Tag Archive | "goldman sachs"

Inflation Fears


Inflation or not… that is the question.

Almost everything I have learned about currencies and economies over the past 52 1/2 years of global investing, is that excessive government spending and debt creates inflation.  I say almost, because the most important lesson gained in these five decades is Golden Rule of Investing #1: “There is always something you do not know“.

I  think we’ll see serious inflation. My only question is how soon.  Yet I could be wrong.

What I do know for sure, is that everyone should have a plan to survive for inflation.

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The Wall Street Journal article “How to Avoid Paying the Cruelest Tax: Inflation” provides some ideas of what to do and what not to do.

It of course mentions holding gold, but shares a couple of other ideas such as  Chinese bonds and sellers of consumable goods such as grocery stores Kroger and Albertsons.

The article says: Retailers might be another good place to ride out an inflationary wave, though it matters what the company sells and how flush consumers feel when prices start rising. Sellers of consumable goods such as grocery stores Kroger and Albertsons, big box retailers like Walmart and Target and even dollar stores are likely to fare well no matter what the unemployment levels are because they sell essentials.

Food retailers with successful private label brands, which yield higher margins, might see an advantage over those that don’t. Supermarket-branded soup, for example, will look more appealing than Campbell’s at a time when everything becomes more expensive.

The article also calls bonds “Certificates of Confiscation”.

Bonds become “certificates of confiscation.” Broadly speaking, inflation shrinks private savings and bails out people and governments that have borrowed heavily. But not everything withers: Some investments could do quite well.

If the textbooks are right this time then the worst victim of a bout of inflation would be bonds. The 10-year Treasury note, yielding just 0.7%, is already an invitation to lose money.

But not all government bonds would do so badly. Consider China. The Treasury of the world’s second-largest economy has been relatively restrained in terms of stimulus. Nominal ten-year Chinese yields, currently at 3.15% according to FactSet, are around 2.45 percentage points higher than U.S. Treasurys, and the gap in real terms is even higher. If U.S. inflation accelerates, and especially if the Fed keeps rates low anyway, then that return could get an extra boost from the impact of a falling dollar relative to the yuan. No wonder foreign investors bought nearly 300 billion yuan ($44 billion) of Chinese government debt in the first eight months of 2020, triple the amount during the same period last year.

 

wsj.com

The article includes the graph above.  We have to ask ourselves, “what happens to out investments, if we see inflation similar to the 1970s and 19080s?

Investors worried that record budget deficits and massive Fed bond buying will stoke a big rise in inflation have places to hide aside from hoarding gold coins—some of them surprising

It is tempting to trust that inflation went the way of disco and bell bottoms, but hope isn’t a strategy. Investors concerned about protecting the buying power of their savings don’t need to take refuge in precious metals or cryptocurrency—there are some plain vanilla options that could hold up well.

With their portfolios gyrating and an election looming, investors are spending more time than usual pondering what their taxes will look like in the future. But they haven’t given much thought lately to “the cruelest tax”—inflation. Maybe they should.

The article also suggests that the stock market overall might not be the best solution.

wsj.com

The chart above, from the article, shows how inflation can eat into stock market performance.

The article explains the problem.  In theory stocks offer a natural hedge against inflation, at least compared with bonds. Businesses that can raise their own prices should be able to grow their earnings more quickly, helping shareholders keep pace. Since 1880 equities have risen by more than inflation 88% of the time on a rolling, 10-year basis, according to a study by Goldman Sachs.

But Goldman found the highest real—or inflation-adjusted—returns for equities came when inflation was low. In 10-year periods where the consumer-price index rose by between 0% and 1.5% on average, the S&P 500 posted a real annual return of 10.6%. That return fell to 8.7% when inflation is between 1.5% and 2%, and to 6.5% when inflation is between 2% and 2.5%. When inflation is above 6%, the average annual real return was just 1.2%.

This information suggests that if we see high inflation again, he real return in the stock market might barely be above zero for an extended period of time.  We should build this risk into our financial plans.

I personally include a lot of income producing, appreciating real estate in my plan.  PLus my equity portfolio is based on holding good value shares as explained below.

Gary

Add Safety & Get Paid 154% More

Get paid more now!

Current markets have turned economic history upside down.  Normally bonds pay the highest interest rates and add safety to a portfolio.  Not right now.

This chart from the New York Times article “The Mystery of High Stock Prices” (1) shows that equities pay a higher yield than bonds.

wsj.com

Most Important, Get Paid the Most Now!

Just because US stocks pay more than dollar denominated bonds, does not mean they offer the best income deal.  In fact the chart below shows that US shares pay one of the lousiest yields of the 46 stock markets we monitor around the world.

