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.
This is the End and a New Beginning
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I've been thinking about this for some time.
After 21 years of writing this blog almost daily, I've decided to stop
writing the daily updates on the blog.
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Silver Deep Dive
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Silver had a memorable year (+148%). Some of this can be explained by a
decline in the dollar. I decided to do some ML analysis to look for other
insights....
Report on my local mall: For the holidays, they had some vacancies. They filled two of them with what look like flea market venders. No decorations - cheap jewelry and cheap handbags. Otherwise we have a JCP, Belk's, Beall's and a couple of jewelry stores. Can you spell desperate?
And I had noticed that JCP didn't seem to have anything new since about August in the windows - And just this week I saw that the new CEO is planning to turn the company around by creating an environment where employees are creative and engaged. Please. I've been around the block a time or two - not happening. That is just nonsense. Not that I know what is going to happen.
The JCP CEO also said that sales of basic goods were weak this quarter because of less demand. Not exactly. I bought one item the last quarter - socks for my hubby. They cost the same as the previous socks but were half the quality. I was going to buy him pants too, but when I realized the fabric was half the thickness for the same price(he wears heavy duty cargo pants - construction work), I passed. So if it weren't for customer loyalty/ stupidity/ or something, sales of basic goods wouldn't have even been as high as they were.
I am confident you'll post an appropriate video. Audrey
It would seem that JC Penney's plan is a "cheap" trick. Consumers neither "want" nor "need" overpriced socks at half the quality? Who knew?
I am a complete believer in the "good enough" revolution. I'm a former lead software engineer but I'm running a computer that was built seven years ago. It is still running Windows 2000! How's it working for me? Good enough!
It doesn't just apply to computers though. I'm not seeing much improvement in aluminum foil, ziplock bags, garbage bags, toilet paper, paper towels, t-shirts, sweat pants, underwear, socks, sneakers, bath towels, and anything else I've bothered to hoard based on my ongoing concerns about future prosperity. I figured they are all "good enough", so why risk having to pay more for them in the future if inflation actually does pick up at some point?
For what it is worth, I hoarded a lifetime supply of Gold Toe socks purchased at Wal-Mart a few years ago at prices far, far below what the JC Penneys of the world once charged me for the same product. My local Wal-Mart now no longer carries them. It was definitely one of my better purchases!
Italy has a smaller fiscal deficit than either Ireland or Spain, for example, so it will probably have less cost-cutting—with a less pronounced impact on economic growth.
Here's achartof Italy's stock market since the opportunities appeared.
The government is officially asleep at the EE Savings Bond wheel.
Although the government has set the short-term interest rate of EE Savings Bonds at just 0.6% it has not altered the original term (the time needed for the bond to double in price). That's still set at 20 years and if held that long the bond will yield 3.53% per year.
2^(1/20) = 1.0353
Click to enlarge.
The chart above compares the EE Savings Bond rate if held to original term (the time needed for the bond to double in price) to the rate of a treasury bond with the same duration (using interpolation on the treasury yield curve where needed).
Click to enlarge.
The chart above shows the rate markdown of the EE Savings Bond compared to a treasury bond of the same duration. That tends to be about 30%. Put another way, if the treasury bond yields 10% then the savings bond tends to yield about 7%. If the treasury bond yields 5% then the savings bond tends to yield about 3.5%.
The lower rate is due to the tax advantages that EE Savings Bonds offer (deferral of taxation, tax benefits for education).
As of today, the EE Savings Bond has an original term of 20 years. It therefore yields 3.53%. A 20-year treasury bond currently only yields 2.77%. As seen in the second chart, the mispricing between the two is currently at an extreme. What was once a premium to own EE Savings Bonds is now a discount.
So what does this mean?
In theory, if trading fees and taxes were absent then one could make risk-free money for 20 years by shorting $5,000 in 20-year treasury bonds while simultaneously buying $5,000 in EE Savings Bonds. The government would basically be paying you each and and every year for the next 20 years to do the trade (much like what it is doing for our biggest banks).
