Monkey with a pin goes for inflation

srcandas

Thrugelmir wrote: »

Are we discussing good inflation ( caused by productivity gains)

or

bad inflation (imported commodity prices for e.g.)

I'm sure Pete will broaden and/or focus the subject and present his clear/factual findings and explanations as required [He is as I understand it a researcher first and an author second]. He is looking for what people want so Thrugelmir if you could give us a point or question around your thoughts that would be very welcome?

:beer:

SnowMan

1. A clear explanation of the relationship between the real returns on different asset classes (such as equities and cash) and inflation.

There is a lot of shallow nonsense posted about savings having an inflation risk implying that equities don't. I have seen that used by commission based financial salesmen to sell equities paying commission over putting money into savings.

That seem to be confusing two affects,

a. Both equities and cash seem to be affected by high inflation in that real returns are lower in high inflationary periods for both equities and savings although nominal returns may be higher.

b. Historically (although the future may be different) equities have produced higher returns than savings (assuming you access those equities at a low cost not through high charging funds) because of the so called equity risk premium. However that is nothing to do with inflation that is just that historically returns have been better on equities.

However I would like to see a proper analysis of all the evidence and studies on this. Perhaps there is some small or even large element whereby equities are a better inflation hedge or perhaps not.



2. Whether the impact of fund charges and the cost of paying for advice is likely to mean that some equity investors are likely to receive no real returns at all. Is paid for financial advice portrayed as a one way thing but is it actually more balanced? We hear, if you don't get advice when you need it you are going to incur a major financial loss, which is of course true. But is there also a scenario of get financial advice when you don't need it and you incur a major financial loss also, because of the effect of charges on your real returns? Not a statement a question. In what scenarios/products can the cost of financial advice be catastrophic.


3. Some discussion on whether too much information given out by the financial services industry concentrates on absolute returns rather than real returns (or is the balance right). i.e. are people being too often told things along the lines they will have a million pounds in 30 years when that is relevant because it won't buy much then (or not)?


4. Analysis of the evidence/relevance of different inflation measures RPI, CPI etc. And the effect of changing uprating of benefits, pensions etc to a different index.


5. An analysis of hyperinflation, its causes and effects taking nto account other country experiences.


6. An analysis of the distributional affects of (say) high inflation. While a country as a whole may suffer (or it might help a country get out of difficulties) who are the winners and losers through its distributional effects.

bigadaj

One point that never seems to be raised enough is an extension to thrugs point about commodity prices and importing inflation. Though my specific point would be the inverse of this, and emphasise the massive influence that importing negative inflation by means of cheap Chinese goods had through most of the noughties. This was either ignored or barely acknowledged by economists and politicians and is probably the single biggest cause of the mess we are still in. Loose lending and speculation played their part but the imported deflation not being acknowledged led to reduction in Interest rates and more low cost money for speculation.

srcandas

Tx one and all. Some good input hopefully for Pete here. No promises he'll address it of course but if we don't ask ..........

I'll put it all together tomorrow at 3pm and send it off to him.

Any more welcome to add.

Should say I don't know Pete personally but I thought his offering freely given here with Monkey was great and appreciated. And he emailed anyone who registered on his site to contribute their thoughts.

:beer:

bigfreddiel

srcandas wrote: »

Anyone have any thoughts that we can pass on to Pete?

:beer:

b00440ck5!

srcandas

bigfreddiel wrote: »

b00440ck5!

Had a little bit to drink have we??? :beer:

Blackdog

Inflation means the cost of the welfare state increases which will add to the deficit however it also means the Government debt reduces. Perhaps this is why the autumn statement has capped some benefit rises below inflation, after time the debt will be gone. But not in our lifetime!

MrMalkin

SnowMan wrote: »

b. Historically (although the future may be different) equities have produced higher returns than savings (assuming you access those equities at a low cost not through high charging funds) because of the so called equity risk premium. However that is nothing to do with inflation that is just that historically returns have been better on equities.

The theory is that equities are reasonably inflation-proof because in an inflationary period a business can and will increase its prices, which ultimately feeds back to the investor as a growing dividend. Of course, as with most analysis of equities, this only applies when you look at averages over longer time periods.

Thrugelmir

MrMalkin wrote: »

The theory is that equities are reasonably inflation-proof because in an inflationary period a business can and will increase its prices, which ultimately feeds back to the investor as a growing dividend.

Profit is what matters not turnover.

Increased profit can be generated by improved efficiency.

sabretoothtigger

Inflation is not good for shares or companies. They will adjust but the value will likely go down and its possible they do not survive.

The cost of fuel would be an obvious strain on the budget of many hence airlines automatically raise prices as part of the contract, etc
Its not a given they will keep as many customers

Its wrong to mention growth as part of inflation, I think its more able to cause the oppisite especially above 5% or so. All the GDP forecasts from this budget seemed to rate inflation as being higher. Then going forward with the highly optimistic idea GDP raises while inflation falls