This and That # 106

Mark Hulbert writes in The New York Times that stocks are a good inflation hedge because though future earnings are discounted at a higher rate when inflation is higher, corporate earnings tend to grow faster than inflation. Investors worried about the first effect ignored the second, offsetting effect in the past and drove stock prices so low that valuations became very attractive. Could history repeat itself? Could investors make the same mistake again? The paper (”Inflation Illusion and Stock Prices”) referred to in the article can be found here.
Via rail is offering a 50% discount for purchasing a comfort class ticket at the regular adult fare using a Visa card. Thanks to Tyler for this tip.
Forbes Magazine takes a look at how people in different countries allocate their budget to eleven consumption categories: Food, Alcohol, Clothing, Housing, Maintenance, Health, Transport, Communication, Recreation, Education and Eating out. The National Post ran a story on this topic.
Amidst all the gloom and doom, Larry MacDonald wrote a post on a money manager who is extremely bullish on stocks.
Insightful articles, media interviews and blog posts by financial advisors from PWL Capital, which manages investments based on a passive philosophy using index funds from Dimensional Fund Advisors, can be found on the firm’s website.

Blog roundup will be posted over the weekend. Have a great weekend everyone!

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Tags: Miscellaneous

1 Phil S // Aug 22, 2008 at 6:38 pm

I have the same philosophy that if you’re concerned about inflation, then why not just invest in the companies who are selling the products that are getting inflated? In that way, you CAN include food & energy in your holdings. For everything else, there is real return bonds which track the “core” CPI, which is inflation with food & energy stripped out.

However, in my opinion, the biggest concern isn’t inflation. It is the combination of a credit crunch, a mortgage lending problem, a slowing economy and continued reckless spending on equally reckless overseas wars against an enemy that they cannot find. These are the cause of all of our investing headaches.
2 Canadian Capitalist // Aug 22, 2008 at 8:00 pm

Phil: Good point. The bond market is suggesting that the inflation spike is temporary. 10-year Canada bonds are yielding just above 4% and subtracting the yield of 1.6% for RRBs suggests that the market expects inflation over 10 years to be 2.4%.

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