Hasn't Warren Buffett has talked about this? Didn't he say a good protection against inflation is a high quality company with pricing power such as Hersheys or Coca Cola that can increase its prices and pass on inflationary costs to the consumer, without needing to worry so much about a loss of demand? He even talked about how return on equity is positively affected by such companies during inflationary periods.
I think real estate has also done well historically, during periods of increasing interest rates. I remember seeing a chart about this, but I don't remember whether it was referring to real rates or nominal.
Also, regarding GDP, why has no one mentioned the possibility of wages increasing? I keep hearing about inflation over and over in forums and on the news, but there is no mention of possible wage growth.
Big companies and employers are more efficient now than ever. They have been reporting pretty decent earnings. Couldn't it be the case that many companies start increasing the wages of their employees over the next few years? Wouldn't this contribute to higher GDP, and to a gradual lowering of the Warren Buffett indicator (ratio of Wilshire 5000 to GDP), which is bound to mean revert?
I am trying to figure out if our economy is a bubble about to burst, or if we are undergoing what Ray Dalio refers to as a "beautiful deleveraging", where fiscal austerity, debt monetization, wealth redistribution, and fiscal policy all contribute to gradually combat the long-term, secular decline that we seem to be undergoing right now.
I believe consumers are experiencing inflation, whatever the numbers say, at least in terms of cost of living increases. Have you gone to the grocery store lately? Prices are higher than they were 6 months and one year ago. Shouldn't wages be increasing soon? Employees will start demanding them. There is evidence to support this here:
https://tradingeconomics.com/united-states/wage-growth
Maybe the Fed knows what it's doing, and that we should all have some faith that things will be okay. Also, bitcoin lol. Don't get me started.
Problem is that most of the companies with the desirable features you mention (pricing power, low capital intensity etc) are very expensive and in general inflationary periods are associated with multiple compression. There were some very good companies in the Nifty Fifty and they weren't immune from the carnage caused by all the inflation in the 70s. So you would want to make sure that earnings growth can offset that multiple compression to some extent.
+1
It's all about the price you pay. KOs stock is basically up 20% since the late 90s. Of course there is the dividend, but the real return of a 30-year period of excessive spending and asset inflation left much to be desired because it was FAR too expensive in the 90s.
Methinks we'll see the same with today's "quality" investments.
Didn't we get to 44 on the P/E back in 99 on the S&P? Today I think we are in the mid 20's and zero interest rates. We could go up another 50% if it is like the late 90's.
Mid-20s on fictitious earnings. Mid 30s on actual trailing 12-month earnings.
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