Author Topic: Best stocks/sectors for higher inflation  (Read 8436 times)

petec

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Re: Best stocks/sectors for higher inflation
« Reply #30 on: December 16, 2019, 07:54:24 AM »
Long companies that doesn’t need capitals and can raise prices. WEB said that many times in his letters. But such companies all are trading at very high PEs nowadays (except cigarettes companies)
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Hence my point about the initial impact of changes to discount rates.

The other issue (raised above) is that many of the companies that used to have pricing power don't any more. Inflation is highly like to squeeze some margins. And with margins at all time highs it may even be that high margin companies choose not to fully protect margins for political/perception reasons.

As to whether we will have deflation or inflation, that's a political decision and I suspect the political winds favour inflation. But that's in the long term. We might well get a short bout of deflation followed by Yang-style helicopter money.
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scorpioncapital

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Re: Best stocks/sectors for higher inflation
« Reply #31 on: December 17, 2019, 11:21:50 AM »
"On the very long term, the best inflation hedges are capital-light equities with pricing power."

Why can't you have a capital intensive monopoly like a utility or railroad with pricing power? Governments define acceptable returns in real terms so I see no regulatory issues.

As for the claim that inflation is a tax on assets, it's not. It is precisely those with assets that Dodge the inflation. Inflation is a tax on saver or cash. And what is the difference between financial repression which we have now and inflation. The result is the same, savers and pensions are moaning that real rates are negative

Schwab711

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Re: Best stocks/sectors for higher inflation
« Reply #32 on: December 17, 2019, 11:28:48 AM »
SCHW is becoming a more direct bet on interest rates in the short-run since their model has shifted heavily towards the spreads on margin loans and cash sweeps.

Jurgis

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Re: Best stocks/sectors for higher inflation
« Reply #33 on: December 17, 2019, 12:03:02 PM »
SCHW is becoming a more direct bet on interest rates in the short-run since their model has shifted heavily towards the spreads on margin loans and cash sweeps.

What do you think about SCHW? (Maybe we should move discussion to SCHW thread). It has done very well historically, it seems to drive the changes in brokerage industry and do quite well in sidelining competition. OTOH, I wonder if zero commissions will launch even more aggressive competition across the field with everyone losing more than gaining. Also, as you say, it will be impacted by narrowing margins if rates stay low.
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LC

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Re: Best stocks/sectors for higher inflation
« Reply #34 on: December 17, 2019, 02:25:24 PM »
"On the very long term, the best inflation hedges are capital-light equities with pricing power."

Why can't you have a capital intensive monopoly like a utility or railroad with pricing power? Governments define acceptable returns in real terms so I see no regulatory issues.

As for the claim that inflation is a tax on assets, it's not. It is precisely those with assets that Dodge the inflation. Inflation is a tax on saver or cash. And what is the difference between financial repression which we have now and inflation. The result is the same, savers and pensions are moaning that real rates are negative
My take is that capital heavy industries require capital upkeep. This upkeep is subject to inflation so while you may come out slightly ahead depending on the change in magnitude of your pricing power vs. your suppliers, it is not exactly a thrilling experience.

On the second item. Savers invest in assets, so saying that inflation is a tax on savers but not assets somewhat puzzles me.

Inflation is really a tax on inaction and value-destructive activity, i.e. un-productivity. Those who hoard their capital (inaction) are hurt by inflation as their purchasing power erodes. Those in value-destructive industries will naturally be eroded as their costs increase faster than their revenues. Inflation rewards those who can charge increasing revenues without significantly expanding their costs.
« Last Edit: December 17, 2019, 02:29:49 PM by LC »
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