[reaper23]

(01-25-2014 12:27 AM)WestCoast Wrote:  

^ come on bro you know I would never say "everything always goes up"

Prices flux, some years it is down. But I will happily bet things will be more expensive in 30 years than cheaper against anyone, any time any day.

People afraid to invest are all the same. Broke or uneducated. Even worse? Could be both.

They don't understand how inflation works.

personally i like real estate as an inflation hedge, commercial real estate. my portfolio is (far too) heavy on CRE. need to diversify some, but will actually only do that by earning more and investing that.

[Richiavelli]

(01-27-2014 12:08 AM)reaper23 Wrote:  

(01-25-2014 12:27 AM)WestCoast Wrote:  

^ come on bro you know I would never say "everything always goes up"

Prices flux, some years it is down. But I will happily bet things will be more expensive in 30 years than cheaper against anyone, any time any day.

People afraid to invest are all the same. Broke or uneducated. Even worse? Could be both.

They don't understand how inflation works.

personally i like real estate as an inflation hedge, commercial real estate. my portfolio is (far too) heavy on CRE. need to diversify some, but will actually only do that by earning more and investing that.

I agree that real estate is a better inflation hedge than gold, I'm in some REITs.

[theking]

I am not that knowledgeable about the stock market but this thread has been very informative. Shout out to everyone that has contributed, especially westcoast. Gotta buckle down and learn this stuff so I can put my oil sands money to good use !

[blkgatsby]

(01-26-2014 11:14 PM)Richiavelli Wrote:  

Buying a home is pretty risky though. For a one time, price you are going to pick up an asset. SPY and items like it are beautiful because they can be dollar cost averaged, whereas property it's a one time price. My personal belief is that you should only pick up a home if you really want to live there for the rest of your life.

Well by picking up a house isn't the loan on the home already a form of dollar cost averaging?
And on top of that it's going to take a while for your securities to get to a level that it will cover your rent. Say if your rent is $1500, you'll need $258k to cover that cost, strictly from your dividends.

[Spader]

I read through this thread and I have to sort of agree that the US market is BS these days. There has been a decoupling with reality, and the recent growth is largely based on investors having to move further out the risk curve as a result of the ZIRP in place today. We have been in uncharted waters since the banking system failed, and the Fed has been pumping liquidity into the system to make up for all the deleveraging which took place when everything unwound (post Lehmann Bros demise). Yes the sky didn’t fall and corporate earnings came back, and that played a significant part as well. But that is already factored into the price.

I’m also on the ‘inflation is evil’ bandwagon, if only because most Americans have no assets which will keep pace with inflation. Instead of buying an asset with a cash flow stream (like a rental property or a share of a business) or even raw land, most will buy depreciating toys: tvs, motorcyles, the latest iphone or computer, etc. All good…life is a choice, but with inflation they won’t keep up. Personally, I think the smart guys in charge knew the endgame and realized once the US balance of trade turned negative (largely because we depleted our cheap energy) that we were going to lever up our nation’s credit card and live it up while we could. Make some people really rich in the process.

But it is a slow death when real inflation outstrips real GDP. We are tied to this fiat currency and it is growth at all costs…until it finally fails. Which it will mostly likely do someday, at least history tells us that too. Still think that the govt can do a massive asset takeover (in the form of a one time tax on the wealthy) and effectively hit the reset button and keep going…but this is tinfoil hat talk, so I’ll stop on that.

From what I understand inflation isn’t a growth issue. It’s a monetary issue. MV=PQ. The US hasn’t seen a ton of inflation (yet) from all the printing by the treasury, because the velocity isn’t there. Also it is largely making up for all the deleveraging of all the money previously in the system from the banks. The fed basically took that leveraged debt from 2007 and put it on its own balance sheet (simple way of thinking about it).

We still need growth in wages and population if we want to keep asset prices rising. We are also a global society now and our GDP is strong and the system is still trustworthy so we do get outside investment. If the population in the US ever declines, do you think real estate will still go up? Right now it’s being propped up by money supply. You think single family buyers are buying houses? That’s not what I see. It’s largely cash deals by PE funds (using debt) soaking up excess supply. Let’s see how they unwind that trade eventually. We better have some population growth and wage growth or that will be an issue.

