CPI vs. "Real" Inflation vs. Gold

[ThisDinosaur]

If you're going to mock me, you should be more direct about it. I'm good with nuance, but not subtlety. OTOH if serious, how remarkably self-aware of you.

[enigmaT120]

I sometimes wish I had intuition.

[Dragline]

Oh, I'm sure you have it. We all do. Trouble is, its often wrong, and in a random fashion.

[BRUTE]

If you're going to mock me, you should be more direct about it. I'm good with nuance, but not subtlety. OTOH if serious, how remarkably self-aware of you.

brute isn't sure his mental model is complex enough for the distinction.

history of this insight:
- brute reads about asset allocations
- brute likes the Global Market Portfolio because it's maximally diversified
- brute likes the Golden Butterfly because GOLD and it's pretty diversified
- brute invests all his money into high-risk equities
- brute retrofits his strategy to match his behavior, and decides that the stability of GMP/GB are really not for him and they're too complex anyway, right? and also past performance doesn't guarantee future results, so fuck that..

[ThisDinosaur]

I feel similar:
I like GMP because owning the market means you beat >50% of all investors.
I like GB or similar because of strong evidence of 5% withdrawal rate.
I have all my money in equity indexes because of "stocks for the long run is my religion" legacy investments.
I want my future strategy to be based on the best available information, but I think changing strategy too frequently is probably costly and stupid.

[bryan]

Hello politics in CPI data: http://worthwhile.typepad.com/worthwhil ... wrong.html

A prominent theme of my career has been to reveal anomalies in what has been put forward as evidence. One instance is known only to me. In 1961 I was doing research for my doctoral thesis at what was then called the Dominion Bureau of Statistics. I wanted to know spatial price level differences across Canada. The data were collected for several major cities across the country but only changes over time for those cities were published as the CPI. I wanted geographical differences. I was on good terms with Simon Goldberg, the Assistant Dominion Statistician and he said , OK just go into the archive where the original reports from the cities were stored and dig out what you need. So I did.

What I discovered is that the clerks who recorded the data were under an instruction that, since the CPI was to represent prices paid by better off working class families, to edit out any rental figures what were above a designated threshold. By the end of the 1950s they were throwing out more than half of the reported rents. There had been a serious downward bias in a price that got fairly heavy weight in the CPI. I reported that to Simon but I don't think any alteration was ever made. It was water under the bridge. - Marvin McInnis, personal communication, November 23, 2016

Good resource: http://bpp.mit.edu/

[BRUTE]

government inflation data bogus? no way.

[Riggerjack]

Oh, were we talking about Canadian CPI?

Honestly, I don't know anything about that.

[ThisDinosaur]

@Riggerjack
No. I'm in the US. But if I see enough stuff like that about US CPI, I'll be more comfortable upping my gold allocation.

@bryan
Good stuff. The MIT site seems to focus on very recent price data only, though. Nothing before 2008, that I've seen.

[ThisDinosaur]

Instead of overemphasizing risk, another basic difference from today should be emphasized—the relative inconvenience of lending or investing
money in ancient times. A lack of institutional intermediaries would
today bring our credit structure to a standstill. The mechanics of lending
as individuals to other individuals on pawns or real estate or general
credit is complex, burdensome, and potentially unpleasant, however giltedged
the collateral. This difference of convenience alone may outweigh
the factor of risk in explaining the tendency of ancients to hoard metal
and invest in land.

So one reason all investments are currently overpriced is the ease with which we can trade them. Compare a face-to-face exchange of livestock at a high discount rate vs. buying a diversified ETF on your smart phone. The role of gold was to protect your principle from the high risk of default. Gold's success in the modern era was due to -Surprise! The US just ran off with your money. I'm having trouble squaring this with the fact that the paper Tyler posted (https://snbchf.com/swissgold/gold/gold-silver-prices/) observes gold having positive correlation with non-US currencies. Maybe because flight-to-gold in panic is a largely American thing to do.