply a wrapper. What matters is what the company whose shares you hold do and how inflation may affect that particular company.

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Re: Inflation video

#404540

Postby Bubblesofearth » April 15th, 2021, 4:10 pm

Urbandreamer wrote:
Oh, and news today. Coinbase has a bigger market cap than BP!
:lol:



Haha, reminds me of when (1989?) the land under the Emperors palace in Japan was worth more than all the real estate in California.

BoE

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Re: Inflation video

#404547

Postby GrahamPlatt » April 15th, 2021, 4:31 pm

And the time Baltimore Technologies entered the FTSE100

Urbandreamer
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Re: Inflation video

#404583

Postby Urbandreamer » April 15th, 2021, 6:57 pm

GrahamPlatt wrote:And the time Baltimore Technologies entered the FTSE100


Hey. I'll have you know I made a packet on them. Then again I did sell at exactly the right time.
Impossible? Well someone has to don't they.

Why did I sell. Well it was the dot-com boom. It was obviously becoming a bubble. Then someone decided to float a company called "lastminute.com", obviously time to get off the roller coaster.

But this is speculation, not investment. I've done both and think that I recognise the difference.

If we are determined, in a thread about inflation, to talk bitcoin (rather than other crypto) then I regard it as neither speculation nor investment. But then I don't regard buying gold as an investment and wouldn't speculate* upon it. After all as an "investment" it has no yield or dividend. It's simply a store of value.

If people continue to buy into the fact that the total amount of bitcoin being limited gives it a store of value, its price will continue to rise. Personally I'm unlikely to buy significant amounts of bitcoin if ever I buy any. This is due to it's tax treatment in the UK and the fact that I am unwilling to evade CGT.
In this and many other examples I think of CGT as a tax upon the government devaluing the currency. BTW gold is not CGT exempt, just gold coins deemed "currency".

*Why would many speculate upon gold? Well it was down to tax. VAT was once due on most gold (even coins) making it quite expensive, during a time of high inflation (1973 onward). The result was IG index or Investment Gold index/group, following the year of the introduction of the tax. Bets were placed upon the price of gold and hence avoided that tax.


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