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Ben's bind
There are plenty of reasons to stop cutting. Real interest rates are now firmly negative.
TIPS rates are still relatively high by comparison. The 10-Year TIPS is 1.5% over inflation. However, those who are really worried about inflation appear to pick commodities instead. That in turn pushes up inflation eventually and becomes a self-fulfilling prophecy.
Jeff Frankel, a Harvard economist, has long argued that low real interest rates lead to higher commodity prices.
Score one for Harvard economists.
The most recent circumstantial evidence also suggests that the Fed may bear some responsibility for the commodities boom.
Score one for The Economist.
See Also:
Fed Funds Rate vs. Metals
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
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At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
12 hours ago
21 comments:
Stag,
You know things are whacky when people are relieved by $112/bbl oil and a loss of only 20,000 jobs. Sure doesn't look priced in to me.
FWIW, I was concerned when oil spiked to $75/bbl. But heck, I was also concerned by all the foolish mortgage lending. And what do I know anyway, I'm actually appalled by 4% CPI inflation. Hardly anyone else is.
There does seem to be a trend though - investors keep allowing the goal posts to be moved. Yeah, THAT's always worked out well in the past. Return to the mean? No way, it's different this time.
Just imagine the horror investors would face if the stock market nosedived right along with housing.
I still see too much hope.
MAB,
I still see too much hope.
Yeah, I was hoping to add more Basmati rice to my hoard at Costco today. All that was available was brown rice. In the distance I heard someone say, "Brown rice must not be as popular." They too could not find the white rice they were seeking.
Restaurants feel pinch of rice prices
http://www.paloaltodailynews.com/article/2008-5-1-rice
When Raj Achari headed out to buy wholesale groceries Wednesday for the Indian-Chinese fusion restaurant he manages, he discovered there was no rice to be had.
And rice cost increases are just part of the problem, said Shyam Choudhary, owner of the Shiva's Indian Restaurant on Castro Street.
The restaurant owner said he expected the economy to turn around in late 2009 after a new president takes over the White House and implements economic reforms that will take several months to kick in.
I can't wait to see the economic reforms solve the global imbalances problem. I wonder how they'll do it?
Although I don't really need more pinto beans I didn't see any of bags of those for sale either.
It seems the rice and beans diet is getting a bit trickier. Fortunately, the spaghetti and pasta sauce diet seems fine for now. Plenty of pasta there. Plenty of sauce.
Stag,
Everything is fine. The crisis has passed. And to prove it, the fed is now accepting ever larger and varied types of collateral at ever lower interest rates.
Want more proof, the fed is even lending & swapping with the strong euro banks.
As for your rice, maybe the fed is accepting that as collateral too. Grab the beans while you can.
Party on dude.
MAB,
The price of the forever stamp increases from 41 cents to 42 cents on May 12th.
Forever stamp inflation is therefore only 2.4% in the last year. Why worry?
Oh yeah, now I remember. 3 Month Treasury bills only pay 1.5% (before taxes). EE Savings bonds now only pay 1.4% (before taxes). I-Bonds pay a whopping 0.0% over inflation (before taxes).
Very odd set of circumstances we have these days when a 2.4% inflation rate on the forever stamp still makes it a decent thing to hoard. Go figure.
On the other hand, the hyperinflation party was called off due to a lack of interest.
Pun intended! Hahaha! *gasp* *choke* *sputter*
Stag,
I decided to hoard forever stamps figuring it was a can't lose proposition. Then my four year old stuck a couple dozen of them on the front of the fridge. He loves stickers.
There really are no sure thing investments.
MAB,
You still might be safe if you ever need to mail your fridge overseas and/or some other place.
http://globalpolitician.com/24677-economics
Stag,
Greenspan bailed out the markets after the LTCM & Asian currency crises by dropping rates. After the internet bust, Greenspan again bailed out the markets by dropping rates.
Today, Bernanke is trying to bail out markets by crashing rates.
Looking back, it's hard to argue that most are better off as a result of the market bailouts.
In five years, will we look back on the mortgage bailouts as a net positive?
Stag,
It's really disappointing to see Buffett on CNBC so often. He's becoming a frickin regular.
It just bugs me that a guy who has spent his whole life as an advocate for prudence is now giving validation to bubblevision.
I know it's a free country, but I can't help but wonder if there isn't a deeper meaning to this. Could be vanity. Or Becky Quick.
MAB,
Please don't obsess about Buffett's worst qualities. I'm just thankful he's willing to offer advice at all.
http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/05/05/munger-and-buffett-on-china-and-the-olympics.aspx
Mr. Munger added: “You don’t take the worst thing about someone and obsess about it.”
