najdorf

Are Stocks a Good Hedge Against Inflation?

It's pretty funny that all 3 responses to an economics post are about politics and terribly reasoned.

Tell me one concrete way that your life has changed due to the Democratic takeover of Congress in 2006. Political parties simply don't have that much power to effective big, quick changes, especially when the nation is as divided as it is now. You don't have to worry that the next president/congress will ruin everything, but I wouldn't hold out a lot of hope for them vastly raising the quality of our nation either. Most of the major aspects of our current path aren't subject to real debate or modification.

Why would China stop lending us money? We always pay the interest, we have an enormous economy, and we buy a ton of their products without putting any significant political pressure on their leadership. Who would want to make a change in that relationship? If the dollar continues to decline they'll just take some of their assets denominated in other currencies and start buying our assets. You'll have to invest a greater percentage of your portfolio in the Chinese markets and we'll go on with our lives.

We haven't had enough presidents, the economy is too complex, and presidents don't control the economy enough for you to draw any valid conclusions about correlations between presidential party and stock market returns (and you know that, hence "supposedly" - what's your source?). What the president can do is push a tax agenda through Congress, and Republicans have taken care of the investor class very nicely in this regard (Reagan cut max income tax bracket massively, Bush cut capital gains and dividend taxes). Lower taxes lead directly to money in the pockets of investors. The other aspects of economic policy that a president can influence are hard to quantify and we don't really know what effect they have on stock prices.

Nice job on the original post. Since I don't see a good way for us to predict future inflation, I'll just stay in stocks for the long-term and figure that most of the gyrations will equal out in the long run. If we go the route of Weimar Germany or Zimbabwe then I'll be more worried about how to afford food than yearly real returns.