True, and not. It goes to degree. In a low inflationary environment, asset inflation favors equities at the expense of fixed income bonds. BUT, as the post yesterday demonstrated, in times of "hyper-inflation" ie: The 1970's, inflation's destructive effect systematically reduces equity values, making the fixed income bond and its guaranteed return of principle more valuable.
My fried on twitter @zippertheory provided the following statistics:
Of the he stated:
As you suspected stocks get crushed in hyper inflation due to P/E compression (as you know discount rate increases dramatically killing all terminal values). I can only presume that if CPI is above 7% commodities/Gold and anything that resembles a natural resource would flying.
I've as included a handy chart from the book Unexpected Returns by Easterling that better illustrates my aforementioned point.
The chart (click to enlarge):
So the evidence is pretty clear that 4% inflation seems to be the magic number at which a weighting from equities to bonds ought to take place in one portfolio. The question then remains to be answered, "what effect will the unprecedented monetary expansion have on inflation"?
If you believe it will cause hyper inflation, it it time to begin researching bonds. With corp. bonds currently yielding 7% to 9% for very safe companies, it does put pressure on the return you need from equities when you consider the additional risk.
Note: A bond/stock hybrid can be also accomplished with high dividend paying stocks, for instance, a stock yielding 4% need only appreciate 3% to 5% to equate to the bond yields. Just make sure the dividends are safe....we have had a score of cuts the last year although it would seem the worst of them has passed
Personally I find it hard to believe the actions taken recently leave us with the rather benign 2% long term inflation rate the Fed predicted yesterday. It doesn't match up with history.
That being said, for me it looks like 2%+ which means down the road I am going to be looking at some bonds....
Disclosure ("none" means no position):
