3 arguments for inflation, and 3 tactics to cope

[jpatter666]

Re: 3 arguments for inflation, and 3 tactics to cope

I realize that the official iTulip position is to stay away from the PM miners. And to a certain extent that was the correct call. Miners got slammed in December and *still* haven't recovered the old highs even though gold is nearly to the same level, oil is a third of the price (mining is energy-intense).

But I have picked up a few of the very best ones at low prices and if we touch the lows again, certainly tempted to grab more than quite a few.

[Jay]

Re: 3 arguments for inflation, and 3 tactics to cope

I know Fleckenstein doesn't like TIPS because they control the metrics by which the rate is adjusted and why would that ever be favorable to you?

I put my children's 529 into an inflation protected securities fund which is basically backed by tips. The tax free aspect of a 529 is too good to pass up for me to take it as income and do whatever else I want with it.

[c1ue]

Re: 3 arguments for inflation, and 3 tactics to cope

JK,

Here's a question for you:

Looking at Iceland - a real time example in front of us - mortgages and other forms of debt have been indexed to inflation.

This was done retroactively.

Under this scenario - would not all 3 of your possible plays suffer mightily?

In this case, your debts would grow but your assets would not.

And what would prevent this if indeed the banks are still controlling government behavior?

[ax]

Re: 3 arguments for inflation, and 3 tactics to cope

I put my children's 529 into an inflation protected securities fund which is basically backed by tips. The tax free aspect of a 529 is too good to pass up for me to take it as income and do whatever else I want with it.

I scrapped what little investment I had planned for my 2 kids' 529s and went with the prepay option. If inflation goes where I think it will, this could be the best investment I'll ever make (for multiple reasons).

[ASH]

Re: 3 arguments for inflation, and 3 tactics to cope

I scrapped what little investment I had planned for my 2 kids' 529s and went with the prepay option. If inflation goes where I think it will, this could be the best investment I'll ever make (for multiple reasons).

... Assuming government obligations, such as pre-pay plans, are honored.

[rogermexico]

Re: 3 arguments for inflation, and 3 tactics to cope

Can the fed reel in the money supply? There is so much crap on their books who is going to buy it? Don't they have 700B of MBS, then there are those programs to swap treasuries for crap assets. Aren't they buying student loans, credit card debt etc?

The fed is now the buyer of last resort. They may have paid par for this junk, and will have to settle for 50c on the dollar if they try and sell it.

Yes, Fed is effectively monetizing all it buys, whether they just can't sell it or print to buy bonds to finance deficits to subsidize banks to eat their own feces it is all ultimately printing.

Also don't forget the off-balance sheet promises growing like weeds (JKs mechanism 3) New Obama health care boondoggle, direct loans to prop up the Health care and Education part of the FIRE economy. private pension gaurantees (I predict) etc. etc.....

Also, the states can't print. When PRK and other states declare bankruptcy or threaten default on their debt, Feds will be forced to print to cover it. How many votes will Obama get next go-round if he doesn't side with the Cali unions and public workers? Just like Chrysler.

I hear some saying "don't move to california, they are hosed".
No, the feds will extend credit or cash or otherwise back them up - result the rest of th USA wil be subsidising california public wokrders and welfare porgrams, not the californians, who are at max pain wrt income taxes and whose property taxes will be gradually gong down.

[jk]

Re: 3 arguments for inflation, and 3 tactics to cope

JK,

Here's a question for you:

Looking at Iceland - a real time example in front of us - mortgages and other forms of debt have been indexed to inflation.

This was done retroactively.

Under this scenario - would not all 3 of your possible plays suffer mightily?

In this case, your debts would grow but your assets would not.

And what would prevent this if indeed the banks are still controlling government behavior?

i'm skeptical that they'd retroactively turn fixed-rate mortgages into floating, but i suppose it's possible. [frankly i'm more worried that they'll mandate that all retirement plan assets have to be invested in treasuries.] but if they modify your mortgage, use the embedded option to pay it off.

as to commodities and income producing assets, i'm not sure that indexing mortgages would hurt their performance at all,, unless you are hypothesizing that it would be part of a broad, strong and successful anti-inflation campaign. if so, then in the absence of structural economic reform, we are back in recession/deflation/disinflation.

[jimmygu3]

Re: 3 arguments for inflation, and 3 tactics to cope

frankly i'm more worried that they'll mandate that all retirement plan assets have to be invested in treasuries.

401k/IRA pre-tax individual accounts were designed to pump money into the stock market. Converting all that to Treasuries would certainly crash the stock market as it would eliminate a large chunk of current and future investment. If you think big biz controls Washington, do you really think they would allow this?

but if they modify your mortgage, use the embedded option to pay it off.

Pay it off with what?

Jimmy

[jk]

Re: 3 arguments for inflation, and 3 tactics to cope

Pay it off with what?

Jimmy

the assets you purchased with the excess borrowed funds. [or with other assets]

[jimmygu3]

Re: 3 arguments for inflation, and 3 tactics to cope

the assets you purchased with the excess borrowed funds. [or with other assets]

I guess my point was that it would require the sale of the house, as virtually nobody has the liquidity to pay off their mortgage. Selling a house in a cratering economy when only inflation-indexed mortgages are available to your buyers is very negative for your pricing power. Not to mention that many others will simultaneously try the same thing, flooding the market with inventory. And if you are able to sell, you're stuck renting with rapidly inflating rents.

Jimmy

[Jay]

Re: 3 arguments for inflation, and 3 tactics to cope

I scrapped what little investment I had planned for my 2 kids' 529s and went with the prepay option. If inflation goes where I think it will, this could be the best investment I'll ever make (for multiple reasons).

Don't these plans come with institution selection limitations?

[phirang]

Re: 3 arguments for inflation, and 3 tactics to cope

Anyone here who thinks a crashing treasury market is "good for stocks" is high: .gov is propping up the market now, and the yield curve is the cost of capital for the "protected" markets.

If the treasury market crashes, the nukes launch...