I will agree that holding cash long term is a loser’s game, as you will see the value erode over time as the fed prints. Where you choose to invest your cash is up to you. Personally, I wouldn’t buy the S&P500 index right now. I think earnings are at risk and it’s valued at (guessing) 18x 2014 estimates. It not a hard asset like land, it’s fractional paper assets of the underlying cash flows of those companies, and layering on what the market is willing to pay for the earnings (I think the historic low is 8x but I’m guessing from memory and too lazy to look it up), If earnings got cut in half over time, and we saw contraction it’s realistic that we could see SPX below 1,000. Look at the Nikkei over the past 10 or 20 years. As they say, trees don’t grow to the sky, and corrections can take a long time. Let’s see if the wizards can still find ways to keep it moving from the lower left to the upper right.

So what do you do? I would still look at individual companies that you believe will do well. Do your homework if you are going to invest. Not trade, invest. Find the starbucks, google, apple whatever and let those ride until their business model changes. That’s how you create wealth. These huge fund can’t beat the market because they can’t be concentrated enough. Look at emerging hedge fund managers, they crush it until they aend up on the radar and the fund gets too big. But, if you think you can blindly buy SPY and have it go up…great. History will say that’s the right call. I hope you do well. But if you think we are in the same place we were post WW2, when we had cheap energy and intact factories which hadn’t been blown up in the war, or if you think we will get 1970s inflation, or another Clinton 90s, a tech bubble, or a real estate bubble…just dollar average in for 30 years…

I don’t see it. The way I look at it is…as a society we’ve pulled all the levers. Cheap energy? Yep, we had that. Baby boom generation causing disruption and massive growth (housing and consumer…and now healthcare). Yes. Toss women in the workforce? Sure. That will boost GDP for a few decades. Let’s offshore manufacturing to cheap labor countries and boost margins and profits. Done. Let’s add some new asset classes (computers, telecom, internet, other tech). great. Let’s leverage the balance sheet and turn everyone into a finance professional. Did that too. So what’s next? Is immigration the next major lever. We need someone to actually bring money in and work and create business. I think that will be part of it. Also, the next 20 years is a retrenchment of infrastructure (our power grid and water are stretched) and eventually clean energy. We onshore some manufacturing if we can stay out of union areas.
But I really don’t know. I place my bets at the casino every day like many others. Long and short.

So why do I think it’s all BS? Because asset allocation is largely just chasing the herd. You have limited assets to buy that the trillions can invest in and when it shifts massively…you get bubbles. If interest rates ever go up…and I’m not sure they can materially…then you will see investors abandoning higher risk assets (stocks) and heading back into lower risk (bonds). The equity market was being driven by leverage and gaming the system (high frequency trading algos) pre-crash, and someone will come up with something else soon enough. Stay tuned. The smart guys always find a way to manipulate it in their favor. Govt cant regulate fast enough to make the game fair. Buyer beware.

Where else are you going to put your money? Gold? Can’t eat it. It generates no cash. I suppose you could buy raw land. Figure out the next region of growth and go buy land there before everyone else does. If growth in that area doesn’t happen, you can always harvest timber, build a house on it or farm it out. I’m half joking...or am i?

[cardguy]

Alot of people in the UK are influenced by two events when it comes to home ownership.

In the 70's - inflation in the UK went crazy. It spent a decade moving between 10 and 25%. As such alot of people (including my parents) saw their big mortgages get eaten away by inflation. And as a result it set them up financially for life.

In the late 80's - alot of people bought the 'council houses' (ie subsidised housing provided by the government) they were living in. During the early 90's alot of these people were panicking - since their mortgages were fucking them up due to the high interests rates.

But again - over time - they made a huge profit since the houses they bought from the government were cheaper than ordinary homes. And because of the continuous property boom the UK has had. As a result - alot of 'poor' people. Now have 'middle class' assets already paid for. And are able to pass on those assets to their kids.

It is ironic but Margaret Thatcher was responsible for the biggest ever reallocation of wealth to the poorest people in the UK through her 'right to buy' policy. Not that anybody on the left ever thinks of it in those terms.



