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It's been a LONG time since I've done a trade.
I also still own TIP in my IRA. I'm letting that ride. It is in a dividend reinvestment plan and I see no point in actively trading something I won't be touching for 25+ years. I also own TIPS directly through the government. No intention of selling those either.
I intend to put some of this money back to work in January's 10-Year TIPS auction, especially if we have yet another deflationary Christmas and inflation fears therefore recede.
So what prompted this?
1. I recently posted that I was deflationary in the short-term. I probably should put at least some of my money where my mouth is. Otherwise I am just a hypocrite. Most of my investment assets are still in TIPS and I-Bonds though.
2. This money is considered both emergency money and money I use to live off in the short term. No matter what, I'd need to sell some of TIP just to eat. Some of this money will therefore be used to replenish my online savings account. This price seems a more than adequate price to sell at. Buy low, sell high. Right?
3. This is not a bad year to be paying some taxes on the gains. Tax rates are still low. Interest payments have been rather low this year. The tax burden should therefore be relatively light.
4. The 5-Year TIPS is paying just 0.35% over inflation. The 10-Year TIPS is paying 1.17% over inflation. 0% is the lowest they can go. My opportunity cost risks are therefore relatively minimal.
5. The 5-Year TIPS rate did fall to 0.01% on 03/10/2008. That was not exactly the buying opportunity of the century though. Way too many investors feared inflation. On 11/26/2008, just 8 months later, the rate actually hit a mind boggling 4.24%. A funny little thing called deflation struck with a vengeance out of nowhere.
6. Inflationary Christmas or deflationary Christmas? I lean towards the latter.
7. Oil seems to really be struggling to push past $80 a barrel, even as the dollar tanks. If it can't go higher, wage pressures are certainly not going to drive inflation higher. I'm also a believer that if it took $140 oil prices to crush the economy last time, it won't take nearly that much this time. $100 ought to do it for sure. The psychology of that alone would be devastating in my opinion, not just to us but China as well (which I am also very bearish on, unlike most these days).
8. There's a sign on an apartment complex near where I live. It says, "Pay on time, $50 off." Rent is a major component of the CPI. We've seen housing prices fall. We see the government push renters into becoming homeowners. So what does that imply might happen to rental prices?
9. I have a nearly overwhelming belief that most believe that the inflation trade is a "sure thing" that simply cannot lose money. I would have thought that myself in the very early 1980s. I would have been so sure of it that I would have no doubt lost my entire nest egg over the next 20 years. That was the worst possible time to embrace inflation.
10. Parabolas. They are everywhere these days and they ALWAYS scare the heck out of me. There is one question I always ask myself when I go to sell an investment. Would I buy today at these prices? If the answer is no, then I will hold. That's not a good enough reason for me to sell. If the answer is hell no though, then I do sell. Right or wrong, this feels like hell no. I just can't stand investing in parabolas.
11. And the straw that broke the back... mab pointing out that Sears just hit a 52-week high in the comments. Sold!
That's 11 reasons.
I am still embracing inflation long-term. My investments still lean that way overall. I'm just not embracing it short-term any longer. I just don't see any reason to be "all in" on inflation right now. The poker table is just SO darned crowded.
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
-
At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
11 hours ago
58 comments:
Mark,
now you will not be bouncing any checks!
GYSC,
Hahaha! That property tax fiasco created major stress. For those just tuning in, I accidentally transferred money the WRONG direction just before I was planning to pay my taxes. That left my checking account in a horrible situation.
I was apparently saved by two different lucky breaks (and BOTH were needed!), showing once again that being lucky is a great defense for being stupid, lol.
1. A TIPS interest payment was deposited in my account automatically with exceptional timing. That saved my checking account.
2. The property tax due date fell on a weekend. Although the bill said October 31st, their website said I actually had until November 2nd. That saved me a property tax delinquency AND penalty.
That would have been the first time in my life that I let my checking account go negative OR paid my property taxes late. Very nearly did both simultaneously.
Mark,
the good old "check is in the mail" or "I mixed up accounts" defense. Sure, you were just trying to become the latest bailout recipient!
