[londoncalling]

Although the recent inflation numbers are higher than what we have seen in quite sometime, I am puzzled by how some people are surprised by it. Many economists and posters here had predicted this increase due to all the money printing that took place during the pandemic. In some ways people have been warning about inflation since the end of the great recession. Regardless, the inflation has given me an opportunity to reassess my portfolio. Obviously, equities with no or low debt will be better off than those with higher debt to equity. Are any active investors making adjustments to the allocation or tilting their equity to certain sectors?

 

[MK7GTI]

Although the recent inflation numbers are higher than what we have seen in quite sometime, I am puzzled by how some people are surprised by it. Many economists and posters here had predicted this increase due to all the money printing that took place during the pandemic. In some ways people have been warning about inflation since the end of the great recession. Regardless, the inflation has given me an opportunity to reassess my portfolio. Obviously, equities with no or low debt will be better off than those with higher debt to equity. Are any active investors making adjustments to the allocation or tilting their equity to certain sectors?

I’ve been buying TD, RY, BNS, PG, and JNJ most recently. Probably will stick with this trend until end of Q2 2022.

 

[james4beach]

Are any active investors making adjustments to the allocation or tilting their equity to certain sectors?

I'm not adjusting anything myself. I don't like placing trades that are too popular (overcrowded trades), especially those pushed by the media. And fear about inflation is really in fashion right now. That suggests to me that any trades placed due to fear of inflation are likely the wrong trades.

It's too early to see if the inflation rate will be sustained and high. Remember that the inflation rate for 2017, 2018, 2019 was just under 2%. Then in 2020 the inflation rate dropped suddenly, fell near 0% for a while. Currently it's rebounded to 4% but in fact, when you calculate the annualized inflation rate over the trailing few years, it's still very close to 2%

Investors have a tendency to extrapolate current conditions, so people jump to assume that 4% or 5% inflation will stick around, but I'm not sure.

What will inflation be in 2025? That's the real question an investor has to ask, and we have no idea what the answer is.

 

[doctrine]

Although the recent inflation numbers are higher than what we have seen in quite sometime, I am puzzled by how some people are surprised by it. Many economists and posters here had predicted this increase due to all the money printing that took place during the pandemic. In some ways people have been warning about inflation since the end of the great recession. Regardless, the inflation has given me an opportunity to reassess my portfolio. Obviously, equities with no or low debt will be better off than those with higher debt to equity. Are any active investors making adjustments to the allocation or tilting their equity to certain sectors?

This inflation was deliberate and planned by central banks. There was a heavy overtone of progressiveness too. The theory is that inflation is bad for the 1% and good for everyone else. It would force wages to go up finally.

Well, wages have gone up. But not in real terms. No surprise to any real economist. Maybe if North America had spent trillions on actual infrastructure, rather than just giving it to people to spend on themselves and not work.

In other news, $15 minimum wage is now no problem thanks to inflation. Too bad everything else costs more.

 

[james4beach]

This inflation was deliberate and planned by central banks.

This all began with the promises made by Greenspan and Bernanke. The promise was: we will never let a depression or economic contraction happen ever again

So when COVID hit, they were committed to providing as much stimulus and liquidity as possible. This is very ideological to the central banks (especially the Federal Reserve).

When it comes to balancing stimulus vs inflation side-effects, it's pretty clear they are WAY heavily tilted towards providing stimulus. Again this started with Alan Greenspan and has been the style of the Federal Reserve ever since the mid 1990s.

Imagine if they only provided mild stimulus, and we still had a depression. There is no way they are going to take that chance. The Federal Reserve would rather have inflation than deflation.

And this is why we get one asset bubble after the other (and each one causes destruction and catastrophe). First Greenspan fuelled the market in the 90s, and we got the dot com bubble. Then Greenspan fuelled the housing and mortgage market in early 2000s, giving super low rates and encouraging mortgage borrowing... so we got the housing bubble and 2008 crisis. And ever since 2009, they've been pumping liquidity into the market like crazy, amping it up to new levels in 2020. Should be interesting to see what kind of bubble and crisis results from all this.

When that finally cracks, it could wipe out a lot of equity holders and risk-takers.

