Click to enlarge.
The chart shows the average annual Fed Funds rate over the previous 10 years (adjusted for inflation).
I would point out that we're pretty much back to 1979 levels and in hindsight that wasn't exactly the best time in recorded history to be embracing the commodity story long-term.
Here's something else we share in common with 1979.
Click to enlarge.
Note the similar steepness in the upward trend and the absolute level.
Update:
Kitco: Historical Gold
According to Kitco gold averaged $306.68 per ounce in 1979. It averaged $278.98 per ounce in 1999. It lost money in nominal terms over the 20 year period and much more in inflation adjusted terms.
Gold averaged roughly $1,223 in 2010 (still a few days left to go).
I suppose it could be argued that gold was a good store of value from a bubbly level in 1979 to the bubbly level now. It quadrupled while the CPI-U only tripled.
For those who are truly greedy 1980 was quite a year. Gold averaged $612.56 per ounce. It was the last part of the parabola. Gold doubled from 1979 levels. Maybe 2011 will be a similarly exciting year for gold? Who knows?
All I really know is that I have no interest in owning gold at these levels, especially when compared to aluminum. At $1,384.40 per ounce for gold and $1.0767 per pound for aluminum, the ratio between the two currently stands at a whopping 18,751 to 1. What must investors be thinking?
See Also:
The Fed's Commodity Bubble Recipe
Source Data:
FRB: Selected Interest Rates
St. Louis Fed: CPI-U
St. Louis Fed: Unemployment Rate
Here's a bonus article well worth a read (in its entirety).
ReplyDeleteDecember 20, 2010
Things I Believe
In bonds, the Market Climate was characterized by neutral yield levels and unfavorable yield pressures, and on the slight deterioration in the Market Climate, we used a bit of price strength to clip our duration back under 2 years, and liquidated the majority of our utility positions. The Strategic Total Return Fund presently has a fraction of 1% of assets in utility shares, about 1% in precious metals shares, and about 1% in foreign currencies. Suffice it to say, we do not view risk as appropriately priced in stocks, bonds, or even precious metals at present.
We already had a commodity bubble in 2007-2008. We already had a huge bust in all risk assets when the real estate bubble popped in part of the world.
ReplyDeleteThe Fed has handed off money out the wazoo to member banks:
>>A careful review of these data makes it highly likely the GAO will be releasing some startling findings come next July 2011. That’s when the American people will have a much clearer picture of how the Federal Reserve shoveled taxpayer money to Wall Street by the trillions. As a result of Senator Sanders’ legislative efforts, the Government Accountability Office (GAO) is to complete an audit by next summer of the Fed’s lending programs during the financial crisis.
The data starkly show a comatose Wall Street being resuscitated with whatever financial might the Federal Reserve could pump into its tangled web of funding vehicles. It also points to how the Fed was dispersing sums which dwarfed the U.S. Treasury’s $700 billion TARP (Troubled Asset Relief Program) bailout program while allowing the TARP to take the media heat for obscene funding of Wall Street.<<
>>...are astronomical sums that Citigroup, Morgan Stanley and Merrill Lynch were drawing from the Fed on a regular basis from the Spring of 2008 to the Spring of 2009 (and potentially well beyond). The three firms borrowed almost equal sums which cumulatively totaled over $6 trillion, and that does not include their borrowing from other Fed facilities. In its current release the Fed cut off these data as of May 12, 2009 while the program lasted until February 1, 2010, making the full extent of this funding unknown at present. <
http://www.zerohedge.com/article/tax-payers-tab-cool-9-trillion-and-then-some
So obviously the banks have created another risk asset bubble that includes commodities. We still have a real estate bubble in China, Australia, Canada, Brazil and many places. Hot money from the banks are flowing to the remaining bubbles and when these bubbles pop, we will have a replay of 2008, although longer. Timing is unknown.
By measure of reliable indicators like VIX, investors are just a complacent now about US stocks as they were at the all time highs in 2007.
http://www.safehaven.com/article/19442/investing-wisely-compare-the-peak-of-the-depression-to-the-dot-com-peak
ReplyDeletehttp://home.earthlink.net/~intelligentbear/dj-compare-1964-1984.gif
Two potential roadmaps for us--both worrying. Fear not--the only thing we have to fear is history itself!!