Obvioulsy kidding.
GYSC,
I assure you that my system for paying bills is nearly 100% reliable. I use KISC (keep it complex, stupid) approach.
http://www.youtube.com/watch?v=RouXygRcRC4
Great video!
Reminds me of the gate opening scene from "The Goonies".
GYSC,
I am such a nerd. I watch The Goonies every time it's on TV, lol.
Is that weird, because I watch it EVERY TIME! Ha!
Cannot believe Mikey became Sam Wise in LOTR!
My verification word is "shichrou" whats up with that??
The Goonies 'r' good enough for me. ;)
http://www.youtube.com/watch?v=FXS0ZTZAbZ4
CHICAGO (Reuters) - The Federal Reserve's low interest rate policy is meant to encourage investors to move into riskier assets in order to promote economic recovery, and there are no signs currently the policy is resulting in the build-up of a U.S. asset bubble, the central bank's number-two official said on Monday.
Fed eyes dollar drop, but hews to low-rate pledge
But despite warnings from overseas that asset bubbles are building, both Bernanke and the Fed's number two official, Donald Kohn, said they see no compelling evidence this is the case.
...................................
Come on Mark, step up the the plate and go take you some risk. Heck the FED will bail you out. I keep wondering how many more times they are going to play this same damn game.
LOL
Gold isn't an inflation hedge by the way, it's a hedge against a corrupt government.
Kevin
Kevin,
"Come on Mark, step up the the plate and go take you some risk. Heck the FED will bail you out. I keep wondering how many more times they are going to play this same damn game."
Sounds good! Hand me a bat!
Hey! Why does this bat have wings? Holy @#$%! It wants my lifeblood ("credit")! This sucks. I'm not in the damn game. I AM the damned game! Damn foggy mist and gypsy music isn't exactly helping either. ;)
Mark,
I had a funny chart of "Gold priced in Gold" up tonight and reader Watchtower would like a "Gold priced in Toilet Paper" chart. We will have to get to work on that one!
GYSC,
I've often looked for historical toilet paper price data to make that chart in the past. Seriously. No luck so far.
I suspect that toilet paper prices have not kept up with inflation long term as productivity miracles in factories required fewer and fewer workers.
That said, I don't think that prosperity trend has much life left in it. Once all the workers are gone, what's left to automate? It's possible toilet paper will soon say Made in China on it. Hard to picture cargo ships full ot toilet paper making their way from China to us though. Sounds very inefficient, especially if oil rises. We do send them scrap paper though. It beats sending them empty containers.
I think toilet paper has a decent chance of keeping up with inflation going forward. If I am wrong, it may even do better (if people someday hoard it too). That's all I am looking to do, just keep up with inflation. If I am wrong the other way and toilet paper does not keep up with inflation, that won't be so bad either. It would most likely mean we didn't hyperinflate. That would be very good news for the rest of my nest egg.
I should also mention that I did some contract programming work for Scott Paper (through my employer). I was given a tour of the factory.
There was a lot of automation and not all that many workers. That was about 20 years ago. Put another way, they've had 20 more years to squeeze out costs. I'm basically "betting" that they are currently running out of ideas. What works at Intel won't work there. Customers don't want to buy miniaturized toilet paper. ;)
Could be wrong of course. Just a theory.
Stag,
I've often looked for historical toilet paper price data to make that chart in the past. Seriously. No luck so far.
No luck so far? Destiny turns on a dime!
http://www.gti.net/mocolib1/prices/1956.html
The data is a bit spotty, but if you look at every year you should be able to get a sense of TP-flation.
p.s.
This is critical work we are doing. The world needs to know!
mab,
That data is better than what I had but not by much.
Some years they sold TP by the roll, some years by the pack (no description of how many sheets per roll), and in 1996 everyone must have substituted hairspray, lol. ;)
Here's an amusing read, especially in the comments.
Service Sector Inflation Ticks Up
http://www.businessweek.com/the_thread/economicsunbound/archives/2009/11/service_sector.html
"I think the service sector PPI is a better measure of the underlying inflation rate, because it covers a broader swathe of the economy. So this chart tells us that inflation is slowly starting to recover."