However - unlike the US - we have yet to experience the housing crash which was expected after the 2008 financial crisis. Interest Rates are the lowest they have being in 300 years. And the biggest concern in the UK at the moment is what will happen when interest rates start to rise.

Alot of 'Buy to Let' investors are over-exposed and over-leveredged. And a rise in interest rates would cause them to drop the balls they are frantically juggling at the moment.

So - a housing crash could be on the cards at some point. But both political parties would literally do anything to avoid it. Since in the UK - the middle classes only care about house prices (to the expense of everything else). And any party who oversees a housing crash is punsihed at the polls for decades as a result.

A nice example of this is the Conservative party. They were responsible for a housing crash in the early 90's (due to Black Wednesday and the European Exchange Mechanism). And as a result have not won an election since - and are unlikely to win another election until at least 2020. That would be 28 years without winning an election (at the least - 2020 is not guaranteed). And this for a party that were once the most successful political party in history.

In my analysis above - I am working on the assumption that the Conservatives will not win in 2015. Since most experts feel they cannot.

[WestCoast]

This thread has made it increasingly clear to me that the average person does not know anything about finance or the economy.

Here I am talking to people with above average IQs and yet people want to argue that inflation is bad.

How come every single bull market has rampant inflation? If you can't answer that you seriously are an arm chair historian.

Even if you don't believe me (because you don't want to bother looking up the CPI for the last 100 years in any major economy) and think inflation is still "bad"... Then just follow my advice and dollar cost into indexes or buy assets like homes etc.

.
.
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Fuck it I will give you the answer. inflation just means money is aggressively moving around the economy. That is why I don't care about it. As jr put it deflation means people stop spending, hence the 09 downturn. If you're going to believe otherwise that tells me everything I need to know about your finance/economic knowledge.

[cardguy]

wow - I have never thought of inflation as being a good thing. You have alot of interesting ideas and insights on this thread.

I always assumed inflation was bad. End of story. Like unemployment or something.

You are getting me to think about things from a fresh angle.

So - I guess - for the rich (ie people with assets) inflation is good. But for the poor - inflation is bad?

So - in terms of making money and investing - you shouldn't be worried about inflation. Since those with the money to invest will benefit from it?

I really appreciate your efforts in this thread.

Cardguy

PS Do you associate inflation with the amount of money in the economy? Or the increased frequency in which that money is being circulated (ie being spent more often - and as such is a strong indicator of economic growth).

[WestCoast]

^ bro read your own post in the 70s in Britain you said "rampant growth" and inflation... One and the other are linked my man.

Look up the CPI in the usa in the 80s in the USA what happened? Rampant Growth

Inflation means money is flowing into the economy, deflation means people are no longer investing in the economy.

Look over the last 100 years in major economies, look at the inflation rate, tell me if you don't see a trend.

Simplistically "prices are getting higher" this means "people are willing to pay more" this means... Money is flowing into the economy!

You want to own a house don't you want people to "want your house" that means it is now more valuable it is "inflating" in value.

Yes Cardguy I have stated that several times inflation is good if you OWN assets, inflation is bad if you OWN nothing! Think about it. You are mad the price of peanuts is going up... What if you own the damn peanut factory! Who cares then right? This is why I keep hammering the table that everyone needs to own assets I care much less about the asset class.

This is why poor people think inflation is bad and rich people don't mind it one bit! That should be a very good tool in reading this thread.

[cardguy]

Of course - there has to be a tipping point.

Once inflation goes haywire (eg Germany in the 20's and Zimbabwe in the past few years) - that is just because the government has trashed the currency.

Maybe it is because of those extreme events that people think inflation is a bad thing since lots of inflation (ie inflation of a million percent) is a terrible thing. And since alot of inflation is a terrible thing - they assume any inflation must be a bad thing. When the relationship is more subtle.

To give an analogy - just because a shower pouring out boiling hot water would be painful - doesn't mean a shower pouring out warm water will be less enjoyable than one pouring out cold water.

[WestCoast]

^ yes that is a very one off and different example. Go through stable economies. Looking at Germany after world war 1 ended is certainly an exception lol.

