One of the more annoying type of people you have to deal with in wealth management (at least in my view) are the people who constantly worry about inflation. Don’t get me wrong, inflation is a dangerous thing, and we absolutely need to make sure it remains low and stable because if it gets out of control like in the last two years, it becomes a severe problem for the economy, jobs, etc. But worrying about inflation can go too far and with many wealthy individuals it does.
This is a bit of a suprise to me. I thought it was foremost Stupid German Money that was paranoid about debt and inflation.
I mean, the dialogue in my world often sounds like this: inflation is a major danger --> No it's not, but if that will help you sleep better, then own assets with a moat, that have pricing power --> Are you talking about stocks? They are way too risky
Not to mention all those folks who think having a (really pricey) account in Switzerland is crucial because The State is going to confiscate everything in short order.
All this brings to mind Charlie Munger's words, according to which getting rich is easy, but staying sane in the process is the hard part.
I'm close to 60, and my whole adult life I've been constantly warned that everything's on the verge of collapse. But it never does. Most people go to automobile races to watch the race, but a certain percentage secretly hope for a firey wreck. I was always taught that one should own stocks and real estate because they rise in step with inflation ... i.e. even if one lived (as I did) through '70s inflation, one can take solace in the fact that equities have gone up 11% per annum on average since 1929, which is a pretty big cushion versus worrying whether normalized 2-3% on a bond or time deposit is going to make the inflation nut. It's said that the happiest day in an equity investor's life us the day a stock investment becomes a 10-bagger. The happiest day in a bond investor's life is the day he gets his money back. The happiest day in a gold horder's life is, uhh, never?
Speaking of which, thanks for not mentioning how becoming a gold bug and/or cryptocurrency zealot is sometimes the next depressing step in the perma-bear thought process you describe. I don't see how cracking down on crypto is any different that all the cash-related anti-money-laundering regulations put in place already. The very reason all the gold was called in back in 1933 https://en.wikipedia.org/wiki/Executive_Order_6102 was that rich people were panicing and hoarding their money in gold and burying it in their back yards instead of investing it in productive enterprises that employed people in the middle of a deep depression. I'm sure the Egyptians weren't terribly wild about the Pharaohs being buried with all that loot either, and the (actual) slaves who built them were doubtless grumbling that they'd rather have fiat money instead of dragging all those huge rocks around to build pyramid-shaped gold hoardes ;-)
Besides, no one ever explains how gold will actually be used in an apocalyptic collapse. Gold bug: "Here, let me slice off a piece of this gold bar in exchange for that can of food". Guy with the can of food, and a gun: "How about just handing me the whole bar?". And I've always thought that "prepping" was just assembling supplies for the toughest, best-armed guy on the block.
"Being negative also helps you appear smart. In a classic 1983 study by the psychologist Teresa Amabile, authors of scathingly negative book reviews were perceived as more intelligent than the authors of positive reviews. Intellectually insecure people tend to be negative because they think it displays their brainpower. Believing in vicious conspiracy theories can also boost your self-esteem: You are the superior mind who sees beneath the surface into the hidden realms where evil cabals really run the world. You have true knowledge of how the world works, which the masses are too naive to see. Conspiracy theories put you in the role of the truth-telling hero. Paranoia is the opiate of those who fear they may be insignificant." -- David Brooks, The Atlantic Monthly
Morning Joachim, loved this as a former wealth manager!
You say that is a myth that stocks are a good inflation hedge when inflation is running at under 4%, I am sure that I have seen the numbers that demonstrate this before - but have you written on this topic? I’m assuming that the data shows that commodities are the best inflation hedge when inflation gets out of control?
Well I have lived thru all these events and I have seen prices double for most things about every ten years over the last 50. Bought my first stocks in 1972. You can decide if this history meets a runaway definition but effectively the government is taking 50% of your unhedged wealth every decade. It’s not a cliff event that’s coming but a feature of the system. My advice to anyone under 30 is to plan appropriately. If you believe inflation is 1% call me in 40 years, and I have a masters in finance from the univ of Chicago, so it’s not like I am unfamiliar with these concepts. Like you writings!
As a pinko-grey old male, I agree with the article; but then I must identify the consequences for me. I worked in the 1970s and experienced high inflation; but the nature of 1970s inflation and the consequences for 2024 are different.
Being in the ‘draw money out’ decumulation stage I follow basic principles: diversify, preserve capital, etc. I never “worry” about inflation but Defence against inflation is important.
I never held Gold until c. 5 years ago; from then I consider Gold a ‘currency’ to offset debasing fiat currencies: buy, set & forget. I see the risk of ‘fiscal repression’ to keep interest rates below inflation, transferring wealth from savers to borrowers.
