Monday, December 24, 2007

The Arrows of Outrageous Fortune Miss Target

Target warns December sales may decline
SAN FRANCISCO (MarketWatch) - Target Corp. warned on Monday that December sales at stores open at least one year were running well below its previous forecast and may actually decline, jeopardizing earnings growth at the No. 2 U.S. retailer.

The warning, among the earliest assessments of holiday retail traffic, fuels fears that the U.S. consumer is starting to feel the pinch of a slower economy, higher prices and a much tighter credit market.

William Shakespeare
To be or not to be, that is the question;
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing, end them. Consistency


Anonymous said...

"Mark it, nuncle:
Have more than thou showest,
Speak less than thou knowest,
Lend less than thou owest,

The Fool - King Lear

Be safe Mark and Happy holidays to you & your loved ones

Stagflationary Mark said...

Abby Normal,

Perhaps the Fed should play classic tragedies during their meetings.
When you lose control and you got no soul it's tragedy.

Happy Holidays to you as well! :)

Anonymous said...


The inflation/deflation debate is usually not made on an apples to apples basis.

From Mish's point of view, it is a money supply issue. From your point of view, its a CPI issue. These are not the same measures.

It is clearly possible, and has been the case globally, that money creation can flow into stocks, bonds and real estate and not CPI goods. This is a Goldilocks scenario for central banks and big spending politicians. It is also directly hinged to global wage arbitrage.

I still see no barganing power for domestic wage earners. Same with rents, a large part of CPI. IMO, CPI inflation in the U.S. will come from abroad. Just look at oil.

The FED claims to focus mainly on the CPI, but the truth is more complicated. When Greenspan was concerned about deflation after the dot-com bust, he was talking about asset deflation as the CPI was rising at the time. Even during Japan's alledged deflation, CPI never really declined.

When push comes to shove, the FED will let CPI rise to prevent a decline in stocks, bonds and real estate. This all makes TIPS and commodities attractive, but only on a relative basis.

There is no bunker to hide in here. Defense is offense.

Stagflationary Mark said...


Perhaps Mish can point out the deflation in the following chart to me.

Since he's so convinced that gold is a "monetary" deflation hedge, then why has gold done so well over the past 50 years? That's my first argument using his definition. I've got one more using my definition (from an "inflated" prices standpoint).

Mish is missing the most important part of the deflation vs. inflation debate in my opinion. In the 1970s real interest rates were negative. In the 1980s and 1990s real interest rates were positive. He believes that gold was not a hedge against the inflation of the 1980s and 1990s so therefore it is not an inflation hedge at all. That is some seriously messed up analysis in my opinion.

He keeps talking of gold being a deflation hedge. I don't believe it for a minute. It is a negative real interest rate hedge. When real interest rates are negative, we are all encouraged to hoard. Gold is the most easily hoarded substance on the planet. There was no reason to hoard during the "prosperous" 1980s and 1990s. Lately, with real interest rates so low (and dipping into negative territory from time to time), there's been ample reason to hoard.

Put another way, and from my point of view, if CPI inflation was 10% but interest rates were 20% I'd be more than happy not to hoard gold. If CPI inflation was 10% but interest rates were 0% I would be hoarding gold in a major way. If CPI inflation hits Zimbabwe levels I'd be asking Mish if he's rethinking his gold is not an inflation hedge mindset, lol.

Since I'm a believer in the notion that real interest rates are headed even lower from these already low levels (and could quite possibly turn negative), I'm also a believer in locking in real yields (using TIPS) and locking in the price of future needs (canned goods, sheets, towels, socks, laundry detergent, toilet paper, paper towels, and so on).

Hey, just opinions of course.

Anonymous said...


I picked an old post as the inflation/deflation debate is so contentious.

I do agree that REAL yields are the key. I also think that they have already all but disappeared for me, especially on an after tax basis.

A while back you mentioned that you were bearish and expected inflation adjusted net worth to decline. Unfortunately, I'm even more bearish. I believe even nominal net worth will decline.

For me, a major asset allocation move would cause an immediate tax hit. This is a REAL hit, regardless of national income accounting. And after the tax hit, I would still be left as unsure as ever as to how to protect my nut.

I'm staring a decrease in REAL wealth right in the face. For me thats deflation. Unfortunately, it will be caused in large part by rising inflation.

I own a house (or at least a mortgage obligation) and its decreasing in value while the attendant cost increase. Not good.

I own stocks and I can only see them decreasing in value. Not good.

I own bonds which have been increasing in value, but I think higher future inflation will change that in due time. Not good.

Everything seems to work during periods of falling inflation. Nothing seems to work during periods of rising inflation.

I was hopeful that our foreign creditors would force the FED to give a positive real return, but this too appears unlikely. Foreign central banks have no tax hurdles so their hurdle is lower. They seem to offer negative real yields too. Just think China.

I thought of defering my assets to Berkshire, but the recent run up and age factor of Warren and Charlie bug me.

What a big bummer.

Stagflationary Mark said...


I was hopeful that our foreign creditors would force the FED to give a positive real return, but this too appears unlikely. Foreign central banks have no tax hurdles so their hurdle is lower. They seem to offer negative real yields too. Just think China.

There is no excuse for negative real yields if an economy is truly prosperous.

Everything seems to work during periods of falling inflation. Nothing seems to work during periods of rising inflation.

Let's just hope the inflation tapeworm isn't from Dune and can be contained better than the subprime mess was.

