Lazy Man and Money

Inflation, Inflation, Inflation

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Before we get started on today’s topic, it’s day two of Amazon Prime Day. So far I’ve found it underwhelming. I often have most of my Christmas shopping for the kids done and quite a few new electronic toys to play with. I think I find it underwhelming for two reasons:

  1. I don’t really need anything new. If I was looking for a computer, cellphone, or wireless earbuds, I would be happy at the savings.
  2. The prices aren’t as good. I’m not sure if it’s because Amazon has become so big it doesn’t have to discount as much or if the international chip shortage means that there isn’t room to lower prices as much.

That second point is a perfect transition into today’s topic – inflation. You might have gathered as much from the title, but did you get the reference to the famous Brady Bunch line?



Jane isn’t wrong. Nowadays all anyone wants to talk about is Marcia… er… inflation.

In fact, as I was writing this, I came across this article on CNBC where economist Mark Zandi says, “It could take a year to break even after a 10% to 20% market correction.”

It makes sense. I’ve been seeing inflation everywhere locally. My area of Newport, Rhode Island depends on summer tourism. After missing last year’s season, prices for everything are higher and people are paying them. It might be because people have stimulus money. It might be because they are anxious to get out after a year stuck at home. It might be that the luxury tourism that Newport is known for caters perfectly to the white-collar workers who could keep their income through the pandemic. It’s likely a combination of all three.

I’m also seeing the other side of inflation first-hand. My dog-sitting business is setting new records almost every day. I have so much demand and raising prices doesn’t slow it down at all.

Taking all these signals together, it’s hard for me to come to any other conclusion that inflation is here. That’s typically bad news for your stock portfolio. However, I feel like this time could be different for two reasons:

  1. Consumer spending is high. When people spend, companies make profits. Profits are good for stock portfolios.
  2. We are starting to wages go up. When people are paid more money, they can spend more money. See #1 on how that leads to more profits. The downside for companies will have more expenses, so this may negate itself.

If you agree that inflation is coming and that it could hurt your portfolio. The natural question to ask, “How can I protect myself?”

Protect Your Portfolio During Inflation

I have to admit that I had to do some research on this one. In 15 years of blogging, I don’t know if I remember a time when inflation might go up. The costs of some things rise, but computers, cell phones, chicken, cell phone plans, and a bunch of other stuff has gotten cheaper it seems.

Here are some ideas to protect your portfolio:

  • Hold More Cash – If the market does drop 10-20%, having cash means that you can buy low. When the market recovers, you’ll come out ahead. However, if the market doesn’t drop, you’ll have money that isn’t invested which is a missed opportunity.
  • Invest in Financial Companies – Financials will profit because they’ll earn more interest on their holdings. However, I’m reading that they’ll make less on mortgage-lending and stock trading revenues. This may turn out to be a draw. Personally, I’m going to buy a financial ETF (maybe XLF) because I’m underweighted in that category.
  • By Gold and Commodities – Gold and commodities tend to go up during inflationary times. However, they’ve both gone up a lot. I don’t like buying things at the top of the market.

You may be tempted to hold more bonds than stocks, but it seems that high inflation hurts both bonds and stocks.

Another alternative is to do nothing. This might be the best overall plan. If it takes a year for stocks to recover to these levels after a drop of 10-20% it won’t be too disastrous for many people. I’m 45 which means I still hopefully have decades of investing left. After how much stocks have gone up over the last 11 years or so, I don’t think taking a one-year pause is necessary a bad thing. If a big drop occurs, I’ll focus more on working for my money than making my money work for me. If I’m part of the inflation cycle by charging more for dog sitting or other freelance work, then the high prices are simply balanced by higher income.

In the end, I’ll likely do a combination of holding more cash (maybe 3-5% of my portfolio) and investing in financial companies. I’m also going to use a couple of psychological tricks. In addition to realizing that I’m invested for the long term, I’m going to look at our overall net worth. By the beginning of this month, it was up more than 15% and it was diversified into real estate and other holdings. If the market drops 20%, our net worth will probably just reset to January.

