no_free_lunch

Canada's central bank will hold the line while inflation runs at and beyond the high end of it's inflation target. I continue to believe that inflation will be primarily to assets and less so to consumer goods that make up CPI. It seems the central banks will just ignore inflation as long as possible and keep rates suppressed. I am not sure how it plays out, so many possibilities, but given that a number of commodities are now coming back down and given how long ago the money printing happened, I could see the inflation hit being transitory. https://financialpost.com/news/economy/bank-of-canada-keeps-interest-rate-at-0-25

I always have to respect Gundlach for speaking his mind. The only point I am not sure on is the US dollar falling. Maybe that's how it goes but I have been hearing that prediction for 15 years. I just have a hard time with it because of the money printing in all the other developed countries. Why would USD fall against the euro when their central banks are doing more or less the same things.

I don't believe the infrastructure bill had a defense component to it. The main criticism I have heard is only one quarter is being spent on anything resembling infrastructure. There are hundreds of billions earmarked to improve wages for health care workers, surely a worthy goal but in my mind mislabeled. The money being spent on R&d is very questionable , in particular when I compare what spaceX has done vs the black hole that is NASA. The thing that should probably concern us most is the buy America provisions.

Nice to see, hopefully it pulls on the stock. I can't help thinking viking writes more detailed analysis and gets his stuff "published" faster than these guys. Still I'll take it.

Agreed Blue Devil and I have read that they are trying to learn and copy from digit. However what I have seen personally is trying to build up some new system is influenced by management. I am not sure yet how much of this is the digit CIO vs the mousetrap. My experience with Canadian insurance is the field is ripe for efficiency improvements and so hopefully more the latter. Ffh book is up $60 USD just based on this transaction alone. Reported BV should be $500+ in q2, so do some math and we have book around $700 CAD vs share price today of $560. Still great upside relative to market.

Their performance has been sub-par. In the past, the valuation didn't seem that compelling as I dug into the financials. Haven't looked at them in a year or so.

Here is what I keep thinking. Inflation happens , prices shoot up 20-30% over the next year or two and meanwhile the fed, raises 50 BP. Don't we need the market to actually acknowledge inflation via bond yields for this to be tradable.

A solid idea. Which ones are you invested in?

Bought VZ, mid sized position. It's somewhere around 14x FCF from what I can tell. I view it as a cash alternative/ inflation hedge.

I don't know but if we invert maybe the economies that don't benefit from high fossil fuel prices, Europe and Asia, will do better as that headwind is levelled.

LM, I asked what is the CPI in Europe not the difference in price. The point I am trying to make is these wage increases and their impact on inflation have been one off. Hasnt housing seen a huge surge? In parts of Canada prices are up probably triple over last 15 years and yet we have anemic CPI reported. I think it plays out the same with minimum wage boosts. You didn't really address my point that minimum wage affects a subset of the economy, a subset of the costs where it's relevant, and is partially mitigated by productivity, replacement and imports. If you double minimum wage prices will go up but not by double. The other factor is the fed can simply say Fu and stay pat so long as the dollar doesn't crash. It's happening today with the transitory inflation narrative.

You can set the minimum wage wherever you want but you can't make businesses hire. You can't control the minimum wage in China either. Even for the local businesses that it applies to, that labor expense is only one of their costs, they are a subset of the inflation basket and it should be partially mitigated by productivity measures. Isn't there high minimum wage in a lot of the EU countries and what is CPI there? I speculate it will definitely push up on prices but only by so much.

We technically have 5% inflation today, it's a done deal. So i would make a modification to your equation that you need to have sustained inflation at your given range levels. My hunch is quite different, I would put p1=50%, p2=20%, p3=30% where p3 is below 3% inflation. Don't get me wrong, I actually do hold cash as well. I just do it for different reasons, for these probabilities above and due to the fact that I feel the markets could crash for all sorts of reasons. On inflation, I was looking at commodities and quite a few have stepped back. Lumber is down almost 50%, steel is down, oil pulled back a touch. It seems very predictable that you will get some inflation given pent up demand and low levels of production but I feel that the market will solve this and we will move back to surplus in most commodities. The only one that concerns me is oil, just due to the low levels of drilling , environmental laws, ESG investing, return to growth, etc . I can see SDs point that if there is inflation it's probably oil that will cause it. Outside of some oil spike pushing on inflation, I just find it hard to believe. The way I look at it, the total value of all stocks, real estate and other hard assets in the US has to be somewhere north of $150t right now. If the US government prints $2t a year, isn't that just an extra 1.5% or so relative to the total assets? That doesn't even take into account non hard assets like debt, I just don't know how to factor those in but they must absorb some of the increased spending right? Based on these numbers, i don't see why current deficits lead to huge , and on going surges in price levels.

LM, I think holding cash to prepare for inflation implies too much certainly. You are assuming inflation is imminent, that it will be strong and that stock prices will collapse. What if inflation just hovers in the 3-4% range for years. The fed could take it's time raising rates in that environment. It doesn't seem like many other central banks are in a rush. I would argue inflation in the early 80s started 15 years prior, we could be on the same path. It's a long time to hold cash. It certainly makes sense that prices of equities go down in real terms but i couldn't guarantee they go down nominally. Again there are a lot of factors at work and it depends on the time frame and how high rates go.

