Thursday, December 13, 2012

Stocks And Inflation

Zedrohedge has a fantastic post today quoting a UBS study discussing whether or not equities (stocks) are a good hedge against inflation. It's particularly timely as the Fed just launched QE4 yesterday, announcing their plan to buy $500B of Treasuries, continuing to monetize the debt. I highly recommend reading the whole thing including the comments. Many of the comments are excellent and I plan to excerpt the ones I liked the best later. In the meantime, here's the payoff chart for me.

The UBS analyst thinks that equities are a good hedge in the 2-6% inflation range, with many conditions. Read the whole post to get the full description.
The problem I have with all of this analysis is that historical data, particularly American data, is no longer particularly relevant. This is not America any more, not in any financial, fiscal or legal sense. This is much closer to Peronist Argentina and it's impossible to predict what will come next out of Washington. I would bet on unpredictable spasms of government intervention rather than on some kind of continuation of American economic models. That makes financial planning and prediction very difficult.


W.C. Varones said...

Diversification. Including gold and including overseas assets.

K T Cat said...

I'm not a fan of gold, though I see it's role. I don't want to hold paper certificates because I don't trust them and I can't store enough of the real stuff safely to make a difference. I'd go for real estate and overseas assets.

W.C. Varones said...

What you mean you can't store enough of the real stuff safely?

You can fit hundreds of thousands of dollars worth in a small safe deposit box, millions in a larger box... or bury some six feet deep in your back yard, etc.

Some of my earlier thoughts on inflation here and here.

K T Cat said...

I'm not comfortable keeping hundreds of thousands of dollars of liquid, untraceable wealth around my house.

Jedi Master Ivyan said...

I'm trying to nudge the hubster into buying real estate, like a duplex or triplex with the idea that it would pay for itself and then some. Getting into buying rentals seems like a good move for now.