5 ms·

While true, it's not really a problem per se. On average, wages keep pace with inflation and so if prices go up in a persistent way, so too will wages, and the

While true, it's not really a problem per se. On average, wages keep pace with inflation and so if prices go up in a persistent way, so too will wages, and the effect will cancel out in time. You are right that some prices are sticky - but so are wages - and so there's a built-in mechanism to address this over time. [0] > Edited to add: Are we likely to see an acceleration of the electrification of transport? Buy Tesla shares? Renewable energy projects double-digit percentage uptick? Investing isn't really that simple. While TSLA has notionally gone down in price per share (from $1200 to $780), the bubble has gotten bigger. It's market cap is higher than every other automaker put together, plus a bunch of utility companies, plus a few battery companies. This is about the most crowded trade on the planet. Even after Elon dumped on everyone at the peak and is under SEC investigation for doing so. [1] Generally, you won't do much better than just investing in the S&P 500. In fact 92% of actively-managed funds underperform the S&P 500 over a 15 year period. [2] You think you can do better? [0] https://corporatefinanceinstitute.com/resources/knowledge/economics/sticky-wage-theory/ https://corporatefinanceinstitute.com/resources/knowledge/ec... [1] https://www.wsj.com/articles/sec-probes-trading-by-elon-musk-and-brother-in-wake-of-tesla-ceos-sales-11645730528 https://www.wsj.com/articles/sec-probes-trading-by-elon-musk... [2] https://www.cnbc.com/2019/03/15/active-fund-managers-trail-the-sp-500-for-the-ninth-year-in-a-row-in-triumph-for-indexing.html https://www.cnbc.com/2019/03/15/active-fund-managers-trail-t...