See! I knew it! Gosh those people are smart. I am placing the riot shield in front of me now in case you resort to throwing rotten tomatoes in my general direction! Safety first!! ;)
He also said China is going to sell 10 million cars, but if oil production falls off, there will be consequences.
Buffett and Munger seem to be the last two people on earth who fully grasp cause and effect. They do love the "consequences" word anyway. Come to think of it, perhaps we all do.
When offered a choice between truth or consequences we really seem to prefer the consequences.
Truth or Consequences
http://en.wikipedia.org/wiki/Truth_or_consequences
If the contestant could not complete the "Truth" portion, there would be "Consequences," usually a zany and embarrassing stunt. From the start, most contestants preferred to answer the question wrong in order to perform the stunt.
How embarrassing it is for the major banks these days. What fun!
MAB,
In five years, will we look back on the mortgage bailouts as a net positive?
Something tells me that I-Bonds at 0.0% over inflation will not end up being a net positive.
I saw Barney Frank interviewed recently. He wasn't talking in terms of net positives. He was talking in terms of relative positives. In other words (my words), we live in a least worst options environment.
So let's be more upbeat, shall we? Although a net negative after taxes no matter what happens, I-Bonds may perform quite well relative to other investments such as 1.5% treasury bills, real estate (if the last few years are any indicator), the stock market (if the last seven months are any indicator), and median wages (if the last eight years are any indicator).
Did I mention the sun was shining in Seattle today? I've seen pictures of the Great Depression. I'm fairly sure the sun never came out then (granted, the pictures are in black and white, they are a bit grainy, and I have a vivid imagination of what bad times must have looked like). So we've got that going for us too!
Stag,
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.”
- WEB -
I'm a big Buffett fan. It's hard not to be. And you certainly can't dispute WEB's investment acumen either. But I'd sure rather see him on Bloomberg or even PBS than CNBC.
Sometimes I think he's taking a page out of Donald Trump's book (self promotion). Runs so counter to much of what he has preached in the past.
Stag,
So let's be more upbeat, shall we?
I'm not always a downer cow. I've recently become quite optimistic about the value of my refridgerator door. Its intrinsic value has definitely increased.
Also, my favorite baseball team (Phillies) set a record recently - 10,000 losses - the most by any team ever in professional sports.
I strive to have no (de)illusions. Perhaps that's part of the problem.
Stag,
So let's be more upbeat, shall we?
I'm not always a downer cow. I've recently become quite optimistic about the value of my refridgerator door. Its intrinsic value has definitely increased.
Also, my favorite baseball team (Phillies) set a record recently - 10,000 losses - the most by any team ever in professional sports.
I strive to have no (de)illusions. Perhaps that's part of the problem.
MAB,
I strive to have no (de)illusions. Perhaps that's part of the problem.
In my lastest post, I have combined Ben's "Bind" with "nest eggs." It all seems clear to me now!
Stag,
Here's more proof of my optimism. I read Hussman's weekly market insight piece today. FWIW, I am expecting U.S. equity returns 50% higher than the 2%-4% annual returns Hussman is predicting. I admit it could be a meaningless comparison as I don't know his expectations for real rates of return.
Want even more proof of my optimism - I don't believe our financial system would have TOTALLY failed if the fed didn't intervene in the Bear Stearns collapse.
Whoohoo! Goldilocks lives!
MAB,
I hate to pop your bubble of optimism, but as I was typing this reply the doorbell rang.
Unfortuantely, my neighbor's house (the one just across the street from me) was burglarized today.
Here's hoping to positive real returns (of stolen goods if nothing else).
My neighbor's house really did get burglarized by the way. In broad daylight no less.
Stag,
Here's hoping to positive real returns (of stolen goods if nothing else).
I watched Jon Stewart interview Sen. Harry Reid. Stewart asked Reid when the U.S. would be able to flip Iraq for a profit. Reid wasn't "positive" when our investment would post "positive real" returns. "Hopefully," we won't overpromise and under-deliver.
It appears Iraq is now a "real" long term investment. A buy and hold.
In any event, let's "hope" our flip is not a flop. That would be an (ad)mission of no-accomplishment.
So much for oil revenues paying for the war. Clearly, our investment is less liquid than anticipated.
"Oils well" that ends well. (Bill Shakespeare, I believe)
MAB,
You really needed some burlesque style drum rolls during that!
It was almost much worse. Regarding the burglary, I was going to try & force "offense" vs. "a fence."
MAB,
You think THAT was much worse?
That's pure non-cents!
http://www.financialsense.com/editorials/benson/2006/0731.html
When the penny is retired and prices for goods and services are subsequently “rounded up”- an item that would ordinarily cost $1.97, may cost $2.00 – expect a little extra pop in inflation. (The Europeans saw a lot of this rounding up when they turned in their local currencies for the euro.)
So we've got that going for us too. Hurray!
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