Inflation

[Blake Hampton]

Some people were worried about me, so I thought I might write a final post. I decided to leave the board for my mental health and so that I can keep a more independent perspective. There are a lot of smart people here who bring valuable insights, but I also have to be really careful when weighing others' opinions about the future. Smart people can be just as wrong as they are smart. The best I can hope for is to come to my own conclusions and hope that I'm ultimately proven right.

 

The title of this thread is what I believe every investor should be focusing on, though very few seemingly are. Our national debt and our fiscal deficits are enormous and growing, and both sides of Congress have shown no willingness to meaningfully address them. Pay attention to what some of the professionals are saying. Read Warren Buffett's recent shareholder letter. You'll soon realize that a lot of them are sounding alarms:

 

Quote

“It could be a failed auction. It could be if the Fed is wrong about inflation and it turns back up again because they’re easing financial conditions into a melt-up. If they were to have to start increasing interest rates again—which is why I think they should be so cautious about their optionality now that they’ve forward guided to a series of cuts—that could cause it. My best guess would be a failed auction, but honestly, it could be six months or it could be six years—I just don’t know.”

– Stanley Druckenmiller, Nov. 2024

 

Quote

“I think all roads lead to inflation.”

– Paul Tudor Jones, Oct. 2024

 

 

Quote

“It won't be the quantity. It’ll be whether inflation would get let loose in a way that really threatened the whole world economic situation, and there really isn’t any alternative to the dollar as a reserve currency.”

– Warren Buffett, May 2024

 

Quote

“There are a lot of things out there which are both dangerous and inflationary. So I just say: be prepared that rates may go up—both the short rate and the ten-year rate—and be prepared that it might lead to a recession.”
– Jamie Dimon, Nov. 2023

 

 

Quote

“We are not as well off in relation to curbing inflation expectations, which become self-fulfilling, as we were earlier. Berkshire is better prepared than most investments for that kind of a period now, but we aren’t perfectly prepared because there is no way to perfectly prepare. You don’t know what course of action will occur. It’s a very political decision now—it’s a tribal decision to some degree. You hope for leadership that actually recognizes the problem. America is an incredible society—rich, we got everything going for us—but that doesn’t mean we can just print money indefinitely as debt.”

– Warren Buffett, May 2023

 

 

Quote

“At least you’re thinking in the right direction. You’re worried about the right things—all you people that are worried about the inflation, and the future of the Republic, and so forth.”
– Charlie Munger, Feb. 2022

 

 

Quote

“Further spending in aggregate, in my opinion, is going to cause a financial crisis, is going to cause inflation, and nothing is going to hurt the poor more than that.”

– Stanley Druckenmiller, Jul. 2021

 

 

Quote

“If I was Darth Vader, and I wanted to destroy the U.S. economy, I would actually do aggressive spending in the middle of an already hot economy—which is exactly what we have. The reason is that it creates two things. Number one, you usually get a bubble out of that. And number two, you could get inflation out of that. Frankly, we have both. This is the biggest bubble I’ve ever seen in my career.”

– Stanley Druckenmiller, Jul. 2021

 

 

If you're at all familiar with the balance sheets of our country's largest banks, you would know that many took on staggering amounts of interest rate risk during the periods of low-rates. They loaded up on low-yield assets and are now sitting on massive amounts of unrealized losses. Meanwhile, the government is printing Treasury debt hand over fist, in effect putting further pressure on both rates and the bond market—when our banking system can't handle rates moving any higher.

Back in 2023, at his annual shareholder meeting, Buffett said that he doesn't know where the future shareholders of the big banks are heading. Take a second to just think about the implications of that statement.

 

Quote

"Actual deflation is rare."

"Only once in the past century, in the 1930s, have we had deflation, serious deflation. In 2008-2009 there was cause for concern. The common characteristic of those two incidents was collapse of the financial system."

"The lesson, to me, is crystal clear. Deflation is a threat posed by a critical breakdown of the financial system. Slow growth and recurrent recessions without systemic financial disturbances, even the big recessions of 1975 and 1982, have not posed such a risk. The real danger comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking, in effect standing by while bubbles and excess threaten financial markets."
– Paul Volcker, Oct. 2018

I know it's ironic because I've been harping about inflation, but cash is not trash (in the short term.) When everyone in the system all tries to deleverage at the same time, you could likely experience a crash in risk assets and a scramble for cash. Amazingly, even though the Fed has pumped our economy so full of liquidity that it's basically bursting out of our eyeballs, somehow many have managed to find themselves in the same precarious position that initially got us all here.

As they've shown in the past, the government will refuse to let the system fail and will do "whatever it takes" in order to save it. This basically means they'll print even more money.