seibelj 5y ago
An incredibly good investment for anyone that can afford it in the USA is a house. The government subsidizes your mortgage by fixing the rate. As inflation increases rents, you pay the same amount. It’s an amazing handout for even the slightly wealthy.
- arcticbull 5y ago
  It actually depends on a ton of factors. [1] How long you plan to stay there, opportunity cost of capital, annual salary, deductions, inflation, taxes, closing costs, HOAs, maintenance, etc. It can be! But it isn't always. [1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
  - seibelj 5y ago
    At some point you need to make a decision in life. I myself am self-made wealthy and I didn’t do that by putting all my money in index funds and renting. Have conviction - put down roots - commit.
    - arcticbull 5y ago
      It's interesting that you say that, I've also done quite well for myself, and I was in a position to risk more because I hadn't committed all my free capital to a down payment on a mortgage. In fact, at that time, I wouldn't have been able to afford a place I actually wanted to live in anyways. Putting down roots doesn't mean owning a property you don't want to, and being unable to then expose yourself to more interesting risks due to being house-poor. This is of course equally anecdotal, which is why I think folks would do well to review the NYT calculator to evaluate the specifics of their situation :) Risk is good! I'm a big fan of risk. However, a house won't go up more than a few points a year. That's never going to be life changing money. The opportunity cost of the down payment making you unable to early exercise some startup equity could on the other hand leave you pretty full of regret.
      - seibelj 5y ago
        In the US you can put 5% down and lock in your monthly payment forever. This is because the government subsidizes this. It’s an incredible trade and that’s why any attempts at reform are lobbied so aggressively.
        blitzar 5y ago
        The 'trade' in all this is not the appreciation of house price. Housing is a middling performing, high maintenance cost, depreciating asset. However, you can borrow against it cheaper than virtually any other asset in existence at absurd leverage ratios - and swap your cash flow for the ownership of the asset. So long as interest rates are at or below growth / inflation / or your salary increases - it is a good investment.
      - 5y ago
- m0llusk 5y ago
  Home ownership makes people poor by discouraging moves to optimize opportunities. Additionally, this prolonged period of high house price appreciation is an anomaly that cannot be sustained. House prices are supported by incomes which are not growing at the same high rates. Historically houses are depreciating assets because critical components such as the roof and essential utilities like plumbing require regular maintenance and replacement at intervals between 15-50 years depending on durability and conditions.
BLKNSLVR 5y ago
This diminishes your reply unfairly, and that's not my intention: I was going to try to word my way around (normal) inflation being somewhat of a solution to this, but felt it watered down my sentiment more than I'd have liked. >You think you can do better? I'm not a trader, and in my very (like, VERY!) low value dabbles I've invariably lost (like, apparently, 90% of amateur traders). If I had more money to gamble, however, I'd definitely put some on Tesla in the current environment of foreseeable-future high oil prices. Investing is always a gamble though. My meagre investments are a very high percentage in indexed funds or ETFs or whatever they're called (see, I'm a freakin' pro :)).
- huijzer 5y ago
  > If I had more money to gamble, however, I'd definitely put some on Tesla in the current environment of foreseeable-future high oil prices. Before you buy the stock, please consider not only the fact that it is likely gonna be great but *also* the current price of the stock. You also wouldn't buy a car without knowing the price. The market cap of Tesla is currently 792 billion. Let's look at the operating cash flow since that is the money a company can sort of spend on whatever they want. Their operating cash flow for the year 2021 is about 11.5 billion. So, assuming no growth, they will need 68 of those years to be able to pay all investors back. But, okay, let's assume some growth. Let's say 30% growth in cash flow per year which is a optimistic estimate. Few companies manage to get a 30% yearly growth; let alone for a longer period. They will need about 16 of those years (11.5 * 1.3^16 = 765 billion). As another number, you can look at the PE Ratio. The average PE Ratio for the S&P 500 is 23.80 currently (https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio). In 2011 it got as low as 14 even. Tesla sits at 156!
  - shrimpx 5y ago
    I like your analysis. Tangent: what do you think about $FB, which currently sits at a P/E of 14?
    - huijzer 5y ago
      Thanks. I don’t have an opinion on it. To form your own opinion, I can highly recommend watching a bunch of videos on YouTube with Warren Buffet, Monish Pabrai, Howard Marks and Ray Dalio and if you get the chance a (audio)book or two of some of them. Especially Warren and Charlie Munger have a great ability to put things into perspective.
refurb 5y ago
While true, it's not really a problem per se. On average, wages keep pace with inflation.. If that were the case stagflation of the 1970’s wouldn’t have been a big deal, but it was. And supply shocks were also a major trigger (Arab oil embargo). If wage increases lag inflation, then consumers pull back on spending as prices rise. This can push you into a recession or piss-poor economic growth. It took the US over a decade to get out of the high inflation/low growth environment of the mid-70s and the pain of even higher interest rates needed to break inflation - which further depressed the economy - was a painful cure.
- deleted 5y ago
  [deleted]
AnimalMuppet 5y ago
> While true, it's not really a problem per se. On average, wages keep pace with inflation and so if prices go up in a persistent way, so too will wages, and the effect will cancel out in time. You forget about sequence. Prices went up 7-8% last year. I'm hoping that my company cost of living adjustment will match that... when it shows up. It hasn't yet. In the meantime, I'm paying 7% more for things on a salary that has not yet gone up. My wages may catch up. But in the meantime, it hurts.
- nradov 5y ago
  Very few employers give automatic raises for anything like a "cost of living adjustment". They set salary targets by looking at what other employers are doing, and then adjust up or down based on voluntary employee turnover rates.
dam_broke_it 5y ago
IT wages have been STAGNATE for decades, wanna try again with wages keeping pace with inflation.....
- arcticbull 5y ago
  That's simply not true. [1, 2] They've stayed roughly flat in constant dollars since 1964 indicating that they have, in fact, kept pace with inflation. Average wage was $2.50 in 1964, and today it's about $25, in nominal terms. Wages in the US have, in fact, kept pace with inflation for decades. They haven't kept pace with productivity growth, but that's a different matter, and one worth paying attention to. [1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us... [2] https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q

seibelj 5y ago

An incredibly good investment for anyone that can afford it in the USA is a house. The government subsidizes your mortgage by fixing the rate. As inflation increases rents, you pay the same amount. It’s an amazing handout for even the slightly wealthy.

arcticbull 5y ago
It actually depends on a ton of factors. [1] How long you plan to stay there, opportunity cost of capital, annual salary, deductions, inflation, taxes, closing costs, HOAs, maintenance, etc. It can be! But it isn't always. [1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
- seibelj 5y ago
  At some point you need to make a decision in life. I myself am self-made wealthy and I didn’t do that by putting all my money in index funds and renting. Have conviction - put down roots - commit.
  - arcticbull 5y ago
    It's interesting that you say that, I've also done quite well for myself, and I was in a position to risk more because I hadn't committed all my free capital to a down payment on a mortgage. In fact, at that time, I wouldn't have been able to afford a place I actually wanted to live in anyways. Putting down roots doesn't mean owning a property you don't want to, and being unable to then expose yourself to more interesting risks due to being house-poor. This is of course equally anecdotal, which is why I think folks would do well to review the NYT calculator to evaluate the specifics of their situation :) Risk is good! I'm a big fan of risk. However, a house won't go up more than a few points a year. That's never going to be life changing money. The opportunity cost of the down payment making you unable to early exercise some startup equity could on the other hand leave you pretty full of regret.
    - seibelj 5y ago
      In the US you can put 5% down and lock in your monthly payment forever. This is because the government subsidizes this. It’s an incredible trade and that’s why any attempts at reform are lobbied so aggressively.
      - blitzar 5y ago
        The 'trade' in all this is not the appreciation of house price. Housing is a middling performing, high maintenance cost, depreciating asset. However, you can borrow against it cheaper than virtually any other asset in existence at absurd leverage ratios - and swap your cash flow for the ownership of the asset. So long as interest rates are at or below growth / inflation / or your salary increases - it is a good investment.
    - 5y ago
m0llusk 5y ago
Home ownership makes people poor by discouraging moves to optimize opportunities. Additionally, this prolonged period of high house price appreciation is an anomaly that cannot be sustained. House prices are supported by incomes which are not growing at the same high rates. Historically houses are depreciating assets because critical components such as the roof and essential utilities like plumbing require regular maintenance and replacement at intervals between 15-50 years depending on durability and conditions.