LM, Avalon Bay AVB has an avg duration of 10 years and a long history of slowly growing the yield per share. I don't know if you will find 30 year duration on a REIT but let me know if you can. It's not just REITs , any company with physical assets or even just pricing power should make it. Of course I have the perspective that I have no idea what the future holds so I want even my inflation hedges hedged. Hence a focus on assets that don't require inflation to make some gains. I think telecom could do ok as well. They have enough pricing power, lots of debt and physical assets.

It doesn't have to be commodities as an inflation hedge. I think a REIT with long duration debt should hold up ok. You probably get smoked at first but inflation should push through to rents which will drive the ev EBITDA multiple down.

I have no idea how this goes down but I have worried about inflation since the commodity boom in 2006. So far I have been wrong and so I am suspicious that this is THE time it finally happens. I did a little DD and it seems that post world war 1 & 2 in the US there was strong inflation for a few years and then it simmered. During that inflation bout post WW2 they just kept interest rates low right through the inflation. Not sure what the rationale was, I think they were concerned about the great depression returning. All I know is the fed played it cool and I would argue was right in that one case. Today we have inflation and are emerging, hopefully, from total war like spending, so it does seem similar. Meanwhile the deflationary force of production efficiency and globalization is still at play. Debt levels are high but japan has higher and has shown how tough it is to call inflation. I see it as a very mixed bag. We will see but I am trying to setup on stocks that will do ok in either scenario.

I took positions in BASF, BAYER, and Stella Jones. All based on postings on the site. They are all sitting with PEs below 12 and seem to be ignoring the favorable economic conditions. I am still on the fence with the REITs. If you look at $AVB it is trading around 25x ffo for the upcoming year and thry will probably boost ffo by double digits in 22 once covid is removed. Not crazy expensive I suppose. However they are now more at risk from an interest rate boost.

It's even tougher today. I am debating selling my REITs, they are up 30% since January plus dividend. Defense and tobacco is still reasonable. Other than that there is VZ and T, hard to get rich on them but they seem safe and could do 10% perhaps. Looking at industrial sector. BASF seems interesting but not without challenges and perhaps less secure than the other names mentioned in this thread. I am only halfway through my DD on them. If you know anything else that is safe and cheap, please let us know. Bonus points for being boring.

Appreciate it. I think I just needed to get used to the change. I am getting older now.. I find I like the new site more and more as I use it.

Hi Parsad. I think this site is one of the best on the web but I don't care for the new format. I find it busy and I prefer the simpler classic version. Just being honest. One small suggestion. There is so much white on the pages, everything blends together including the ads. Perhaps the posts could have a different shade so they stand out? Anyways, it doesn't really matter what I think and ultimately I am here for the quality of the discussions so I am just happy you are keeping the site going.

Chances of death are very low but you can still get very sick and incur permanent damage to your lungs or organs. Even if you are healthy. Not just theoretical, I know someone 40ish and healthy and fit that had this happen. They have lung damage, it's permanent. They also went through complete hell for 2 weeks. Israel has vaccinated over half their population and haven't reported any issues. The pharma companies aren't based there so they have no reason to lie about the effectiveness. I feel at this point it's quite a remote chance the vaccine is more dangerous than covid.

I am ok with inflation , in theory but I also don't think the central bankers really know what they are doing. It's not really a criticism, it's just reality. It's not them, it's anyone, too many variables in the equation to be able to predict the outcome. They sure didn't expect a nationwide housing plunge in 2006. Im not sure it was clear that various stimulus measures would lead to a mammoth tech bubble in the middle of a virus epidemic either. So I would be ok with inflation in that 2 to 3 pct range so long as we know that's actually what will happen. There was a good post by VC Sam Altman on inflation, sorry no link, where he suggests what is in store is faster deflation of anything depending on labor and inflation on anything otherwise supply constrained , basically equities, land, certain commodities. It seems that's what has been happening for last 30 years or more. It explains why housing has gone through the roof and the cost of t-shirts has gone nowhere. In reality t-shirts and everything else manufactured has plunged while housing has gone up a bit but money printing obscures it. You can see how the concept of singular inflation rate starts to become difficult in this paradigm. You layer the fed mucking with interest rates on and it gets even messier. We can debate who causes it but it's good to surface this dual inflation concept so that the argument evolves beyond "the rich are stealing from us".

As I understand there is mandated open data in the us. I'm not sure the same exists in Canada. The public not the organization benefits from open data so I don't think it will happen voluntarily. https://obamawhitehouse.archives.gov/the-press-office/2013/05/09/executive-order-making-open-and-machine-readable-new-default-government-

I agree in principle that the entire defense industry is cheaply priced relative to the market. Some of these companies give me deja vu to investing back in 2012. Earning multiples below 15 are common, share buybacks, dividends, it seems almost guaranteed money. I am long GD but I think there are even cheaper and better equities in defense. You can buy a basket to mitigate company risk but beyond how do you assess risk? The only risks I see is that defense budgets get cut. It seems very unlikely to me but who knows. Perhaps some epic accord is signed with China and Russia to demilitarized. It seems things are going the opposite direction if anything. I am sold on the thesis, now looking for contrary opinions. In particular from the dem side of the board since they now control the checkbook.