Let’s talk Inflation

The well-educated target-school-attending students among the college student user base of WSO must have seen the news and markets this morning. Inflation hits a 30 year high, 6.2% in the last 12 months, and it is ACCELERATING. My HFEA portfolio is fucked but that's not the point. What do you guys expect to happen?

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Comments (78)

  • Analyst 1 in IB - Gen
Nov 10, 2021 - 1:36pm

Just keep buying TQQQ and crypto easy. I'd chill with TMF for now. TQQQ is good just sell if we fall below 200 MA and wait till we crossover again but we probably won't fall below until 2022. 

  • Prospect in RE - Comm
Nov 13, 2021 - 12:28pm

im just getting involved in stocks/crypto/ETFs, so this is probably a stupid question, but what does the 200 day moving average indicate if it falls below? Why the 200 MA, why not 50 or 100?

Nov 17, 2021 - 10:27am

Empirically, periods of high volatility are more common after an asset's price falls below its 200 day moving average and vice versa.

If you were to invest 1/3 of your portfolio into a 3x ETF like TQQQ, it would likely underperform investing 100% of your portfolio into the underlying index (Nasdaq 100) during periods of high volatility and outperform the underlying index during periods of low volatility.

  • Associate 2 in IB-M&A
Nov 10, 2021 - 6:52pm

"Listen Jack, when I was a boy, playing around at the pool with Corn Pop, two men were there as well...ummm...yea, anyways climate change is the real criminal in this...what did you ask? Oh yea, the transitory was the railway that took me an Harriet Tubman to freedom while the Neo-Nazis lynched Canadians...I have to get ice cream and go to the bathroom now" 

- Joe "Shitpants" Biden

Nov 12, 2021 - 6:52pm

Look, having nuclear-my uncle was a great professor and scientist and engineer, Dr. John Trump at MIT; good genes, very good genes, OK, very smart, the Wharton School of Finance, very good, very smart -you know, if you're a conservative Republican, if I were a liberal, if, like, OK, if I ran as a liberal Democrat, they would say I'm one of the smartest people anywhere in the world-it's true!-but when you're a conservative Republican they try-oh, do they do a number-that's why I always start off: Went to Wharton, was a good student, went there, went there, did this, built a fortune-you know I have to give my like credentials all the time, because we're a little disadvantaged-but you look at the nuclear deal, the thing that really bothers me-it would have been so easy, and it's not as important as these lives are (nuclear is powerful; my uncle explained that to me many, many years ago, the power and that was 35 years ago; he would explain the power of what's going to happen and he was right-who would have thought?), but when you look at what's going on with the four prisoners-now it used to be three, now it's four-but when it was three and even now, I would have said it's all in the messenger; fellas, and it is fellas because, you know, they don't, they haven't figured that the women are smarter right now than the men, so, you know, it's gonna take them about another 150 years-but the Persians are great negotiators, the Iranians are great negotiators, so, and they, they just killed, they just killed us.

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Nov 11, 2021 - 4:11am

The lib media told me that's a good thing so I'm good

Never discuss with idiots, first they drag you at their level, then they beat you with experience.

  • 1
  • 1
Nov 12, 2021 - 7:31pm

I'm just increasing my insurance policies on my real estate holdings and waiting for the purge to begin.  In leiu of cash payouts when these insurance companies inevitably default I will accept military hardware.  Always wanted to own an M1 Abrams tank, will require depleted uranium rounds of course.

Nov 12, 2021 - 9:09pm

Well, inflation at its highest year over year increase since 1990 can't be a good thing.  

  • PM in HF - Other
Nov 12, 2021 - 9:25pm

As much you all try to act like good old school GOP fiscal southern boys. In reality most of you work in NY/CA love your avocado toast, use uber, cry about WLB get upset that companies wont let you go surf 6 months a year and never go into the office the other 6. Who buy TQQQ on dips.
 

Jokes aside this forum shows me all the time this is we dont give a crap generation I will have my cake and eat it too. You want infrastructure/freshair/water/flex schedules. Therefore the only result is inflation.

