Following a year’s more research about inflation, Pete Comley has now published a new book. It builds on Inflation Tax and provides a bigger picture understanding of inflation. In particular Pete has developed a new theory about the causes of inflation.
Inflationary Wave Theory proposes that long-term inflation is created by population growth and competition for resources. Price increases depict a wave-like pattern over the centuries due to effects of man exploiting the inflation trend to such a point that prices eventually consolidate over a long period. The world is about to enter this stage of near-zero inflation.
The new book examines how this transition might take place and the conditions that need to be fulfilled. It is likely to be accompanied by some form of deflationary shock. Investing over the coming decades will therefore be difficult and the book discusses the implications of it for future wealth management.
You can buy the book on Amazon here or download a free Lite version of the first 7 chapters at inflationmatters.com. A full contents list is provided below.
PART I: INFLATION FACT AND FICTION
1 What is inflation?
2 Inflation and the money supply theory
3 Other theories about inflation
4 Deflation and why it is regarded as a problem
5 UK inflation measures
6 Inflation measurement issues
PART II: INFLATION PAST
7 Inflationary Wave Theory
8 World War I and learning about hyperinflation
9 The 1930s depression and the deflation bogeyman
10 World War II, debts and the low inflation world
11 The 1970s inflation crisis and fiat currencies
PART III: INFLATION PRESENT
12 The Great Moderation and the Great Recession
13 Japan and deflation
14 Governments and inflation
15 The era of inflation targeting
16 The impact of current inflation
PART IV: DEFLATION YET TO COME
17 The big picture: a century of more stable prices
18 The transition period and near-term inflation
19 Price stability and the consolidation period
20 Managing wealth as we head towards near-zero inflation
The lead article in the Cass Business School’s In Business magazine this month is all about how they have proved that monkeys do beat the market. They ran simulation portfolios of random stock picking over the last 43 years and it proves everything that I wrote in my book. Random stock picking beats the market.
Monkey with a Pin featured in the BBC Radio 4 program How You Pay For The City on Saturday 3rd August 2013. You can hear the program here.
Pete’s latest book is all about inflation and Tax is the first book to present in simple easy to read way why inflation is such a big problem in the UK (even at low levels).Inflation is reducing the standard of living of most people and redistributing wealth from savers to debtors.
The book shows that inflation is not a mere by-product of random economic forces. Instead it is a stealth tax primarily paid by savers and pensioners. Furthermore, it has been used by successive governments since 1945 as a tool to manage the UK’s debts.
The book examines likely future inflation scenarios in the UK and the best ways to save and invest in those environments.
SECTION I – INFLATION
1. Inflation – why you should be worried
2. What is inflation?
3. Theories of inflation
4. Measuring inflation: RPI/CPI
SECTION II – DEBT
5. Government debt and the UK’s Financial Dunkirk
6. Labour’s post war solution to the debt
7. US inflation reduces UK debts
8. Debt: 1970s onwards
SECTION III – INFLATION TAX
9. The benefits of inflation tax
10. Who pays inflation tax?
11. Disguising inflation tax
12. Problems with inflation tax
SECTION IV – THE IMPLICATIONS
13. How to pay less inflation tax
14. Future debt and inflation scenarios
15. Concluding thoughts
The book is now available to buy on Amazon Kindle priced £4.99. If you want a different eBook format (eg ePUB for iPad), you can download it here.
The paperback version of the book is at the printers and should be available to buy from Amazon and other online bookstores shortly. UPDATE: PAPERBACK NOW AVAILABLE FOR SALE HERE.
It is welcome to see that Monkey with a Pin may have had a direct impact on one of it’s contributing sources. Last week saw the publication of the latest edition of the Credit Suisse Global Investment Returns Yearbook 2103 – down here.
For the first time, they are now talking about survivorship bias in their data. Hooray! However before you get too excited, all they have done is to include a couple of countries that have seen their stockmarkets liquidated e.g. Russia in 1917 and China in 1949. The impact on their average equity returns is minimal (down 0.14% to 5%).
