I live in the USA and I am concerned about the future. I created this blog to share my thoughts on the economy and anything else that might catch my attention.
Dr. Strange Move or How I Learned to Love the Bill
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After a couple of years of disinflation, the Fed changed directions and
started lowering rates. By most measures, the economy had been humming
along near a...
NVIDIA Revisited
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On August 26, 2023, 5 days before it a new closing hi at 493.55, I wrote a
critical post about NVDA - the stock, not the company. After that, the
stoc...
Stay away from popular tech stocks, part II
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Last August, I wrote a blog post arguing that largest technology and
internet companies -- Amazon, Apple, Facebook, Google, Microsoft -- would
never grow i...
So, Where Have I Been?
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Well, of course, I have been where I am!
It's been a good few years away from this blog. I do miss some folks
terrible, and I sort of miss things financial...
Those Whom The Gods Wish To Destroy ...
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they first make mad. Still true!!!
*(Note: this post, and probably several others to follow, are actually
about the US dollar and relative currency trends....
Some reasons behind this theory: People tend to feed their retirement accounts and invest bonuses early in the year.
This winter was afeeding frenzy. What could possibly go wrong? As always, the government wantsbig fat moneyflowing intoriskier asses. It will no doubt end well again.
Oops. Did I say asses? I meant assets! Freudian slip I assure you. ;)
Given the strong and rather obvious relationship between the most recent year-over-year rate of GDP growth and the prospect of oncoming recession, it's difficult to understand why Wall Street so completely rejects the likelihood of an economic downturn. Then again, that's exactly why we're expecting a Goat Rodeo.
This article has been a real eye opener for me. Until today, I thought the key to high returns was investing in a truly prosperous economy.
For example, a balanced portfolio of 60% equity and 40% fixed income could become 70% equity and 30% fixed income after a strong stock market.
I'll start with a 1% guaranteed annual loss in 5-year inflation protected treasuries as my 40% fixed income portion. Better safe than sorry. I'll add on a 60% exposure to overpriced stocks. I'll then relax on the beach while awaiting my "high returns". Perfect!
Sounds crazy? Not at all! Livin' the dream!
On the off chance this doesn't work then the article does offer additional disciplined strategies. Using a shotgun approach, one of them is bound to hit my target.
As an example, if an investor believes that over the next year the U.S. equities market will be weak, the investor might decide to underweight his exposure to equities and overweight cash or bonds.
Yeah! Now that's what I call disciplined. The typical investor is generally known for his/her ability to time the markets. Genius!
Unlike a rebalancing strategy, which is mechanical, tactical asset allocation requires some forecasting ability to make the correct decisions.
Each type of strategy will have its proponents, but any logical, rational strategy that is followed consistently is always better than no strategy at all. The value is in the disciplined approach a strategy provides.
For example, "The Less I Play, The Less I Lose" strategy is one I would use in casinos. Great strategy. I highly recommend it. That said, the strategy does not exactly meet the "high returns" promise the article makes in the headline. Perhaps that's just an oversight.
The biggest challenge as an investor is to be able to filter out truly useful information from the needless noise.
I hear that. In fact, I was thinking this very thought as I continued to read the article. Amazing! I kept reading anyway though. I can't explain it. Perhaps I'm a glutton for punishment. In fact, I am wasting your time as well. Sorry about that! It isn't too late to stop. Seriously.
It is important to stick to your strengths and interests and delegate out the asset classes in which you have a limited expertise.
The typical investor no doubt considers his/her trading skills to be superior to the advanced automated trading systems over at Goldman Sachs. I think that's a given. The trick is to figure out where the typical investor has limited expertise. That's a tough one.
When delegating make sure you find an expert that has the following four traits. First, he/she must be at least as smart as the market overall. Second, he/she is willing to spend time talking to you instead of making the big bucks going it alone. Third, he/she must be willing to do this with little compensation from you. You don't want your "high returns" eaten up by expenses. And lastly, you want to find someone who would not lie to you about the first three traits they supposedly have. You don't want to end up being Bernie Madoff'd.
That person is a rare breed. Look hard! The mirror might be a good place to start. You could certainly do worse.
Having an investment strategy for both asset mix and security selection is important to ensure consistent success as an investor.
Indeed. If you have generic cookie cutter investment strategy found within many of the most popular investment books then you can't help but make "high returns" in this economy. As for consistency, I can't think of one disciplined typical investor who lost so much as a penny in the last downturn. Then again, I don't really get out much. I was probably too busy hoarding toilet paper.
Having the discipline to follow an investment strategy is more important than the actual strategy chosen.
