The Government Did It
All of these government factors contributed to creating a situation in which millions of people were buying homes they could not afford, in which the participants experienced the illusion of prosperity, in which billions upon billions of dollars were going into bad investments. Eventually the bubble burst; the rest is history.
I don't find it very hard to not believe in the illusion of prosperity theory.
I have obfuscated my thoughts in honor of Alan Greenspan.
This video is from the movie "Used Cars." The movie came out in 1980, right near the zenith of the 1970s stagflation.
ReplyDeletehttp://www.youtube.com/watch?v=_Ip8gspFaH8
Not entirely unmeaningless.
ReplyDeleteMAB,
ReplyDeleteThose particular cars no doubt drop in price but the government would use hedonics to capture the degredation in quality. All is well.
dearime,
http://men.style.com/gq/features/full?id=content_843
In certain parts of Washington, parsing the Fed chairman's language—known as "Greenspeak"—has become a sort of parlor game. But according to people close to Greenspan, that's a waste of time. There is nothing to figure out, they say, because Greenspan isn't saying anything. As his friend of fifty years, Charles Brunie, recalls, "Before he took office, he said, 'If ever you think you understand me, you will be mistaken, because I plan to obfuscate.' I remember the word obfuscate."Or as Greenspan's tennis partner and former Clinton aide, Gene Sperling, explains, "When he's sending a vague or mixed signal, it is by design."Or as Greenspan's old friend, the economist Milton Friedman, puts it, "I don't think it's an accident, whether he's ambiguous or not."According to sources at the Fed, Greenspan even takes pleasure in his obfuscation. Sometimes he will return from one of his speeches before Congress and order a video of his testimony, marveling out loud as he watches: "What in the world does that mean?" Obstruction, then, is the name of the game.
Stag,
ReplyDeleteThe last paragraph in the following link is very troubling. It goes a long way towards explaining why investors are willing to accept negative real returns from treasuries.
http://us.ft.com/ftgateway/superpage.ft?news_id=fto072920081415252897&page=1
CPI has been rising. So have mortgage, corporate and municipal bond yields. Just think, if Bernanke and Paulson succeed in ensuring the solvency of our banks, Goverment borrowing costs seem likely to rise. Whoohoo! Behold yet another benefit of our prosperity.
MAB,
ReplyDeleteBankers said Italy was beginning to discover the depths of its problems with structured products. Marco Elser, senior manager in Rome at Advicorp, an independent investment banking group, said: "Half of Italian banks don't know what they have in their accounts, because the derivatives around which the structured products were sold are so complex that it would take an Einstein to figure it out."
http://www.youtube.com/watch?v=p3SpyVcsxAI
Stag,
ReplyDeleteOT.
http://www.gasandoil.com/goc/features/fex43159.htm
The Germans used synfuels during WW2. Aparteid sanctions forced South Africa to produce liquid fuel from coal.
Oil and commodities seem over priced to me. Just like dot-com stocks and houses. Buy the boom, sell the bust. The casino economy.
Stag,
ReplyDeleteThis one is just too good to be true. Renewable resources are about to "cat"apault back to prosperity.
http://www.ananova.com/news/story/sm_1534821.html
Just think, dead cat bounces can now solve our energy crisis.
Here's some "fuel" for thought -keep a close eye on your pets.
MAB,
ReplyDeleteBuy the boom, sell the bust.
The pure stagflationists (see gold and silver prices) took some major damage today. All things considered, the losses were relatively minor for the paper stagflationists (TIPS) such as myself though. In the long-term, lower oil prices would certainly not hurt me nor my portfolio. Being wrong about our future prosperity wouldn't hurt either.
If nothing else, the real rate on I-Bonds might actually raise above 0% someday. In theory, I'd kind of like to invest in more of them at some point. For the first time since 2000 I'm actually procrastinating the next purchase. I can buy more in January but won't. I'll have until December to buy and I see absolutely no reason to lock in a 0% rate any earlier than I have to. It isn't like the rate can go any lower. Go figure. If I do end up buying it will only be as an alternative to holding short-term cash. It isn't like I'd plan to hold 0% I-Bonds 30 years until maturity.
That being said, since the government has already offered two punishments for I-Bond buyers (lowered the amount we can buy and lowered the interest rate) there's no telling what a third punishment might be. Perhaps we'll have to offer a first born (cat?) and sign the contract in blood.
Here's some "fuel" for thought -keep a close eye on your pets.
