On warning signs, an exclamation mark is often used to draw attention to a warning of danger, hazards and the unexpected. It is normally supplied with a note, as it is a generic term.
August 5, 2009
3rd UPDATE: US Announces Record Debt Sales, TIPS Boost
At a press conference, Treasury Deputy Assistant Secretary for Federal Financing Matt Rutherford noted that demand for TIPS is swelling. We continue to hear growing demand for the product," he told reporters.
If long-term inflation expectations were well anchored, then why would demand for inflation protection be swelling and why would the Treasury continue to hear growing demand for its inflation protected products?
August 5, 2009
U.S. Treasury to Sell $75 Billion in Long-Term Debt (Update2)
In a briefing with reporters today, Matthew Rutherford, the Treasury’s deputy assistant secretary for federal finance, said the government remains committed to reducing the budget shortfall.
Remains committed? It looks to me like the government's version of "committed" is related to the "mental institution" definition.
As an example, what would you call your neighbor if he told you he was committed to getting his finances in order but spent each weekend borrowing more money from China? What if I told you he was buying clunkers for $4500 each? What if I told you he was destroying the cars he bought with a giant sledge hammer? What if I told you that it was the most financially responsible thing he's done yet to deal with his debt crisis? His previous attempts included handing money directly to bankers so that they could continue to give themselves large bonuses!
The department is hearing growing interest for TIPS, he said, declining to comment about any potential purchases by China or other individual buyers.
He did not specifically mention me? Hahaha! Can you imagine what the markets would do if he did?
Um, yeah. Okay. There's been some demand from this guy who is worried about the future of our country. He apparently runs an Illusion of Prosperity blog and has stagflationary in his name. He's got the vast majority of his nest egg in TIPS and I-Bonds. Funny thing is he did this before the credit crisis even hit. It's almost like he suspected that something very bad was going to happen. Yet, we know that is impossible because nobody could see it coming.
See Also:
No Danger Signs Yet!
Stag,
ReplyDeleteWhat if I told you he was buying clunkers for $4500 each? What if I told you he was destroying the cars he bought with a giant sledge hammer?
Let me state the obvious - we're buying the cars and sledge hammers from overseas. So far, 80% of the vehicles purchased under the C4C plan are foreign.
If you scratch beneath the surface, the cash for clunkers program is all about creating debt. As I see it, the Gov't is going into debt in order to provide the down payment ($4500/~ 20%) for borrowers. With 20% down, lenders are more willing to lend as borrowers actually have equity in the purchase. That will no doubt be important once the repossesions start. Moreover, by destroying the clunker, the Gov't is shrinking the supply of used cars which will eventually push more people (likely the poor) to take on auto debt.
You can't make much money selling goods anymore. Selling debt that can eventually be dumped on the taxpayer is a much easier and more profitable endeavor.
It's not like we have a shortage of cars either. Just the opposite. Over the past 10 years, we had an auto purchasing boom with ~ 16 million vehicles/yr! I figure that is ~ 3 million/yr above equilibrium.
http://research.stlouisfed.org/fred2/series/ALTSALES?cid=98
We're going into debt to destroy prior output and we're supposed to be better off? WTF? This insanity really highlights how the need for exponential debt growth has perverted our thinking. And so few are benefitting from all the debt.
Surely there are a better ways to waste time and money than this. Digging and filling holes actually seems like a better alternantive as it wouldn't destroy any output.
One point about inflation. As I see it, for QE to be successful, people must have an expectation of inflation. Otherwise QE is self defeating as the printed money is used to pay down debt. Right now I'm of two minds on inflation. Regardless, I refuse to consume for the sake of consuming and I refuse to take on debt because the gov't thinks we need more of it.
Hazard Warning! Mental red lining ahead!
How about the $8K first time homeower credit!!!!!! GRRRRRRRR!!!!!!!! What the hell........
Mark
ReplyDeleteI don't know for sure or not but I'd bet that you may have suffered some 'slings and arrows' in the past for your stand on TIPS, but I noticed that Mike Stathis (author of America's Financial Apocalypse copyright 2006) recommends TIPS also.
I purchased his book before the market crashed (Mike as well as others seen what was heading down the pike) and had read with interest about TIPS (because I was looking for a place to park my $ after exiting the market in July 07).
I remember bringing this up on a finance forum at that time (no, it wasn't Economic Disconnect) and was scolded for even considering such a move so I kind of let the thought go.
If it's not too much trouble could you tell me why you are going with TIPS instead of precious metals or something along that line?
Thanks.
"Highway to the Danger Zone"
ReplyDeleteI think "Mark" is Tom Cruise living out the Maverick persona!
Come on Mark, tell the truth!!!!
As always, I luv ya,
EconomicDisconnect
Watchtower,
ReplyDeleteI apologise if you caught flack from the site on TIPS. I am a bit offended, I do not allow such abuse.
Mark and I have discussed this before, TIPS are a great bet if the US can deliver on terms; if no they will be junked. Just like any investment, it is a gamble. Please see the post on the FED buying last weeks bond auction for details.
GYSC,
ReplyDeleteNot to worry, it wasn't your site : )
In hindsight, I probably was asking the wrong question on the wrong blog at that time, so it's partly my fault anyway.
Cash-strapped Cuba says toilet paper running short
ReplyDeletehttp://tinyurl.com/m2uez7
There Ya go Mark ship that hoard of yours over there and you can make a killing, although I don't know exactly what they'd pay you with.
