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

[Kshartle]

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?

This is why the inflation rate is really the rate of increase of the money supply, not prices. Price changes (or non-changes) are partially an EFFECT of inflation. They are also partially the effect of other things. Unless you think inflation makes some prices go up and some go down (this is silly, it makes dollars worth less than they otherwise would be so it's effect is not really on things but on dollars).

Increases in productivity would result in consistently lower prices every year in general. Sometimes the inflation is only enough to prevent the falling prices. It still cost you though.

Measure the PP against the increase in the money supply annually and I doubt it will be posting a real return, particularly after taxes and fees. It's 50% fixed dollars and 25% gold so it's 75% money (if you consider dollars money). Stocks might go up nominally with inflation, but inflation hurts the economy and businesses I've explained this so many times I'm not going to do it again.

The PP is skewed towards deflation. It's very close to Browne's original deflation portfolio and far from his inflation one. High inflation (increases to the money supply) expose the weakness of the PP. Hyperinflation would be catastophic to it.

That being said it's pretty good all the rest of the time.

[MediumTex]

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!

This is a common problem among people with strong personalities, high intelligence and lots of self-confidence--they tend to believe that the mere fact that they are the ones arguing a certain position must mean that it is correct.

Most of the time this sort of thing is harmless because so many people in the world actually like being told what to believe (and, in fact, feel uneasy when there isn't someone around to tell them).

The problem you run into is when you come across people who are not persuaded by strength of personality and who need for an argument to be internally persuasive to find it appealing--i.e., persuasive without regard to the personality or determination of the one making it.

I will never be able to offer an argument about a subjective matter that will be universally persuasive.  I don't recognize this fact as an admission of weakness in my own personality, but rather as a nod to the sovereign nature of the minds of every other person in the world, some of whom will agree with me, and others of whom won't. 

[Kshartle]

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?

Won't a nominal 10% return always be better than a nominal 6% return?  I think that is part of frommi's point.

Definately not. The nominal return is meaningless unless measured against inflation. Meaningless.

[l82start]

making it even trickier to measure (especially with foodstuffs) is the shrinkage... the 12 oz container for 1.00$ is now the 10oz container for 1.90$, its a near invisible cost for most shoppers who don't pay close attention..

[MediumTex]

This is why the inflation rate is really the rate of increase of the money supply, not prices. Price changes (or non-changes) are partially an EFFECT of inflation. They are also partially the effect of other things. Unless you think inflation makes some prices go up and some go down (this is silly, it makes dollars worth less than they otherwise would be so it's effect is not really on things but on dollars).

So if the economy is expanding at a 4% rate and the money supply is expanding at a 2% rate, and thus the average price level on everything is declining (because the supply of goods is expanding more rapidly than the supply of dollars available to purchase them), would you say that the economy is still experiencing currency devaluation?

[Marc De Mesel]

This is why the inflation rate is really the rate of increase of the money supply, not prices. Price changes (or non-changes) are partially an EFFECT of inflation. They are also partially the effect of other things. Unless you think inflation makes some prices go up and some go down (this is silly, it makes dollars worth less than they otherwise would be so it's effect is not really on things but on dollars).

Increases in productivity would result in consistently lower prices every year in general. Sometimes the inflation is only enough to prevent the falling prices. It still cost you though.

Measure the PP against the increase in the money supply annually and I doubt it will be posting a real return, particularly after taxes and fees. It's 50% fixed dollars and 25% gold so it's 75% money (if you consider dollars money). Stocks might go up nominally with inflation, but inflation hurts the economy and businesses I've explained this so many times I'm not going to do it again.

The PP is skewed towards deflation. It's very close to Browne's original deflation portfolio and far from his inflation one. High inflation (increases to the money supply) expose the weakness of the PP. Hyperinflation would be catastophic to it.

That being said it's pretty good all the rest of the time.

Thanks so much for responding. That's really a great point. 

I publish the money being printed in USA, EU and Japan, next to the PP returns here: http://europeanpermanentportfolio.blogs ... folio.html

I also publish official and estimated true inflation next to it and indeed it is following the amount of money printed pretty good.

Only the last few years not. Do you think prices will end up going up as much as has been printed?


Also, I was wondering why you think the PP will fail during hyperinflation? I tested Iceland scenario and eventhough currency collapsed by 75% and most products tripled, thanks to the gold the PP did succeed in preserving your purchasing power overall (down vs imported goods, but up vs local goods and real estate. You can find my study here. )

Iceland was not real hyperinflation though. I think you should stop rebalancing in that case but other than that I think the PP would work also during hyperinflation. (preserving your wealth, not increasing)

Very curious what your thoughts are.

