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Investing during high inflation

Investment discussion for beginners. Why you should invest your money, get help getting started
richfool
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Re: Investing during high inflation

#459859

Postby richfool » November 21st, 2021, 3:45 pm

BT63 wrote:
RockRabbit wrote:So TIPs bad, equities awful! (according to some). So, pick your poison.


My poison, as mentioned in an earlier post, is precious metals and their miners.
At least they're not guaranteed to make a real loss and in theory my chances are 50/50 of making a real gain vs a real loss.

Even the theoretical 50% chance of making a loss on PMs might not end up as bad a loss as the guaranteed annual -1% to -2% with TIPS.

In reality, if inflation is bad, if real rates are negative and if equities are bad, gold has historically had a much better than evens chance of a real return.

BT63, you seem to keep overlooking the fact that TIPS and index-linkers have a very valid part to play in protecting capital in the event of inflation, which is why they are held by PNL, CGT and RICA. The latter also hold gold.

For further information on TIPS and index-linkers, see the links I gave in my earlier post:-

https://masterinvestor.co.uk/funds-and- ... portfolio/

https://www.investopedia.com/terms/t/tips.asp

dealtn
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Re: Investing during high inflation

#459866

Postby dealtn » November 21st, 2021, 4:10 pm

richfool wrote:BT63, you seem to keep overlooking the fact that TIPS and index-linkers have a very valid part to play in protecting capital in the event of inflation, which is why they are held by PNL, CGT and RICA.



Some people will validly prefer a known loss of real capital and purchasing power, over an unknown, even potentially higher amount.

SalvorHardin
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Re: Investing during high inflation

#459876

Postby SalvorHardin » November 21st, 2021, 5:00 pm

I've been topping up my holdings in the big private equity and alternative asset managers (Brookfield, Carlyle Group, KKR and Blackstone).

Real assets should keep pace with inflation and they're currently having to cope with huge influence of cash from clients every time they announce a new fund.

Banks. Why British banks? As a group they've been rubbish investments this century, in large part because they're badly run as they often hire sociopaths at the top. Lloyds shares are some 95% down from their peak.

Instead look at the big Canadian banks, all of which have paid dividends in every year since 1940.

MDW1954
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Re: Investing during high inflation

#459895

Postby MDW1954 » November 21st, 2021, 6:39 pm

SalvorHardin wrote:
Instead look at the big Canadian banks, all of which have paid dividends in every year since 1940.


Easily held though London-listed IT Middlefield Canadian (LSE: MCT), which pays a decent income, too.

MDW1954 (I hold MCT)

PhaseThree
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Re: Investing during high inflation

#459897

Postby PhaseThree » November 21st, 2021, 6:54 pm

MDW1954 wrote:
SalvorHardin wrote:
Instead look at the big Canadian banks, all of which have paid dividends in every year since 1940.


Easily held though London-listed IT Middlefield Canadian (LSE: MCT), which pays a decent income, too.

MDW1954 (I hold MCT)


Hmmmm - 4% yield with a 9% discount to NAV, any idea why ?

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Re: Investing during high inflation

#459913

Postby MDW1954 » November 21st, 2021, 8:44 pm

PhaseThree wrote:
MDW1954 wrote:
SalvorHardin wrote:
Instead look at the big Canadian banks, all of which have paid dividends in every year since 1940.


Easily held though London-listed IT Middlefield Canadian (LSE: MCT), which pays a decent income, too.

MDW1954 (I hold MCT)


Hmmmm - 4% yield with a 9% discount to NAV, any idea why ?


Well within normal IT discount/ premium fluctuations. And actually, MCT has been at around a 15% discount for most of the time that I have owned it.

MDW1954

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Re: Investing during high inflation

#460038

Postby 1nvest » November 22nd, 2021, 10:48 am

dealtn wrote:
richfool wrote:BT63, you seem to keep overlooking the fact that TIPS and index-linkers have a very valid part to play in protecting capital in the event of inflation, which is why they are held by PNL, CGT and RICA.

Some people will validly prefer a known loss of real capital and purchasing power, over an unknown, even potentially higher amount.