Easy come, easy go, and a chance to build more assets at a lower price. Got any other ideas, let me know in the comments below.

This article contains links that I may earn a commission if it leads to a sale.

Are We Financially a “Lost Generation”?

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My friend Glen Craig from Free From Broke shared an interesting article on Facebook last night. With a comment of “wow”, and former Lending Club friend Rob Garcia chiming in with “whoa”, it got my attention. The article The typical American family makes less than it did in 1989 from The Washington Post has nearly 900 comments as I write this.

I read the article and shrugged. I must be missing something.

The article compares inflation-adjusted median household incomes between now and 1989. It even gives showing all the years in between. The author states:

In 1989, the median American household made $51,681 in current dollars (the 2012 number, again, was $51,017). That means that 24 years ago, a middle class American family was making more than the a (sic) middle class family was making one year ago.

This isn’t a lost decade for economic gains for Americans. It is a lost generation.

Why should we expect to make gains on median household income on an inflation-adjusted basis? It’s like getting on a treadmill and being upset that you walked for a half hour and went nowhere. I guess according to the author this is a lost half hour and yet millions and millions of people find value in it every day.

It seems quite an over-reaction to a loss of 1% of income… or about half a percent after taxes.

The Value of Living Today

Glen on Facebook brought up and interesting point, “After reading the article I also wondered what the cost of living is compared to back then. What if we just don’t need as much money for some things as we did back then, like computers?”

My family was one of the earlier families on the block to get a personal computer (The awesome PCjr) back around 1985. Even as we upgraded to 286, 386, and 486 computational behemoths, we never had more than one computer. Today we have numerous laptops, mp3 players, and tablets. The $2000 that my family spent on a computer back then is pretty similar to the $2000 that we spend on various similar technologies today.

We can look back at what my family paid for a landline. I think it was around $40 a month and there were extra charges if you wanted to call long-distance. Today we have Ooma Telo free home phone service, but it piggybacks on a cable bill that has grown from around $20 a month to $125 a month. In addition, many people spend another $100-$110 a month on cell phones and service.

The price of cars have gone up over that time. However, when you adjust for inflation they are pretty much the same (at least through 2006 in that chart). The price hasn’t changed, but you get many more safety features, better gas mileage, increased technology, and comfort.

Lost Generation? Really?

Are we really saving money on computers nowadays? Probably not. Are we really saving money on cars? Nope. However, in both cases our money gets us exponentially more than it did back 1989.

The mere fact that an ordinary person with no journalism degree like me can write to thousands of readers and convey this article is noteworthy.

Does that sound like a “lost generation” to you? Me neither.

Inflation: It’s Not Just About Money Anymore

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A couple of weeks ago, The Economist took a step back from discussing money, at least directly. The Economist article covered the devaluation of everything. What’s that? It’s the way marketing has crept into our lives to get us to buy product or otherwise influence us financially.

Let’s take the sizing of women’s pants. The Economist did a little research and found that:

… The average British size 14 pair of women’s trousers is now more than four inches wider at the waist than it was in the 1970s. In other words, today’s size 14 is really what used to be labelled a size 18; a size 10 is really a size 14. (American sizing is different, but the trend is largely the same.)

It makes sense if you think about it. Let’s say that Gap has their jeans a half an inch bigger than Levi’s. Some people are going to fit in the Gap at a smaller size than Levi’s and feel pretty good about how they look and buy those. It’s a competitive advantage. The Levi’s people aren’t going to take it lying down and are likely to leapfrog the Gap. So it continues for a number of years and all of a sudden you have size 10s that are size 14s.

