How much has inflationista reasoning cost investors?

[oldfart]

One of the enduring puzzles of the last six years or so has been why Wall Street types and assorted fiscal conservatives have latched onto people like Ken Rogoff who is again warning last week of the impending dangers of high inflation just over (or in Ken's case, sort of just over but not yet) the horizon. It's Zimbabwe I tell you! Zimbabwe! For Rogoff's latest full stop semi-screed which doesn't say what it says it is saying because to do so would completely trash his professional reputation, see The Exaggerated Death of Inflation by Kenneth Rogoff - Project Syndicate.

Well someone at Bloomburg has tried to put a number to the losses, and that number is ONE TRILLION DOLLARS. And this is an underestimate. It is only the losses sustained in the US government securities market incurred by those who bought the inflation argument and made investments accordingly. Including other markets such as gold and other commodities, interest rate plays, foreign currency futures, and even vanilla stock and bond trading, the losses would be probably at least triple that. http://www.bloomberg.com/news/2014...llion-return-agreeing-with-fed-naysayers.html

So my question to all of the inflationistas out there is, "Did you put your money where your ideology was? And how much did you lose by that investment strategy?"

It seems to me that there are two alternatives. First, a lot of folks knew the inflationista arguments were ideological bullcrap from the start with no foundation in history, econometrics, or economic theory; and accordingly ignored it. These folks deserve plaudits for economic and financial acumen and came out well financially. No one ever said that political hacks had to follow their own economic advice, and history is replete with Wall Street operatives going back to "Uncle Dan" Daniel Drew, the first stock manipulator in New York, who proclaimed one thing while betting the other. For great entertainment and a bit of enlightenment, John Steele Gordon's "The Scarlet Woman of Wall Street" is still required reading for anyone pretending a knowledge of history of Wall Street and American finance will attest; including all seven of the other posters on USMB who have read it will affirm. I digress. Suffice it to say that their financial success should be balanced by the certain knowledge that the only people following the advice of such Janus faces are fools who deserve the fleecing they get.

The other group would be the true believers who invested as they believed. That they still believe is testament to both gullibility and power of cant over reality. Consistently in being in error is no virtue.

 

[EdwardBaiamonte]

First, a lot of folks knew the inflationista arguments were ideological bullcrap from the start with no foundation in history, econometrics, or economic theory; and accordingly ignored it.

of course that's idiotic by 1000%. If you had asked 100 economists before the crisis whether expanding the balance sheet by 3 times might result in huge inflation 100 would have said yes. Did you think the huge inflations we have seen all over the world for centuries, as compared to few deflations, was a result of strong winds or printing too much money?

 

[oldfart]

First, a lot of folks knew the inflationista arguments were ideological bullcrap from the start with no foundation in history, econometrics, or economic theory; and accordingly ignored it.

of course that's idiotic by 1000%. If you had asked 100 economists before the crisis whether expanding the balance sheet by 3 times might result in huge inflation 100 would have said yes. Did you think the huge inflations we have seen all over the world for centuries, as compared to few deflations, was a result of strong winds or printing too much money?

Always glad to here your take on things, Ed! In 2008 a lot of economists actually went on record concerning whether the tripling of the monetary base would create inflation; and you are correct that most financial economists (I take your 100 out of 100 as rhetorical hyperbole, and a nice touch!) said it would. There was another view however, that it would not because we were in a liquidity trap. The first group were labeled "inflationistas" and the later "paleo-Keynesians".

Five and a half years later, we are not experiencing high inflation. I would think that thoughtful people like yourself would ponder the relative success of the two predictive models and come to the conclusion that the inflationistas missed something, and that it would be prudent in making one's own financial and economic decisions to consider the outcome. Betting against inflation in the government bond market has been two or three times more lucrative than investing in equities or gold.

So Ed, what are you invested in and if you had an extra $20,000 or so would you be betting on surging inflation in the near future?

 

[EdwardBaiamonte]

So Ed, what are you invested in and if you had an extra $20,000 or so would you be betting on surging inflation in the near future?

dear, very few are betting on inflation having learned through recent obvious experience that quantity and velocity can be very very unrelated so I wonder why you think it an issue.

I will agree with you that the knee jerk Austrians learned a needed lesson from this but you are taking uncalled for pleasure from it given that your are a standard issue lib wrong about all the basic issues.

 

[Toro]

I am agnostic on whether inflation will happen or not. That it hasn't happened yet doesn't mean it won't happen in the future. But it certainly doesn't exist now.

Besides, the inflation has been in asset prices, not consumer prices. There have been too many structural pressures on wages over the past two decades for there to be price inflation. So all the "inflation" that the Fed has helped create has gone into growth stocks, tech stocks, houses, commercial real estate, gold, bonds, etc.

 

[EdwardBaiamonte]

I am agnostic on whether inflation will happen or not. That it hasn't happened yet doesn't mean it won't happen in the future. But it certainly doesn't exist now.

Besides, the inflation has been in asset prices, not consumer prices. There have been too many structural pressures on wages over the past two decades for there to be price inflation. So all the "inflation" that the Fed has helped create has gone into growth stocks, tech stocks, houses, commercial real estate, gold, bonds, etc.

houses?? Case Shiller shows them on historical track again after boom and bust; not inflated much really

 

[EdwardBaiamonte]

I am agnostic on whether inflation will happen or not. That it hasn't happened yet doesn't mean it won't happen in the future. But it certainly doesn't exist now.

Besides, the inflation has been in asset prices, not consumer prices. There have been too many structural pressures on wages over the past two decades for there to be price inflation. So all the "inflation" that the Fed has helped create has gone into growth stocks, tech stocks, houses, commercial real estate, gold, bonds, etc.

So why haven’t these more rapid increases shown up in the Consumer Price Index? One reason is that the index itself has been modified in a variety of ways over the past 35 years. Fluctuations in home prices have been smoothed out, for example. And the index has been adjusted periodically to reflect changes in what people buy, particularly if they shift from more expensive items to cheaper ones. Such revisions to the CPI have tended to reduce the official inflation rate, on balance. Various estimates of what the annual rate would have been over the past four years if earlier methods of calculation had been continued come up with numbers in the 5%-to-10% range


also Big Mac index has been up 5.8% over last 5 years so there does seem to be significant inflation despite what govt tell us.