Stilgar do we have worm sign? Usul, we have worm sign the likes of which even God has never seen. - Dune, 1984

Ben Stein has some advice today to help you decide where not to put the proceeds.

Don't Buy the Panic

As a value investor I somewhat disagree. Panic still looks relatively cheap to me, lol.

Anonymous said...


Mixing Buffet and Herbert? Never thought I would see that.

"The slow blade penetrates the shield" (Duncan Idaho, House Atreides, Dune 1965, Frank Herbert).

That book confused me as much as our economy. Maybe spice is a metaphor for money, gold or liquidity.

BTW, Herbert is from your neck of the woods.

Anonymous said...

"There is no excuse for negative yields if an economy is truly prosperous."

Every time I see Bush, Bernanke, Paulson, Kudlowetc. wax on about how strong the economy is or how housing is contained I thinbk of Billy Shakespeare:

thou "dost protest to much"

Anonymous said...


That article by Ben Stein is so typical.

But like OMG, stocks always go up. Its always a good time to buy, just ask my broker.

He sounds just like David Lereah: Its always a good time to pay a commission. Tripe!

No consideration or context about time frames, current valuations, or the numerous decades where stocks returned bupkiss.

Besides valuations, the lack of significant dividends and the propensity of management to dilute share holders make stocks even less investor friendly.

Let me try and dig up some data I had years ago on the historical returns from U.S. stocks going back well into the 19th century. Shocking to say the least.

Stagflationary Mark said...


Qwest just raised their rates on my landline.

Caller ID went from $5.95 to $7.50. That's a 26% increase.

The residential line went from $12.50 to $13.50. That's an 8% increase.

To add insult to injury, they also retroactively increased my December bill and included that charge as well on my January bill.

Greed got the better of them it seems and in my opinion it was a VERY stupid thing to do. Qwest stock is sitting at $6.53, roughly 10% of what it was back in 2000.

Stupid is as stupid does. - Forrest Gump

1. It makes their rate hike look twice as bad (especially for those who don't read/understand the fine print).
2. I am now sufficiently motivated to add myself to my girlfriend's cell phone plan and drop my landline completely. It will actually be cheaper to lose the cord.

Goodbye Qwest, nice knowin' ya.

As a side note, two gallons of gasoline no longer buys a month's landline caller ID service. Apparently inflation is not "contained" to oil.

Anonymous said...


Things to consider along with the Ben Stein/wall street buy buy buy mantra.

Dow Jones Industrial Average Prices:

Jan. 1900: 66
Jan. 1920: 72

Twenty years with 0.4% annualized gains.

high 1929: 386
low 1955: 386

Twenty six years with 0.0% annual gains.

Jan. 1965: 912
Jan. 1982: 887

Seventeen years with 0% annualized gains.

Jan. 2000: 11,900
Jan. 2008: 12,850

Eight years with 1.0% annualized gains.

Lets see here. Thats 20yrs + 26yrs + 17yrs + 8yrs = 71yrs total or 71/108 = 66% of the time the safe, steady, blue chip DOW has no price appreciation. Worse yet, for long periods of the time during those 71 years you were probably underwater on your investments. Did you hold on, invest more, need the money for an emergency, sell in a panic???

Admittedly, the above does not include any dividends. But, it also doesn't include any fees, commissions, taxes or INFLATION either.

Now Ben, since we seem to be a casino society, let me bring up monte carlo, and I don't mean that trendy enclave for the true owners of stocks either.

The monte carlo I'm refering to deals with simulations, game theory and the law of averages. Or more accuarately, the FLAW of averages. The 10% annual returns from the DOW that the media refers to are fine if you live to be 125 years old with no current needs. But for most, that is sadly not the case.

A greens keeper I know said that there is no average weather, we live in the extremes. SO true.
And so it is with investing. When you need your money for unexpected expenses, job loss or retirement and you get caught in a multi year bear market you are what experts call SOL.

Drawing down on declining investments while incurring taxes and inflation leads many to deplete their nest eggs far sooner than the averages would imply.

This, I fear, will be the fate of the baby boomers who saved too little and then drank the koolaide from wall street of higher returns from stocks.

But hey, Ben, you were born in
1944, two years before the baby boomer generation. Maybe the boomers will buy you out at the top.

We live in the EXTREMES.

Anonymous said...


Clearly, it is not always a good time to buy stocks. More than half the time it seems.

Its 65 degrees F here in the NYC area. Global warming maybe. The next great investment idea no doubt.

Time to turn lemons into lemonade. I'm off to embarrass myself with some funny looking sticks and a dimpled white ball. That greens keeper I know is chock full of wisdom.

"I'd like to play pro-forma golf" Warren Buffet, when refering to pro-forma earnings.

Sounds like good advice. I'm bringing Mr. Mulligan.

Stagflationary Mark said...

Drawing down on declining investments while incurring taxes and inflation leads many to deplete their nest eggs far sooner than the averages would imply.

What could possibly go wrong? If EVERYONE assumes they'll be getting 6% returns after inflation and fees, and EVERYONE does indeed get 6% returns after inflation and fees, then EVERYONE will be okay if it happens.

In completely unrelated news, Capital One Financial was down another 8% today on nearly double normal volume, hitting yet a new 52-week low.

Anonymous said...

EVERYONE, permanently anchored, completely unrelated.

I always forget the important parts.