I also find it funny when boomers (50 plus) coworkers tell these kids "dont know 80s inflation." Wrong they all own TQQQ, check the annual inflation on your Uber/Iphone/Netflix/Hulu subs/upgrades makes 6.2% look like nothing. Again this generation accepts it.

Nov 12, 2021 - 9:51pm

You want infrastructure/freshair/water/flex schedules. Therefore the only result is inflation.

Array

Nov 13, 2021 - 11:32am

JEPI, NUSI, QYLD, RYLD, XYLD

heister:

Look at all these wannabe richies hating on an expensive salad.

https://arthuxtable.com/
Nov 13, 2021 - 11:32am

Also i-bond is at 7%

heister:

Look at all these wannabe richies hating on an expensive salad.

https://arthuxtable.com/
Nov 16, 2021 - 10:24am

rip that you can only put $10K per year though

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

Nov 13, 2021 - 1:11pm

Did inflation or fear of it suddenly disappear when Bitcoin went from 65,000 to 30,000 a month earlier?  No.

Bitcoin's only value is in speculation, which is why I own it.  It will never be safe, nor will it be perceived as safe, as even with a valuation in the trillions, it lost half its value in a week.  It is also an obsolete technology, since even DogeCoin, which was created as a joke, has better transaction speed and lower transaction cost by an order of magnitude, and after 12 years is only used by a very small handful of businesses.

Nov 13, 2021 - 1:42pm

During the pandemic we had:

1. Almost no legal immigration since most embassies were closed

2. Tons of early retirements

3. Tons of women leaving the workforce

4. People in low paying jobs not wanting to return

And as a result, we have a very stubborn, persistent labor shortage contributing greatly to inflation.

What's the end game?  

Either workers get better pay, benefits, etc., and HR fucks off, or employers hold strong and eventually people go back to work as the bills stack and savings run out.  Long term, every continent other than Africa now has rapidly aging population, so I doubt this is the last time we will run into this problem.

Nov 16, 2021 - 2:50pm

Are you kidding?  The embasies are busy AF.  The rate of immigration has slowed slightly but it is no where near 0.  If the norm is 1,000,000 per year the pandemic time frame was close to about 800,000.  Source: I have 4 friends going through this process right now in different parts of the country all from different orgin countries. 

Nov 13, 2021 - 2:02pm

Yeah talking about Bitcoin and Gold as a way to defend against inflation is useless. Inflation is here, people care about solutions. Feel free to offer some advice that you have to help others. 

Most Helpful
Nov 13, 2021 - 5:24pm

Good observations on the labor side. Here are some rambling thoughts of consciousness because I am trying to think through this and maybe it will be informative to people.

You have labor shortages everywhere for the reasons Drumpfy mentioned. Wages surely will increase, but the key question is will wage increases be at a higher rate than overall inflation. My guess is no for most people. You also have shortages everywhere throughout the economy due to the supply chain issues. I think the points you have mentioned should result in higher wages, but I am skeptical the wages will be high enough to offset the cost increases for most consumers.

Housing, the biggest part of most consumer's budgets is significantly higher. Rents in some places are rising double digits and of course the housing market is seeing significant price increases. Why? We have underbuilt since the GFC and millennials are reaching first time home buyer age. It will take a few years for housing supply to catch up to demand. Rent historically follows housing prices. Then supply chain issues are causing price increases everywhere in the economy. Raw material prices and elevated freight is squeezing margins and suppliers are raising prices to protect margin. The end result is higher prices for everything. 

Think about something simple like furniture. Factories shut down in covid and demand simultaneously increased resulting in shortages. Factories need to catch up to demand but are facing labor issues, higher lumber and increased freight costs. So the furniture manufacturer has pricing power to raise prices because you have a supply/demand imbalance and so they are going to take the opportunity to protect margin and pass on the higher costs to the end consumer.  

