I've got good news and bad news.
First the good news. We're back on trend.
Now the bad news. We're back on trend.
February 2, 2011
More Dangerous Advice from Jeremy Siegel
"These healthy rates were not a surprise, since economic theory predicted that real yields should approximate real gross domestic product growth, which averaged between 3 per cent and 4 per cent at that time." - Jeremy Siegel
He didn't seem to have any problems with long-term TIPS paying a real yield of 3% to 4% when real GDP growth was 3% to 4%. In fact, that was the very math he used. So why is it so hard for him to understand that earning a real yield of 2% when real GDP growth has been 2% might not be such a bad thing?
I have a theory. Treasury Inflation Protected Securities tried to run over Jeremy Siegel's dog. What else could possibly explain his ongoing hatred of them? Well, other than the fact they've made him look like a fool for the past decade by outperforming his precious stocks.
Source Data:
St. Louis Fed: Real Gross Domestic Product
Put another way, if you believe that real GDP growth will continue to slow over the long-term then TIPS make more sense than stocks (at least in theory). Here's why.
ReplyDeleteIf you buy a 30-year TIPS then you lock in a real yield for the full 30 years.
If you buy stocks then you do not lock in a real yield. You get the real yield of the future and if real growth doesn't arrive as expected then you could be in for a serious disappointment.
Over the short-term, real GDP growth has bounced back and stocks were clearly the place to be. What's going to happen over the long-term though?
Just something to think about.
One more thought.
ReplyDeleteIt took a dotcom bubble and a housing bubble to get 4% real GDP growth. Who really thinks that a commodity bubble can repeat that level of success? I sure don't.
I'm sure I'm missing something. How does a bubble create anything real, GDP or otherwise?
ReplyDeletenanute,
ReplyDeleteThat's a great question. I'd also be interested to know what our GDP would be if we weren't borrowing more than a trillion dollars of future prosperity per year to prop it up. Sigh.
I guess it all depends on what you do with the borrowed money. If you continue to give it to the banks, and top 1% of income "earners", well that is problematic. Sooner or later the rubes are going to catch on, and demand it back. One way or another. There's a song in there somewhere.
ReplyDeleteBernanke's news CONferences are propaganda exercises designed to endear the Fed to the public.
ReplyDeleteRemember the interview when Bernanke lied about his adjustable mortgage exploding? Same deal.
Anyone that thinks the Fed's ever increasing financial manipulations will benefit the majority needs to have their head examined. We have decades of data proving that the Fed's legerdemain benefits a small minority while impoverish the majority with debt.
The world is in the throes of extractive finance. The Fed is the great enabler. The primary factor that enables the financial looting is the Fed's failure to follow its singular mandate to CONtrol monetary and credit aggregates commensurate with potential output.
The beatings will CONtinue even if morale improves.
mab,
ReplyDeleteI think you left off part of the mandate:Section 2A. Monetary Policy Objectives
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
Bernanke has clearly been spooked by the deficit hawks, and shows no inclination towards affecting the unemployment part of the mandate. It requires inflation.
Canadians and their Governments: Digging the hole deeper and deeper
ReplyDeleteI have 28 posts with the tag GDP, looking at different historical periods, and cutting across it in various ways.
ReplyDeleteYou might find them amusing
JzB
mab,
ReplyDeleteAnyone that thinks the Fed's ever increasing financial manipulations will benefit the majority needs to have their head examined.
BLS: Psychologists
More clinical and counseling psychologists will be needed to help people deal with depression and other mental disorders, marriage and family problems, job stress, and addiction.
nanute,
ReplyDeleteBernanke has clearly been spooked by the deficit hawks, and shows no inclination towards affecting the unemployment part of the mandate. It requires inflation.
I continue to believe that inflation won't help us. The problem is that the "hot money" of inflation immediately piles into things that directly affect (hurt) the poor.
It would be one thing if inflation could be evenly distributed amongst all asset classes and wages so that debt could be inflated away. I'm not seeing that though.
Jazzbumpa,
ReplyDeleteI read your links. We agree more than we disagree!