Or alternatively, I can't say that EE Savings Bonds are a good value to other things one could invest in, but it is clear that they are a good value relative to treasury bonds in general. Since I am generally a fan of relative value, that means I will probably be a buyer of EE Savings Bonds in 2012. That will make the 3rd year in a row. Go figure.
EE Savings bond rates and terms will not be changed again until May 1, 2012. There's no hurry to make the purchase though. In fact, it would probably be best to wait until April to make the decision. If the mispricing is gone in April it would only mean that interest rates on 20-year treasury bonds have risen dramatically. Who knows? It could happen.
Something will eventually fix this mispricing. That's about all I am sure of. I expected at least some of it to be fixed on November 1, 2011.
The government doesn't just set the interest rate. It also has the power to change the time it takes for a given EE savings bond to double in price. Since interest rates have fallen substantially, the odds of a duration change (for new purchases) are increasing substantially.
It would not surprise me to see the original term increase to 22-25 years at some point (perhaps very soon).
The conventional wisdom goes something like this: Obesity rates are skyrocketing among the poorest Americans, therefore fast-food restaurants must be to blame.
But a new study by a professor at UC Davis' medical school has found that it's Americans with salaries at the higher end of the spectrum -- in some cases as high as $80,000 to $90,000 -- who are driving fast-food consumption at the likes of McDonald's and Burger King.
Too bad conventional wisdom isn't traded publicly. There have certainly been times when I wished to short it.
He also noted that, although fast food has a reputation for being cheap, a steady fast-food diet is largely out of financial reach for the truly impoverished, especially those who need food stamps to get by.
I'm once again reminded of the following insanity.
Kelly Brownell, director of Yale's Rudd Center for Food Policy and Obesity, says encouraging more fast-food consumption is not good for people's health. "It's preposterous that a company like Yum! Brands would even be considered for inclusion in a program meant for supplemental nutrition."
I'm all in favor of providing food for people who can't afford it, but do we really need to conveniently prepare unhealthy food for them and pad the profits of corporations too? Is that what the food stamp program should really be doing?
I'm a fairly frugal person. I consider fast food to be a bit of a luxury. It is not cheap food. I have cut back on it as I try to conserve my nest egg's purchasing power. Perhaps most people on food stamps should be doing the same?
Some might argue that homeless people on food stamps don't have an option. They need food prepared for them. All I can say is what I would do in their situation. I would get together with other homeless people and pool resources. One could make quite a feast out of a few loaves of bread, a large jar of peanut butter, a large jar of strawberry jam, a few pounds of bananas, and a gallon of milk. It certainly wouldn't be any less healthy and it would cost far, far less per person.
I'd use the money saved to try to get out of the rut I was in so that it did not become permanent. I can't say that in this economy I would be successful, but at least I'd be trying.
It would require some effort on my part. Unfortunately, effort goes against the ultimate policy of the welfare state.
The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. - Alan Greenspan (1966)
This is a continuation of apreviouspost with the data presented in a different way.
Click to enlarge.
The chart compares the yield of the 10-year Treasury to that of the total debt (total credit market debt owed) to GDP ratio.
It would seem to be a good idea to stay below the red trend line whenever possible. We had no problem doing that before the 1980s. It was trivial. It has been more difficult in recent years. Here's some good news. If Japan is any indicator, it is amazing how much we can borrow if the interest rates are low enough. As of today, the 10-year Treasury yields just2.00%. That's well below the trend line.
It would also seem to be a good idea to stop moving to the right on the chart. We've actually done that and it is giving us some breathing room. Let's just hope we don't have another recession shortly that would undo some of this good work.
It’s important to understand that recession doesn’t mean a bad economy – we’ve had that for years now. It means an economy that keeps worsening, because it’s locked into a vicious cycle. It means that the jobless rate, already above 9%, will go much higher, and the federal budget deficit, already above a trillion dollars, will soar.
Here’s what ECRI’s recession call really says: if you think this is a bad economy, you haven’t seen anything yet. And that has profound implications for both Main Street and Wall Street.
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