If you had £10K/year inflation linked pension income, wanted £20K/year inflation adjusted spending, could buy a ladder of index linkers that were flat lined (all) yielding -2% real, then assuming a 65 year old who didn't expect to see 90 (25 years) that would cost £320K to guarantee. For some that might be considered a better choice than dropping £320K into stocks, maybe yielding 3.5% so a slightly higher spending supported, but that could see that quickly halved; Or that might go on to do well and see a larger legacy for heirs.

A sign of the times. At other times the same ladder might have cost just £200K (+2% real yields). But broadly might have been easier to get to a more recent £320K pot (greater/faster gains) than it might for another to have got to a £200K pot at a time when +2% real yields became available.

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Re: Investing during high inflation

#460731

Postby Alan1701 » November 25th, 2021, 6:46 am

Mike4 wrote:As interesting as it might be to discuss as a topic, it doesn't seem actionable to me which makes it a bit of a time waster.


I remember back around 2007 reading a poster in the old Motley Fool going by the handle of "grumpygit", posting a particularly dystopic view on the outlook for equities based on the debt situation. There had been lots of posts of this nature however for some reason this one happened to resonate and as a result i sold a lot of my equities and moved in to more value preserving ITs. It was too early, however that, plus the (too late) move back into equities in 2008/9 did save/make me quite a bit of money overall from the 2007/8 crash.

I think it's the same thing with this discussion on inflation. I too expect inflation to be a problem at some point, but haven't got a clue really what to do about it. So i will just keep reading others' opinions as i expect that one day something will chime with me and hopefully give me an edge moving forward. Or maybe not!

I'm currently 100% in ITs again, more income and growth oriented rather than the "safer" (value preservation ITs like Personal Assets) trusts, however suspect i might edge more in that direction again at some point. Then again, maybe equities are the place to be in a bad inflation scenario; after all, someone must be making money somewhere as a result as prices going up!

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Re: Investing during high inflation

#460795

Postby richfool » November 25th, 2021, 11:30 am

A thought, are REIT's and commercial property an increased risk during periods of higher inflation and higher interest rates?

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Re: Investing during high inflation

#460797

Postby Dod101 » November 25th, 2021, 11:37 am

richfool wrote:A thought, are REIT's and commercial property an increased risk during periods of higher inflation and higher interest rates?


Time will tell. You worry too much. Just hold good well run ones and let the managers worry about that.

And we are in a period of (comparatively) high inflation. We just need interest rates to follow suit.

Dod

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Re: Investing during high inflation

#460801

Postby Mike4 » November 25th, 2021, 11:55 am

Dod101 wrote:
richfool wrote:A thought, are REIT's and commercial property an increased risk during periods of higher inflation and higher interest rates?


Time will tell. You worry too much. Just hold good well run ones and let the managers worry about that.

And we are in a period of (comparatively) high inflation. We just need interest rates to follow suit.

Dod


Well this is another thing to mix into the calculus. "It's different this time" is always the case, even though it always rhymes too.

The difference this time is the mahoosive government debt we have (and to a lesser extent, private debt) which I think exerts a powerful downward pressure on base rates.

If base rates rise much the public finances will turn into a total basket case and the Conservative's reputation for sound economic management will go down the tubes. Therefore government will be applying all manner of soft, behind-the-scenes influences to discourage the BoE from raising rates as much as they would like, this time around so base rates may not climb as rapidly as one might first expect now inflation is off the leash.

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Re: Investing during high inflation

#460808

Postby Dod101 » November 25th, 2021, 12:17 pm

Mike4 wrote:
Dod101 wrote:
richfool wrote:A thought, are REIT's and commercial property an increased risk during periods of higher inflation and higher interest rates?


Time will tell. You worry too much. Just hold good well run ones and let the managers worry about that.

And we are in a period of (comparatively) high inflation. We just need interest rates to follow suit.

Dod


Well this is another thing to mix into the calculus. "It's different this time" is always the case, even though it always rhymes too.

The difference this time is the mahoosive government debt we have (and to a lesser extent, private debt) which I think exerts a powerful downward pressure on base rates.

