In the chart above, the blue point is generally heading down and to the right lately.
In the chart above, the blue point is generally heading down and slightly to the left lately. As can be seen in 45 years worth of data, there is a substantial risk it will begin heading to the right at some point.
In the chart above, the blue point is generally heading up and slightly to the left lately. Heaven help us all if it starts moving up and to the right in a meaningful way. In my opinion, it would severely test the deflationists. For example, Zimbabwe with its 80% unemployment has one million percent inflation.
Stagflation fears send stocks sharply lower
"The last period we had a sustained period of stagflation, the only way we got out of it was through aggressive rate hikes that shocked the system. The fact rates will have to go up is what people are worried about," he added.
Keeping my name yet another month it seems.
Good night, Westley. Good work. Sleep well. I'll most likely kill you in the morning. - Dread Pirate Roberts, Princess Bride, 1987
He never did end up killing him. I never end up changing my name. It's probably just a coincidence that I feel like I'm in a pirate movie. There's certainly been plenty of plundering regardless.
See Also:
Trend Line Disclaimer
Source Data:
St. Louis Fed: Household Survey Data
St. Louis Fed: CPI-U
Census: Median Home Sales Prices
U.S. Treasury bonds were not favored investments due to negative real yields, Gross said. He added that Treasury Inflation Protected Securities (TIPS) were difficult to value because of the "artificially low inflation number" arising from statistical quirks.
ReplyDeletehttp://www.reuters.com/article/bondsNews/idUSN2249616320080522
"artificially low inflation number" arising from statistical quirks."
Does that mean that our government might be lying.
Stag, Anon,
ReplyDeleteToday's OFHEO data shows that home prices have fallen 3.1% in the past year.
If the government (OFHEO) data is accurate, there is NO WAY a 3.1% house price decline requires hundreds of billions of government/fed bailouts for the financial system and homeowners. Especially after years of above trend house price increases.
What a charade.
Anonymous,
ReplyDeleteThanks for the link! I would like to point out the following though.
Legendary value investor Warren Buffett didn't have a problem putting a value on TIPS a few years ago. He said they weren't a bad investment for those worried about inflation. Note his use of a disclaimer though. I am worried about inflation. I'm not 100% sure I should be (perhaps ~99% ;)).
You know who else didn't have a problem putting a value on TIPS a few years earlier than that? Bill Gross.
http://www.incapital.com/index.cfm?fuseaction=newsArticles.viewArticle&NewsID=100113
Pimco's Gross Says He's Grabbing Inflation-Protected Treasuries
Aug. 14 (Bloomberg) -- Bill Gross, manager of the world's biggest bond mutual fund, said he would continue buying all the Treasury inflation-protected securities he can to protect the fund's value as the Federal Reserve ``reflates'' the economy.
``Buy all you can,'' Gross said. ``We have and will continue to do so.'' Pacific Investment Management, or Pimco, is a unit of Munich-based Allianz AG, Europe's largest financial-services company.
TIPS are the answer to the ``seemingly hopeless conundrum'' of low yields, the risk of falling bond prices and the losing alternative of investing in money-market securities whose returns don't make up for inflation, Gross said.
The very same inflation statistics were being used in 2003. As inflation is the #1 concern of bond holders, you can bet he knew exactly how the statistics worked. He didn't have a problem with them then. I've got one word for that behavior: hypocrite.
The "Bond King" rode 20 years of falling interest rates and now finds himself in a world working against him. I'd probably be upset too. He's finding it increasingly difficult to make money off of money. Aren't we all!
In my opinion, this is Great Depression (deflationary credit bubble bursting) meets 1970s (inflationary commodity price explosion). You tell me what overall inflation is right now and will be in the future. Then we'll both know. I honestly would like to know.
QFC is selling 5 12-packs of Coca-Cola products for $11 this week. That's 18.3 cents per can. How much longer is it going to take for $130 oil to make a serious dent?
I continue to brace for long-term stagflation though. I've been bracing for nearly four years. I hope I'm still bracing for it in my grave. I doubt I'll be that lucky though (unless I die early, lol).
MAB,
ReplyDeleteWhat a charade.
Yeah, tell me about it. You might want to think of starting your own blog. I doubt Charade of Prosperity is taken yet. I really like the sound of that one.
http://dictionary.reference.com/search?db=dictionary&q=charade
a blatant pretense or deception, esp. something so full of pretense as to be a travesty.
Facade of Prosperity sounds pretty good too though.
http://dictionary.reference.com/browse/facade
a superficial appearance or illusion of something: They managed somehow to maintain a facade of wealth
Oh man, I've got naming remorse big time today. ;)
FWIW, and I don't know if such is easily accomplished, I'd find these multi-decade scatter plots more useful if the dots had a different color for each decade, or perhaps even pseudo-epoch (ie. 63-72, 72-80, 81-82, 83-90, 91-00, 00-present)
ReplyDeleteI see where we are now, and where we been lately, but if I think we it's 1973 all over again, it would be useful to know where the other 1973 dots are.
As it stands, when I look at these my eyes just kind of glaze over and I think yep, things almost have to get worse from here. Big deal, I've kind of decided that already.
AllanF,
ReplyDeleteFWIW, and I don't know if such is easily accomplished, I'd find these multi-decade scatter plots more useful if the dots had a different color for each decade, or perhaps even pseudo-epoch (ie. 63-72, 72-80, 81-82, 83-90, 91-00, 00-present)
That's a great idea and I'd love to do it. Unfortunately, it is a major undertaking. I'd have to color each data point after reverse engineering the date from it. That's not an easy task since the date isn't included in the data within the chart. I was willing to do it for the current point, but it was not a trivial (quick) task.
However, I can somewhat verbally describe the more important parts perhaps.
The mid to late 1960s (1963 to 1970) had low real home prices, low/falling unemployment, and low interest rates. That tends to be the lower left hand corner of the charts.
The 1970s had moderate/rising real home prices, high/rising unemployment, and high interest rates. That's the right side of the charts.
The 1980s started off with a bust in real home prices (the inflationary 1970s and the spike in interest rates were not kind to it).
Interest rates have generally been falling ever since (back to late 1960s levels). Unemployment has been low. Real home prices have been climbing. That tends to be the upper left part of the charts.
For what it is worth, the late 1990s look somewhat similar to the late 1960s. In the former, we put mankind on the moon. In the latter, we put mankind on the Internet. Here's some "averaged" data from both periods.
January 1965 to December 1969
Unemployment: 3.84%
10-Year Yield: 5.32%.
Real Median Home Price: $144,711 (March 2008 dollars)
January 1995 to December 1999
Unemployment: 4.93%
10-Year Treasury Yield: 6.05%
Real Median Home Price: $194,613
The real median home price peaked at $273,272 (March 2008 dollars) in April 2006. As of March, it is now just $227,600. That's a 17% decline so far and the bottom doesn't appear to be in sight yet.
As it stands, when I look at these my eyes just kind of glaze over and I think yep, things almost have to get worse from here. Big deal, I've kind of decided that already.
Glazing's not so bad. I get that way when I look at the stars sometimes. Just think of the charts like star maps (the center as the "Milky Way") and note how far our spaceship (the blue dot) is from home (the averages we often tend to revert to). Just a thought. :)