The Economist points out some other examples. “Starbucks coffees are Tall, Grande, Venti or (soon) Trenta.” Notice there’s no small in there? Having worked at Papa Gino’s, a New England pizza chain, 20 years ago, I can tell you it was confusing when a customer ordered a small and the closest options were a kids size and a medium size. Also 5-star hotels have been replaced by 6 and 7 star hotels. “Standard” rooms have been replaced with “deluxe” rooms.

These are all marketing gimmicks to make the customer feel like they are getting some extra value. In reality they aren’t. It’s some kind of Orwellian Newspeak.

It doesn’t end with the products we buy. It’s also in our job titles. It’s far cheaper for your employer to give you a fancier title than a pay raise. The Economist gives an example of a “Director of First Impressions”, which is commonly known to be receptionist. Of course this is nothing new. I can’t remember the last time I’ve heard anyone call a flight attendant a steward or stewardess. That’s one that’s always confused me. Why did we need to invent flight attendant and not meal attendant to replace waiter and waitress?

It’s as if we want to make sure that everyone feels special. Of course if everyone feels special no one is special. But hey, we live in a world where we have to protect everyone’s feelings. Students of New York Prep schools can’t celebrate getting into great schools anymore because they’ll hurt their classmates feelings. And a coach was forced to resign because he played more talented freshmen instead of the less talented upperclassmen.

It’s a messed up world and as the Economist put it, you can’t put the toothpaste back in the tube. It’s here to stay. If you can’t beat ’em, join ’em, right?

Lazy Man
CEO, Lazy Man Media

State of the Economy

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Most days, I try to avoid watching CNBC. I’m weird in that I often find it entertaining. I avoid it because I often get the feeling that I’ll be able to time the stock market. Yesterday, I couldn’t resist temptation and I flipped on CNBC for a few minutes.

The Price of Oil

The price of a barrel of oil jumped over $140. It seems like yesterday that people were wonder if oil would top $100. It came close for a while and would dance between $90 and $95. I expected $140 to happen at some point. Like most people, I just figured it would take a good 3 or 4 years.

As much as I wish we didn’t have to more than $4.00 for a gallon of gas, I’m extremely happy that this is spurring people to buy cars that get more miles to the gallon. Maybe I live in an idealistic world, but perhaps people will realize that it’s not so bad and make other cuts in their spending.

The Price of General Motors (NYSE:GM)

If you missed the news yesterday General Motors hit a 53-year low. For those unfamiliar with what that means, CNBC anchor Mark Haines put it best, “If you bought a share of General Motors 53 years ago, in 1955, you would not have made any money. In fact you would have lost a lot due to inflation.”

Think about that for a second. I realize that car companies have been put through the ringer for quite some time. However, I can’t imagine a company that my parents have grown up with to not grow shareholder value their entire lifetime. I picture what it might be like to crawl though an attic. There you find an old dusty box. Inside some long-lost shares stock certificates. You’re in luck! The company still exists. You’re not in as much luck as you thought though as it’s not likely worth a lot.

I thought these two points together add to something really interesting. The price of oil is rising so much, while the value of the car companies drop. Is this like 2000 when Internet companies were skyrocketing and energy stocks are low. I don’t think so, but crazy things happen in 8 years.

Stamp Prices Going Up

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The price of stamps goes up an entire penny on Monday. If you use a lot of stamps you may consider buying 100 of the Forever Stamps at $41. This will save $1 vs. buying them next week. I know a great many people that will consider this. Some of them will use 20 minutes of their and 80 cents of gas to save that dollar.

I just got back from the post office, I had some other errands to run. I asked the clerk if people were buying more Forever Stamps. She said that they were flying off the shelves. She said that everyone is trying to save a little money. I made a comment about how they’d likely earn more in interest if they put the money in a bank or CD. I don’t think the clerk realized why. In the end, she had more customers to take and I had to be on my way.

If you were thinking about running out to buy stamps, I’d think twice. Is it really worth the savings? I’d rather focus on something bigger. A couple of packages of Ramen noodles isn’t going to make my day.