Chances of losing (and winning!) are close to zero.

[craigr]

You say 3%, giving PP attractive real return of 5%, yet you are also unable to back it up with price data.

It's too personal for each investor. I would use the CPI, the MIT billion price project, my own budget and spending, etc. Some of these items are personal for each and won't apply across the board. That's why someone in Northern Nebraska can think inflation is only 2% because cost of living is so much less for them, but someone living in NYC will think 5-10% sounds right. And for each of them it could be. But even the most accurate inflation index can't possibly accommodate each person's own spending needs. They need to assume some kind of baseline and that baseline won't match everyone.

My own investment target is 3-5% real over inflation over time. This may not happen each year. But I would like it to happen over a series of years while also protecting against large losses if possible.

[Marc De Mesel]

So 3% true inflation, almost half of my estimate, any price evidence to back that up?

We can all throw down anecdotal evidence of individual prices that support or refute any possible conclusion. For the last few years, my rent inflation rate has been about 10%, but my car insurance inflation rate has been about -10%, and my electricity, water, sewer, and garbage collection inflation rates have been 0%.

Inflation is an inherently personal thing because none of us buys the same things. I never buy Campbell's soup so any inflation in the price of Campbell's soup is irrelevant to me.

I don't care about the average inflation or the average PP return. I care about MY inflation and MY PP return.

Why is my evidence anecdotical? Do you have higher quality evidence as mine to support your argument?

Sorry to hear you are not interested in average inflation and average return of pp. Please reread opening post to get perspective on the discussion at hand here.

[Marc De Mesel]

I think the correct definition of inflation is: how much purchasing power money is losing.

Because if you say 'rise of living expenses', well obviously that is not 5% per year because barely anyone can afford to spend 5% more every year, so most cut back. And then the government calls it hedonic adjustment and lowers the inflation estimate.

Many here being experts in money management succeed in cutting back, hence lower personal 'inflation'. I understand that thanks to this your living expenses do not go up with 5% per year, and so you do make larger profit with PP.

However, this thread is about me being wrong when I say that the true returns of the PP are close to zero. I still think I am correct in this as I am clearly talking about average inflation. Not personal inflation of you. And with inflation I mean loss of purchasing power of fiat, not rise of average living expenses.

I want to be able to buy the same next year, not cutting back, and for that my investment needs to 'grow' 5% as that is what prices go up on average, as I have been proving here.

[Pointedstick]

Why is my evidence anecdotical?

Because you are cherry-picking examples of prices that support your conclusions, rather than looking at statistical compilations of all prices. It's like declaring that airplanes are deathtraps based on the result of famous plane crashes rather than a statistical examination of the likelihood of any given plane crashing, or a comparison of the rate of plane crashes to car crashes, boat sinkings, etc.

Do you have higher quality evidence as mine to support your argument?

The BPP data is convincing to me. Unfortunately, you have dismissed it as inaccurate. I would call the BPP data "higher quality" than your generalizations based on examples of fast food, petroleum-based fuels, and investment products that we want to rise (for better or worse, houses are considered investments ).

Sorry to hear you are not interested in average inflation and average return of pp. Please reread opening post to get perspective on the discussion at hand here.

Why so aggressive? Are you having a bad day?

[Pointedstick]

I think the correct definition of inflation is: how much purchasing power money is losing.

Because if you say 'rise of living expenses', well obviously that is not 5% per year because barely anyone can afford to spend 5% more every year, so most cut back. And then the government calls it hedonic adjustment.

And yet, despite the implication that people are constantly having to cut back, we live in societies in which our poor people have indoor plumbing, electricity, refrigeration, smartphones, internet access, pleasurable animal companions, and most can even afford personal motor vehicles and occasional luxuries like eating at restaurants, seeing a movie in a movie theater, or making use of the services of a professional hairstylist.

If you're trying to paint a picture in which our steady loss of purchasing power is constantly forcing people to make do with less, I just don't see it. If anything, I see a world in which material excess is the rule, not the exception. My neighbors have bigger houses and more powerful and advanced vehicles in higher quantities than they did 15 years ago. More have swimming pools. All of them have a smartphone and at least one computer per person, and some also have tablets and dedicated eBook readers. They take luxurious vacations on cruise ships to romantic European cities.

Maybe none of them can afford these things. Maybe they're all living paycheck-to-paycheck, a single unemployment stint away from bankruptcy. But that's a different story from people's purchasing power being eroded by fiat money printing and forcing them to make do with less.

[moda0306]

Not to completely derail this subject, but I wonder what people who feel inflation is under-reported think about nominal GDP.