Kevin
All,
ReplyDeleteWhat great thought provoking comments!
From selling debt to toilet paper!
watchtower,
I did own precious metals from 2004 to 2006. I've been told numerous times I've been dumb to have most of my nest egg in TIPS. Call me stubborn, lol. Nearly every investment that's ever paid off for me felt a bit dumb and flew in the face of conventional wisdom.
1. In 2004, a third of my nest egg went in gold and silver at the TOP of their long-term trading channels.
2. The investment that retired me was a check to the president of a very tiny company in my friend's basement. No receipt even! It was over a 30,000% return.
3. Bought bank stocks in 1998. My broker tried desperately to talk me out of it. The very next month the cover of a popular magazine said, "Why Banks Are Sexy". Seriously! In 2004, banks scared the you know what out of me though. Sold ALL stocks and did the "dumb" move to the sidelines. Market timing? More like impending doom timing.
So here's what scares me about precious metals.
1. I could be wrong. Those wrong about future inflation in 1982 (and hoarded gold) were spanked for two solid decades.
2. I could be early. Stagflation might not appear for 30+ years. Being eventually right won't help me much if I've already died of old age. Rome did not fall in a day.
3. Mining equipment scares me (as seen in the 600 year chart of declining inflation adjusted silver prices).
4. Gold and silver have nearly quadrupled in price in recent years. I heckled housing's more modest rise. I have NO idea what gold's fair price should be. I'm frugal. The only thing 50 pounds of gold would do for me is give me something to trade to the next guy. I don't like having to depend on the next guy to tell me what my investments are worth. In contrast, I know exactly how much my I-Bonds are worth to me though.
5. Mad Max wanted oil, canned foods, and toilet paper. 50 pounds of gold would have done nothing but slow him down.
6. As I often half-joke, the toilet paper price to gold price is seriously out of whack. Still love hoarding. Just picky! ;)
7. Infomercials! Too many talking up precious metals for my liking.
8. Have precious metals become the "sure thing"? I don't believe in sure things. I could believe that oil might be good long-term at some point, especially since it lost its sure thing status when it crashed from $140+ to $30+.
9. Why do gold bugs talk of an historical oil to gold ratio as if it were gospel? We burn oil. We stockpile gold. The former could actually run out someday in theory. The vast majority of all the gold that's ever been mined still exists though.
10. China loves gold. I'm just not as bullish on China long-term as some. We were coupled and I strongly suspect we still are.
Just opinions!
Mark,
ReplyDeleteIt looks as though you have really thought this over, in addition, Mike Stathis is not very hot to trot over PM's either.
I will have to give this some serious thought and I appreciate you taking the time to spell out what your thinking.
Maybe I should clarify something, from what I gather Mike Stathis thinks gold may indeed rise but not on the level that the full blown gold bugs think it will.
ReplyDeleteNice comments, Mark.
ReplyDeletewhat investment do you think is out of favor now?
/ducks
- jus me
watchtower,
ReplyDeleteI too suspect gold (and silver) may rise, especially if I'm right about long-term stagflation (I only lean that way though). Much of it could already be priced in though. I just don't know. At some point one would expect toilet paper prices to catch up. However, toilet paper prices have only inflated modestly over the last decade (as seen personally in Costco pricing).
jus me,
Unfortunately, being a stagflationist, I'm mostly bullish on toilet paper (and other items easily hoarded that I know I will someday need) these days. Sigh.
If the high price of gold is justified, then toilet paper is a screaming bargain right now. If the high price of gold is not justified, then no harm done hoarding toilet paper. I'd be very surprised if toilet paper prices collapsed. Our latest round of deflation saw no price cuts.
Here's more reasons to like it.
1. Very few are hoarding it, yet. VERY out of favor. ;)
2. Sales taxes only seem to go up. Therefore, buying early saves money.
3. If you hold long-term, inflation should give you nominal capital gains. However, unlike gold investing the government can't tax those gains in the future (since you will not be reselling it to make an "inflationary" profit). Of course, like all inflationary gains, it won't actually make you any better off.
4. If you believe that the median standard of living in America is going to be under pressure in the future, then attempting to lock in part of it now might not be such a bad plan. Many parts of the world see toilet paper as a luxury. If our economy continues to degrade, we might too.
5. If the government does default on its debt someday, at least I will have protected some of my nest egg. Heck, with a thousand rolls of toilet paper, I might end up being the wealthiest person in my neighborhood! I'm 99.5% joking on this last one. Unfortunately, 10 years ago I would have been 100.0% joking. Based on our current deficit spending, there's a decent chance I'll only be 50.0% joking about the time I die of old age. I hope!
I wish I could come up with other investment ideas, but I've never been more stumped. Part of the problem is that I only lean towards stagflation long-term, but deflation is still possible.
I think TIPS are still reasonably priced (but certainly not cheap) for either outcome. TIPS are part of an interesting experiment. Real yields were negative in the 70s but TIPS didn't exist. Investors did not intentionally accept negative long-term real yields, but were instead surprised/horrified by the rising inflation. Perhaps the existence of TIPS now acts like a safety valve as investors and the Fed can see exactly what real yields investors are willing to knowingly accept.
When I say safety valve, I mean through a horrifying deflationary event to temporarily relieve inflationary pressures of course! Hey, it's a big ship in iceberg infested waters. The valves are mostly just there to provide an Illusion of Safety! If you want actual safety, stay off the ship! Hahaha!