Just pick one at random and stick with it. If that doesn't give you the "high returns" promised in the headline, what will?
1. The current distance from the blue trend line is small. That means we are very near the level that the Fed would prefer.
2. The distance from the blue trend line is roughly the same as it was back in October. This means that over the past few months inflation expectations have been extremely well anchored (at a level slightly below what the Fed would prefer).
3. There has been a large move along the blue line down and to the left just as the "Monetary Policy Trend" I offered in the chart would imply. Real yields fell. This is not an inflation story. It is not a deflation story. It is a real yield dying story. It has become harder to make money off of money. Big shocker.
4. The yields on the 10-year TIPS and 10-year nominal treasuries are currently at or near record lows. Welcome to ZIRP. I hope you enjoyed the ride.
Speaking of rides, here's your mileage update. (See thislinkfor a description of the chart.)
Click to enlarge.
As seen in the chart, the road is a bit less bumpy now as we become more and more certain of ZIRPing along for the long-term. I'd tell you to fasten your seat belts but the car is in the parking garage, it is out of fuel, and all the exits are closed. What's the point?
Today's interest rate on the 10-year treasury is 1.93%.
Let's use the formula for the trend line to see what happens.
y = 0.6903x + 0.0264
0.0193 = 0.6903x + 0.0264
x = (0.0193 - 0.0264) / 0.6903
x = -0.0103
If all we knew was that today's 10-year treasury yield was 1.93% then we could make an educated guess that the fed funds rate would be somewhere in the ballpark of -1%.
The fed fund rate isn't -1%. It hit the 0% wall and can go no lower. That said, I'm reasonably confident that Bernanke would set it at -1% if he could. Theseasonally adjusted CPIhas flatlined for the last three months.
If it wasn’t clear already, it is now: securing decent retirement income in a low-yield environment is going to be a problem for a long time.
It certainly wasn't clear toJeremy Siegelback in February. He seemed to think that the economy would generate ample biscuits and gravy for us all, just like it had done for 200+ years.
In August, Bernanke said the Fed would keep rates down through the middle of 2013. Now, in his most recent remarks he has extended that pledge to late 2014.
Let's put this another way.
In August 2011, Bernanke said that the Fed would keep rates down for roughly two years.
In January 2012, Bernanke said that the Fed would keep rates down for roughly two years.
Bernanke is consistent with his two year predictions. I'll give him that. Perhaps rate hikes will be two years away for many, many years. That's the way it worked out inJapanafter their housing bubble popped in the 1990s. As a saver, that is and was my primary concern.
That's why I locked in a real yield at the very time Jeremy Siegel was advising the opposite. Unlike Japan, I opted for the inflation protection. That's neither here nor there though. The added inflation protection has neither helped nor hurt me. Inflation expectations haven't budged. The only thing that's moved are the real yields and in the direction that I feared.
It is becoming increasingly difficult to make money off of money. This has been acentral theme of my blogsince the very beginning. Expecting future investment returns to mimic past investment returns is a symptom of the illusion of prosperity. Economists like Jeremy Siegel continue to cling to the prosperity dream in spite of allconcrete evidence to the contrary.
Update:
My bad. Bernanke actually went from 2 years to 3 years. In order to be consistent his next prediction will be that he raises rates in 4 years. You know, if the trend is our friend. Sigh.
Federal Reserve officials said their benchmark interest rate will stay low until at least late 2014 and anticipate that unemployment will remain high and inflation “subdued.”
WASHINGTON – The Bureau of the Public Debt announced today that as of January 1, 2012, paper savings bonds will no longer be sold at financial institutions.
In 2011, we could buy $5,000 in electronic I bonds and $5,000 in paper I bonds. Fortunately, they have increased the amount of electronic bonds we can buy. The $10,000 limit therefore still applies. We'renot being shafted! Hurray!
What is the annual purchase limit for U.S. Savings Bonds?
Effective January 4, 2012, the annual (calendar year) purchase limit applying to electronic Series EE and Series I savings bonds is $10,000 for each series.
I was just about to make a small purchase in the 10-year TIPS auction that wasannounced last Thursday. I shall instead buy more I bonds and EE bonds with that money.
I'm generally not a fan of the EE bonds (due to the added risk of fixed interest rates in an inflationary world) but the government iscurrently running a special. That should partially compensate me for some of that added risk.
EE bonds held 20 years should offer an average rate of 3.53% (since the bonds are currently guaranteed to double if held 20 years). Meanwhile, the 20-year nominal treasury yields just2.59%. I can't say that EE bonds are an absolute bargain (inflation could get out of control), but they are a relative bargain. In other words, long-term savers could certainly do worse.