If base rates rise much the public finances will turn into a total basket case and the Conservative's reputation for sound economic management will go down the tubes. Therefore government will be applying all manner of soft, behind-the-scenes influences to discourage the BoE from raising rates as much as they would like, this time around so base rates may not climb as rapidly as one might first expect now inflation is off the leash.


Yes That I expect is true which is probably why interest rates have not risen by now. There is of course the hope/expectation that inflation will be short lived which at least to some extent can be a reasonable expectation.

Dod

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Re: Investing during high inflation

#460818

Postby dealtn » November 25th, 2021, 12:48 pm

Mike4 wrote:Well this is another thing to mix into the calculus. "It's different this time" is always the case, even though it always rhymes too.

The difference this time is the mahoosive government debt we have (and to a lesser extent, private debt) which I think exerts a powerful downward pressure on base rates.

If base rates rise much the public finances will turn into a total basket case and the Conservative's reputation for sound economic management will go down the tubes. Therefore government will be applying all manner of soft, behind-the-scenes influences to discourage the BoE from raising rates as much as they would like, this time around so base rates may not climb as rapidly as one might first expect now inflation is off the leash.


And unlike previous times, when that debt wasn't so "mahoosive" the (Government Credit) market will be applying pressure such that potentially rates rise much more than would be the case previously. It works both ways (and base rate is not the most important interest rates for the Gilt market).

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Re: Investing during high inflation

#460820

Postby richfool » November 25th, 2021, 12:50 pm

If inflation turns out not to be transitory, which is my belief, then inevitably interest rates will have to go up; and if interest rates and thus savings rates get into the 5% - 6% range, then investors/savers will tend to ditch/migrate from riskier investments like equities and REIT's and opt instead for the relatively risk free bank/building society products, thus causing a fall in equities and REIT's.

BT63
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Re: Investing during high inflation

#460822

Postby BT63 » November 25th, 2021, 12:56 pm

Mike4 wrote:The difference this time is the mahoosive government debt we have (and to a lesser extent, private debt) which I think exerts a powerful downward pressure on base rates.

If base rates rise much the public finances will turn into a total basket case and the Conservative's reputation for sound economic management will go down the tubes. Therefore government will be applying all manner of soft, behind-the-scenes influences to discourage the BoE from raising rates as much as they would like, this time around so base rates may not climb as rapidly as one might first expect now inflation is off the leash.


I expect there to be a lot of tough talk on inflation and interest rates to try to bluff markets into remaining calm, but very little action.

A few 25bp rises in interest rates might give the illusion of being proactive but central banks will remain far behind the curve for at least several years while cash and bond holders still lose money.
In fact, even if inflation falls back to the 2% target, we would still need several 25bp rate rises just to bring interest rates up to a neutral level.

One way I think inflation could come back down to target while interest rates remain low is if central banks cease their asset purchases. I think the economy can no longer cope without QE and withdrawing it looks likely to cause a crash which would start a negative feedback loop on wealth, consumer confidence and cause reduced spending which would all bring inflation back down again.
However, a crash would be followed by even more QE/stimulus and would start the boom-bust cycle yet again.

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Re: Investing during high inflation

#460824

Postby Mike4 » November 25th, 2021, 12:59 pm

Dod101 wrote:Yes That I expect is true which is probably why interest rates have not risen by now. There is of course the hope/expectation that inflation will be short lived which at least to some extent can be a reasonable expectation.

Dod



Yes rates should have risen by now, and it seems obvious to me that indefinite inflation is also baked in now.

Once the current inflationary pressures begin to work through in to higher prices for virtually everything, the unions will re-emerge and with brute force (strikes etc) will I suspect, extort hefty wage increases from employers and the whole inflation cycle will be self-feeding just like 40 and 50 years ago. This "inflation will be temporary so we don't need to do anything" argument put forward by those with their hands on the levers is nothing other than a fig leaf to explain away their real reason for not raising rates.