What they have yet to do is to address the more serious issue I raise about survivorship bias in the constituents of the index itself. That is where the real error in their returns are due to survivorship bias and these are significant – I estimate they are reducing returns by 1% a year if you are an investor in individual stocks (as opposed to buying index trackers). I agree it is more difficult to calculate this (as you just can’t lift a dataset of FTSE index scores and pop them into a spreadsheet) but it behoves the likes of Dimson, Staunton & Marsh to try to do this or at least acknowledge the problem.
Not only do they steal survivorship bias from Monkey with a Pin, but they are also mentioning that returns need to factor into costs too – albeit only as an aside on Page 14, but that is progress.
The final good thing about the report is, like Money with a Pin, it makes a big point of reminding investors that returns are just not going to be as high as they expect. To quote them:
Many investors seem to be in denial, hoping markets will soon revert to “normal.” Target returns are too high, and many asset managers still state that their long-run performance objective is to beat inflation by 6%, 7%, or even 8%. Such claims are unrealistic in today’s low-return world.
On the Forbes website today there is an article about some new research about to be published by Research Affiliates. It involved making up 100 random portfolios of 30 shares from the top 1000 shares every year from 1964-2011. It then compared the performance of these portfolios with the index. It claims that 98 our of 100 of these portfolios beat the market.
Although I have seen consistent out-performance of monkeys vs the index and professionals, the size of this out-performance seems slightly incredulous. I fear that they may not not have used survivorship bias free back data for this simulation. I await the full report from Research Affiliates to see.
The plan for my next book is beginning to take shape. It is all about inflation. The fuse for a potential time-bomb of inflation has now been lit by central bankers across the world. Within a decade, 5%-10% inflation is likely to return and have a major impact on society and (more importantly) your wealth.
The book is going to examine in layman’s terms what is inflation is, what causes it, why we have difficulty understanding it, the tricks governments get up to with it, and how it is going to change your life in the future.
If you have any views on the subject, please let me know and I’ll do my best to include them.
Looking forward to hearing from you.
Pete is talking about his book to students at the BBP Business School on 3rd December 2012 at 5.30pm. The title of the talk is: “Why a monkey thinks your returns from investing may be less than you expect.”
A copy of his PowerPoint slides can be found here: BPP talk 3 Dec 2012.
At last Amazon are distributing a paperback copy of v1.1 of Monkey with a Pin. The cost is £8.99 including postage. CLICK HERE TO BUY.
You can still download the book in eBook format for free from this site in all major ebook formats including Kindle and audiobook. To do this, you need to join this website to be able to access that page (terms/privacy). DOWNLOAD FOR FREE HERE.
Want to know more about the book:
Harvey Jones of Motley Fool wrote an article yesterday in which he talked about “the excellent book Monkey with a Pin“. He mentioned my personal view that the FTSE will probably go below 4000 at some point in the next few years. In the article he was pointing out though that the FTSE currently was going in the opposite direction and rallying (bar yesterday’s 2% drop). Given this, I thought I’d clarify my position. Here is my reply to him.
Harvey – I thought I’d pick up on your interpretation of what I said about the FTSE hitting 4000 at some point in the next few years. I still hold by that but I never said it would happen now.
What I didn’t write in my post about that (http://www.iii.co.uk/articles/36243/why-i%E2%80%99ll-buy-40-random-stocks-when-ftse-100-hits-4000) was that I had a personal belief that the FTSE would go higher in the short term.
If you look at the S&P over the last 10-15 years, you’ll see it has topped out at around 1500 twice before (in 2000 and 2007). There is a certain mathematical symmetry that suggests to me it wants to repeat this at some point (in the next year) and this is the “unpredicted rally” you refer to. What will cause the final push? I suspect it will be QE3 in the US.
The FTSE will get dragged up by that event too. Personally, I think the FTSE won’t make back its previous highs but will probably end up around 6200-6300.
However after that event, all world indices will decline – possibly when it becomes apparent how useless bouts of QE really are, possibly after China implodes, or more likely when the euro starts to break up. I know not why, nor care, but I just have a hunch it is going to happen. It is after that that the FTSE will put in a low sub 4000 (not in the immediate future).
Then will be the point at which investors can make the biggest killing. So keep some of that powder dry. Also don’t lose those darts, as you’ll need them then to pick your random shares amongst the tatters that will follow such a decline.