Sunday, June 29, 2008

Investment, inflation and market collapses

We have had no fewer than three major financial institutions (outside the US) call for an utter collapse of the equity markets in the last two weeks.

... says Karl Denninger. Seems like the pros are sitting around waiting for someone else to panic first. Then it'll be time to get in, right?

I recently looked at what happened to shares when a period of inflation begins. You might think that since inflation will also balloon the underlying tangible assets of companies, shares would do okay. But here's the results:
If you're an active investor, you may start thinking about opportunities. Look at the red zones. Draw a line from a deep points to a high one, and feel the greed; but draw lines from a temporary rally to another low, and feel the disappointment. You do need to get your timing right.
But inflation heavily penalises the passive investor, too. His boat settles onto the harbour mud; while the unlucky speculator dives headfirst off the retaining wall, deep into the goo. Inflation raises the risks for all.

3 comments:

Ryan said...

Given that we are talking about a 30 year wait for the stock market to recover from a major crash and I think it is better to stay well clear of it. Property could be a better bet, because in the end people need somewhere to live (and the government a duty to ensure that even those that don't work are housed) - people make a personal choice about whether to rent or to buy. Give it another 5 years and parts of the buy-to-let market will look extremely attractive to those that have sat on the sidelines of the recent property bubble.

SACKERSON said...

Stagflation could mean a crash in both stocks and property, at the same time as a rise in costs of food and energy, plus growing unemployment and unravelling government budgets.

Ryan said...

"as a rise in costs of food"

So buy a farm. Farmland rising in price very dramtically at the mo....