Good grief! That seems to be a real story and not something The Onion wrote!
And lastly, I wish this felt like a true boom today and not just a brief hiccup. The 1970s were full of "sell the bust" opportunities. Unless our trade deficit miraculously vanishes in the coming years I suspect we'll continue to sell the farm. Literally. Here's a glimpse from Australia.
Farms and coal mines do battle at conference
http://mudgee.yourguide.com.au/news/local/news/general/farms-and-coal-mines-do-battle-at-conference/1232458.aspx
“Coal mines can now take farming land,” he said. “Farming land used to take precedence over mine land. Now, it’s the other way around.
MAB,
ReplyDeleteHere's a comparison of TIP (TIPS), GLD (gold), and SLV (silver).
http://finance.yahoo.com/q/bc?t=2y&s=TIP&l=on&z=m&q=l&c=gld%2C+slv
Only one of them pays interest. Only one of them has potentially less to fall if the long-term stagflationary outlook isn't accurate and/or is already priced in.
6 ways to look sexy
http://www.hindustantimes.com/StoryPage/StoryPage.aspx?sectionName=&id=72e60de2-2006-4c78-bf3a-b8b223be7d05&&Headline=6+ways+to+look+sexy&strParent=strParentID
Silver and gold make the eyes look larger and give a glamorous effect...
The price of gold and silver rising AFTER I sold in 2006 made my eyes larger too. In fact, they practically popped right out of the sockets. Nobody told me there would be yet ANOTHER parabola, lol.
As I have stated in the past though, once I sold those metals I was done. I knew how tempted I'd have been in the late 1970s to buy gold and silver as a hedge against stagflation/hyperinflation. I would have been so very, very wrong to do so. I can also say I was indeed tempted as oil started hitting $150 a barrel.
Temptation is like a knife, that may either cut the meat or the throat of a man; it may be his food or his poison, his exercise or his destruction. - John Owen
My short-term inflationary mood continues to be rather neutral (as seen in the upper corner of my blog), partly because there's so much talk of inflation these days and as you put it we could very well be in "sell the bust" mode.
Oil down big on slowing demand and a slowing global economy. Stocks up big on falling oil. There still seems a bit of a disconnect there to me. The last time I heckled this failure to fully connect the dots the goldilocks trend fell apart. One wonders if history will repeat. In any event, I'm content on the sidelines.
Stag,
ReplyDeleteOne wonders if history will repeat. In any event, I'm content on the sidelines.
I'm on the sidelines too. Why? Because I think history WILL repeat. I strongly believe that all asset classes that I think I understand (U.S. stocks & bonds) are over-valued. History makes clear that over-valued assets make poor investmenst. Further, I really have doubts about the solvency of our financial system. If I'm even partially right, it's not a stretch to expect poor or even negative returns.
As the following scorecard from Vanguard shows, most investors are not making any money this year. Treasuries and tips are about flat against inflation & taxes while the supposedly save havens of energy, precious metals and mining are losers. Note too that the precious metals/mining fund and the energy fund are up 25% & 20% respectively over the past 10 years. ANd those are ANNUALIZED returns. Can energy and precious metals continue at that astounding pace? I doubt it.
I don't think stocks will crash. Crashes are rare. I just think stocks will offer poor returns for years. A 2.2% dividend yield at a 15% tax rate looks favorable against bonds and cash, but only while inflation is believed to be "contained."
My beef is that I don't think inflation is contained - unlike most investors. The last CPI report showed that over the past three months, inflation was accelerating. Heck, even rents are increasing. Also, PPI, presumably a leading indicator of CPI inflation, is soaring. I'm guessing that translates into lower profits AND higher CPI prices. Treading water looks like the best risk adjusted option.
https://personal.vanguard.com/us/funds/vanguard/bytype
MAB,
ReplyDeleteSorry for not posting lately. This is the first I've turned my computer on in a week. I didn't realize it had been that long. I'm fairly sure that's a personal [computer] record.
Like you, I get the feeling that we're just going to be treading water. Treading water would make for a very poor movie. Perhaps that's why I haven't been watching much lately.
Well, maybe that AND Rockband!
I'd tell you to wake me when the bottom falls out, but it seems more likely we'll be treading through the bottom muck indefinitely. Passing the "buck" to the next bubble is tough these days. There doesn't seem to be another one ready yet.
It's like being trapped in four foot deep quicksand for as far as the eye can see. The inital panic seems over but that doesn't mean our situation is all that desirable.