[cardguy]

Makes sense that inflation is good for some people and bad for others.

Since in economics - most things are pretty much a 'zero zum game' and what is bad for some people, is bad for others.

People assume mass unemployment is bad. But consider an an employer. For him it is good - since he can use it to drive down wages and reduce pay increases. And therefore increase his profit.

And I guess inflation is similar. In that it benefits some and punishes others.

[WestCoast]

Ha the unemployment example is a bit of a stretch but simply do the research yourself and don't even listen to me (I know I'm right because I have already done it).

Glad to see you're starting to think differently.

"If you think like the masses don't be surprised if you're walking among them to the slaughter house".

[cardguy]

The link with inflation and owning house is a bit trickier to analyse.

If you only own one house - then inflation increasing the value of your house is a bit irrelevent. Since you still need somewhere to live - so it is only an increase in 'paper wealth'. And can only be realised if you sell up and move to a different country. Or if you die and the house is sold to pass on money to your kids.

In recent years - people borrowed money against the increased value of their homes. Which gave them the illusion of untapping the increased wealth generated by rising house prices. But it was a fiddle really.

So - for those who own their home outright. You are not really part of the asset owning class. Since you need to own at least two homes - before you can directly benefit from increasing house prices (and inflation in general). Unless - you are planning to move abroad or are only bothered about passing along wealth to your kids.

And increasing house prices will only really benefit your kids if they already own their own home. Since you home - becomes in effect their 'second' home.

[WestCoast]

^ see here is the thing.

You lever up to buy a house what does this mean?

It means you are SHORT the bond market

That's how you analyze if what you're doing is correct. The percent you own matters but the real Crux is you're now short bonds.

Owning one house or two is irrelevant and I suggest you read my responses to sugar's posts. $500K in one house or owning 2 houses worth 250K is generally no different. Just dollar exposure to an asset class.

[cardguy]

The thing is that alot of people in the UK are now inheriting homes from their parents. As I detailed above - in the late 70's and the late 80's alot of people (ie my parents generation) lucked out and paid off their houses quite easily. And those assets are starting to be passed down to the next generation.

So - they are not having to borrow any money to pay for these houses.

Which means you have to think about things a bit differently. Is it better to keep the home? Sell it? Rent it? Live in it? Or flip it and invest the money in the stock market?

[T and A Man]

(01-27-2014 08:27 AM)WestCoast Wrote:  

This thread has made it increasingly clear to me that the average person does not know anything about finance or the economy.

Here I am talking to people with above average IQs and yet people want to argue that inflation is bad.

You aren't going to do yourself much credit berating other people's intelligence, then making a claim that inflation is 'good'.

Quote:

How come every single bull market has rampant inflation? If you can't answer that you seriously are an arm chair historian.

Because a 'bull market' isn't necessarily a good indicator of a healthy economy.

Holders of a debased currency chasing to hedge its value can account for this. More money chasing fewer products.

In fact, the dumbest financial decision of all time, the spanish and their behaviour in the conquest of South America did just this.

They didn't bring real product (wealth) home, they brought gold and silver.

All that meant was more money chased the same amount of product in Spain, and eventually Europe.

Quote:

Even if you don't believe me (because you don't want to bother looking up the CPI for the last 100 years in any major economy) and think inflation is still "bad"... Then just follow my advice and dollar cost into indexes or buy assets like homes etc.

Inflation in a holistic sense is bad.

it is unearned money. It's great to be on the receiving end of it, thus rational trying to apply it to yourself.

However as an outsider, where a 2nd a 3rd party are contesting, inflation only delivers a bad.

I agree that inflation is systematically built into the system, and it is irrational to be a purist and fight against it.

Quote:

Fuck it I will give you the answer. inflation just means money is aggressively moving around the economy.

It doesn't mean that at all.

It either means the currency is being debased, and a fractional lending system that allows private banks to do this means it's happening all the time...

or

Real product output is declining.

if you're trying to assert it's velocity in the QToM, then that's not a good piece of advice.

[T and A Man]

(01-27-2014 09:18 AM)cardguy Wrote:  

The thing is that alot of people in the UK are now inheriting homes from their parents. As I detailed above - in the late 70's and the late 80's alot of people (ie my parents generation) lucked out and paid off their houses quite easily. And those assets are starting to be passed down to the next generation.