If inflation is significantly under-reported over the last 13 years, then it's likely that nominal GDP is, as well.  This means our debt/GDP ratio is in a much more "safe" position than currently reported (110% or something like that).

[Marc De Mesel]

Why is my evidence anecdotical?

Because you are cherry-picking examples of prices that support your conclusions, rather than looking at statistical compilations of all prices. It's like declaring that airplanes are deathtraps based on the result of famous plane crashes rather than a statistical examination of the likelihood of any given plane crashing, or a comparison of the rate of plane crashes to car crashes, boat sinkings, etc.

Please give me more price histories, I can't find them. I remember seeing that most agricultural prices on Comex went up 'only' around 2% but why would I quote those here? You already agree with inflation being 2%.

I only quote prices that are higher than 5%, so that when you include the non quoted 2%, you get an average of 5%.

I think your accusation that I cherry pick is false. I think I have given the biggest compilation of historical prices publicly available anywhere. Unless you can point me to a bigger compilation, please call it empirical evidence.

Do you have higher quality evidence as mine to support your argument?

The BPP data is convincing to me. Unfortunately, you have dismissed it as inaccurate. I would call the BPP data "higher quality" than your generalizations based on examples of fast food, petroleum-based fuels, and investment products that we want to rise (for better or worse, houses are considered investments ).

BPP data? There is no price data, only conclusions. They offer no price evidence in support of their inflation estimates whatsoever. If you value evidence mine is the only you have gotten.

Your argument to dismiss gold/silver/real estate price data is long debunked in previous pages.

Sorry to hear you are not interested in average inflation and average return of pp. Please reread opening post to get perspective on the discussion at hand here.

Why so aggressive? Are you having a bad day?

Yes, I do am having a bad day. I feel frustrated and for some reason this forum, and this discussion, seemed like a good channel to let the anger out. I'm sorry if I treated you unfairly or disrespectful Pointedstick. Thanks for noticing.

I'm angry with the way some people ignore, minimise, derail or dismiss my work here. I have decided to start calling them out in a confrontational manner. Agressive, I agree, but required to not be delved under BS.

[MediumTex]

However, this thread is about me being wrong when I say that the true returns of the PP are close to zero. I still think I am correct in this as I am clearly talking about average inflation. Not personal inflation of you. And with inflation I mean loss of purchasing power of fiat, not rise of average living expenses.

Reasonable people can disagree about these things.  Some people look at the CPI and their own personal situation and draw one conclusion, while someone else might draw a different conclusion.

I do, however, think that it's odd for someone who doesn't live in the U.S. to speak with such certainty and near-dismissiveness about official and anecdotal reports of U.S. inflation.  I'm certain that I would be in way over my head if I tried to do that about another country in another part of the world.

Marc, I also wonder why on earth you would have any interest in the PP at all once you had determined that it's inflation-adjusted return is basically 0%.  If I had drawn this conclusion, I would probably never give the strategy another thought.  I certainly wouldn't be getting tangled up in arguments with people in Belgium or The Netherlands about the quirks of their governments' official inflation reports and what was happening with prices and the cost of living in those countries.

[Marc De Mesel]

Not to completely derail this subject, but I wonder what people who feel inflation is under-reported think about nominal GDP.

If inflation is significantly under-reported over the last 13 years, then it's likely that nominal GDP is, as well.  This means our debt/GDP ratio is in a much more "safe" position than currently reported (110% or something like that).

You are derailing the thread, please start a new topic.

[MediumTex]

I'm angry with the way some people ignore, minimise, derail or dismiss my work here. I have decided to start calling them out in a confrontational manner. Agressive, I agree, but required to not be delved under BS.

Maybe inflation in a given economy is a bit like love, in that you really must experience it to understand it.

I don't know why you are so frustrated with people who live in the U.S. who are not completely agreeing with your conclusions about U.S. inflation when you know nothing about U.S. prices except what you have read, while most of us deal with these prices every day in our purchasing decisions.

[MediumTex]

Not to completely derail this subject, but I wonder what people who feel inflation is under-reported think about nominal GDP.

If inflation is significantly under-reported over the last 13 years, then it's likely that nominal GDP is, as well.  This means our debt/GDP ratio is in a much more "safe" position than currently reported (110% or something like that).

You are derailing the thread, please start a new topic.

I think that moda is raising an interesting point that raises some intriguing ideas about the ramifications of your point of view being correct.

For example, if price inflation has systematically been under-reported by more than 50% (which would be the case if the official inflation figure is 3%, but the real inflation figure is 4.5%), who is to say that official economic expansion of the entire economy hasn't been under-reported as well?

