Wednesday, September 19, 2007


Here's a story from 1981.

But what a bubble it was. In the 10 years from 1970 to 1980, the price of the average house in Beverly Hills went up by a factor of almost seven. The average house in West Los Angeles, a region of by no means opulent homes, rose by almost six times. Houses in Malibu routinely doubled in value every year in the late 70's. By the end of the decade, newspapers advertisted ''starter houses,'' for families who had never owned before, in remote desert suburbs starting at $200,000.

Oil prices also peaked in 1981.

Precious metals peaked around then too.

Commodity Prices have generally been tame for the past few years. Have they run their course? If they are tame, then why are we SO worried?

Greenspan is now officially on my side of the boat when it comes to inflation (NOT a comfortable feeling since I happen to believe he's a rear window watching kind of guy, lol).

It is enough to make me wonder.

The key is oil in my opinion. Where is it going next? In the 1970s I probably would have been right there with everyone else thinking the world was running out. I would have made a big mistake clearly. I'd like to learn from a mistake I would have made rather than simply duplicate it. Go figure. I'm tempted to think we're running out oil these days, but are we really? I just don't know. What if oil is just in the same bubble that housing is/was? Cheap and easy credit can cause great distortions.

A lot of people (bears) are expecting far higher interest rates. That's what we eventually saw in the 1970s. However, we're SO much more leveraged now. I've felt all along that interest rates were already high enough to cause serious pain. Maybe 5.25% was a Volcker like move? It is something to think about.

In any event, I'm sitting mostly in TIPS. My goal is not to make money but simply hold onto what I have. If it is like 1981, then I'll be doing better than I feared. The 1980s weren't all that bad (and were a great improvement over the 1970s).

And lastly, even if it is 1981 we aren't out of the woods. It does not make me bullish on our economy. There was a recession from July of 1981 to November of 1982 (
National Bureau of Economic Research, Inc.). The stock market didn't care for it one bit. It has been a relatively long time since the stock market had something it didn't care for. Perhaps that something is overdue.

Just my 2 cents (not even adjusted for inflation).


Anonymous said...


Sui, sui sui sui. Here pig pig pig! I am de slopmaster and don't you forgit it! Shock and awe. Rummy surrogate fed head.
Bernanke is the wizard of oz and will do anything to keep people on the right side of the curtain.

Daddy's here! It's OK honey.

Seriously, dude, there's no fate worse than being perceived as impotent. As Mae West put it, "It's better to looked over than overlooked."

If Bernanke had held steady he would have been pilloried. If he had dropped a quarter he would have been perceived as weak and behind the curve. So he dropped a bomb to show the market that the Fed has clout.

Am I missing something?

Anonymous said...

Hi Mark,
First of all, my compliments for your fantastic blog! Facts in a new context, common sense, and dry humor. You (and Tanta) should consider to run for president ;-) Or, if that's a bit too much, consider writing/sending your stuff to the WSJ.

On your remarks on the oil price run up: oil is NOT the only source of energy, so this should cap future rises. So I agree with your cautious stance on future oil prices ... For example: me myself, living in Holland, will be installing a warm water conveyor (? I think that's what it's called) on the roof here. Internal rate of return 5%, with current energy prices. With a little help from the government (25% of paid price) who get the money from raising taxes on flights. Nice I'd say!. Good soundbites + doing 2 things for the environment.
Makes me more independant as well ..

And for gold ...... me myself never invested in it because I dont believe it: normal people don't need gold, apart from a necklace or two. So it is pure speculation that other people will come after you to pay you a higher price ...... For someone with a natural position in Euro's, one would't have earned much on it anyway, especially when you take interest earned on the money into account (a thing few comentators do as far as I can tell).


Stagflationary Mark said...

anonymous #1,

I can certainly understand where you are coming from and my initial reaction was right there with you.

However, it is possible that housing is even worse than I thought it was. The housing component of the CPI was actually flat (that says a lot to me).

While the stock market gleefully accepts the move, it is also possible that a recession is already underway and we just don't know it yet.

Therefore, it is possible that the 50 basis point drop wasn't lack of willpower, but sheer unadulterated panic.

Bernanke's move was either a cowardly act (by caving), a brave act (by aggressively moving, a cowardly act (by panicking), or a brave act (by asking for helicopter heckles).

Who really knows!

Stagflationary Mark said...

Hi Rik,

Thank you for your kind words!

I was joking to my tax preparer last year and she suggested I run for president. I said there is no way that would work. I'm the same personality type (according to Myers-Briggs, INTJ) that Donald Rumsfeld is. Everyone in the office immediately told me to remain a hermit. Hahaha!!!

I did own gold and silver for a while, when all hope seemed lost (from 2004 to 2006 when interest rates were unbearably low and while watching hard assets inflate). It was the only time though and I hope I never have to repeat it. It certainly is speculative. Further, like you point out I have no idea why people don't think real interest rates seem to matter. It's always an inflation/deflation debate. It doesn't seem to make any sense to me. I'd certainly own gold if interest rates were 10% and inflation was 10,000%. Similarly, I would not own gold if interest rates were 10,000% and inflation was 10%. Is that really rocket science? ;)

As for energy, I'm using less electricity. Many of the bulbs are fluorescent now. The higher price of gas is seeing me drive less. My girlfriend uses a van pool more often than not these days (instead of driving solo). Heck, even electric powered throws and sweaters work to some degree in the winter. Who knew?

And lastly, I can't write for others if only because I enjoy heckling. I need someone else to work off of. Clearly I could heckle myself and often do, but it would be my hope that I wouldn't make it a daily routine, lol.