You understand inflation is a result of a strong economy, right?
I won't speak to politics as I agreed not to per forum rules.
Well done on your whopper tax burden last year. I hope this year's is bigger!
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- Thread starter Oildudeny
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I won't speak to politics as I agreed not to per forum rules.
Well done on your whopper tax burden last year. I hope this year's is bigger!
Thanks! I hope so too but i'm essentially gambling daily with my life savings to create that tax bill. I could get wiped out if the market goes way down. They tax all the gains but will only let normal people have 3,000 a year of losses, so if a stock market disaster happens they would spoon feed that money back over many years.
The inflation is due to the liquidity constantly being injected into the markets by the FED. This keeps the rates at nearly nothing and asset prices high. If investors, the fed, essentially the investing community suddenly decided they did not want bonds anymore it would be disasterous. If they don't sell, the price goes down and the yield goes up. Liquidity for everything would evaporate. Asset prices would drop and nobody could really predict how far down they would go before finding natural, unstimulated support. People, cities, states, nations, none of us could afford a return to high interest rates. 10% would probably bring it all down.
Scared yet? We all should be at least a little bit nervous about the global economics taking place now.
Inflation has little to do with the strength of the economy. Some of the worst years of inflation in the US were during terrible economies; oil price shocks, and other factors, drove inflation even as the economy and stock market floundered.
Yep. 1981 had 16% average mortgage rates. At some point, no matter how bad things get, a high enough rate will bring investers back. 16% long term secured debt must have been crazy.
What i don't comprehend is how so many investors are taking negative or super low bond yields right now.
Not true. Inflation is one result of high employment due to people having money to spend.
Inflation is the relationship of spending as compared to the level of output.
If people spend more dollars in an economy that cannot produce more goods, prices rise.
More money comes from high employment (better jobs) and/or government stimulus.
More money does not cause inflation as long as it does not exceed the level of output.
As an economy continues to heat up, inflation is generally an issue.
In all fairness, from the School of Economics, I have presented a fairly simple model; there are many factors that come into inflation.
How do we measure the level of output? In lean times a company may choose to keep employees because they do not want to lose them. We see price discounting to keep products moving. Output is not at capacity. In better times, that same company may have the same number of employees, but they do not need discounting to keep products moving. They may need wage increases... Inflation...
But this model is the basis. Once can say a good economy does not directly cause inflation but that is true only to a point.
The stock market is not the economy.
You can have inflation based just on supply/demand shortages but the real painful inflation is from the money printing. Adding all the new dollars to pay for deficit spending weakens the existing dollars. Watering down the money in peoples savings making them poorer over time. The only defense is asset investing (risky) or somehow getting govts to spend less than they make. (Impossible?)
In my post I mentioned there are many other factors affecting inflation. Supply and demand curve is not so simple. Economics speaks to acceptable substitutes for short supply. Or a customer may choose to change plans if the shortage is too costly. It ain't that simple.
Printing money (there is no such thing) refers to the Fed expanding the money supply. The Fed purchases trillions of dollars worth of financial securities like government bonds. This "releases" money into the economy. In bad times, the Fed pumps up the economy until it can stand on its own.
"Printing money" is one of the tools the Fed uses to keep the economy moving. This is their job and is by design. How much is open to opinion and depends if it helps or hurts a given individual.
Sometimes I think people have short term memory regarding good and bad economic times. Additionally, where you live tends to drive your feeling towards the economic status. You probably know Califirnia, by itself, is the 4th or 5th largest economy in the world. To me, living in prosperous Silicon Valley, the economy is good. I understand that.
I will not speak to government spending, as I agreed not to when I joined the forum. I hope it's OK to say there are good deficits and bad deficits.
Let me ask you this, if you get a raise and spend more is that generally good or bad for the economy?
2 reasons:
1 - I have a CA Municipal Bonds fund that makes a little money but that money is double tax free. The fund is very low risk. This is a hedge against stock fluctuation and can be beneficial depending on your tax burden. This is part of a balanced portfolio.
2 - Speculation, like anything else.
Let's go back to this statement, which is the one to which I was objecting.
Inflation is not a result of a strong economy in this case. Your statement above clearly stated the one, and only, cause of inflation: a strong economy.
You made an overly simple, and specious statement that you are now walking back talking about the multitude of economic factors that can lead to inflation. Agreed - it is not simple.
I agree with most of this statement, which includes the very important factor: you live in the bubble of Silicon Valley. It is not the economy of the rest of the country.
"Your statement above clearly stated the one, and only, cause of inflation: a strong economy."
I specifically said "a result" not the "the result".
I followed up with a more detailed discussion of inflation. This was not meant as a walk back, but to address the economic complexities.
I apologize for any misunderstanding I may have created.
Another point: inflation seems to be considered bad; this is not necessarily the case for a myriad of reasons.
