Saving for stagflation

[sweeps]

Interesting article
Saving for stagflation

[tinapbeana]

hehehe... sorry, just amused by the word stagflation... interesting article, though

[disneysteve]

I guess I'm okay because I already do everything the article suggests.

[Joan.of.the.Arch]

Tina is amused by the word "stagflation," but I am made cautious by it! I was a preteen and teen in the 1970's, and my life was sorely affected by "stagflation" and its consequences. My family and I were stuck, unemployed, depressed, nearly hopeless. It is a big part of why I approach money as I do today.

I guess I could google up an answer but can someone comment on the bolded part of this statement from the article?

"The 1970s forces which really pushed markets over the top -- an oil embargo and a private family's cornering of the silver market -- aren't in evidence now...."

Who was the family and what did they do? How did it affect the whole economy?

I vaguely remember a lot of public discussion about metals from back then, but it seems like it was about gold, silver, platinum, copper, and uranium as investments and as raw materials necessary to industry and military. Gold wasn't even legal to own privately was it? What about silver? Mosty I'm afraid I just remember from the 70's screechy, bitter men talking about the dollar no longer being backed by precious metals. (Sorry but my introduction to discussion of public policy was from the cheezy talk radio I listened to every day starting when I was 11 years old. Not a reliable source, but I don't think many other 11 year olds had any awareness at all about metals and the economy....)

[sweeps]

This is a good short summary:

Nelson Bunker and William Herbert Hunt were the heirs of oil tycoon H.L. Hunt. The family was one of the richest in America at the time. In the early 1970's the family decided to buy silver as a hedge against inflation, and amassed it in great quantity. In the fall of 1979, the Hunt Brothers, along with some wealthy Arabs formed a silver buying pool and bought up 200 million ounces- the equivalent of half the world's deliverable supply. The price of silver had moved from $2 per ounce in 1973 to $5 per ounce in early 1979 and then rocketed as high as $54 in early 1980.

The officials at COMEX moved to check this cornering of the silver market by raisng margin requirements. The highly leveraged Hunt Borthers were unable to meet their margin calls, and were forced to sell. The price of silver fell dramatically; on March 27th 1980 the price fell 50% in one day, from $21.62 to $10.80. The Hunt Brothers were forced to declare bankruptcy. Bache Group, which handled of the trades for the brothers, was financially ruined.

I don't know how much this affected the economy as a whole, but perhaps the author was using it as an example of how the commodities market went nuts for a while in the 70s.

[scfr]

I too remember the 70's and how my parents worried excessively about the bad state of the economy. I remember going grocery shopping with my mom and having her say things like "we may as well buy 2 weeks worth of xxx because next week the price will be up 10-cents a pound." I remember seeing some of my parents friends wearing WIN (whip inflation now) buttons. And I remember reading a lot in Newsweek about the Hunt brothers, tho I did not really understand it ... (but my grandmother seemed to think of her sterling silver as sort of her "emergency fund" ... hehe).

I do believe those childhood memories of inflation / stagflation had an impact on me ... I bought a TIPS (treasury inflation-protected securities) the very first time they were issued, and I still keep a very small percentage of my portfolio in TIPS.

This article Sweeps posted has me wondering if I should buy more ...

[If I bring it up during the family financial pow-wow, I'm sure my husband's eyes will start rolling ... he did not grow up in the US and doesn't seem to think inflation / stagflation is anything to worry about.]

[disneysteve]

What I clearly remember is the silver debacle. Silver prices skyrocketed. Keep in mind that new US coins were no longer made with silver but tons of silver coins were still in active circulation. All of a sudden, that quarter in your pocket was worth a couple of dollars if you took it to a coin dealer. My family sold lots of coins that we just happened to have lying around. Old silver dollars went for something like $25 each. I went through all change we got in stores, picking out the silver coins so we could sell them.

By the early 80s, money market accounts, CDs and Treasury bills were paying upwards of 15% interest. Smart savers who locked in those rates made a bundle. I remember going to the bank with my father to buy CDs at 13 or 14%.

[StressLess]

Around here, we also remember Myron "Pep" Levin:

"It all began when the price of silver spiked sharply upwards in the 1960's; the value of the silver that is contained in U.S. coinage actually began to exceed the value of the coins themselves. The Treasury's solution was to stop putting actual silver in the coins, but Levin's was to put together an illegal smelting operation. By the time Levin was caught, he had melted down millions of dollars' worth of coins and earned another nickname--"King of Silver"--for his efforts" p. 112, Broken Vows by Eric Francis. (Levin was a witness in the Carol Neulander murder trial.)

Yeah, I remember the WIN buttons too! Anyone remember CETA jobs? It was a publicly-funded make-work program, kind of like the WPA in the Depression. My dad's last job was through CETA, before he could get on social security. No fun being unemployed when you're 60 years old.

I'm just a tad too young to have been directly affected by stagflation. I was here, just much more concerned with big wheels and action figures.


I believe it's William Bernstein in his book "The Four Pillars of Investing" who talks about the financial amnesia that leads individuals en masse to become complacent and foolish about their monetary defensive strategy the farther removed they are from an "event."


Yes we have the turn of the century wipe out but it seems like that was much too quick and painless from a big picture standpoint, within just a few years it was pretty much like nothing ever happened (for me anyway).


Maybe it's time for my generation (those obnoxious, cocky, X'ers) to get our @$$'s kicked by a bear while the now predominately conservatively positioned boomers look on thinking "we told you kids!"


Or maybe not, I don't know. Just don't make me wear the bell bottoms.

[Ima saver]

I loved bell bottoms! I worked at a savings and loan. we were paying out 16% on certificates of deposit.

[JBinKC]

We have been in stagflation for 7 years now! How many people's incomes has risen faster than inflation on basic items like i.e. food, housing, energy. Our inflation rate is understated because things we don't really need like electronics i.e. computers is a huge deflationary component to the index.