This surprised me. How can that be with unemployment at 10.2%?
And now for an astute reader comment.
"Hmm...standout figure for month on month growth is "Security, commodity contracts and like activity". Looks like the bankers have their snouts back in the trough." - Rycoka
The CPI report for October comes out shortly. I want to say this before it does.
As of November 9th, I'm deflationary. I wasn't in October though. It wouldn't surprise me if inflation is a bit hot in that report.
The cash for clunkers program lowered car prices while it was active and therefore lowered the CPI. The opposite is now true.
My deflationary stance is based on Christmas, not the activity in the rear view mirror though.
I could be wrong of course. Maybe we do have an inflationary Christmas. I'm just not willing to bet on it, especially since most seem to think it is a "sure thing".
mab,
I've been looking at the TP data you offered.
Toilet paper, .25/7 rolls, 1916
I am going to guess that it wasn't 2-ply but perhaps it therefore had more sheets per roll. I'm also going to guess that the price wasn't based on a Costco type discount store.
Based on those assumptions, it seems toilet paper was a rather decent inflation hedge. 7 rolls could easily cost $5 these days at the supermarket, which is 20x more expensive. That's pretty much the same thing the CPI has done.
Stag,
I've been looking at the TP data you offered.
I didn't go through every year of data, but I did spot check quite a few years and I felt that one could find enough similar price points to get decent tp-flation rate. IIRC, there were a number of price points for Scott TP.
BTW, that's the county next to me here in NJ. With that in mind, I find the site to be a very useful tool. If nothing else, it gives me a sanity check on the published CPI.
mab,
An "expert" on CNBC just described himself as a moose. He's neither a bll nor a bear. So what does the moose think?
The market is going up. S&P will hit 1,300 by end of next year.
That's a good 15% return. He's not bullish though. He's moosish.
Forehead, desk. Whack!
Stag,
Moose or lemming?
Forehead, desk. Whack!
I'm not allowed to watch CNBC anymore. Doctor's orders! I've had way too many CONcussions already.
Good call on the CPI today. I'm trying to ignore some of the day to day and month to month noise. The longer term trend of low inflation still seems intact to me.
Japan, but with more austerity. That's still my outlook. Who knows for sure though.
mab,
"I'm trying to ignore some of the day to day and month to month noise. The longer term trend of low inflation still seems intact to me."
Here's my next prediction.
1. We clearly need oil to go up to get any inflation at all.
2. Higher oil will seriously freak people out again.
3. Freaked out people don't shop at malls.
4. Higher oil prices will therefore lead to lower oil prices.
Sounds like a really stupid theory. Of course, we've already seen this cycle once. I'm not sure where we are on the timeline though. $80 oil already freaks me out. Perhaps the typical consumer is more "resilient" than me.
Stag,
Here's an example of how monthly and seasonally adjusted data is noisy and misleading.
Total housing starts were at 529 thousand (SAAR) in October, down 10.6% from the revised September rate, and up from the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959). - Calculated Risk
If we dig into the details we've had 381K starts year to date through October (10.9% less than the same period last year). If we take the Nov. & Dec. data from 2008 and reduce it by 10.9%, we can project 2009 annual starts of 432K.
Starts of 432K would be 9.8% lower than the claimed 479K all time low for starts.
Bottom line, housing is still in the crapper and so is the eCONomy.
Sounds like a really stupid theory.
It all part of the larger "banker bonus" eCONomy.
We built internet and comunication capacity we didn't need during the tech bubble. We built houses we didn't need during the housing bubble. Now we're trying to bid up commodity prices as if that will do any good. WTF! We have too much bad debt.
We keep creating bubbles so that we can pay the interest due (and banker bonuses) on the debts from the prior bubble. This idiotic notion that we have to preserve the value of bad bank credit must end.
It's criminal how the Fed keeps dumping the costs of preserving bad debt onto the economy at large.
mab,
"Bottom line, housing is still in the crapper and so is the eCONomy."