The key is how will higher prices impact the end consumer's budget and discretionary cash flow? Think of the complications. Inflation hits the lower end the most. The people that are getting by on a week to week basis will now have to cut back on consumption. They will travel less, go out to eat less, and purchase less discretionary good. This furniture manufacturer that I mentioned is ramping up production because demand is perceived to be so strong. But the average consumer now with lower spending power per month may delay furniture purchases resulting in lower demand. Maybe the furniture manufacture will not estimate that correctly and overproduce. Now you have a supply glut. How will it correct itself? Lower prices and decreased production. I see this dynamic happening across the economy. My guess is given the shortages you are seeing all over, many companies are double ordering to ensure they get product. So when things normalize will we see bloated inventories and supply gluts across the economy? This should be deflationary but also painful for the economy. Ultimately you would have a recession because you have alot of companies that overshot production and bloated inventories everywhere and now have to idle production while people blow through inventories. The furniture manufacturer I mentioned will lay people off. Unemployment goes up. Consumption decreases further, resulting in more contraction. Eventually housing will overshoot too and then you have lower home prices, lower consumer equity which also decreases consumer confidence. You now have GDP contraction and an official recession. 

Government comes to the rescue by lowering rates and stimulating the economy. Then things trough and get better. But if this actually plays out, no way the stock market and the speculation we are seeing in pockets of the market right now last. 

So where to invest? Companies that have historically had pricing power to protect margin. Companies with inelastic demand curves, so consumer staples, healthcare, utilities. In the inflationary part materials and hard assets as well. When/If we get to the part where economy rolls over then add companies with lower leverage and strong balance sheets. Companies with strong cash flow and low cyclicality. High quality. Large over small. Mature over immature. Domestic over international. A combination of growth and value. Those that grow in this environment will get premium multiples. Growth stocks that don't meet expectations will get smoked. Value stocks that are cyclical and high leverage will also get smoked. 

Feel free to push back on any of these thoughts, I am not Warren Buffett just an analyst at a small long-only. I could be crazy but this was a good thought exercise for me. 

  • PM in HF - Other
Nov 13, 2021 - 2:49pm

The entire concept of BTC is an inflation hedge that is why it was created after GFC. Just cause it's volatile in short term spurts does not mean it will not hold off long-term against inflation. Saying it dropped from 60k to 30k says nothing about how the concept works.

Gold/commodities are also volatile instruments that people have used over many inflationary cycles.

Again this thread doesnt need much in depth thought. Bill Gross said 2 sentences on linkedin other week, "real interest rates are -115 basis points…" really not much else to say here. Everyone owns TQQQ no issues there just prepared to pay more for eggs and cheese.

Nov 13, 2021 - 7:01pm

Satoshi emails 

"Increasing hardware speed is handled: "To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they're generated too fast, the difficulty increases."

As computers get faster and the total computing power applied to creating bitcoins increases, the difficulty increases proportionally to keep the total new production constant. Thus, it is known in advance how many new bitcoins will be created every year in the future.

The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not increase as fast as demand, there will be deflation and early holders of money will see its value increase.

Coins have to get initially distributed somehow, and a constant rate seems like the best formula"

Nov 16, 2021 - 9:12am

I've been trying to stock my new townhouse with furniture and it's been difficult, but it wasn't until I was grocery shopping yesterday morning that the supply problems have become super apparent. I saw one half of an entire aisle nearly completely empty. The frozen foods section was on life support--like, 40% empty. 

Got a new HVAC system in early October. It took 6 weeks for the parts to arrive. Normally, the parts are available in the area in a mini warehouse and they can turn around installs in days. 

I was reading an article this weekend written in 2020 about cool furniture pieces. The static prices were written in the article but there were links to where to purchase these furniture items. At the link, prices were 30-40% higher than a year ago.

Array

  • 3
Nov 16, 2021 - 10:52am

Memberberries

Got a new HVAC system in early October. It took 6 weeks for the parts to arrive. Normally, the parts are available in the area in a mini warehouse and they can turn around installs in days. 

I got a new one in April but it took a while too. Have you also looked at some contractor prices and their delivery estimates? I was thinking of replacing some of my windows and they were all quoting me at least 12-14 weeks, it was insane.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

Nov 16, 2021 - 11:05am

I'm looking at window inserts (Indow Windows) because I have an historical townhouse and can't replace the windows. 3-4 months from date of order.

Array

  • Analyst 1 in AM - Equities
Nov 16, 2021 - 5:07pm

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