So - they are not having to borrow any money to pay for these houses.

Which means you have to think about things a bit differently. Is it better to keep the home? Sell it? Rent it? Live in it? Or flip it and invest the money in the stock market?

The UK is a mess. Their issue all stems from the Town and Country Act of 1947, essentially worlds worst practice to town planning.

The worse thing to can ever do is artificially constrain land, and the UK's policies do just that. Must of the western world has followed, and developed land bubbles of their own.

Land bubbles kill the economy more than any other bubble as it embeds itself in every facet of the economy.

[cardguy]

I am reading WestCoast's advice a bit differently.

This is a thread about investment. So what might be bad for the economy as a whole - in the long run. Can still be good for the individual investor - if he is the right side of the trade. I know that is harsh. But it is the only way to think when thinking about investments.

So - it is in that sense that WestCoast says "inflation is good".

He means 'good' from the point of view of those holding assets.

The impact of inflation on the wider economy is irrelevent to this particular discussion, since the only thing that matters in investment is whether or not you personally will benefit from the situation.

[WestCoast]

^ correct good from the point of view of asset holders.

This is exactly why people get it or they don't.

If you had to show your net worth today on the screen with no photoshop I will wager those against "inflation" will be significantly poorer than those who don't care about "inflation".

I have opened up a can of worms and the masses will push my opinion out but I strongly suggest people read into what my message implies. Own assets and win the game. Don't own assets and you'll be broke.

---

Before this breaks into an economic debate that I won't participate in I will again say the same thing, dollar cost into spy or buy assets and dollar cost into them.

When you buy a home and pay off your mortgage all you are doing is dollar cost averaging into the asset on a monthly basis.

[T and A Man]

Well bad for the economy, means ultimately bad macroeconomic settings.

"There's nothing here but what here's mine", is how one can look at endorsing inflation, and inferring it's part of a stable economy.

[cardguy]

@T and A Man - I think you are right. I am reading alot about Henry George at the moment. And he was the leading thinker in this area. His story is pretty interesting. His ideas lay at the roots of the game of 'Monopoly', and 100 years ago he was a best selling author. His ideas about the reform of land ownership and taxation were radical and very popular.

He even ran for Mayor of New York - and came second. This is interesting since he beat Teddy Rooseveldt (the future president) into third place by a long distance.

http://www.rooshvforum.network/thread-31827-...#pid630240

It is all interesting stuff. And I will probably start a thread on it once I have researched this area some more.

I just want to throw this out there. It is something we can discuss in a separate thread. Since this thread is about investment advice and not economics. I think WestCoast is correct that it is better to discuss the morality and wider economic issues elsewhere.

[T and A Man]

I've followed a bit on Henry George. Another stunning urban economist of more recent times is Alec Evans, from the UK.

You sure you don't mean teddy Roosevelt? Im reading on TR right now. Henrey George ran in around 1894, or 1898 that I at least know of.

[cardguy]

Yeah - I meant Teddy Roosevelt. I edited my earlier post to change it from FDR.

Thanks for the correction!

[T and A Man]

(01-27-2014 09:30 AM)cardguy Wrote:  

I just want to throw this out there. It is something we can discuss in a separate thread. Since this thread is about investment advice and not economics. I think WestCoast is correct that it is better to discuss the morality and wider economic issues elsewhere.

No, I agree with his premise, and he made the point above, about buying a house is shorting bonds.

The CIO at my work said this to explain inflation.

"Up to now, a lot of people have fucked up. The bottom feeders in Government, the second raters of Wall Street, the 5 hour power-lunchering multinational CEO's. Now, someone has to pay.

It's easiest to make people pay when they don't know they are paying."

So that can be explained by accruing assets, and you leverage this positon via debt. It means you're shorting the remuneration of ones labour. That's inflation in effect (barring supply side shocks)

Overly rewarding capital, under rewarding labour is how we are systematically set up yes. So that reaffirms what some here are saying.

But that system setting isn't costless, it isn't a zero sum game shifting from one ledger to another. It causes system atrophy.