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sdholloway56
Senior Advisor

If you think there will be sustained inflation

then sell your stocks and short the long bond.

In that scenario, bonds are ridiculously overpriced.

Although the bond market tends to be smarter than the stock market and it is priced for low inflation.

I’m not doing that, not that you should care.

BTW, I am betting that corporations’ chance to raise prices and bank big profits was mostly a one off and profits will begin to feel the weight of some competition and higher labor and material costs.

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11 Replies
rsbs
Veteran Advisor

Re: If you think there will be sustained inflation

Probably been very few times where anyone could take $10,000 in the last couple of years and run it to $100,000 by simply buying low and selling high.

I have seen a few do it with trading individual stocks in the last year alone, even.

Many more probably have taken $10,000 and lost it all, too.

That's the beauty of America.

Or you can put it into a bank account, and have uncle joe and his crew inflate it away to nearly zero, too.

 

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erikjohnson61y
Veteran Advisor

Re: If you think there will be sustained inflation

SD - For the bond market, especially long term bonds, I believe it's not so much inflation per se, but the implication that rising inflation will require rising interest rates to fight the inflation.  On top of that, I believe we are around the bottom of the credit cycle - interest rates have been dropping since the early 80's. The previous low was in the late '40's - early 50's. No fiat currency has ever survived a full credit cycle. Will the USD be the first??  Can the Fed keep interest rates low enough and inflation at a tolerable level so the Treasury can inflate away the debt (as a % of GDP)?  A little over $20 Trillion of  US debt is subject to market rates. If nominal rates go to 5%, 25% of tax revenue is required just to service the debt. Add in Entitlements, and you're already over the amount collected in taxes, increasing the debt, increasing inflationary deficit spending, putting upward pressure on interest rates.

Stock Ticker TBF is the ProShares Short 20yr US Treasury, in case anyone out there speculates in things other than commodity production.

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BA Deere
Honored Advisor

Re: If you think there will be sustained inflation

Just my opinion, inflation in a $23 Trillion economy is something they really have to work at, oh they can do it for awhile with a little help from a pandemic supply disruption.  But if we don`t dog-paddle frantically, constantly, we`ll sink to the bottom of the pool. 

This isn`t like the 1970s inflation where we had a taxpaying, honest industrial economy.   Today a service based economy where the pandemic "working at home" exposed just how "essential" some of these jobs and businesses really are.  I mean if the boss closes the office for a couple years and every other day they get by with Zoom meeting in their underwear, the greater economy probably wouldn`t miss them.  

But, know this, depressions aren`t fun, so expect the Fed to over react at times while they still have control.  Inflation is much more fun, raising the limits on credit cards is the "new wheelbarrow". 

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rsbs
Veteran Advisor

Re: If you think there will be sustained inflation

BA, I think we will see inflation and government mandated low interest at the same time, and a sort of black market on money evolve. People are not that stupid, and will horde items that might increase (farmland? $20,000....$30,000...$50,000 per acre??) and get rid of dollars.

Anything that cannot be printed or created by government decree will have intrinsic and real value.  Toilet paper will be worth more than American $$$ at some point. How much is a 99 cent four pack today, btw? I never shop so I don't even know.

Of course, I felt that $4000 land in 1980 probably wasn't that bad of a deal either but didn't have any money to blow and didn't get into trouble. Now I can get into trouble and have to watch myself.

 

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sdholloway56
Senior Advisor

Re: If you think there will be sustained inflation

100 year treasury bond chart - Bing images

Some interesting things to think about, Erik.

I did/do think that the .60% crash low in Spring '20 was about as perfect a hit on a 75 year cycle low as you could have asked for.

Keep in mind that's a 75 year cycle- not exactly a short term trading meme. 

Although if inflation would average in the 2-3% range that The Fed would like to see, the 10 year should really be around 4%- inflation plus a small premium for AAA paper.

I was heavy in long bonds since early '19 but did not have the guts/smarts to pull the trigger near the low. Had I, and bought the SP it would have been a grand slam. Oh well, still a pretty good return.

BTW, I still haven't heard anyone who was banging the inflation and sharply higher interest rates drum '09-'11 cop to anything.

But anyway, I'm fairly disinterested in both bonds and stock indicies for the time being. Sometimes return of principal is more important that return on principal.

If I thought the dollar had topped sometime I might be more interested in some overseas stocks.

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sdholloway56
Senior Advisor

Re: If you think there will be sustained inflation

Today even more than a week ago, I think the neoliberal condition still prevails.

That means that the system works to make money flows to the top. Demand for assets remains high (rich people can't spend it all, they just chase stuff and/or do tax avoidance) while aggregate demand for goods and services remains soft relative to the economy as a whole.

We continue to have a massive glut of wealth and capital with nowhere to go but chase assets while folks check the standings on the Forbes 500.

That is a one way road back to fuedalism, but it is a long one. You tend to forget where you are. 

But that's for another time.

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erikjohnson61y
Veteran Advisor

Re: If you think there will be sustained inflation

I will cop to an overreaction from 09-11, but it was to the price of crude at $140 rather than inflation. Fearing supply disruptions, I converted my 500 gallon diesel tank to gasoline and bought two new 1000 gallon tanks for farm diesel so I could have an entire year's supply on hand just in case. Now in hindsight is was an overreaction,  but on the other hand I was able to fill them up when diesel hit $1.61 in May of 2020. I kind of think of them as I do my grain bins now - extra storage that provide pricing opportunities.

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sdholloway56
Senior Advisor

Re: If you think there will be sustained inflation

Another Trump victory!

Just get tired of all the winning!

Oil peaked in '08, before the previous economic crash. Although it did have a pretty decent dead cat bounce into '11.

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sdholloway56
Senior Advisor

Re: If you think there will be sustained inflation

The commodity cycle peak was bifurcated.

Energies led into 2008 when the run was short circuited.

The percious metals into 2011- more a mater of financial anticipation.

Important point- the parabolic blowoff pattern in oil in '08 and silver in particular in '11 told you it was near the end.

As much as I was in love with the silver and gold story, the chart said it was time to go.

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