I know that I'm pretty alarmist and a lot of this comes of as a worst-case scenario. We could also have a long period of drawn out stagflation, but I assume that we're almost certain to see a crisis since Congress wont act until something breaks.

 

Edited 4 hours ago by Blake Hampton

[LC]

I'm not sure I agree with you on the threat of inflation- I think Powell has done a decent job in the recent history of managing the  balance between rates, employment, and inflation. But more importantly, kudos to you for prioritizing your mental health over an internet message board

[73 Reds]

4 minutes ago, Blake Hampton said:

Some people were worried about me, so I thought I might write a final post. I decided to leave the board for my mental health and so that I can keep a more independent perspective. There are a lot of smart people here who bring valuable insights, but I also have to be really careful when weighing others' opinions about the future. Smart people can be just as wrong as they are smart. The best I can hope for is to come to my own conclusions and hope that I'm ultimately proven right.

 

The title of this thread is what I believe every investor should be focusing on, though very few seemingly are. Our national debt and our fiscal deficits are enormous and growing, and both sides of Congress have shown no willingness to meaningfully address them. Pay attention to what some of the professionals are saying. Read Warren Buffett's recent shareholder letter. You'll soon realize that a lot of them are sounding alarms:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If you're at all familiar with the balance sheets of our country's largest banks, you would know that many took on staggering amounts of interest rate risk during periods of low-rates. They loaded up on low-yield assets and are now sitting on massive unrealized losses. Meanwhile, the government is printing Treasury debt hand over fist, in effect putting further pressure on both rates and the bond market—when our banking system can't handle rates moving any higher.

Back in 2023, at his annual shareholder meeting, Buffett said that he doesn't know where the future shareholders of the big banks are heading. Take a second to just think about the implications of that statement.

 

I know it's ironic because I've been harping about inflation, but cash is not trash. When everyone in the system all tries to deleverage at the same time, you could likely experience a crash in risk assets and a scramble for cash. Amazingly, even though the Fed has pumped our economy so full of liquidity that it's basically bursting out of our eyeballs, somehow many have managed to find themselves in the same precarious position that initially got us all here.

As they've shown in the past, the government will refuse to let the system fail and will do "whatever it takes" in order save it. This basically means they'll print even more money.

Cash is not trash (in the short term.)

I know that I'm pretty alarmist and a lot of this comes of as a worst-case scenario. We could also have a long period of drawn out stagflation, but I assume that we're almost certain to see a crisis since Congress wont act until something breaks.

 

@Blake Hampton Please reconsider.  You are young and smart.  The best way to learn is exposure to varying opinions and contexts.  We're all here for essentially the same reason, to learn from others and hopefully make some money along the way.  You don't have to read threads or posts from folks that bother you.  Evidently you can even block posters you don't like (though I think that says more about you than the blocked posters).  Simply ignore anything that bothers you but respect others' points of view and don't try to change anyone's opinion because there are far more productive uses of your time and effort.

[cubsfan]

I think with reduced government spending that you are sure to see - it will be difficult to have inflation. I'm almost more prepared for a recession, as there are so many crosscurrents in motion.

With all these cuts and dislocations, where is the inflation going to come from.

 

Like the man said, you are young, smart and passionate.

Always bring your best arguments and you'll do just fine here.

None of us are right all the time - learning is the objective (as well as making money of course)

 

You said - Smart people can be just as wrong as they are smart. - Correct. The goal is to keep learning.

 

Good luck Blake.

 

 

[Gregmal]

Learn to embrace things you don’t like, especially if all it requires is reading and/or listening. You learn more from being challenged and testing your own comfort than you do in an echo chamber.
 

As far as it relates to investing, there are fortunes to be made navigating uncomfortable environments and being able to think clearly when others can’t. Don’t fall for the value books that tell you it’s as simple as sleeping on a Signatory with all your cash under the mattress and then waking up with a big smile and matching boner as blood fills the streets and your neighbors receive foreclosure notices; at which point you waltz thru town joyously buying anything your heart desires at 7-10x trough earnings….world don’t work like that anymore. 
 

Even here, amidst the doom, it’s been suggested to just focus on what’s controllable and in the meantime, just own Buffetts Berkshire since he seems a favorite source of quotes, or Fairfax which is well covered here. Both have provided adequate returns throughout the duration of the doom proclamations.

Edited 25 minutes ago by Gregmal

[Hektor]

@Blake Hampton You can stay here and apply Graham’s teaching. Similar to Mr. Market, you are offered many opinions every day. What you do with it is for you to decide 

Edited 11 minutes ago by Hektor