My overly optimistic neighbor up the street listed his house for $599K quite a few months ago. While taking a walk last night I see he only wants $525k for it now.
It's roughly comparable to mine. I paid $275k in 1997. Had my house appreciated at a 3% rate for the last 12 1/2 years, it would only be worth $398k. Assuming I spend about 10% to sell my house and buy another (the NAR needs its cut), what would I do with the left over "free money"?
This assumes he can sell it for $525k of course. If not, there might not be any free money left at some point. That sure would be a bummer.
Sarcasm, it's what's for breakfast.
I was thinking that if I am deflationary with a falling dollar then Europe should REALLY be deflationary with a rising euro.
Makes sense, right?
So I searched for "Europe Deflation" in Google. There were a lot of articles describing the deflationary pain. What struck me most was this though.
"Did you mean to search for: europe inflation"
Nope! ;)
http://news.alibaba.com/article/detail/cars/100201405-1-europe-dances-cisco-beat.html
"In economic news, the euro zone experienced deflation for the fifth consecutive month as consumer prices fell by 0.1% in October, according to Eurostat, the European Union's statistical agency.
The reading probably represented the last month of euro zone deflation, said IHS Global Insight economist Howard Archer, as oil prices continue rising, having recently reached a peak of $80 a barrel. But large gaps in output across the region suggest inflation will stay below the European Central Bank's target rate of 2% for "some considerable time.""
If oil indeed "reached a peak of $80 a barrel", then what happens to inflation if oil falls? I generally think of a "peak" as something close to the top of a mountain. Why is it always assumed that "oil prices continue rising"?
Stag,
We're impoverishing ourselves with more debt in order to preserve the value of fraudulently issued bank credit. Imo, the costs will be enormous and painful. Bernanke is a liar. The path he has chosen is ruinous for the majority.
The following chart sums up our situation:
http://www.economagic.com/em-cgi/charter.exe/nipa/q501-w207rc+1947+2009+0+1+1+290+545++0
Higher debts and negative savings. A falling dollar AND deflation (especially if housing is included) wouldn't surprise me one bit. Although I wouldn't rule out another mad dash to safety.
Incidentally, we haven't had negative net national savings since the Great Depression. Pain city.
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=137&Freq=Qtr&FirstYear=2007&LastYear=2009
mab,
What's truly scary goes far beyond the chart in your first link.
I have considerable savings and zero debt. Somewhere out there sits my opposite, my antimatter counterpart. I have no great desire to let my nest egg touch his. That would be the ultimate boom to bust. Bernanke wants me to take the risk? No thanks! Rather own toilet paper.
mab,
Just heard on CNBC...
"I don't think fundamentals really matter here."
Forehead, desk. Whack! Whack! Whack!
What's your doctor's name? I think I need an appointment.
Stag,
I have considerable savings and zero debt. Somewhere out there sits my opposite, my antimatter counterpart..
Your last post illustrated that point perfectly. In Economic Situation #1, Person A's $60K in savings are Person C's $60K in debts.
In a credit/check book system the assets are only as good as the liabilities. Fortunately for Person A, there is a mysterious, unaccountable and "independent" Person D (the Fed).
I have no great desire to let my nest egg touch his.
I hear ya - I'm nearly 100% treasury guaranteed. I keep telling people that the true role of the Federal Reserve is to preserve the value of fraudulently issued bank credit. Economically viable bank credit does not need Government or Fed support. The Fed ought to be called the "Fraudulent Reserve" or even better, the "Fraudulent Preserve".
The Fed absolutely failed to regulate banks and financial markets. Bernanke (and Greensham) allowed venal, bonus seeking bankers to poison our money supply.
Given this years record Wall St. bonuses, it's clear that Person A (the bankers) won't have to take a hit. And Person C is likely unwilling and unable to pay. That leaves Person B (the majority) to foot the bill. Person B doesn't have any net worth, but the Gov't is going to spot him a loan that he can work off over his lifetime.
Like I said. Bernanke is a liar. He, Geithner, Paulson and other big shots in the financial community are dumping this mess off on others.
