Revisiting 1969 – 1984 to help Identify the Best Investments for Inflation Protection

Introduction: A Brief Contemplation of Inflation Investing

Kailash does not make macroeconomic forecasts.[1]

This newsletter seeks to prove that our prior paper, The Case for Common Sense, represents good investing basics in any environment but also survives the lessons of the Great Inflation.  Despite 10-Year Treasury yields having nearly tripled since their lows in August last year, real yields are still negligible, and inflation is topical.  Summarily, one could suggest the following are signs that inflation is possible and hence another powerful reason to buy quality at reasonable prices:

  1. Charlie Munger: “…we’re in very uncharted waters.  Nobody has gotten by with the kind of money printing we are doing now, for a very extended period without some trouble.  And, I think we are very near the edge of playing with fire.  [The amount of money printing] is astounding.  What kind of lunatic would loan money to a European government for 100 years at less than 1%”[2]
  1. Social Stability & Math: Thoughtful work by Collaborative Fund shows that the incredible financial health  of the average consumer masks a wealth and income disparity that, similar to LBJ’s policies in the 1960s, could accelerate government largess to stave off social instability while excellent work by Advocate Capital shows a strong predictive link between GDP growth and Treasury Yields
  1. The Fed Said So: TD Ameritrade recently noted that the Fed’s 2% average inflation guidance is effectively an explicit promise to overshoot – an assessment that makes a lot of sense to us
  1. The Market: With Tesla worth nearly all the energy stocks in the S&P 500[3] and investors applying record valuations to firms that incinerate cash, the market seems very “short” inflation
  1. George A. Roche: The legendary helmsman of T. Rowe, who started on the New Era fund in 1969 when it was launched as an inflation hedge, instructed investors to look to the 1970s to gauge stock performance during inflationary periods[4]….and so we did

Companies that provide what people need benefit from inflation:

The inflation of the 1970s teaches us to invest in firms that provide what people need and avoid companies that sell items people want.


A Brief Contemplation of Inflation: The Fatality of Fixed Income

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Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction.

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