Tuesday, September 6, 2011

Garbage In, Garbage Out

September 6, 2011
Financial News Network: Possible Bearish Engulfing Pattern Detected for iShares Barclays TIPS Bond Fund (NYSE:TIP)

iShares Barclays TIPS Bond Fund (NYSE:TIP) defies analysts with a current price ($115.85) 100.0% above its average consensus price target of $0.00.

Yes, indeed. Even if TIP currently traded at a penny it would infinitely defy the analysts, lol.

Now I'm not suggesting that TIP couldn't fall from here. It definitely could. I have chosen to park money in an online savings account rather than risk parking it in the fund (for money I need in the next few years).

That said, there is clearly an error in the analysis. The author of this article did not find a $0.00 consensus price target to be even a bit odd? How is that possible?

Garbage in, garbage out

It is a sardonic comment on the tendency to put excessive trust in "computerized" data, and on the propensity for individuals to blindly accept what the computer says. Because the data goes through the computer, people tend to believe it.

In my opinion, this term also describes our banking system fairly well. Banks tell their computers that the assets on bank balance sheets are pristine and proper and then the computers inform us that the assets on bank balance sheets are pristine and proper. Garbage in, garbage out.

What could possibly
go wrong?

17 comments:

Troy said...

interesting Krugman blog post on gold movement just now . . .

Also, Delong has a good post about how Geithner was calling stimulus "sugar" and not medicine back when the administration was debating policy. I agree fully.

Stagflationary Mark said...

Troy,

Krugman: Treasuries, TIPS, and Gold (Wonkish)

I agree with what he wrote.

I've been thinking over the past few days about my I-Bond investment in 2000. They pay/paid 3.4% over inflation.

If I cashed them out now I could get double what I paid for them. If it was possible to sell them in the open markets, then the markets would pay me even more for them. The 20-year TIPS pays just 0.64% vs. my 3.4%. Who wouldn't want an extra 2.76% in interest every year for two more decades?

I did not originally buy I-Bonds in 2000 because I was worried about inflation. I bought them for the real yield. Perhaps that's why gold investors bought in 2000 as well.

That's also the main reason I have bought TIPS starting in 2000.

Today's low real yields on I-Bonds and TIPS don't necessarily mean that inflation is coming any more than $1900 gold does to me.

I lean towards a stagflationary outcome eventually, but I could also see Japan's deflationary disease spread worldwide. I think it could go either way.

I just wish Krugman would take this exact same analysis and apply it to other commodities. Maybe then he could see the effect low real yields are doing to the price of oil and in turn to our ability to create jobs.

So when can we expect to see that I wonder? I'm not holding my breath.

December 29, 2010
The Amazingly Twisted Logic of Paul Krugman

Here's a summary of his opinions as seen above.

1. Quantitative easing will create inflation.
2. Quantitative easing does not lead to higher commodity prices.

Stagflationary Mark said...

Troy,

Also, Delong has a good post about how Geithner was calling stimulus "sugar" and not medicine back when the administration was debating policy. I agree fully.

Have a link? Is this it?

Troy said...

actually it was a comment, not a post, but the comment was referring to that WaPo article.

nilys said...

Perhaps, in the 1980s, gold prices reflected inflation, but presently gold, at least to me, is an indicator of the degree of calamity, abnormality and anxiety in the society. The higher the price of gold, the more worried I get. If gold was in a bubble, it would be Ok, but it may portend a coming anomie, or perhaps anomie is what's happening now, the right word be: it portends a violent and disruptive correction, a loss of control by the ruling elite.

Besides, it seems to me we are not in an inflation or deflation, we are in a radical stratification of the populace, whereby things that are valued by the super wealthy are becoming inaccessible to the majority. These would be education, healthcare, quality food and things, travel. While things that are for the masses are still fairly cheap, excepting gas. The strain for the masses comes from decreasing income and unemployment.

Stagflationary Mark said...

Troy,

I chose a less friendly term in 2009.

The Crack Cocaine of Economics?

Stimulus Packages are the methamphetamines of economics.

Stagflationary Mark said...

nilys,

The higher the price of gold, the more worried I get.

I hear that. It was a factor in my decision to lock in a 30 year TIPS rate back in February.

It also inspires me to hoard things that are still cheap by comparison. What's the harm? Most take cheap basic necessities for granted. Perhaps justifiably so, but perhaps not.

Speaking of quality food, I'll be posting a seafood cpi to food cpi ratio soon. The long-term trend is up. Makes me wonder just a bit about peak fish theories.

fried said...

Mark,
re seafood. This article posted today in the Wash Post might be helpful.

http://www.washingtonpost.com/national/health-science/scientists-call-for-end-to-deep-sea-fishing/2011/08/30/gIQApPJc7J_story.html?hpid=z3

tj and the bear said...

nilys,

You've unintentionally hit on the very essence of gold; uncertainty (or better yet instability) in the world around you.

High inflation wasn't the cause then and deflation isn't the cause now; those are just symptoms of the underlying economic and/or political instability of the times.

All you have to know about the future price of gold you can answer by asking yourself if the future in general looks better or worse. For most it's the latter, which means gold has a lot of upside left.

p.s.: What Mark has so far been unwilling to accept is that the uncertainty extends to the future of the dollar itself.

CP said...

Just crossed 1200 after hours!!!

Stagflationary Mark said...

fried,

Thanks for the link! Fascinating.

Stagflationary Mark said...

tj and the bear,

What Mark has so far been unwilling to accept is that the uncertainty extends to the future of the dollar itself.

Back at you. This is what I think you are unwilling to accept.

The real estate to toilet paper ratio was well off the charts. The gold to toilet paper ratio is now well off the charts.

At some point, price relative to toilet paper matters.

Stagflationary Mark said...

CP,

After hours doesn't count.

That said, tomorrow could be another Rubicon day! Woohoo! ;)

Stagflationary Mark said...

tj and the bear,

It would not surprise me if the truth lies somewhere between our two viewpoints by the way.

I'm not meaning to imply that I am sure that I am right and that you are wrong.

I only offer an opinion. I want to make that clear.

If I was sure I was right that gold was a bubble then I would short it. I am never that sure. I embrace uncertainty.

tj and the bear said...
This comment has been removed by the author.
tj and the bear said...

Mark,

Hey, all I offer are opinions, too. We don't learn anything without politely debating our respective positions.

My father used to love saying "Opinions are like assholes; everyone's got'em and they all stink". ;-)

Stagflationary Mark said...

tj and the bear,

Your father appears to be a wise man! :)

Here's a favorite of mine.

Despair.com: Blogging