[MediumTex]

making it even trickier to measure (especially with foodstuffs) is the shrinkage... the 12 oz container for 1.00$ is now the 10oz container for 1.90$, its a near invisible cost for most shoppers who don't pay close attention..

Trickier, too, is when the reduced portions are closer to what consumers actually want.

For example, let's say that soft drink makers conclusively determined that consumers value a 10 ounce soft drink serving exactly the same as they value a 12 ounce serving, and in response the soft drink makers reduce their can size from 12 ounces to 10 ounces, but leave the price the same, is that inflation?

[Kshartle]

This is why the inflation rate is really the rate of increase of the money supply, not prices. Price changes (or non-changes) are partially an EFFECT of inflation. They are also partially the effect of other things. Unless you think inflation makes some prices go up and some go down (this is silly, it makes dollars worth less than they otherwise would be so it's effect is not really on things but on dollars).

So if the economy is expanding at a 4% rate and the money supply is expanding at a 2% rate, and thus the average price level on everything is declining (because the supply of goods is expanding more rapidly than the supply of dollars available to purchase them), would you say that the economy is still experiencing currency devaluation?

Yes. Absent the devaluation by the money printers your money would buy 2% more stuff. They devalued it.

Imagine if new amazing technology would drop prices by 50% on average but they doubled the money supply and prices stayed the same. Would the devaluation be more obvious then? What is the difference whether they devalue a lot or a little, or how much more the economy produces......if they are devaluing they are devaluing and stealing from you what your money could have otherwise purchased.

[Kshartle]

making it even trickier to measure (especially with foodstuffs) is the shrinkage... the 12 oz container for 1.00$ is now the 10oz container for 1.90$, its a near invisible cost for most shoppers who don't pay close attention..

I am seeing this every couple months when I go to the grocery store.

Sometimes they even drop the price.......20% less stuff for 10% less cost and call it a sale.

Everyone is trying to keep up.

McDizzle now has $5 items on the "dollar menue and more"

[MediumTex]

Thanks so much for responding. That's really a great point. 

I publish the money being printed in USA, EU and Japan, next to the PP returns here: http://europeanpermanentportfolio.blogs ... folio.html

I also publish official and estimated true inflation next to it and indeed it is following the amount of money printed pretty good.

Only the last few years not. Do you think prices will end up going up as much as has been printed?

Marc, here is a question for you:

If the economy doubled in size and the amount of money in circulation doubled as well, what would you expect to happen to the average price level of goods and services?

Here's another one:

If most money creation comes from private sector in the form of credit expansion, and credit expansion ebbs and flows in harmony with the contraction and expansion of the underlying economy, what could the government really do about inflation even if it wanted to?

[MediumTex]

Absent the devaluation by the money printers your money would buy 2% more stuff. They devalued it.

Imagine if new amazing technology would drop prices by 50% on average but they doubled the money supply and prices stayed the same. Would the devaluation be more obvious then? What is the difference whether they devalue a lot or a little, or how much more the economy produces......if they are devaluing they are devaluing and stealing from you what your money could have otherwise purchased.

Do you think that there should be a law against banks lending out money, considering that this private sector credit expansion is what drives most expansion of the money supply?

If you say "yes", banks shouldn't be allowed to loan so much money, where would the entrepreneurs of the world get the financing they need to create the wealth that their ideas will generate?  Where would consumers get the money to buy the things that facilitate economic expansion?

[Marc De Mesel]

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.

I agree that it is my job to back up my statement that inflation is 5%. I do so with empirical evidence. Yet you dismiss the evidence. Please see here why your dismissals are invalid.

I've given you price evidence of the biggest expenses a household has, real estate, car, food, energy.

Please stop talking down on me on how I should behave to people.  MediumTex, please stop also doing that.

[Pointedstick]

I agree that it is my job to back up my statement that inflation is 5%. I do so with empirical evidence. Yet you dismiss the evidence. Please see  here why your dismissals are invalid.

I've given you price evidence of the biggest expenses a household has, real estate, car, food, energy.

Please stop talking down on me on how I should behave to people.

Well if you're not going to listen to my attempts to refute your claims, and you're not going to listen to my advice on how to better convince me, then I guess I don't feel like you're going to listen to anything else I say, so I'll leave this discussion.