The biggest rip-off in history. And the MSM's coverage of the atrocity is disgraceful. The MSM is a propaganda agency for finance.
What a sham(e).
mab,
We also borrowed from Person B so that Person B could buy a new car. Somebody had to buy a new car. Easiest just to borrow from Person B, then hand it back to him and tell him where he must spend it.
Stag,
In my last comment I mixed up Persons A & C. Person A has $60K in debt and Person C has $60K in savings.
For simplification, I just assumed Person B borrowed the $30K from himself.
I still can't get over hearing Buffett parrot Bernanke's tripe that "Main St. and Wall St. are joined at the hip".
mab,
"A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street. But what effect would it have on the broader U.S. economy? If Wall Street crashes, does Main Street follow? Not necessarily." - Ben Bernanke, Pre-Crisis
A collapse in U.S. consumers certainly would cause a lot of white knuckles on Main Street. But what effect would it have on the broader U.S. economy? If Main Street crashes, does Wall Street follow? Not necessarily!
While you two are going on about this finance 'stuff' we have a real emergency going on...WE'RE RUNNING OUT OF EGGOS!!!
Leggo Your Eggo: There's a Waffle Shortage
"Better hoard your Eggos!"
"We are working around the clock to restore Eggo store inventories to normal levels as quickly as possible,"
http://tinyurl.com/yavauvr
Mark if this ever happens to toilet paper, you my friend will be sitting on a gold mine.
And then I will think to myself "the rich just keep gettin' richer, first Halo 3 and now this!"
warchtower,
"Kellogg is rationing its Eggo products due to flooding and equipment problems at two bakeries. The shortfall could last through mid-2010."
Oh oh. Too much lquidity! Too many shortfall sellers!
I had nothing to with Halo 3, lol. If you guys keep spreading that rumor I'll never sell you toilet paper at insanely high prices someday!
I also did not work on Call of Duty, which I admit seems more appropriate based on what I'm hoarding. ;)
You are too modest, both GYSC and I know darn well that you are the genuis behind Halo 3, but it will be our little secret ; )
Uh, make that 'genius'.
I hate when I forget to spellcheck : )
Mab and Mark,
no work today? Are you two part of the "marginally attached" unemployed that do not count for the stats? Great dialogue all day, I had to catch up.
I will work on that Gold/Toilet paper chart this weekend when I have some free time. We may need a TP deflator stat to account for the wonderful advances TP has made over the years.
watchtower,
You've just won the lesser of a million rolls of toilet paper or the market price of Detroit's Silverdome minus a modest $600k processing and handling fee!
Congrats!
You'll also need to sit through a lengthy time share presentation of course.
P.S. Bring up Halo 3 again and you'll "win" even more! ;)
GYSC,
Just doing my part to ruin pesky productivity miracles.
Woohoo! Hey, wait a minute...
As seen as in the comments of a recent Krugman article...
"Employment will not return to pre-crisis level unless the income inequality is reversed. Financial hocus-pocus will only reshuffle the deck chairs.— Rune Lagman"
In my opinion, that pretty much sums up the entire crisis and all the attempts to fix it.
41 comments and this post was not about politics, healthcare, hot babes, or cars! This must be a blogosphere record setter. Congrats Mark!
Stag,
Sears CONtinues to lose money on declining revenues. It's still a winning stock, though, because they keep losing less than analyst guestimates.
I've seen companies use the "less bad" stategy many times. It's become quite common on Wall St. Take GM. They CONsistently lost less than analyst's estimates for decades!
Like deficits, fundamentals don't matter. Pundamentals on the other hand.....
http://finance.yahoo.com/news/Sears-posts-2nd-consecutive-apf-2107039832.html?x=0&sec=topStories&pos=2&asset=&ccode=
GYSC,
I'm the Ben Bernanke of bloggers. Look how much I inflated the comment bubble!