Maybe the economy is actually in much better shape than we think and the actual inflation figures that you believe are correct is a sign of increased health of the entire economy.

IMHO, if an economy with excess capacity is experiencing inflation it's probably pretty darn healthy because that means that even with unused capacity demand is outpacing supply.

It would be like if a restaurant were experiencing a pancake eating craze and there were a kitchen full of cooked pancakes but there were still pancake price increases simply because the waitresses couldn't deliver them to the tables fast enough and prices were being bid up to receive priority pancake delivery to certain tables.

[frommi]

I really don`t see the point in this whole discussion. Even if personal inflation rate is 10%, what can you do about that? You can buy other products, or reduce your consumption or choose to live in a smaller house. But it should have zero influence on your way to invest your money. Risk/reward is the measure that should dictate your investment style, but please don`t measure risk with backtests, because all risks that matter are in the future.

[Pointedstick]

I think your accusation that I cherry pick is false. I think I have given the biggest compilation of historical prices publicly available anywhere. Unless you can point me to a bigger compilation, please call it empirical evidence.

Maybe I'm not seeing the rest, but I'm just looking at the stuff you posted here: http://gyroscopicinvesting.com/forum/pe ... /#msg81906

Mostly you gave price histories for fast food, petroleum-based fuels, precious metals, real estate, and one particular car. That's not very comprehensive. The price history of one car is not satisfactory; we need price histories for ALL cars because people don't just buy Corvettes. The price history of Corn Flakes isn't satisfactory; we need the price history of ALL breakfast cereals because people eat more cereals than just Corn Flakes. And so on and so forth.

As a result, you are basing your conclusions on a small number of data points. Such a small data set consisting of only 13 points and excluding major categories like water, gasoline, computer hardware, computer software, telephone service, furniture, clothing, news service, and health care (which in the USA would actually be more favorable to your position). Your data is maybe representative of someone who eats a lot of unhealthy food, buys muscle cars, owns lot of precious metals and an extremely poorly-insulated house heated and cooled with petroleum-based fuels. That doesn't describe me or anyone I know.

BPP data? There is no price data, only conclusions. They offer no price evidence in support of their inflation estimates whatsoever. If you value evidence mine is the only you have gotten.

The data they use can be found here: http://statestreetglobalmarkets.com/res ... ricestats/

Yes, I do am having a bad day. I feel frustrated and for some reason this forum, and this discussion, seemed like a good channel to let the anger out. I'm sorry if I treated you unfairly or disrespectful Pointedstick. Thanks for noticing.

I'm angry with the way some people ignore, minimise, derail or dismiss my work here. I have decided to start calling them out in a confrontational manner. Agressive, I agree, but required to not be delved under BS.

Let me turn this around and say that if you're failing to convince people of your position, it's not their fault, but rather yours. Getting angry at people you're trying to convince for not being convinced is not likely to produce the desired results.

[MediumTex]

Let me turn this around and say that if you're failing to convince people of your position, it's not their fault, but rather yours. Getting angry at people you're trying to convince for not being convinced is not likely to produce the desired results.

I'm not certain what point Marc is attempting to prove.

If it comes down to something like a Methodist arguing with a Baptist with exasperation over the Baptist's inability to see the superiority of the Methodist approach to worship, then that's an argument that will never be resolved because it's ultimately way too subjective.

Everyone's personal experience with inflation will always be different, and official inflation figures will always be subject to criticism.

For a person who believes that the PP provides a 0% real return, I would say to keep looking for a more appropriate investment strategy.  For a person who believes that the PP provides a steady 3-5% positive real return, I would say to just enjoy it.  There's really no need to argue about it beyond a certain point, though.

[Marc De Mesel]

I think your accusation that I cherry pick is false. I think I have given the biggest compilation of historical prices publicly available anywhere. Unless you can point me to a bigger compilation, please call it empirical evidence.

Maybe I'm not seeing the rest, but I'm just looking at the stuff you posted here: http://gyroscopicinvesting.com/forum/pe ... /#msg81906

Mostly you gave price histories for fast food, petroleum-based fuels, precious metals, real estate, and one particular car. That's not very comprehensive. The price history of one car is not satisfactory; we need price histories for ALL cars because people don't just buy Corvettes. The price history of Corn Flakes isn't satisfactory; we need the price history of ALL breakfast cereals because people eat more cereals than just Corn Flakes. And so on and so forth.

As a result, you are basing your conclusions on a small number of data points. Such a small data set consisting of only 13 points and excluding major categories like water, gasoline, computer hardware, computer software, telephone service, furniture, clothing, news service, and health care (which in the USA would actually be more favorable to your position). Your data is maybe representative of someone who eats a lot of unhealthy food, buys muscle cars, owns lot of precious metals and an extremely poorly-insulated house heated and cooled with petroleum-based fuels. That doesn't describe me or anyone I know.