That said, I'll end with one final piece of advice not so much for you (because I know you don't like my advice) but for anyone else reading along: Don't post provocative things to online forums when you're in a bad mood. It rarely works out well.

[moda0306]

Kshartle (and anyone else concerned with inflation-adj returns),

You can have a different way of calculating inflation, and let's say it's often pretty close to 2% above what MIT and the government are reporting in their respective indices...

How is that going to change your investment decisions to a meaningful degree?  What investment vehicle has provided a phenomenal inflation-adjusted return in the long-term that hasn't experienced some serious short/medium-term volatility in REAL terms?

I mean how much REAL value did gold lose from 1981-2000?  You could have had the "right measure" of inflation that whole time and laughing at those stupid bond-holders who were actually creaming gold-bugs in nominal AND real terms for decades.  From 1968-1981 the stock-market had awful real returns.  A gold/equity/real-estate portfolio has some pretty scary periods in the past, suffering REAL volatility.

If it lent an additional strategic benefit, I'd be all for scheming out a more accurate rate of inflation, but we'd still be looking at some uncomfortable volatility scenarios and decades of potential real losses to try to cope with or offset with some magic asset.

[l82start]

making it even trickier to measure (especially with foodstuffs) is the shrinkage... the 12 oz container for 1.00$ is now the 10oz container for 1.90$, its a near invisible cost for most shoppers who don't pay close attention..

I am seeing this every couple months when I go to the grocery store.

Sometimes they even drop the price.......20% less stuff for 10% less cost and call it a sale.

Everyone is trying to keep up.

McDizzle now has $5 items on the "dollar menue and more"

have you seen the indentation on the bottom of jars (peanut butter is a good example)  the jar looks the same on the shelf but if you pick it up and look you can see how they have hidden the size reduction from unwary shoppers...

[MediumTex]

I've given you price evidence of the biggest expenses a household has, real estate, car, food, energy.

And I have shown you the following:

1. Real estate costs over the last 5 years have declined for millions of Americans as a result of falling mortgage interest rates.

2. I picked a car model and tracked its price over 40 years and showed how it has seen around 2-3% annual price inflation.

3. I have shown how since 2008 food prices have risen at the rate of 2-3% per year.

4. I have shown how the price of oil is about the same as it was five years ago and how the price of natural gas has totally collapsed, resulting in lower heating and cooling bills for millions of Americans.

Please stop talking down on me on how I should behave to people.  MediumTex, please stop also doing that.

Do not confuse someone disagreeing with you with being talked down to.

If you wish to demonstrate how the examples of price declines, zero inflation or modest inflation I cite above are incorrect, please do so.

***

How can you not see that there is room for reasonable disagreement in this discussion?  If there is room for reasonable disagreement, then you have not conclusively proven your point--you have simply offered an interesting perspective that is one of many perspectives out there that are explanatory in some settings and very misleading in others.

[Marc De Mesel]

I've given you price evidence of the biggest expenses a household has, real estate, car, food, energy.

And I have shown you the following:

1. Real estate costs over the last 5 years have declined for millions of Americans as a result of falling mortgage interest rates.

2. I picked a car model and tracked its price over 40 years and showed how it has seen around 2-3% annual price inflation.

3. I have shown how since 2008 food prices have risen at the rate of 2-3% per year.

4. I have shown how the price of oil is about the same as it was five years ago and how the price of natural gas has totally collapsed, resulting in lower heating and cooling bills for millions of Americans.

I debunked some already, other I do not remember.

Could you link to it please? I will provide you my rebuttals or admissions.

[Kshartle]

Absent the devaluation by the money printers your money would buy 2% more stuff. They devalued it.

Imagine if new amazing technology would drop prices by 50% on average but they doubled the money supply and prices stayed the same. Would the devaluation be more obvious then? What is the difference whether they devalue a lot or a little, or how much more the economy produces......if they are devaluing they are devaluing and stealing from you what your money could have otherwise purchased.

Do you think that there should be a law against banks lending out money, considering that this private sector credit expansion is what drives most expansion of the money supply?

If you say "yes", banks shouldn't be allowed to loan so much money, where would the entrepreneurs of the world get the financing they need to create the wealth that their ideas will generate?  Where would consumers get the money to buy the things that facilitate economic expansion?

I'm an anarchist. I'm opposed to laws. The reality they have the ability to legally counterfeit  .....BECAUSE of the law.

