Isn’t it also plausible that the impact of the virus is deflationary? (Increased demand for USD as a store of value exceeds the impact of the Fed printing money, etc)
Well if we had confidence in any major parameter shifting in either direction it would be tradeable, so I expect reasonable pressures on both sides of such variables.
I’d expect not. Overall, productivity is going down mostly because of upheaval and mismatch in supply chains and in efficient ways for labor to use capital. So return to well-situated capital and labor is up, but amount of capital and labor that is well-situated is down. Pure undifferentiated capital has a lower return, plus rising nominal prices means seeking returns is the main motivation, not avoiding risk.
TIPS seem like useful things to have in your portfolio, but rates are lagging quite a bit, so either the market disagrees with me, or the safety value is so high that people are willing to lose value over time. I think stocks will be OK—the last 40 years has seen a lot of financial and government backstops that mean we’re pretty good at protecting the rich on this front, and if you can’t beat ‘em, join ’em. Cash or the like is probably a mistake. I have no good model for Bitcoin or Gold, but my gut says they’ll find a way to lose value against consumer prices. Real Estate (especially where there’s not a large population-density premium) seems pretty sane.
Note: I am not a superforcaster, and have no special knowledge or ability in this area. I’m just pointing out mechanisms that could move things the other direction that the obvious.
Isn’t it also plausible that the impact of the virus is deflationary? (Increased demand for USD as a store of value exceeds the impact of the Fed printing money, etc)
Well if we had confidence in any major parameter shifting in either direction it would be tradeable, so I expect reasonable pressures on both sides of such variables.
Economists mostly disagree with present market sentiment, which could be the basis for a trade: http://www.igmchicago.org/surveys/policy-for-the-covid-19-crisis/
Interesting. The idea here that the market is still on average underestimating the duration and thus the magnitude of the contraction?
I think that’s right.
I’d expect not. Overall, productivity is going down mostly because of upheaval and mismatch in supply chains and in efficient ways for labor to use capital. So return to well-situated capital and labor is up, but amount of capital and labor that is well-situated is down. Pure undifferentiated capital has a lower return, plus rising nominal prices means seeking returns is the main motivation, not avoiding risk.
TIPS seem like useful things to have in your portfolio, but rates are lagging quite a bit, so either the market disagrees with me, or the safety value is so high that people are willing to lose value over time. I think stocks will be OK—the last 40 years has seen a lot of financial and government backstops that mean we’re pretty good at protecting the rich on this front, and if you can’t beat ‘em, join ’em. Cash or the like is probably a mistake. I have no good model for Bitcoin or Gold, but my gut says they’ll find a way to lose value against consumer prices. Real Estate (especially where there’s not a large population-density premium) seems pretty sane.
Note: I am not a superforcaster, and have no special knowledge or ability in this area. I’m just pointing out mechanisms that could move things the other direction that the obvious.
Real estate likely just became significantly more illiquid at least for the next few months.
Why do you think nominal prices will keep rising?