Special thanks to fried (in the comments of the last post) for drawing my attention to the update on the new savings bond purchase limits. This is yet another reason why I like to blog!
The black line represents 5 year nominal treasury yields adjusted for the inflation over the following 5 years. Note that the line stops 5 years ago. We do not yet know what the real yield of a 5 year nominal bond bought recently is. It depends on what inflation does before the bond matures.
The blue line represents 5 year TIPS yields. They have the inflation adjustment built in so we do know what the real yield will be at the time of purchase.
If the 1965 to 1980 time period is any indicator, real yields can stay low for a very long time. All it would take is a weak economy (an economy where money cannot be easily be made off of money).
For what it is worth, I am firmly in the weak economy over the long-term camp.Unlike some supposed experts, I believe that a 1980s and/or 1990s economy will *never* miraculously reappear. As seen in the following chart, there aretoo many headwinds. Those drawing on historical data to predict the future seem to ignore what the chart is clearly saying.
The privately held Irving, Texas, company, which employs roughly 19,000 people and carries more than $860 million in debt, has been facing a cash squeeze amid high labor costs and rising prices for sugar, flour and other ingredients, according to people familiar with the matter.
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Sales of Hostess's signature Twinkies have recently declined a bit while the overall bakery snacks category has been about flat.
Declining sales? Rising costs? How very stagflationary of them.
NEW YORK (CNNMoney.com) -- The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy.
– December’s employment report was better than expected across the board. You don’t have to be a rocket scientist to interpret today’s number, just check off the boxes: a pick-up in nonfarm payrolls, another drop in the unemployment rate, a tick up in hours worked, and a mild gain in hourly earnings. Today’s report extends the steady diet of solid economic data, and suggests the US economy built up momentum as we closed out the year. –Neil Dutta, Bank of America Merrill Lynch
There you have it. We don't have to be rocket scientists.
But for many shuttle workers, the very last flight of the 30-year shuttle program will truly be the beginning of the end. NASA expects to undergo a big round of layoffs that will significantly reduce the shuttle workforce, which currently stands at about 6,700 people, said John Shannon, NASA's shuttle program officer.
Armstrong decried NASA's downward spiral. "We will have no American access to, and return from, low Earth orbit and the International Space Station for an unpredictable length of time in the future," he said. "For a country that has invested so much for so long to achieve a leadership position in space exploration and exploitation, this condition is viewed by many as lamentably embarrassing and unacceptable."
Kodak warned in November that it might not survive 2012 if it was unable to secure $500 million in new debt or sell its patents. The company's cash had been shrinking as sales of its consumer products have failed to keep up with its heavy cost base, which includes employees and offices around the globe.
Knowledge = Power Time = Money Power = Work / Time
Since we know this to be true, we can therefore derive a few more formulas from it.
Currency = Money = Time
That's pretty much self evident. Now let us substitute knowledge for power.
Knowledge = Work / Time
This implies that if you work overtime then you and/or your boss will gain knowledge and/or power. Makes sense. Now let us substitute currency for time.
Knowledge = Work / Currency
Now let us rearrange the formula and solve for currency.
Currency = Work / Knowledge
Yes! This makes perfect sense. You can get rich if you either work harder or haveless knowledge.
And finally, let us use what we've learned to adjust the first article's headline and make sense of it.
Euro leaders are buying currency to save work (over knowledge).
Who would doubt that? It's crystal clear. That's what the math shows!
“It is vital that eurozone policymakers get a real grip on matters quickly.”
I understand the theory here, but surely a fake grip on matters drawn out over many months would be good enough as long as nobody spills the bea... Um, oops.
Real grip! Of course! In no way am I attempting to imply a sarcastic unjustified eye roll here.
I've risen above the 90-day moving average. Time to buy the dip?
Trust me on this one. 212 pounds is not a good entry point for long-term buy and hold investors. There's no value here. The chart is luring you in. Don't fall for the technical analysis!
In all seriousness, I climb 20 additional flights of stairs each and every day and will continue to do so well into the distant future. The holiday season is now in the rear view mirror. The days are starting to get longer again. I think the long-term weight trend can therefore still be safely assumed to be down. It is only a matter of time.
I've never tracked my weight like this before. The seasonal effects are more than I would have guessed. December wasn't as bad as November. I'm fascinated to see what January brings.
In any event, this plan is simply a lazy person's attempt to do the absolute least needed to attain and maintain a healthy weight. From where I sit, there's a fine line between thesin of lazinessand thevirtue of patience. As always, I intend to ride that line! ;)
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