Inflation

[Thermal]

One of the things I buy actually is coffee.

Cool. We're back on message, then?

 

[The Atheist]

Every so often I enter this thread hoping to see if anybody has some bright ideas on what investments would be good to counter inflation, and every time I do y'all squabbling about coffee. It's quite irritating that when I finally start to amass real money it's worth less than it ought to be, and I'd like a magical solution to the problem. So long as it's easy. So get crackin', economic nerds!

The longest term government bonds you can find.

Interest rates are at historic peaks, so are highly unlikely to go higher.

You'll be investing around the 5% return mark, so you'll get that, but if rates fall - as they always do - you'll win even more. In simple terms, if you're holding a bond with 5% interest and the rate falls to 2.5%, you double your investment.

The only caution is hyper-inflation and I don't see that on the horizon.

 

[Frank Newgent]

You're going to need to find a claim, first. That was a comic, riffing off the popular perception that corporations are less than benevolent.

A claim would be that a price tripling across a five year window was caused by bad weather in the last year of the window (when it would only have begun to impact prices). That claim is absurd on its face, absent a ◊◊◊◊◊◊◊ Tardis.

Another claim.is to vaguely wave the hand at generic inflationary causes, that, inexplicably, have not impacted retail costs for other goods a fraction as much.

Every single claim put forth to explain why the coffee prices are so out of whack has been either unsupported by evidence (no number crunching), or falls flat on their face out of the gate.

Inflation is calculated by Thermal going to Starbucks and screaming at the cashier: “This costs how much?!”

 

[Thermal]

Inflation is calculated by Thermal going to Starbucks and screaming at the cashier: “This costs how much?!”

No idea what they are charging in 'Bucks nowadays. My argument has, from the beginning, been skeptical of claimed inflation rates versus retail reality. I often find a huge disparity.

And no, I'm not quite at the point yet where I say in my day, you could buy a coffee for fiddly cents.

 

[Frank Newgent]

No idea what they are charging in 'Bucks nowadays. My argument has, from the beginning, been skeptical of claimed inflation rates versus retail reality. I often find a huge disparity.

And no, I'm not quite at the point yet where I say in my day, you could buy a coffee for fiddly cents.

Where I am a small black coffee or "tintico" costs less than that, social life revolves around them. Maybe you need to shop in a different economy?

 

[Thermal]

Where I am a small black coffee or "tintico" costs less than that, social life revolves around them. Maybe you need to shop in a different economy?

Well... yes I suppose I could become an expat to get better prices on refreshing beverages? Local prices for a takeout or cafe coffee start around $3US here.

 

[Thermal]

The longest term government bonds you can find.

Interest rates are at historic peaks, so are highly unlikely to go higher.

You'll be investing around the 5% return mark, so you'll get that, but if rates fall - as they always do - you'll win even more. In simple terms, if you're holding a bond with 5% interest and the rate falls to 2.5%, you double your investment.

The only caution is hyper-inflation and I don't see that on the horizon.

Wouldn't even a typical inflation rate more than offset the net gain in your example? You make 2.5%, but because of the long term, the money has lost quite a bit more value than that?

 

[Frank Newgent]

Wouldn't even a typical inflation rate more than offset the net gain in your example? You make 2.5%, but because of the long term, the money has lost quite a bit more value than that?

Here in Colombia the inflation rate was just reported as 6.29%. While the benchmark interest rate is now 12.25%. My bank will pay over 11% on a CDT (certificate of deposit).

But today not the right time, there is a carry trade with the peso as a result of this: currency traders borrow the dollar or yen at low interest, then buy the peso which appreciated from well over 4000 to the dollar beginning of 2025 to 3189 to the dollar today.

 

[The Atheist]

Wouldn't even a typical inflation rate more than offset the net gain in your example? You make 2.5%, but because of the long term, the money has lost quite a bit more value than that?

You're not making 2.5, you're on 5. Your bet is that inflation long term will be under 5%.

Given recent rate rises by central banks, I'm sure it will.

 

[Solitaire]

The only caution is hyper-inflation and I don't see that on the horizon.

I'm changing my mind on this.

Back in the 1970's the Federal Reserve bought government bonds with newly created monetary units. Banks then made new loans from these new reserves using their money creation ability, but only a limited amount went back into the purchase of government bonds.

What if the whole amount went into loans to the government?

If there were a way to restrict the money creation by an unknown policy then M1 would not reflect inflation as it had in the past, possibly with a size ten time smaller than expected.

Of course with no evidence, this idea remains at best a guess.

The longest term government bonds you can find.

Interest rates are at historic peaks, so are highly unlikely to go higher.

I'm very uncertain about the future of interest rates.

Lots of demand for funds by AI companies, the war in the middle east, politicians looking for ways to increase borrowing for their pet projects, and all these demands from a limited source means higher interest rates. I'm expecting at least eight percent for government bonds next year.

I think keeping it relatively short, three years at the max, with most on the one and two year notes.

You'll be investing around the 5% return mark, so you'll get that, but if rates fall - as they always do - you'll win even more. In simple terms, if you're holding a bond with 5% interest and the rate falls to 2.5%, you double your investment.

A good strategy.

But it takes a long time for a 30-year Treasury to fall, even a 10-year takes a while.

Looking at the curves from 2008, one might sell shorter term securities when they drop, then buy the next longer term, then drop them after a time, and then move up yet again into the next longer time duration. But I just don't see a reason to go into bonds greater than five years.