Summed my attitude up quite well, though I'm not Swiss, or German. My problem with inflation is not personal - for me it is simply an economic abomination: mismanagement and weasel theft by politicians, warmongers and bankers, harming people, polity and civilisation
This is a bit of a suprise to me. I thought it was foremost Stupid German Money that was paranoid about debt and inflation.
I mean, the dialogue in my world often sounds like this: inflation is a major danger --> No it's not, but if that will help you sleep better, then own assets with a moat, that have pricing power --> Are you talking about stocks? They are way too risky
Not to mention all those folks who think having a (really pricey) account in Switzerland is crucial because The State is going to confiscate everything in short order.
All this brings to mind Charlie Munger's words, according to which getting rich is easy, but staying sane in the process is the hard part.
I'm close to 60, and my whole adult life I've been constantly warned that everything's on the verge of collapse. But it never does. Most people go to automobile races to watch the race, but a certain percentage secretly hope for a firey wreck. I was always taught that one should own stocks and real estate because they rise in step with inflation ... i.e. even if one lived (as I did) through '70s inflation, one can take solace in the fact that equities have gone up 11% per annum on average since 1929, which is a pretty big cushion versus worrying whether normalized 2-3% on a bond or time deposit is going to make the inflation nut. It's said that the happiest day in an equity investor's life us the day a stock investment becomes a 10-bagger. The happiest day in a bond investor's life is the day he gets his money back. The happiest day in a gold horder's life is, uhh, never?
Speaking of which, thanks for not mentioning how becoming a gold bug and/or cryptocurrency zealot is sometimes the next depressing step in the perma-bear thought process you describe. I don't see how cracking down on crypto is any different that all the cash-related anti-money-laundering regulations put in place already. The very reason all the gold was called in back in 1933 https://en.wikipedia.org/wiki/Executive_Order_6102 was that rich people were panicing and hoarding their money in gold and burying it in their back yards instead of investing it in productive enterprises that employed people in the middle of a deep depression. I'm sure the Egyptians weren't terribly wild about the Pharaohs being buried with all that loot either, and the (actual) slaves who built them were doubtless grumbling that they'd rather have fiat money instead of dragging all those huge rocks around to build pyramid-shaped gold hoardes ;-)
Besides, no one ever explains how gold will actually be used in an apocalyptic collapse. Gold bug: "Here, let me slice off a piece of this gold bar in exchange for that can of food". Guy with the can of food, and a gun: "How about just handing me the whole bar?". And I've always thought that "prepping" was just assembling supplies for the toughest, best-armed guy on the block.
"Being negative also helps you appear smart. In a classic 1983 study by the psychologist Teresa Amabile, authors of scathingly negative book reviews were perceived as more intelligent than the authors of positive reviews. Intellectually insecure people tend to be negative because they think it displays their brainpower. Believing in vicious conspiracy theories can also boost your self-esteem: You are the superior mind who sees beneath the surface into the hidden realms where evil cabals really run the world. You have true knowledge of how the world works, which the masses are too naive to see. Conspiracy theories put you in the role of the truth-telling hero. Paranoia is the opiate of those who fear they may be insignificant." -- David Brooks, The Atlantic Monthly
Morning Joachim, loved this as a former wealth manager!
You say that is a myth that stocks are a good inflation hedge when inflation is running at under 4%, I am sure that I have seen the numbers that demonstrate this before - but have you written on this topic? I’m assuming that the data shows that commodities are the best inflation hedge when inflation gets out of control?
Well I have lived thru all these events and I have seen prices double for most things about every ten years over the last 50. Bought my first stocks in 1972. You can decide if this history meets a runaway definition but effectively the government is taking 50% of your unhedged wealth every decade. It’s not a cliff event that’s coming but a feature of the system. My advice to anyone under 30 is to plan appropriately. If you believe inflation is 1% call me in 40 years, and I have a masters in finance from the univ of Chicago, so it’s not like I am unfamiliar with these concepts. Like you writings!
As a pinko-grey old male, I agree with the article; but then I must identify the consequences for me. I worked in the 1970s and experienced high inflation; but the nature of 1970s inflation and the consequences for 2024 are different.
Being in the ‘draw money out’ decumulation stage I follow basic principles: diversify, preserve capital, etc. I never “worry” about inflation but Defence against inflation is important.
I never held Gold until c. 5 years ago; from then I consider Gold a ‘currency’ to offset debasing fiat currencies: buy, set & forget. I see the risk of ‘fiscal repression’ to keep interest rates below inflation, transferring wealth from savers to borrowers.
Summed my attitude up quite well, though I'm not Swiss, or German. My problem with inflation is not personal - for me it is simply an economic abomination: mismanagement and weasel theft by politicians, warmongers and bankers, harming people, polity and civilisation