You cannot dismiss my price evidence because it is too few while at the same time not offering any price evidence yourself.

Feel free to find any of those items you wish to include and post them here.

I bet you will not post any valuable price data here.

BPP data? There is no price data, only conclusions. They offer no price evidence in support of their inflation estimates whatsoever. If you value evidence mine is the only you have gotten.

The data they use can be found here: http://statestreetglobalmarkets.com/res ... ricestats/

Nope, no historical price data I can find there, you?

[Marc De Mesel]

I'm angry with the way some people ignore, minimise, derail or dismiss my work here. I have decided to start calling them out in a confrontational manner. Agressive, I agree, but required to not be delved under BS.

Maybe inflation in a given economy is a bit like love, in that you really must experience it to understand it.

I don't know why you are so frustrated with people who live in the U.S. who are not completely agreeing with your conclusions about U.S. inflation when you know nothing about U.S. prices except what you have read, while most of us deal with these prices every day in our purchasing decisions.

Where I live has no relevance on the price evidence I provide.

You are starting to shoot the messenger instead of offering stronger price evidence yourself.

[MediumTex]

You cannot dismiss my price evidence because it is too few while at the same time not offering any price evidence yourself.

Feel free to find any of those items you wish to include and post them here.

I bet you will not post any valuable price data here.

Maybe he's not dismissing it so much as he is questioning whether it proves anything in a way that immediately ends the debate.

I never question anyone else's beliefs in the context of whether such beliefs are appropriate as a basis for their action (unless they ask me or I am otherwise responsible for their welfare).

Do you agree that inflation is a subjective experience for everyone?  If this is true, then why invest too much energy in arguing about the most accurate objective measurement of inflation across the entire economy?

FWIW, I've never heard anyone argue that the CPI understates inflation who didn't begin with a suspicious view of fiat currency.  There always seems to be a "validation of pre-existing beliefs" sort of thing going on.

[Marc De Mesel]

Do you agree that inflation is a subjective experience for everyone? 

No.

It is perfectly measurable how much prices are going up.

You can discuss how much each item must weigh in the basket of goods but that is a problem for later, if we ever get there.

First job: show me some prices that have gone up only 3% or less per year. I gave you 13 that went up by 5% or more.

[MediumTex]

Where I live has no relevance on the price evidence I provide.

You are starting to shoot the messenger instead of offering stronger price evidence yourself.

Do you really believe that not living in an economy has no bearing on your ability to understand what is happening in that economy?

At the very minimum, having no firsthand experience with an economy will subject you to the subtle influences of a variety forms of propaganda.  Even the "evidence" itself has typically been run through multiple propaganda filters before it makes its way to you.

If someone wants to engage me in an argument about a subjective topic, what's the point of disagreeing beyond a certain point?  You will believe what you want to believe and I will believe what I want to believe and we will arrange the "evidence" as needed to support our own beliefs.   

You see that these arguments only beget more arguments, right?  The increase in aggressiveness of one or both parties only entrenches each person's position and reduces the probability of either person's mind being changed.  That's how humans work--when they get annoyed, angry or otherwise upset, they stop being open to new ideas.  You see that, right?

I once heard the story of a guy who was complaining loudly about a number of things and absent-mindedly wandered across the firing line of a messenger shooting range.  As he heard the bullets fly by, he protested that they were "shooting the messenger."  He didn't suspect how far off he was in his understanding of what was actually happening to him because he was so absorbed in the Narcissus-like beauty of his beliefs.

[MediumTex]

First job: show me some prices that have gone up only 3% or less per year. I gave you 13 that went up by 5% or more.

What period of time do you need the prices to cover?

Do you not see that 13 prices are not enough to draw any meaningful conclusion about a modern economy?

***

If we are dealing with a 40 year time period (1973-2013), I would say that the following prices have seen less than 3% annual price inflation:

1. Natural gas

2. Calculators

3. Overcoats

4. Music albums

5. Military-style civilian assault rifles

6. Home stereo systems

[Marc De Mesel]

I think the correct definition of inflation is: how much purchasing power money is losing.

Because if you say 'rise of living expenses', well obviously that is not 5% per year because barely anyone can afford to spend 5% more every year, so most cut back. And then the government calls it hedonic adjustment.

And yet, despite the implication that people are constantly having to cut back, we live in societies in which our poor people have indoor plumbing, electricity, refrigeration, smartphones, internet access, pleasurable animal companions, and most can even afford personal motor vehicles and occasional luxuries like eating at restaurants, seeing a movie in a movie theater, or making use of the services of a professional hairstylist.