 

[londoncalling]

The US Infrastructure bill was something that was needed, sought and promised under the Trump administration pre pandemic. I agree 100% that infrastructure spending in Canada would do a lot to keep the economy going, provide facilities and services to tax payers. Wages have gone up in some sectors, declined in some and remained flat in others. Real wage growth is what really matters for most people. The gig economy has shifted everybody's mindset into believing we can all achieve great wealth by becoming entrepreneurs. As far as inflation goes I am not basing my investing decisions on 1 month of data. I just found it odd that the media as made such an issue out something everybody knew (or should have known) was happening. Each fall I take the time to give a close look at more portfolio and plan for 2022. I think it is a habit I picked up from working on company goals and budgeting each year. I have some GICs mature in October and November have them sitting in a HISA account presently. It may be awhile before term rates rise in Canada. I had considered moving some of it over to equities to better reflect my risk tolerance but the returns on equity this year may have already made that shift for me. I guess for now I will take a look at my sector allocation and see how it has changed since last year while cash continues to roll in from new contributions and dividends.

 

[james4beach]

I guess for now I will take a look at my sector allocation and see how it has changed since last year while cash continues to roll in from new contributions and dividends.

Also, a nice thing about the index (like XIU for example) is that it adapts as the economy adapts. Tech has become a powerful sector and is now reflected in the Canadian index. A few years ago there was only a tiny tech sector in Canada.

Today though Tech is 13% of XIU which is pretty amazing.

I've been doing some of my own stock and sector picking, but I probably should have just put more money into XIU instead of guessing at my own sectors.

 

[doctrine]

This all began with the promises made by Greenspan and Bernanke. The promise was: we will never let a depression or economic contraction happen ever again

So when COVID hit, they were committed to providing as much stimulus and liquidity as possible. This is very ideological to the central banks (especially the Federal Reserve).

When it comes to balancing stimulus vs inflation side-effects, it's pretty clear they are WAY heavily tilted towards providing stimulus. Again this started with Alan Greenspan and has been the style of the Federal Reserve ever since the mid 1990s.

Imagine if they only provided mild stimulus, and we still had a depression. There is no way they are going to take that chance. The Federal Reserve would rather have inflation than deflation.

And this is why we get one asset bubble after the other (and each one causes destruction and catastrophe). First Greenspan fuelled the market in the 90s, and we got the dot com bubble. Then Greenspan fuelled the housing and mortgage market in early 2000s, giving super low rates and encouraging mortgage borrowing... so we got the housing bubble and 2008 crisis. And ever since 2009, they've been pumping liquidity into the market like crazy, amping it up to new levels in 2020. Should be interesting to see what kind of bubble and crisis results from all this.

When that finally cracks, it could wipe out a lot of equity holders and risk-takers.

While this is true, both Powell and Macklem are repeatedly on the record as justifying the current posture based on increasing wages. They both wanted it to run "hot" - to let the labour market heat up, and force wages to rise.

Fundamentally there is nothing wrong with inflation nor central banks stimulating it. But to think you will get "real" wage gains is just ridiculous. It is the same pot of resources spread a little more thin as tens of millions of workers sat home, and now we suffer for lack of goods across the supply chain because of it. And not just Chinese made cheap stuff - durable goods, fuel, food, etc. Sigh. Predictable.

And ironically, those with assets continue to gain, which is the opposite of what Powell and Macklem desired. Imagine that. Paying people to stay home didn't make everyone richer.

 

[peterk]

The real scary thing isn't the 5%+ inflation currently, it's that it's happening while covid economic suppression is still active, and also while a good chunk of the population is saying things like "I'll just wait till next year to buy that stuff when prices are better". What happens when people become impatient and the prices next year aren't better, and the message flips from "wait till the prices drop" to "get it now before prices are even higher"??

Also the central banks' messaging that the inflation is "transitory", "temorary" or whatever words they are using is a scary and extreme message, but somehow we don't think it is extreme at the current moment --- Like really, the central bank is saying deflation is coming and prices will drop next year? That message would recklessly trigger a recession if delivered in normal times... The only reason they'd be saying it now is to try to stifle inflation from getting far worse, which they must be shaking in their boots over to be suggesting that prices will drop soon.

 

[sags]

Peter Schiff and others make a living claiming government spending (money printing) injected 15-20% into the GDP and it is driving inflation now.

What they don't say is GDP went into steep decline due to the coronavirus, because it doesn't fit their "government spending is always bad" narrative.

Money printing for years but no inflation.......how come ?

Maybe in part because the covid pandemic sucked more money out of the economy than the central banks put into it ?

In Canada, the CERB benefit was less than the minimum wage. It replaced lost wages for people with fewer dollars. How is that inflationary ?

The velocity of money slowed down considerably during the pandemic due to lower consumer spending. People weren't spending money they didn't have or they were afraid to spend money when facing an uncertain job future.

There is talk of the tens of billions of dollars that consumers have in their bank accounts, but the reality is most of that money flowed to the wealthy.

Average consumers aren't sitting on mountains of covid cash. If they were they wouldn't be racking up credit card debt and borrowing payday loans.

