A major news outlet ran a piece on August 19 called "How to Protect Your Portfolio from Inflation." You put it in the September Theorist, though not because you agree with it.
RP: Hardly. I put it in because it's a good survey of what the crowd is prepared for, which is more useful than the advice. It quoted an expert saying that 80% to 90% of your stock portfolio should still be in broad-market funds tracking the S&P 500. That's a recommendation to keep nearly all your capital in the most overpriced stock market in history. And they call it protection.
And the remaining 10 or 20% they recommend?
RP: More stocks, mostly. Companies that own oil and gas reserves, mineral deposits, farmland or timberland, then commercial property and REITs, TIPS, and something called inflation swaps. Every item is a bet that prices will continue going up. There's no hedge anywhere in it — it's the same trade wearing different costumes.
You singled out the REITs.
RP: Because they're the most dangerous thing on the list. Real estate is overpriced mainly because the entire banking system has been built to supply credit for buying property. Defaults are looming. The 12-month trailing private credit default rate just rose to its highest level ever recorded, 6.3%, in an expanding economy. It’s telling you to look out. Markets puffed up by credit are at high risk.
To me, the most exciting thing in your latest issue is the graph of the 17.4-year cycle.
RP: Yep. It goes back a century! Personally, I like our Pluto chart best.
Right, the valuation graph! Wow.
That’s it for now. Thanks for your time, Bob.
