Chapter FifteenTHE GRIN DISAPPEARS, 1972–1983
Mr. Price in his seventies was still full of ideas. He enjoyed watching his forecasts of the runaway inflation begin to come true and basked in the resulting good performance of the New Era Fund, the even better results of his own model inflation fund, and the increasing income his conservative portfolio was generating. But he couldn't stay silently on the sidelines. The enjoyment for him was the challenge of new investment concepts. Once a new strategy was proven, it was time to move on.
As his health had returned, there were vexing ideas and advice still to be passed on by the Cheshire Cat. It was impossible for him to stop thinking about the world of investing, which had been his life's fascination and his occupation for more than fifty years. A little more than a year after his official retirement in 1972, he wrote Charlie Shaeffer a letter, with a bulletin attached called “The New Era for Bond Investors.” In it, he pointed out that the accelerating inflation he had forecast would have a profound effect on bonds as well as stocks:
- It [inflation] significantly reduces the proceeds on both income and principal. A 5 percent inflation rate, for example, would reduce the purchasing power of today's dollar by 39 percent in 10 years and at the end of 30 years, it would be down 77 percent. The money supply (M2) in early 1972 was increasing at an 11% (annual) rate.
- The United States government was generating a deficit that was increasing. ...