1. Restricted new post supply to detour comments here.
2. Used fractional reserve blogging to get 2x leverage (I reply to nearly every comment).
mab,
Be careful. The last time we seriously heckled Sears we inspired a heckler to heckle us! On the other hand, when Sears and the entire economy tanked Darwin's Survival of the Hecklers kicked in. It's a heckler eat heckler world. Moral of the story? Never bet on the illusion of the illusion of prosperity. That's just like betting on real prosperity.
Stag,
That's just like betting on real prosperity.
I can assure you I'm not betting on prosperity. There are just waaaayyyy to many things about that Person A and Person C dynamic that spook me.
The Fed is trying to preserve trillions and trillions in bogus bank credit. I'm not sure it can be done. What's worse, I think the pain of success could very well be greater than the pain of failure. The cure is more damaging than the disease. D'oh!
Stag,
A few thoughts on housing starts and vacant homes.
I don't trust seasonally adjusted numbers at inflection points. Especially at historic inflection points.
The current data from the Census Bureau on total housing starts are misleading imo. Wall St. shills are using the data to mislead people, but even some very good bloggers seem to be missing key points.
Rather than take a noisy monthly figure and project it out at a SAAR, I use a 12 month rolling average of actual starts. Currently, the 12 month rolling average of actual starts is at 561K (a series low going back to 1959). The current 561K is down from the bubble high of 2,084K in March of 2006. Moreover, actual (NSA) start data for each and every individual month during 2009 has set a series low by a wide margin. AND, the monthly rate of decline for the 12 month rolling average is currently at 4%, down from its peak at six percent, but higher than the last two months and about the same as a year ago.
Each and every month we set a new record low for actual starts. And, we're heading for more record actual lows for starts, something not reflected in the SAAR data. If the current rate of 4% monthly declines continues, we're going to set a record for the ages - it could get below 400K by mid 2010.
Presently, we're starting ~ 1.5 million fewer units than at the peak. At $300K/unit, that's a dollar change of $450 billion. And for those "banking" on household formation, I say forget it. We have 19 million vacant homes. 15% of our current housing units are vacant - about double the historic norm.
Commercial real estate is Fugly. Employment and wages are fugly. Same with employment. MEW is gone and debt levels are worse than ever.
Too much hat, not enough cattle. I think Person C is in for another rude awakening.
mab,
"There are just waaaayyyy to many things about that Person A and Person C dynamic that spook me."
I think I spooked my broker. I got a call since selling TIP (and transferring some money out).
We spoke for a while and I told him that analogy. I told him that I didn't want to risk my nest egg (savings) coming into contact with my antimatter (debt) counterpart. I also told him how this dynamic is lost in the average and median economic data that most mainstream economists seem to rely on. And lastly, I pointed to this country's exploding payday loan growth industry as supporting evidence of the theory's merit.
If memory serves, Roubini recently pointed out that income inequality isn't helping, which might go a long way towards explaing why he saw it when most didn't.
mab,
"I don't trust seasonally adjusted numbers at inflection points. Especially at historic inflection points."
That's creepy. I had a similar thought when I sold TIP. Get ready to cringe.
What if last year's seasonal Christmas sales slump IS the new normal? I don't think the typical "moose" has even factored that in as a remote possibility.
By the way, ING just offered me a 4% mortgage. Just one catch. It's just a 5 year loan. That last mortgage payment may be a balloon popper.
49th!
Just heard on CNBC...
"Retirees are desperate for yield."
Here's the funny part. That's actually supposed to be a reason to buy stocks apparently.
1. Do desperate people spend more money at Christmas?
2. Are desperate people willing to hold stocks through the next downturn?
3. How comfortable should I feel if my fellow investors are desperate?
4. Why are retirees desperate for yield? Did they retire too early? If so, not the best of times to go job hunting.
Stag,
"Retirees are desperate for yield."
Just what we need. Desperate retirees. I'm sure Wall St. can come up with a "safe," high yield solution.
They might actually get lucky though. Real yields are highest during deflationary events. ;)
Of course, if your assets are the debts of Person A, it might be difficult to realize your gains.
In all seriousness, exactly how do you unpoison a check book credit system that is polluted with trillions in bad debt. Quantitative (dis)easing? Puleeeeeze tell me you're joking.
mab,
"Just what we need. Desperate retirees. I'm sure Wall St. can come up with a "safe," high yield solution."