[Kshartle]

making it even trickier to measure (especially with foodstuffs) is the shrinkage... the 12 oz container for 1.00$ is now the 10oz container for 1.90$, its a near invisible cost for most shoppers who don't pay close attention..

I am seeing this every couple months when I go to the grocery store.

Sometimes they even drop the price.......20% less stuff for 10% less cost and call it a sale.

Everyone is trying to keep up.

McDizzle now has $5 items on the "dollar menue and more"

have you seen the indentation on the bottom of jars (peanut butter is a good example)  the jar looks the same on the shelf but if you pick it up and look you can see how they have hidden the size reduction from unwary shoppers...

I have been seeing funkier and funkier packaging yes. Everytime I do I feel bad for people trying to make a living selling products to an increasingly impoverished people. I also feel bad for the poor and those on fixed income. Inflation and socialism/theft always hit them the hardest.

[MediumTex]

I've given you price evidence of the biggest expenses a household has, real estate, car, food, energy.

And I have shown you the following:

1. Real estate costs over the last 5 years have declined for millions of Americans as a result of falling mortgage interest rates.

2. I picked a car model and tracked its price over 40 years and showed how it has seen around 2-3% annual price inflation.

3. I have shown how since 2008 food prices have risen at the rate of 2-3% per year.

4. I have shown how the price of oil is about the same as it was five years ago and how the price of natural gas has totally collapsed, resulting in lower heating and cooling bills for millions of Americans.

I debunked some already, other I do not remember.

Could you link to it please? I will provide you my rebuttals or admissions.

House payments are determined by a combination of housing prices and mortgage rates.

Here is what mortgage rates have done over the last 25 years (basically a straight line down):



And the price of housing (over the last 7 years basically straight down):



Check out the price of natural gas in real terms over the last four decades:



The price of oil is about where it was at five years ago.  Over the last 30 years, we see an annual inflation rate in oil prices of about 5.5% (from $20/barrel in the early 1980s through $100/barrel in 2013):



As far as the price of food goes, here is a 1990-2012 chart.  Starting value is about 105 and ending value is about 195.  This change translates into a 2.8% annual inflation rate.

LINK TO CHART

And, finally, automobile prices:

In 1973, a new Corvette cost $5,562.  In 2013, a new Corvette cost $49,600.  Over 40 years, this reflects an annual price increase of about 5.6%

***

Something tells me that despite all of the data above, you will nevertheless find some way to "debunk" it in order to maintain your belief in a certain preconceived notion that long term U.S. inflation is somehow higher than about 5%.

[moda0306]

I am seeing this every couple months when I go to the grocery store.

Sometimes they even drop the price.......20% less stuff for 10% less cost and call it a sale.

Everyone is trying to keep up.

McDizzle now has $5 items on the "dollar menue and more"

have you seen the indentation on the bottom of jars (peanut butter is a good example)  the jar looks the same on the shelf but if you pick it up and look you can see how they have hidden the size reduction from unwary shoppers...

I have been seeing funkier and funkier packaging yes. Everytime I do I feel bad for people trying to make a living selling products to an increasingly impoverished people. I also feel bad for the poor and those on fixed income. Inflation and socialism/theft always hit them the hardest.

Leaving out inflation (we can debate who that affects later), how does taxing a person making $1 Million per year and giving it to someone making $25k per year to help them pay or health insurance "impoverish" them from where they were without that aid?

How does giving to the temporarily unemployed (as part of a layoff, not quitting or being fired) "hit them the hardest?"

I'm not arguing it's right or wrong, but to be impoverishing people, social aid would have to result in the recipient spending MORE than they receive in aid, as a result of them receiving said aid.  The math doesn't add up.

[Kshartle]

have you seen the indentation on the bottom of jars (peanut butter is a good example)  the jar looks the same on the shelf but if you pick it up and look you can see how they have hidden the size reduction from unwary shoppers...

I have been seeing funkier and funkier packaging yes. Everytime I do I feel bad for people trying to make a living selling products to an increasingly impoverished people. I also feel bad for the poor and those on fixed income. Inflation and socialism/theft always hit them the hardest.

Leaving out inflation (we can debate who that affects later), how does taxing a person making $1 Million per year and giving it to someone making $25k per year to help them pay or health insurance "impoverish" them from where they were without that aid?

How does giving to the temporarily unemployed (as part of a layoff, not quitting or being fired) "hit them the hardest?"