If you're trying to paint a picture in which our steady loss of purchasing power is constantly forcing people to make do with less, I just don't see it. If anything, I see a world in which material excess is the rule, not the exception. My neighbors have bigger houses and more powerful and advanced vehicles in higher quantities than they did 15 years ago. More have swimming pools. All of them have a smartphone and at least one computer per person, and some also have tablets and dedicated eBook readers. They take luxurious vacations on cruise ships to romantic European cities.

Maybe none of them can afford these things. Maybe they're all living paycheck-to-paycheck, a single unemployment stint away from bankruptcy. But that's a different story from people's purchasing power being eroded by fiat money printing and forcing them to make do with less.

This argument has already been debunked by systemsceptic here.

[Marc De Mesel]

I really don`t see the point in this whole discussion. Even if personal inflation rate is 10%, what can you do about that? You can buy other products, or reduce your consumption or choose to live in a smaller house. But it should have zero influence on your way to invest your money. Risk/reward is the measure that should dictate your investment style, but please don`t measure risk with backtests, because all risks that matter are in the future.

frommi, how can you judge your investment returns if you don't know the true inflation?

How much do you deduct from your returns for inflation?

[MediumTex]

I think the correct definition of inflation is: how much purchasing power money is losing.

Because if you say 'rise of living expenses', well obviously that is not 5% per year because barely anyone can afford to spend 5% more every year, so most cut back. And then the government calls it hedonic adjustment.

And yet, despite the implication that people are constantly having to cut back, we live in societies in which our poor people have indoor plumbing, electricity, refrigeration, smartphones, internet access, pleasurable animal companions, and most can even afford personal motor vehicles and occasional luxuries like eating at restaurants, seeing a movie in a movie theater, or making use of the services of a professional hairstylist.

If you're trying to paint a picture in which our steady loss of purchasing power is constantly forcing people to make do with less, I just don't see it. If anything, I see a world in which material excess is the rule, not the exception. My neighbors have bigger houses and more powerful and advanced vehicles in higher quantities than they did 15 years ago. More have swimming pools. All of them have a smartphone and at least one computer per person, and some also have tablets and dedicated eBook readers. They take luxurious vacations on cruise ships to romantic European cities.

Maybe none of them can afford these things. Maybe they're all living paycheck-to-paycheck, a single unemployment stint away from bankruptcy. But that's a different story from people's purchasing power being eroded by fiat money printing and forcing them to make do with less.

This argument has already been debunked by systemsceptic here.

Disagreeing with an argument is not the same as debunking it.

I can "debunk" the argument that there are squirrels on treadmills inside my head that allow me to form new ideas.  However, I cannot "debunk" the argument that the middle class in the U.S. today lives a more lavish lifestyle than the middle class of 40 years ago lived, even if I disagree with it (for whatever reason).

[Pointedstick]

You cannot dismiss my price evidence because it is too few while at the same time not offering any price evidence yourself.

Feel free to find any of those items you wish to include and post them here.

I bet you will not post any valuable price data here.

You've claimed the average inflation is 5% or more. it's up to you to prove it. So far you've tried to do this by introducing a very small number of individual examples which support your claim, but hardly represent what the average person purchases. Therefore, I've posited that these examples do not support an indication of average inflation because they are not average purchases. When this is pointed out, you demand that I instead provide my own numbers.

Just a helpful tip: when you're trying to convince someone of your position, and you make a provocative claim, it is up to you to prove it. It is not up to the other person to either disprove it or prove their own contrary claim. Demanding they do so is rude, and makes them feel defensive and unlikely to listen to you.

If your goal is to convince people of your positions, it is in your own self-interest to moderate your temper and learn the techniques of persuasion. Otherwise you're just going to frustrate yourself when the ignorant rubes you're surrounded by refuse to acknowledge your clear genius!

[MediumTex]

I really don`t see the point in this whole discussion. Even if personal inflation rate is 10%, what can you do about that? You can buy other products, or reduce your consumption or choose to live in a smaller house. But it should have zero influence on your way to invest your money. Risk/reward is the measure that should dictate your investment style, but please don`t measure risk with backtests, because all risks that matter are in the future.

frommi, how can you judge your investment returns if you don't know the true inflation?

What is "true" inflation?

Is it whatever you decide it is?

What if I decide it's something different?

What if every single penny I spend supports my beliefs about the nature of "true" inflation?

On what basis would you be able to tell me that my beliefs were wrong if every single experience I ever had validated and supported those beliefs?