SRV - Structured Recreational Vehicles
Escape to Which Mountain though?
1. Mountain of debt and overcapacity (deflation).
2. Mountain of fiat currency (inflation).
Choose wisely. This isn't a movie. Further, being right doesn't mean you win. It just means you'll get the chance to play again in the next round, and so on, and so on.
Wowza!
Sitting pretty at 52 comments!
Here is one for you Mark, your blof title was ripped off today on a Yahoo article:
""The Illusion of Prosperity": U.S. Destined to Lag Rest of the World, Peter Boockvar Says"
http://tinyurl.com/yat47st
I knew this blog had the perfect title!
GYSC,
"The Fed is trying to create "the illusion of prosperity" by fueling asset price appreciation..."
Shocking!
I would slightly differ with him though. If he thinks gold is due for a correction but stocks are not I would simply point out what Dennis Kneale asked today of a trader.
"Can we really have a recession with all of this liquidity?"
The answer was, "Of course we can."
That ended the debate, lol.
Too bad. I thought Kneale was really onto something there. We have a printing press that can generate unlimited amounts of liquidity if we so desire. It would therefore seem only natural that we could permanently avoid recessions.
Forehead, desk. Whack! Whack! Whack!
Nice, blog and discussion...
After watching michael moore's latest movie (for entertainment purposes) he mentioned an interesting Citi memo. So I eventually found this memo online:
http://www.scribd.com/doc/6674234/Citigroup-Oct-16-2005-Plutonomy-Report-Part-1
The memo lists facts about wealth distribution in the US and based on the findings, a small percentage of ultra rich consumers contribute more to the economy than the rest of the working class population. ( i thought this relates to the Person A,B,C discussion)
So according to this employee, it was best to invest in companies that cater to the rich...
Remy,
Thanks for the kind words and thanks for supplying the link. That's a fascinating read on SO many levels. I'm still working my way through it. I do have some initial observations though.
First, it was Citigroup discussing the imbalances and saying that "we worry less". In hindsight, perhaps Citigroup should have worried more. I owned a lot of Citigroup stock in 2004 (just before the date in the report) and I can safely say I worried a LOT about them. Fortunately, I worried enough to sell all my stocks!
Second, I think they really nailed the "consensus analyses focusing on the average consumer are flawed from the start" part. Maybe they should forward this research to Ben "There Is Bubble to Go Bust" Bernanke.
Third, I think they really blew it on the rich going on without the poor part, as if they are somehow sheltered. This would only be true if the rich hadn't loaned the poor a whole lot of money. We're all subprime now!
Fourth, the "rather harmless" global imbalances makes for an amusing read in 2005 perhaps, but in 2009 I'm thinking more in terms of big time "scary".
And lastly, and most importantly, my eye is drawn to a stock market pick based on their conclusions. Toll Brothers in 2005? Oops!
Just opinions!
"
Third, I think they really blew it on the rich going on without the poor part, as if they are somehow sheltered. This would only be true if the rich hadn't loaned the poor a whole lot of money. We're all subprime now!"
Yes, I think this is what it comes down to. It seems the MSM is doing its best to inflate the market (and at the same time decreasing the USD to increase exports). By bubbling the stock market they are in theory increasing the wealth of the very rich. Once the very rich gain wealth, they can spend and create jobs for Joe ending the recession..? At least that's what I think they powers are doing...(personal opinion, not investment grade advice ;) )
All this said, you are correct that the paper had some terrible predictions in 2005! I went down the list of recommended stocks and most of them did terribly. As you stated is the poor/rich analysis is great, probably the only thing of value in the article.
Cheers,
Remy
Remy,
"Once the very rich gain wealth, they can spend and create jobs for Joe ending the recession..?"
"Flood" the system with liquidity. Some wealth will be hoarded, some to Chan and Jose, some to robots and automation, some to off shore banking accounts, and the remaining "trickle" can make it to Joe, sure.
It was never called Flood Down Economics. Have to give them that.
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