I wrongly warned about inflation at this site for so many years, that I began to ask myself… “have things really changed”.
Current events, the fast and strong rise of inflation shows that the rules of money have not changed.
You cannot create money without productivity and not get inflation.
So what can we do?
First, let’s keep things in perspective.
Life is still good. Remember if you are upset with reality, it’s your understanding of reality that’s out of kilter… not reality. Life is what it is. We live in a universe of cycles so don’t panic. This too will end.
Overall as a society we are enormously rich.
At $4 to $5 a gallon, gas prices are not that high here in the USA. I was just in England. The price of gas there is almost $2.50… A QUART, almost $10 a gallon.
Plus we can get gas. In the 1970s the price was high and gas was rationed.
And no Russians are shooting rockets into our front yards (yet).
If I start to get upset about the stagflation we may have to deal with, I look again at the recent images from the James Web Telescope. They are so mind expanding.
Each of those blurs is a galaxy system of millions or billions of stars, together with gas and dust, held together by gravitational attraction. And there’s the infinite beyond I guess. Suddenly any petty concerns about where we are in a short term economic cycle seems quite insignificant.
Plus having been involved in global investing for over 50 years I was active, working and raising a family through the last such inflation in the 1970s. I know there are ways to get ahead in this type of economic scenario.
At that time, in the 1970s, my approach was to buy appreciating real estate assets with the lowest interest rate, longest term, I could get. Fixed interest debt is good during times of high inflation if its occurred while interest rates are still low. If one has enough time n their planning, this is still a good approach.
BUT do not overextend so if the asset value drops (it’s likely that we’ll have a recession soon enough) you’ll have to come up with cash you do not have.
My approach is different because at age 75, my time framework is too short. I appreciate that most of my readers are in the same position.
Here’s what I am doing. I am adjusting my assets so they provide just the income I need, plus 10% extra to deal with the inflation that will still come.
Many of my assets are in tax deferred positions so until I draw income on them I have no tax consequences.
Mostly I want appreciating assets, real estate and equities. These assets and their compounding returns over the next decade will fight inflation.
I am selling some real estate I hold in all time high markets and investing the proceeds in good value equity market ETFs taking a ten year view.
Here’s a real example of what I mean about keeping income down.
I’m selling some land with timber. I had an offer requesting owner finance for ten years at 10% interest. That’s a great interest rate.
However I did some calculating. If I accepted, I’d get $100,000 down and $8,666 a month for 10 years. The total return would be about $1,140,000 and at the end i would have zero left from that asset.
If I got full price instead and invested in good value shares that appreciated at 7% per annum, after ten years I would still have the asset and it would be worth over $1,400,000.
I do have my tax accountant looking at this though, as spreading out the capital gains and investing the income as it comes in might make sense, but probably not.
I choose my good value markets based on the research of Keppler Asset Management KAM).
Each quarter Keppler projects how the KAM Equally Weighted World Index might rise over the next four years based on value.
The chart below shows Keppler’s entire real-time forecasting history for the KAM Equally Weighted World Index, starting at the end of 1993.
These projections have been quite accurate.
Last quarter, the Index was just 1.8% below the projection from June 2018.
Keppler’s current three-to-five-year projection places the KAM Equally Weighted World Index at at a level that corresponds to a compound annual total return estimate of 6.3 % in local currencies.
The upper-band estimate by June 30, 2026 implies a compound annual total return of 11.2% while the lower-band estimate indicates a compound annual total return of 0.5%.
However Keppler’s projections suggest that this growth will not come in all regions. The greatest growth will come in Asia and good value markets which is where I am putting my equity bets.
Pi subscribers can get the Keppler developed Market Quarterly Report at https://www.kamny.com/wp-content/uploads/DM_Quarterly_2022-06-30.pdf