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It's... difficult and depends on many factors. In an inflation environment equities usually do not feel great, since inflation causes shrinking margins and it

by fuoqi 3y ago

It's... difficult and depends on many factors. In an inflation environment equities usually do not feel great, since inflation causes shrinking margins and it takes time to pass rising costs on the consumer. Analysis from the Hussman Funds based on statistical data predicts that nominal return from equities in the next decade will be zero to negative. I think it's unlikely (but not impossible) that we will see a direct repeat of the recent QEs. We probably will see something similar to the Japanese yield curve control and you can easily see how the Japanese equities performed in the last two decades.

JumpCrisscross 3y ago
> inflation environment equities usually do not feel great, since inflation causes shrinking margins and it takes time to pass rising costs on the consumer This is factually untrue [1]. Equities aren't a surefire inflation hedge, as they're sometimes positioned. But it's also wrong that they "usually do not feel [sic] great" in inflation. (It's also wrong that margins compress in inflation.) [1] https://www.nber.org/system/files/working_papers/w17798/w17798.pdf https://www.nber.org/system/files/working_papers/w17798/w177...
- fuoqi 3y ago
  I was talking about high inflation environment. If you bought equities in the begging of 70s, it would take more than a decade to get nominal return. Even the paper you linked explicitly states: >A large literature has documented the poor inflation hedging properties of the overall stock market. However, certain individual stocks have the ability to be good inflation hedges, even if the overall aggregate market has poor inflation hedging properties You can position yourself defensively, but investing into a broad market using something like S&P500 or God forbid NASDAQ as an inflation hedge is arguably not a great idea.
  - JumpCrisscross 3y ago
    > investing into a broad market using something like S&P500 or God forbid NASDAQ as an inflation hedge is arguably not a great idea We are in agreement. The point is that inflation doesn't have a predictable effect on equities. Sometimes they do well. Sometimes they don't. In the most-recent case, equities have been a fantastic inflation hedge.

by fuoqi 3y ago

JumpCrisscross 3y ago

> inflation environment equities usually do not feel great, since inflation causes shrinking margins and it takes time to pass rising costs on the consumer This is factually untrue [1]. Equities aren't a surefire inflation hedge, as they're sometimes positioned. But it's also wrong that they "usually do not feel [sic] great" in inflation. (It's also wrong that margins compress in inflation.) [1] https://www.nber.org/system/files/working_papers/w17798/w17798.pdf https://www.nber.org/system/files/working_papers/w17798/w177...

fuoqi 3y ago
I was talking about high inflation environment. If you bought equities in the begging of 70s, it would take more than a decade to get nominal return. Even the paper you linked explicitly states: >A large literature has documented the poor inflation hedging properties of the overall stock market. However, certain individual stocks have the ability to be good inflation hedges, even if the overall aggregate market has poor inflation hedging properties You can position yourself defensively, but investing into a broad market using something like S&P500 or God forbid NASDAQ as an inflation hedge is arguably not a great idea.
- JumpCrisscross 3y ago
  > investing into a broad market using something like S&P500 or God forbid NASDAQ as an inflation hedge is arguably not a great idea We are in agreement. The point is that inflation doesn't have a predictable effect on equities. Sometimes they do well. Sometimes they don't. In the most-recent case, equities have been a fantastic inflation hedge.