BLKNSLVR 5y ago

This diminishes your reply unfairly, and that's not my intention: I was going to try to word my way around (normal) inflation being somewhat of a solution to this, but felt it watered down my sentiment more than I'd have liked. >You think you can do better? I'm not a trader, and in my very (like, VERY!) low value dabbles I've invariably lost (like, apparently, 90% of amateur traders). If I had more money to gamble, however, I'd definitely put some on Tesla in the current environment of foreseeable-future high oil prices. Investing is always a gamble though. My meagre investments are a very high percentage in indexed funds or ETFs or whatever they're called (see, I'm a freakin' pro :)).

huijzer 5y ago
> If I had more money to gamble, however, I'd definitely put some on Tesla in the current environment of foreseeable-future high oil prices. Before you buy the stock, please consider not only the fact that it is likely gonna be great but *also* the current price of the stock. You also wouldn't buy a car without knowing the price. The market cap of Tesla is currently 792 billion. Let's look at the operating cash flow since that is the money a company can sort of spend on whatever they want. Their operating cash flow for the year 2021 is about 11.5 billion. So, assuming no growth, they will need 68 of those years to be able to pay all investors back. But, okay, let's assume some growth. Let's say 30% growth in cash flow per year which is a optimistic estimate. Few companies manage to get a 30% yearly growth; let alone for a longer period. They will need about 16 of those years (11.5 * 1.3^16 = 765 billion). As another number, you can look at the PE Ratio. The average PE Ratio for the S&P 500 is 23.80 currently (https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio). In 2011 it got as low as 14 even. Tesla sits at 156!
- shrimpx 5y ago
  I like your analysis. Tangent: what do you think about $FB, which currently sits at a P/E of 14?
  - huijzer 5y ago
    Thanks. I don’t have an opinion on it. To form your own opinion, I can highly recommend watching a bunch of videos on YouTube with Warren Buffet, Monish Pabrai, Howard Marks and Ray Dalio and if you get the chance a (audio)book or two of some of them. Especially Warren and Charlie Munger have a great ability to put things into perspective.

refurb 5y ago

While true, it's not really a problem per se. On average, wages keep pace with inflation.. If that were the case stagflation of the 1970’s wouldn’t have been a big deal, but it was. And supply shocks were also a major trigger (Arab oil embargo). If wage increases lag inflation, then consumers pull back on spending as prices rise. This can push you into a recession or piss-poor economic growth. It took the US over a decade to get out of the high inflation/low growth environment of the mid-70s and the pain of even higher interest rates needed to break inflation - which further depressed the economy - was a painful cure.

deleted 5y ago
[deleted]

AnimalMuppet 5y ago

> While true, it's not really a problem per se. On average, wages keep pace with inflation and so if prices go up in a persistent way, so too will wages, and the effect will cancel out in time. You forget about sequence. Prices went up 7-8% last year. I'm hoping that my company cost of living adjustment will match that... when it shows up. It hasn't yet. In the meantime, I'm paying 7% more for things on a salary that has not yet gone up. My wages may catch up. But in the meantime, it hurts.

nradov 5y ago
Very few employers give automatic raises for anything like a "cost of living adjustment". They set salary targets by looking at what other employers are doing, and then adjust up or down based on voluntary employee turnover rates.

dam_broke_it 5y ago

IT wages have been STAGNATE for decades, wanna try again with wages keeping pace with inflation.....

arcticbull 5y ago
That's simply not true. [1, 2] They've stayed roughly flat in constant dollars since 1964 indicating that they have, in fact, kept pace with inflation. Average wage was $2.50 in 1964, and today it's about $25, in nominal terms. Wages in the US have, in fact, kept pace with inflation for decades. They haven't kept pace with productivity growth, but that's a different matter, and one worth paying attention to. [1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us... [2] https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q