The US MSCI Index pays a modest 1.91%.  That’s a terrible yield, but better than the 1.6% you can get in AA rated corporate bonds.

Nine solid, top value stock markets (shown below) not only add diversification and the best long term profit potential, they pay 71% higher yield, 3.27% compared to the US yield of 1.91%.

This is why my core stock portfolio consists of a handful of top value share ETFs and this position has hardly changed in five years. 

Let me explain why this strategy adds safety, increases long term appreciation potential and pays almost double short term income right now.

In a moment, I’ll show how to push that yield to 4.07% per annum without adding additional risk.

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During the past five years, I have been steadily accumulating the same good value ETFs.  I have traded only three times, so my trading costs, my fuss, fiddle and time spent have been kept to an absolute minimum.

I have been investing in iShare country ETFs.  Each one invests in the MSCI Index of one of the top (or neutral in the case of Canada and Australia) value markets above.

My strategy protects against stock market volatility and yet has potential for the best gains long term from rising share prices by holding an equally weighted portfolio of the best value based country ETFs.

The Purposeful Investing Course tracks 46 stock markets around the world into determine which markets offer the best value.

Since no one knows what the future will bring, investing in value makes the most long term sense.

Plus Value ETFs are Safer

The people who dominate stock markets include a pack of thieves.  This fact has always been true.  We were recently reminded of this fact when Wirecard AG, one of Europe’s most prestigious companies, listed on Germany’s premier stock-market index, the Dax 30 fooled everyone including its top grade, longtime auditor, Ernst & Young GMBH.

The shares in German fintech company Wirecard AG (symbol WDI fell 63.74% as it filed for insolvency proceedings, after revealing that more than $2 billion in cash missing from its balance sheet was all a fraud.  The company’s market value fell to less than €500 million from almost €13 billion in a week.

Investors have seen this type of rip off again and again, really big scams from Enron to Bernie Madoff and these are just the tip of the iceberg.

Shares in stock markets are manipulated all the time.  Stock markets (in fact almost all types of markets) are led by sharks plain and simple.  Count on this fact.  This is the nature of the beast and the number one goal of many big businesses is to take as much of your money as they can to line their pockets.

In the Wirecard AG example many  thousands of investors have seen their hard work, their thrift, their security and hopes for the future disappear, even though they seemingly did everything right by investing in a blue chip, new era, high tech company.

A study of 92 years of investment returns shows that, despite the fraud and cheating and deceit, stock markets are still a good way to make your money grow… if you invest long term and diversify.

keppler

Our Pi strategy makes it harder for cheaters to grab your wealth because it’s very hard to manipulate an entire stock market, much less a dozen or so stock markets around the world.

Manipulators have a hard time tricking an entire market, especially larger markets.  If you get the best value country ETFs, your chances of long term profits improve.

Our Purposeful Investing Course (Pi) teaches an an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

Sticking to math based stock market value and country ETFs eliminates the need for hours of research aimed at picking specific shares.   Investing in an index is like investing in all the major shares of the market.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pi portfolio consists of iShare Country Index ETFs managed by Black Rock, Inc.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

I am updating my plan to increase my average yield to as much as 4.07%.

My developed market portfolio has been diversified into nine developed markets: Austria, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

iShares Country ETFs make it easy to invest in each of the good value markets.

The average yield of these nine markets combined was 3.27% as of June 2020.  By replacing the three lowest yielding markets, Austria (.64%), Germany (1.83%)  and Japan (2.51%)  with two better yielding neutral markets Australia (4.57%) and Canada (3.54%) the average annual yield on the entire portfolio rises to 4.07%.

4.07% is 154% higher than the 1.6% you can currently earn on AA rated corporate bonds!

The ETFs provide higher income and incredible diversification for safety, plus the highest long term profit potential.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

There is an iShares country ETF for almost every market.

Here’s how you can create your own good value strategy.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

You also receive a 100+ page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more of all 46 markets.

This year I will celebrate my 52nd anniversary of global investing and writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in the Pi course.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

A 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of out performance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $124.50 off the subscription.

Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report and access to all the updates of the past two years, plus all new updates over the next year.

I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

If you are not totally happy, simply let me know in the first two months for a full no fuss full refund.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential. 

Due to the COVID-19 pandemic we have cut the subscription to $174.50.  You save $124.50!

Then because this global recovery from the pandemic is going to take years, we’ll maintain your subscription at just $99 a year rather than $299.  Your subscription will be autorenewed in 2021 at $99, though you can cancel at any time.

Click here to subscribe to Pi at the discounted rate of $174.50

Subscribe to Pi today and you get a year’s subscription to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.

Gary

(1) www.nytimes.com: mystery of high stock market prices

www.wsj.com: How to avoid paying the cruelest tax inflation