A little inflation can lead to new opportunities in business and the economy.
Inflation is a naturally occuring condition in a growing economy because there is more money in spenders hands. It tends to be a driver of change.
When spending outpaces output, there will be winners and losers.
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Economic conditions for the individual can relate to where you are in life. I bought my first home in the era of very high mortgage interest … only because rent was also high - back then a large portion of my monthly income.
However, we knew older folks who had everything paid for - and their investments could hardly miss double digit ROCE in that same period …
However, we knew older folks who had everything paid for - and their investments could hardly miss double digit ROCE in that same period …
Increasing the money supply (most major nations are doing it) will help grow the economy in some areas. People buying a brand new vehicle may only be able to afford it because the manufacturer offered 0% interest. They can do that because they sold bonds for a very low rate due to the added money supply from the FED. Easy loans make for easy sales. Sales=jobs. Even applies to universities, they would not get as high of tuition if it was a cash only system.
Where inflation/quantitive easing/excess money supply does not help is anyone on an fixed income. They won't get extra commission from the added sales/business created. They only get to spend less with the same amount.
Payrolls report today was bullish and showed 4% wage growth. That could be described as inflation. Needing More dollars for the things you need requires you to find the higher wages, and or make other cuts. Unlike a fiat driven government our households must balance what we spend with what we make. A fiat currency govt can just add a little more when they run out and hope people still believe their paper is worth trading for. Its just how fiat money works and we just try to setup our investments the best we can to mitigate the damage of inevitable loss in purchasing power.
Where inflation/quantitive easing/excess money supply does not help is anyone on an fixed income. They won't get extra commission from the added sales/business created. They only get to spend less with the same amount.
Payrolls report today was bullish and showed 4% wage growth. That could be described as inflation. Needing More dollars for the things you need requires you to find the higher wages, and or make other cuts. Unlike a fiat driven government our households must balance what we spend with what we make. A fiat currency govt can just add a little more when they run out and hope people still believe their paper is worth trading for. Its just how fiat money works and we just try to setup our investments the best we can to mitigate the damage of inevitable loss in purchasing power.
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I did.
Not advocating to divest of your bonds or anything but:
1. half a percent tax free means you gain a net half a percent. I'd rather take 4-7% dividends and pay the full tax on it, keeping most of the dividend.
2. Speculation? When the bonds are trading so far over par already how much upside is there? Maybe a little, but much more likely to go down in value. A lot of munis are at like 118, leaving a lot more downside risk than upside potential. Speculation in bonds would have been great for buying up Hertz bonds for a few cents on the dollar during their bankruptcy and then selling them with they got back to 97 or so. Not much more to hope for when something is 10-20% over par.
I don't know a lot about bonds but i know many firms, funds, 401ks, all that just choose an arbitrary percentage that is always allocated to bonds. Perhaps that is the cause of some of these sky high premiums over par.
I keep hearing people say that but I dont know what they mean exactly.
"The stock market is not the economy." Is true. The stock market is driven by bets on where the economy or company will be in the future.
AMC is not worth 4x as much as before they shut down and took on massive debt. The thought of a short squeeze has people pouring money in. It's stock price does not mean it would be a good idea to buy land, and build a movie theater.
A lot of trades are done automatically and based on other factors. You can kindof tell the strenght of the economy with looking at all the indexes but can't read too much into it. One company moves up or down and it can instantly move their sector competitors for example.
Couple things to consider...
The economy is all of us, even though the economic performance is generally broke down into sectors.
The stock market does not been a reflection of the broader economy over time. The market does tend to follow flucuations in the economy, but less so whether the economy is good or bad.
Over the past 1.5 years, many have lost their jobs; unemployment was high. The market has flourished in these times, right?
The economy was struggling but was bouyed up by injections of cash. A good economy does not need this help. The market does not care.
The richest 0.1% own 17% of stocks
The richest 1% own 50% of stocks
The bottom 50% own 0.7% of stocks
These numbers give you an idea of who owns the market and that most people do not have the disposable income to invest, or choose not to.
These is much more, but basically the way I think of it is, the stock market level (high or low) does not track the economy level (good or bad) over time.
You are referring to the broader bond market; I am referring to a CA Municipal Bond Fund which you might think of as a product.
In my case, I could lose all my stock portfolio and still have a fund that I could live off and not touch my initial investment.
Double tax free is also big for me because I pay Federal and at least 10% CA State Income Tax.
Obviously buying this product is not for everyone, and there very well may be better choices for me. Trust me, watching other assets skyrocket over the past 12 years has made me wonder...
This is the very nature of diversification. Risk management...
Some feel that way; others see it differently. I guess I shouldn't speak for others...
At this point in my life, seeing that others have the tools they need to get a chance in life makes me happier than any Tesla.
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