Powell - US Fed to Set High Inflation Targets - Any Knock-on effects?

[Kanto]

https://www.cnbc.com/2020/08/24/powell- ... ation.html

If the rate of inflation were to increase in the U.S as a response to the new FED policies, is this likely to have an effect on the Japanese economy?

The general advice for Americans seems to be to move out of cash/bonds -> into -> Int. Stock/REIT/Commodities and TIPS.

However, I am not American, and all my holdings are in YEN.

Thoughts?

[fools_gold]

With higher inflation in the US than Japan, you might expect the dollar to weaken relative to the yen.

[Kanto]

With higher inflation in the US than Japan, you might expect the dollar to weaken relative to the yen.

Do you think an investor in Japan would have to adjust its strategy as a result?

Certainly, it would not pay to be 100% in American equities or cash if this were to come to pass.

[fools_gold]

Do you think an investor in Japan would have to adjust its strategy as a result?

Certainly, it would not pay to be 100% in American equities or cash if this were to come to pass.

Well it's probably not a good idea to have everything in foreign stocks and bonds especially if you're approaching retirement.

[Kanto]

Do you think an investor in Japan would have to adjust its strategy as a result?

Certainly, it would not pay to be 100% in American equities or cash if this were to come to pass.

Well it's probably not a good idea to have everything in foreign stocks and bonds especially if you're approaching retirement.

Certainly, a lot of American retail investors have no diversification outside America. Some of the old guard Boglehead are 100% domestic only. Bogle himself was not keen on internationals.

I think diversification is important. Where that be a developed country fund, or an all country fund.

As far as bonds go I think TIPS might be attractive in the face of rising inflation, even considering low bond yields.

[captainspoke]

One thesis is that the S&P is effectively an international index. It's pretty easy to find versions of this:

YEAR IN REVIEW

• In 2018, the percentage of S&P 500 sales from foreign countries decreased, after slightly increasing last year, and declining the prior two years. The overall rate for 2018 was 42.90%, down from 2017’s 43.62% and 2016’s 43.16%. The recent high mark was 2014’s 47.82%, and the recent low mark was 2003’s 41.84%. S&P 500 foreign sales represent products and services produced and sold outside of the U.S.

• Sales in Asia slightly declined, while technically remaining the highest of any region, with the use of six-digit precision. Asia accounted for 8.24% of all S&P 500 sales, down from 8.26% in 2017 and 8.46% in 2016, but up from 2015’s 6.77% and 2014’s 7.80%.

• European sales posted their fifth consecutive year of gains, at just a tick lower than Asia. For 2018, European sales increased to 8.24% of all sales, up from 2017’s 8.14%, 2016’s 8.13%, 2015’s 7.79%, and 7.46% in 2014. The UK (which is part of European sales) increased to 1.49% in 2018 from 2017’s 1.12% and 2016’s 1.10%.

• Japanese sales again decreased in 2018, to 1.14% from 2017’s 1.51% and 2016’s 1.52%. African sales inched down as well, to 3.82% from 2017’s 3.90% and 2016’s 3.97%. Sales in Canada declined to 1.98% from 2017’s 2.16% and 2016’s 2.67%.

• Information Technology continued to have the most foreign exposure of any sector, increasing to 58.19% in 2018 from 56.85% in 2017 and 57.15% in 2016. Energy, which was the sector leader in 2016, with 58.88%, declined to 51.28% in 2018 from 54.06% in 2017.

I think a background idea is that if the US$ declines, that could be good for those companies (they become more competitive, so more sales). And likewise, a stronger dollar would mean falling sales and losing that competitive edge. Similar to worries here when the yen was in the 70s/$1.

[eyeswideshut]

With higher inflation in the US than Japan, you might expect the dollar to weaken relative to the yen.

Do you think an investor in Japan would have to adjust its strategy as a result?

Certainly, it would not pay to be 100% in American equities or cash if this were to come to pass.

My view is that there is not much the Fed can do to encourage inflation - Japan has been trying to raise inflation for decades now with 0 effect so I think the Fed's efforts will likely also fall short. If anything I think deflation is the more likely scenario over the coming years. In any event, the nice thing about stocks though is that they tend to keep up with inflation - bonds, on the other hand, could be in for a rough ride if inflation picks up. Nobody wants 0% or lower yielding bonds in a high inflation environment.

[Kanto]

With higher inflation in the US than Japan, you might expect the dollar to weaken relative to the yen.

Do you think an investor in Japan would have to adjust its strategy as a result?

Certainly, it would not pay to be 100% in American equities or cash if this were to come to pass.

My view is that there is not much the Fed can do to encourage inflation - Japan has been trying to raise inflation for decades now with 0 effect so I think the Fed's efforts will likely also fall short. If anything I think deflation is the more likely scenario over the coming years. In any event, the nice thing about stocks though is that they tend to keep up with inflation - bonds, on the other hand, could be in for a rough ride if inflation picks up. Nobody wants 0% or lower yielding bonds in a high inflation environment.

I see bonds more as a hedge against market downturn. They allow you to rebalance, and can be quiclly liquidated with realizing a high-loss.

To me they are more like insurance. However, I am a new investor. I realize things used to be different.

[fools_gold]

Funnily enough Warren Buffet seems to be hedging against inflation and a weak dollar by investing in Japan...

https://www.channelnewsasia.com/news/bu ... n-13070204