Today we have price inflation caused by supply and demand shortages due to supply chain disruptions. People need to buy goods that are sitting on ships.

Depending on future covid disruptions, the inflation is transitory and temporary. Labor shortages are a problem, especially in the supply chain jobs.

But people have to work to earn a living, so the labor shortage will correct itself in time.

What covid has revealed are the inherent risk factors of the just in time (JIT) business model, and companies are scrambling to convert away from it.

 

[m3s]

Today we have price inflation caused by supply and demand shortages due to supply chain disruptions.

Depending on future covid disruptions, everything will return to normal in time.

Nothing will return to normal @sags

When a business raises their price it won't come back down. When a landlord raises rent it won't come back down. Inflation devalues not only fiat but also debt. It's a stealth tax on the middle class because wages will not raise as fast. It's a boon for those with hard assets and debt. It also increases taxes on all those appreciated assets. Win win win unless you're not

Meme because maybe the memesters are on to something here

 

[sags]

Wages will rise as prices rise, unless the free market system is corrupted by bringing in cheap foreign labor or passing "right to work" types of laws.

Inflation is more of a political issue than an economic one, as politicians fear a consumer panic about price increases will threaten their political futures.

Lumber prices rose and fell. Businesses drive towards market share and have to be competitive.

People who live in areas with limited competitive markets, inflation is a bigger problem but that is the price they pay to live where they do.

That is why real estate in rural areas or small villages and towns has generally been cheaper than densely populated urban areas.

 

[m3s]

Inflation is more of a political issue than an economic one

Just wow. I can't even.

Lumber prices rose and fell. Businesses drive towards market share and have to be competitive.

Lumber is a commodity. That's what commodities do. Very different from products where the price is set.

The price of cars, rent, books etc don't adjust this much. They go up and they stay up. It's much more obvious when living with different currencies

People who live in areas with limited competitive markets, inflation is a bigger problem but that is the price they pay to live where they do.

I listen to economists all day. They make a lot of sense. They make a lot of money.

You don't make any sense

 

[sags]

People are freaking out because their mortgage interest rate might rise to 4%, and there might be 5% price inflation.

Our first mortgage interest was 21% and over 20 years later our mortgage interest rate was 7.99%. Inflation was higher than it is today but we survived.

People who are overextended will deal with it as past generations have. You tighten the budget, work more hours, or sell stuff to lower your debt.

In worse case financial scenarios, you declare bankruptcy and start over with a life lesson under your belt and a better plan.

Higher interest rates would be a whole new world for a lot of people.

 

[damian13ster]

The problem is - the one who is most overextended is the government. And they keep spending into oblivion like higher interest rates will never happen

 

[sags]

That isn't a problem for the government. They decide their own wages.

 

[damian13ster]

They don't decide interest rate of their debt

 

[Johnny_kar]

I listen to economists all day. They make a lot of sense. They make a lot of money.

You don't make any sense

If you want to persuade people, it is better you are being polite.

The problem is - the one who is most overextended is the government. And they keep spending into oblivion like higher interest rates will never happen

Technically, if the economy improve, the tax revenue will also increase.
What concern me is not one time spending, it is structural deficit that I mention previously. After all, unlike you and me, the government will not die, so it will always able to service its debt. Consequentially, it never needs to repay its debt. In case of a change in regime, a new government that control the land will also need to take over the debt, unless it wants to never borrow money in the future. (You can't inherit a house without inherit the mortgage). However, if the market caught wind of the fact that the government is running a Ponzi scheme (welfare state when we have aging population), the market will not be this kind.

 

[damian13ster]

If you want to persuade people, it is better you are being polite.



Technically, if the economy improve, the tax revenue will also increase.
What concern me is not one time spending, it is structural deficit that I mention previously. After all, unlike you and me, the government will not die, so it will always able to service its debt. Consequentially, it never needs to repay its debt. In case of a change in regime, a new government that control the land will also need to take over the debt, unless it wants to never borrow money in the future. (You can't inherit a house without inherit the mortgage). However, if the market caught wind of the fact that the government is running a Ponzi scheme (welfare state when we have aging population), the market will not be this kind.

'if the economy improve' - we are at historically low investment, and historically low R&D spending. On what basis would one think economy is going to improve? Only thing Canada has going for it us climate change. Warmer temperatures will unlock value in vast mass of land. Studies show Canadian economy would be best at +4 warming. Ironic, isn't it?

Exactly, you are looking at major devaluation of a dollar unless trend reverses quickly, and that means stagflation

 

[Johnny_kar]

@damian13ster
We need to further deregulate our economy, so we can increase productivity quickly in order to avoid stagflation.

However, as trade protectionism become a more serious problem, I still think stagflation is a serious risk.