I mentioned in the prior post that timing is unclear. But not too unclear. Dow stocks like AA going parabolic do not lead risk assets into a long bull market. Please see AA now compared to Jan. 2010.
http://finance.yahoo.com/q/bc?s=AA&t=2y&l=on&z=l&q=l&c=
Looks like the early 2010 ramp job by hedge funds coupled with short covering driven mayhem. This time, though, we are just that much closer to the popping of the remaining RE bubbles. I nominate Canada to follow Ireland as biggest basket case of 2011 and see the Aussie dollar dropping 30 cents off its AUD:USD index by the middle of 2012. Enjoy the rest of 2010 guys. We might get the Fed curtailed yet and THEN you will be able to compare now to 1979, when CONgress gets into the inflation business.
http://1.bp.blogspot.com/_1o2wiBm5r_M/TRWKG66PaEI/AAAAAAAAB1Y/TzqWqlQEi7U/s1600/Picture1.png
ReplyDeleteShanghai market is closed to western hot money--Chinese are fleeing their own market while the hot money bubbles elsewhere. Do they know something?
Anonymous,
ReplyDeleteInteresting links and commentary!
Here's a summary of the links you offered for the benefit of others.
The Tax-Payers' Tab: a Cool $9 Trillion and Then Some
Investing Wisely - Compare the Peak of the Depression to the Dot Com Peak!
Current DJIA vs. Period From 1964-1984
AA now compared to Jan. 2010
Shanghai Stock Market
The Tax-Payers' Tab: a Cool $9 Trillion and Then Some
ReplyDeleteCost to fund the Troubled Asset Relief Program: $700 billion...
Cost to fund the Commercial Paper Funding Facility: $738 billion...
"In other words, the leverage in the system was not coming just from mortgage securitizations and esoteric derivatives but from off-balance-sheet debt parking schemes quite similar to that used by Enron."
PRICELESS!!! Literally!
G.H.,
ReplyDeleteI suppose it could be worse. Imagine $500 billion per month.
December 22, 2009
Worldwide cost of IT failure: $6.2 trillion
The white paper suggests that worldwide IT failure costs $500 billion per month, a truly astonishing figure. But is this number accurate or useful?
The cost numbers are a SWAG (sophisticated wild-ass guess) illustrating orders of magnitude for the global IT failures problem. Although not precise, the numbers demonstrate the seriousness of IT failure around the world.
December 11, 2008
Study: 68 percent of IT projects fail
According to new research, success in 68% of technology projects is “improbable.” Poor requirements analysis causes many of these failures, meaning projects are doomed right from the start.
Nice, lol.
I can speak from personal experience that the last computer game project I was on managed to lose $1 million plus. "Poor requirements analysis" doesn't adequately do it justice. Even after 18 months of production, there never was a game design. You'd think that would pretty much come first.
How did we get to that stage? Well, the designer had never designed a game before. Further, the company also made him the producer. It doesn't end there though. When another project was in trouble he was placed on it to produce it as well. The seasoned producers knew to steer clear of it. And lastly, he was given a zero in every category of his review (on a scale of 0 to 5, 5 being excellent). They then kept him in hopes apparently that it would help motivate him. As unbelievable as it might seem, it actually demotivated him.
Good times. Good times.
Mark, from your link:
ReplyDelete"According to the 2009 U.S. Budget [02], 66% of all Federal IT dollars are invested in projects that are “at risk”. I assume this number is representative of the rest of the world."
I commend his SWAG'er in assuming the rest of the world does as poorly at spending their treasury's money as the U.S. does. LOL
"The cost of a failed project is only the tip of the iceberg. Every project failure incurs both direct costs (the cost of the IT investment itself) and indirect costs (the lost opportunity costs)."
Lost opportunity cost? Yeah, those developers could have been busy creating a latest and greatest version of Program Trading software. "Flash Crash"es are not failures, they are a cost to the general investing public of doing business with Wall Street.
"The following table performs this calculation of various regions of the world:"
I didn't see Greece in that table.
And from the comments section:
"Very few people have the big picture in the IT sector. Any IT project that is using a mix of junior developers needs at least two to three senior developers watching their asses every single day."
I was a junior developer once. I used to look at code from another junior developer in my group and wonder, WTF! I later became a Senior Consulting Systems Analyst. The other junior went to another company to do web development, LOL!
G.H.,
ReplyDeleteI knew a lead programmer once who implemented a resource database that had no "delete" feature. There's a product out there (which will remain nameless) that included all the resources ever made for that project (for example, all versions and revisions to a particular sound or piece of artwork were shipped).
He implemented a "tape recorder" feature that had no "stop" function. It would simply record for about 30 seconds and then stop on its own. I opted to point out that some users might not appreciate that much, lol.
He also implemented coordinates in a peculiar way. You'd think (0,0,100,100) might describe a square. Most might debate whether it is 99x99 or 100x100 (depending on whether it represents the lines between the pixels or the pixels themselves). Not in his world! He split the difference. One axis included the endpoint. The other axis did not include the endpoint. Talk about obfuscation!
He was eventually let go.