Yes! I would buy stocks over gold without hesitation. Overall, S&P500 returns are good even when inflation is high - this is not investment advice.
Your comment makes me think that I was focused on cash flows when writing my article. For businesses and people alike, a combination of earning power and cost compression allow your cash flows to resist inflation ; but I didn't specify what to do if you have a big pile of cash. If one owns a big cash position, as a margin of safety, for instance, there is nothing one can do to avoid the cash's depreciation in a low-yield environment. You basically become poorer every day but preserve a safe mattress to survive adverse events.
I completely agree. My take on gold is that it serves more as an hedge in crisis periods but is not meants to be held. Just use it to buy more shares when needed.
On a different topic, it amazes me how people think buying real estate when inflation begins is smart when it is probably the worst decision one can make.
Most people are dumb when it comes to real estate. The main reason is that they can't get the emotional aspects out of the decision-making process. Most think that "real estate only goes up," "buying a house is a major milestone in life," "real estate is a real asset because you can see it, " etc. It's hard today to have a rational conversation regarding real estate.
"That's why inflation is a disgusting tax; it steals the poorer who cannot raise their wage while promoting the rich." => I am skeptical about this argument. If you can't get a raise of 2% in a 2% inflation country, it probably means that the market value of your work is actually falling by 2% (or more) in real terms. A 2% inflation is actually just "helping" your company lower your salary by 2% if the market value of your work has fallen by 2% or more.
I imagine that in a 0%-inflation world, companies would find another way to adjust salaries down, perhaps by laying off all the "overpaid" people once in a while and replacing them with new people who would be forced to accept the lower market salary. Or it would just hire less people, leading to higher unemployment.
In the end, if my reasoning is right, the only people who really loose from inflation are those hoarding cash. Of course I'm assuming here an inflation rate with small variations and lower than 5%. If inflation has very strong variations indeed it leads to a whole set of problems linked to uncertainty for the market agents.
Thanks for your comment! I would be tempted to say that inflation isn't a good way to adjust the cost of factors of production. I however understand your point that because there is a downward wage rigidity, employers use inflation to progressively reduce the cost of labor. The alternative could be to reduce workers' paychecks or, as you said, to replace the workforce with lower-paid employees. It's true that if one's revenue growth doesn't match the inflation rate, there is a high probability that the inflation-adjusted market value of one's skillsets is decreasing...
So you are saying you should be value-investing EVEN during inflation?! ;)
Yes! I would buy stocks over gold without hesitation. Overall, S&P500 returns are good even when inflation is high - this is not investment advice.
Your comment makes me think that I was focused on cash flows when writing my article. For businesses and people alike, a combination of earning power and cost compression allow your cash flows to resist inflation ; but I didn't specify what to do if you have a big pile of cash. If one owns a big cash position, as a margin of safety, for instance, there is nothing one can do to avoid the cash's depreciation in a low-yield environment. You basically become poorer every day but preserve a safe mattress to survive adverse events.
I completely agree. My take on gold is that it serves more as an hedge in crisis periods but is not meants to be held. Just use it to buy more shares when needed.
On a different topic, it amazes me how people think buying real estate when inflation begins is smart when it is probably the worst decision one can make.
Most people are dumb when it comes to real estate. The main reason is that they can't get the emotional aspects out of the decision-making process. Most think that "real estate only goes up," "buying a house is a major milestone in life," "real estate is a real asset because you can see it, " etc. It's hard today to have a rational conversation regarding real estate.
"That's why inflation is a disgusting tax; it steals the poorer who cannot raise their wage while promoting the rich." => I am skeptical about this argument. If you can't get a raise of 2% in a 2% inflation country, it probably means that the market value of your work is actually falling by 2% (or more) in real terms. A 2% inflation is actually just "helping" your company lower your salary by 2% if the market value of your work has fallen by 2% or more.
I imagine that in a 0%-inflation world, companies would find another way to adjust salaries down, perhaps by laying off all the "overpaid" people once in a while and replacing them with new people who would be forced to accept the lower market salary. Or it would just hire less people, leading to higher unemployment.
In the end, if my reasoning is right, the only people who really loose from inflation are those hoarding cash. Of course I'm assuming here an inflation rate with small variations and lower than 5%. If inflation has very strong variations indeed it leads to a whole set of problems linked to uncertainty for the market agents.
Thanks for your comment! I would be tempted to say that inflation isn't a good way to adjust the cost of factors of production. I however understand your point that because there is a downward wage rigidity, employers use inflation to progressively reduce the cost of labor. The alternative could be to reduce workers' paychecks or, as you said, to replace the workforce with lower-paid employees. It's true that if one's revenue growth doesn't match the inflation rate, there is a high probability that the inflation-adjusted market value of one's skillsets is decreasing...