Serious inflation on its way? Planning investments

[ExtraSlow]

Are we about to see a decade of "real" inflation?
http://www.cbc.ca/beta/news/business...nada-1.4505207

My mother tells me stories of an 18% mortgage rate on her first house in this country. Scary stuff for people trying to get into the housing market. Much less impact on people who are well established and own most of thier home.

So high inflation should make goods more expensive over time (duh).
Will high interest rates depress the property market?
It's bad for bond investment
What does it do for stocks?
Should make commodities more expensive if it's a worldwide thing.

If you thought we were going to see 10+ years of notable inflation, how would you prepare your investments?
Get out of the property market? Dump investment properties?
Sell bonds?
Make major purchases sooner?
Change what sectors you invest in?

What would you do?

[Manhattan]

Sky isn't falling. Higher interest rates will put pressure on home prices (makes them less affordable) and equities/stocks (competing asset classes). But the most likely scenario is they're not going up by a lot in any short span of time. Will probably be a very gradual climb. Inflation typically happens when the economy is doing well and wages get bid up to compete for labor. However, there's a belief out there that autonomous technology will ease labor costs and you end up with little to no inflation or even deflation.

[roopi]

Its imminent...

[Masked Bandit]

People have been saying that significant interest rate hikes have been coming for a long time and I guess to an extent that has to be true but it seems like I've been hearing that song for 5 - 10 years now.

Assuming rate hikes bringing BOC rates into the 4%-5% wouldn't the easiest & most effective strategy be to simply reduce any outstanding debt (even mortgage) first?

[suntan]

Still too much money supply. We are still at record low interest rates.

There are simply not enough people needing money. Sounds silly but inflation is a macro-economic condition.

Demographically speaking, you need a very large base of young workers wanting to leverage themselves for large asset purchases. That's simply not happening.

If you do think massive inflation is on the way, sell all your leveraged assets. Keep lots of cash and buy GICs like mad.

[jwslam]

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Keep lots of cash and buy GICs like mad.

Not an econ expert but AFAIK inflation = devalued cash so how does this strategy work.

[suntan]

Leveraged assets will fall like a stone launched from an airplane.

Since inflation is the situation where money availability is at a premium, you'll see crazy GIC rates (you are literally lending your money to some sucker). I had co-workers in the late 90s that had GICs paying out 25%.

[ercchry]

Was watching dirty money on Netflix yesterday.. start an online payday loan company.. just make sure the contracts are clear and annual interest is under 60% and you shouldn’t have any legal issues... will be lots of need for short term loans if your predictions are true...

But yeah, consensus seems to be that this is the last correction in the overnight rate from BOC, I wouldn’t worry too much, we learned from the 80s and everything the government does is to curb spending, and not implode van and TO at the same time

If you really want to make sure you won’t be completely fucked, just make sure you don’t have an insured mortgage, Alberta still let’s you walk away if cmhc isn’t involved

[Xtrema]

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Not an econ expert but AFAIK inflation = devalued cash so how does this strategy work.

Better than taking a bath on the stock market when cheap credit stops.

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Since inflation is the situation where money availability is at a premium, you'll see crazy GIC rates (you are literally lending your money to some sucker). I had co-workers in the late 90s that had GICs paying out 25%.

I remembered GIC that pays 8-9% in the late 90s and I was just starting out and doesn't have much money back then.

[mr2mike]

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But yeah, consensus seems to be that this is the last correction in the overnight rate from BOC, I wouldn’t worry too much, we learned from the 80s and everything the government does is to curb spending, and not implode van and TO at the same time

I would say, watch what USA does. Canada lags their rate hikes. If they're still raising rates, Canada will too in a month or two after.

Inflation punishes savers. So holding cash, I'd like to see suntan explain this.
Almost better to spread money out into different currencies and hold there? But which isn't going to inflate or inflate at a slower rate than the US or CAN currencies?

[kenny]

Take on some major debt (with some fixed payments) if massive inflation is on the horizon so your 2018 dollar debt is served with 2028 dollars Hopefully your salary will be adjusted accordingly haha

[Manhattan]

If you think inflation is gonna be huge...that's a big if....then invest your money in banks and insurance companies. They pocket all the difference.

[Buster]

Lots of asset classes can keep up with inflation. By definition cash isn't one of them.

Equities, real estate, gold, oil. All of these things adjust for inflation. Generally speaking inflation enriches those with assets, and makes the poor poorer.

[suntan]

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I would say, watch what USA does. Canada lags their rate hikes. If they're still raising rates, Canada will too in a month or two after.

Inflation punishes savers. So holding cash, I'd like to see suntan explain this.
Almost better to spread money out into different currencies and hold there? But which isn't going to inflate or inflate at a slower rate than the US or CAN currencies?

What I am saying is if you believe inflation is going to happen, then you need to sell now, and then reallocate your money into different asset classes.

There's no way in hell a general stock market bull run will happen. So concentrate on certain sectors.

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Lots of asset classes can keep up with inflation. By definition cash isn't one of them.

Equities, real estate, gold, oil. All of these things adjust for inflation. Generally speaking inflation enriches those with assets, and makes the poor poorer.

Real estate, LOL no. It will get destroyed. Current RE valuations price in leverage. That will be destroyed quickly. Or do you really think people are going to have 18% mortgages on a $1.1MM house?

This is all a moot conversation anyhow. QE has eliminated large deltas in inflation as a threat.

[Buster]

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What I am saying is if you believe inflation is going to happen, then you need to sell now, and then reallocate your money into different asset classes.

There's no way in hell a general stock market bull run will happen. So concentrate on certain sectors.

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Real estate, LOL no. It will get destroyed. Current RE valuations price in leverage. That will be destroyed quickly. Or do you really think people are going to have 18% mortgages on a $1.1MM house?

This is all a moot conversation anyhow. QE has eliminated large deltas in inflation as a threat.

What would you presume is seeing the results of the inflation, in a new inflationary environment? If, for the sake of argument, we assume the premise that inflation will hit hard.

What asset classes would be the beneficiary of the inflation? Or would we just see wage increases? Or increases in commodities?

[mazdavirgin]

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What asset classes would be the beneficiary of the inflation?

The bond market is the big one where you see yields rise as a function of inflation and lending rates.

[Manhattan]

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The bond market is the big one where you see yields rise as a function of inflation and lending rates.

To be clear we're seeing the END of a 30 year bull market for bonds. Bonds values are going to get killed as rates increase. Bond RATES are what's going to go up which lowers the values of existing bonds.

If you've learned anything here it should probably be don't take investment advice from beyond/online forums. Just invest in a broad market ETF and leave it alone.

[Xtrema]

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QE has eliminated large deltas in inflation as a threat.

QE only works on a reserve currency. CAD isn't one.

[jwslam]

http://www.cbc.ca/news/business/infl...mber-1.4505086

[HiTempguy1]

But there was one part of the cost of living that got unexpectedly cheaper in December: wireless plans.

Telephone services dropped by 7.6 per cent in price, the biggest one-month decline on record.

It is pretty crazy. For YEARS I paid $110/month for unlimited Canada/USA calling/texting, and 3gb of data.

Now I have unlimited Canada, 10gb of data, for $60/month. Its a huge difference. $50/month isn't anything to sneeze at, if I do all my cooking at home in a month, that pays for close to 25% of the cost of groceries.

I'm having a hard time believing the gasoline story though. Up here, it keeps going from $1.01-ish and spiking to $1.16. Relative to a barrel of oil, its expensive.