I'm not arguing it's right or wrong, but to be impoverishing people, social aid would have to result in the recipient spending MORE than they receive in aid, as a result of them receiving said aid.  The math doesn't add up.

See Harry Browne's parable of the forgotton man. I've posted on this numerous times. When A steals from B to give to C, B takes steps to avoid it. B earns less, leaves, finds other ways to hide, or starts pretending to be C.

Stealing from the haves to give to the have nots destroys the only hope the have nots have. Their only hope is to get a job. Handouts destroy their hope. For evidence look at the United States. You don't have to look far.

[Kshartle]

Kshartle (and anyone else concerned with inflation-adj returns),

You can have a different way of calculating inflation, and let's say it's often pretty close to 2% above what MIT and the government are reporting in their respective indices...

How is that going to change your investment decisions to a meaningful degree?  What investment vehicle has provided a phenomenal inflation-adjusted return in the long-term that hasn't experienced some serious short/medium-term volatility in REAL terms?

I mean how much REAL value did gold lose from 1981-2000?  You could have had the "right measure" of inflation that whole time and laughing at those stupid bond-holders who were actually creaming gold-bugs in nominal AND real terms for decades.  From 1968-1981 the stock-market had awful real returns.  A gold/equity/real-estate portfolio has some pretty scary periods in the past, suffering REAL volatility.

If it lent an additional strategic benefit, I'd be all for scheming out a more accurate rate of inflation, but we'd still be looking at some uncomfortable volatility scenarios and decades of potential real losses to try to cope with or offset with some magic asset.

I'll get to this one man. I just don't have the time to properly address at the moment.

I know it sucks sometimes when it seems like someone ignores your posts. This one just takes a few more minutes than I have right now.

[moda0306]

B may take steps to avoid it, and it appears they're taking some steps, but for the most part the wealth is still piling significantly into the hands of the few, so "stealing" from them doesn't appear to have that affect at this time... they still seem to be enjoying the tax-adjusted income, and continuing to make themselves wealthier.

Their only hope is a job?  You say so?  What if it's to start a business?  And who's to say paying for someone's education or another man's healthcare destroys  either of those hopes?  Maybe it expands those hopes.

You say these things, but are really providing no evidence of their truth.  I really don't think that subsidized education "destroyed my hopes" at success in life.  I'm glad I didn't graduate high-school with tens-of-thousands in debt (or, more likely, just having to start working in a factory when I'm 6 years old).  I think that being able to concentrate on studies without having to wonder where my next meal was going to come from expanded my hope... it didn't kill it.  There have been plenty of people who have had to go on temporary assistance, who are now extremely productive, who might seriously disagree with your assessment of social assistance.

... though maybe this is for another thread.

[moda0306]

Kshartle (and anyone else concerned with inflation-adj returns),

You can have a different way of calculating inflation, and let's say it's often pretty close to 2% above what MIT and the government are reporting in their respective indices...

How is that going to change your investment decisions to a meaningful degree?  What investment vehicle has provided a phenomenal inflation-adjusted return in the long-term that hasn't experienced some serious short/medium-term volatility in REAL terms?

I mean how much REAL value did gold lose from 1981-2000?  You could have had the "right measure" of inflation that whole time and laughing at those stupid bond-holders who were actually creaming gold-bugs in nominal AND real terms for decades.  From 1968-1981 the stock-market had awful real returns.  A gold/equity/real-estate portfolio has some pretty scary periods in the past, suffering REAL volatility.

If it lent an additional strategic benefit, I'd be all for scheming out a more accurate rate of inflation, but we'd still be looking at some uncomfortable volatility scenarios and decades of potential real losses to try to cope with or offset with some magic asset.

I'll get to this one man. I just don't have the time to properly address at the moment.

I know it sucks sometimes when it seems like someone ignores your posts. This one just takes a few more minutes than I have right now.

Oh no worries!  I actually forgot about that post haha!

I just think that there are limits to our ability to handle rises in some prices unless we're willing to invest in a relatively volatile way (investing directly in those price-indices, investing in the providers of those items, etc).

Especially when you consider that anything but pure, physical (insert asset here) would survive a SHTF scenario, which is part of the "inflation is worse than reported" meme.

Eventually you're taking some very large REAL risks, especially if you think of the fact that if you ARE running a business, inflation isn't your only worry. 

Some business owners have to worry about... oh, idk... inadequacy of demand in the face of fixed debt payments .