Consequently, I think we will find ourselves in the odd situation of continuing hefty inflation with the govt/BoE sitting on its hands doing nothing and claiming inflation is gonna stop any month now, for years on end. What effect this will have on various types of investment is hard to figure out.

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Re: Investing during high inflation

#460827

Postby BT63 » November 25th, 2021, 1:08 pm

richfool wrote:If inflation turns out not to be transitory, which is my belief, then inevitably interest rates will have to go up; and if interest rates and thus savings rates get into the 5% - 6% range, then investors/savers will tend to ditch/migrate from riskier investments like equities and REIT's and opt instead for the relatively risk free bank/building society products, thus causing a fall in equities and REIT's.


I think the chance of interest rates going up to 5 - 6% in the next five years is virtually zero no matter how high inflation goes. I doubt interest rates will even exceed half that level.
Bond markets and stockmarkets couldn't take it because 'TINA' would no longer apply. Government, consumer and corporate debts couldn't take it because interest payments would hugely increase.

I think inflation will be more persistent than central banks are saying, except, perhaps, if they withdraw their asset purchases/QE which would cause a stock market crash, recession and cool things rapidly. The fixed-rate bond market might not take much of a hit if liquidity is withdrawn and equities crash.

Unfortunately, it's hard to know which choice central bankers will make. I think they will have to choose between persistent elevated inflation or a major stock market bear/crash.

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Re: Investing during high inflation

#460829

Postby BT63 » November 25th, 2021, 1:14 pm

Mike4 wrote:
Yes rates should have risen by now, and it seems obvious to me that indefinite inflation is also baked in now.

Once the current inflationary pressures begin to work through in to higher prices for virtually everything, the unions will re-emerge and with brute force (strikes etc) will I suspect, extort hefty wage increases from employers and the whole inflation cycle will be self-feeding just like 40 and 50 years ago.


My wife's father - in his 70s - has a strong opinion that the current situation will end up like the 1970s.
I was too young to take much of it in, other than remembering my parents (both passed away years ago) grumble about grocery prices rising every time they went to the shop, the piles of stinky black bin bags on the green near our house and the three-day-working week.

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Re: Investing during high inflation

#460835

Postby Mike4 » November 25th, 2021, 1:24 pm

BT63 wrote:
Mike4 wrote:
Yes rates should have risen by now, and it seems obvious to me that indefinite inflation is also baked in now.

Once the current inflationary pressures begin to work through in to higher prices for virtually everything, the unions will re-emerge and with brute force (strikes etc) will I suspect, extort hefty wage increases from employers and the whole inflation cycle will be self-feeding just like 40 and 50 years ago.


My wife's father - in his 70s - has a strong opinion that the current situation will end up like the 1970s.
I was too young to take much of it in, other than remembering my parents (both passed away years ago) grumble about grocery prices rising every time they went to the shop, the piles of stinky black bin bags on the green near our house and the three-day-working week.


I'm a bit younger than your wife's father, but my first job from skool was in the office of a small engineering company with quite a narrow and fixed product range, selling into the motor trade. My job was to calculate and issue a new price list for their whole product range on a weekly basis. I had to have the new price list calculated by close of business every Monday, then the post room would send it out to every customer.

Must have been a nightmare for the accounts dept when issuing invoices, as the price would depend on which day of the week the order was fulfilled, or received, or whatever terms the sales rep had agreed.

This must have been about 1974.

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Re: Investing during high inflation

#460950

Postby stockton » November 25th, 2021, 8:49 pm

There appear to be at least two decisions which need to be made in current circumstances . what stocks to buy and when to buy them.

As far as when to buy is concerned, my feeling that a crash is coming as the market considers the problems ahead, and therefore that purchases should be delayed despite wanting an inflation hedge immediately. It is slightly worrying that that is, effectively, a decision to try and catch a falling knife.
As to which stocks to buy, my recollection is that supermarkets and property have proven to be effective inflation hedges in the past. As far as supermarkets are concerned we have been left with little choice, but I was wondering about Walgreens Boots (WBA). Has anyone got an insight into how they function in the US ?

And, given that commercial property seems to have problems, has anyone any ideas about residential property companies ?


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