Saturday, November 14, 2009

10 Year TIPS vs. I-Bond Rates



It was requested (by AllanF) that I do a regression analysis to estimate the formula used to generate I-Bond rates. This is my attempt. The four data points in the "Post-Crisis" box just happen to be the most recent four data points (starting on 5/1/2008). Go figure.

As can be seen in the chart, there actually seems to be two formulas. One formula is used when there isn't a crisis. Picture moving that red trend line through the points in the blue box.

The other formula is used once the crisis begins. Picture moving that red trend line through the points in the yellow box. As I am quite possibly the first to discover the secret secondary formula, I think I shall name it STS (Screw The Savers).


Using a crude back of eyeball calculation, it looks like the STS can scrape about one full percentage point off of I-Bond yields once an economic crisis develops, all things being equal. All it takes is the wave of the pen by the government when it decides what I-Bond rates should be. Fortunately, TIPS rates are mostly determined by the bond market. The government clearly doesn't have quite as much control over those.

The four points in the yellow box also share one other trait. Once the crisis began, the government limited the amount of I-Bonds we can buy in a year from $30,000 to $5,000 (double that if bought in paper and electronic forms). Talk about overkill.


Source Data:
FRB: Selected Interest Rates
I-Bond Rates

33 comments:

  1. Wow, is it wrong of me to be so impressed? Not with the chart (though it is a nice chart), with the bimodal correlation.

    I'm curious though... regarding the 1% clip, was there a phone call made from the Fed to the Treas, or was there some indicator light that automatically flashed red prompting some undersecretary that sits way out in Maryland to issue the new rate sheet. I'd lean towards the latter except the $30k to $5k cut was just too convenient, and I think something that large relative to itself had to have come from some one off the civil service pay grade chart.

    It's stuff like this that makes me want to buy gold.

    ReplyDelete
  2. AllanF,

    "Wow, is it wrong of me to be so impressed?"

    Yes. The Yahoo message board for TIP once loved me, now hates me. It would seem my insight is truly awful these days. I'm not exactly sure what prompted it, but I somehow developed a very negative anti-fan base. I suspect they think I'm just another know-it-all rich snob. I actually feel I know next to nothing though, which apparently is good enough these days. Knowing you know so little means you won't actually invest in things you don't know (dotcom stocks, real estate at the peak, oil@$147, Madoff, and/or my pesonal favorites... mysterious structured invesment vehicles, collateralized debt obligations, and derivatives).

    "It's stuff like this that makes me want to buy gold."

    Gold sure does seem to be pricing in the stagflationary 1970s, a time of extremely low inflation adjusted interest rates. Have no fear though. (Hint: Brace for sarcasm.)

    http://www.treasurydirect.gov/news/pressroom/pressroom_reducedpurchaselimit.htm

    "The reduction from the $30,000 annual limit in effect for both series since 2003 was made to refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest."

    I-Bonds were refocused, that's all. It's just a coincidence. It would be completely inconceivable that we could ever return to the stagflationary 1970s, a period of high inflation and high unemployment.

    "The limit was last set at $5,000 (issue price) in 1973."

    1973? Coincidence I tell you! Inconceivable! ;)

    ReplyDelete
  3. Here's the post that earned me my first 1 star ("awful") rating on Yahoo. 4 people voted.

    http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_I/threadview?m=tm&bn=72746&tid=2076&mid=2095&tof=5&frt=2

    "However, I just feel, you know, better, having taken profits.When anything is up over 15%/annum, I get nervous and jerky, and tend to take a bit off the table."

    Nothing wrong with that mindset. Certainly beats the "buy it just because it went up" momentum mindset in my opinion.

    Let's sum this up using nothing but hindsight to make the call. That way we don't need to be psychic going forward.

    1. If you don't mind trading, there were far worse times to sell than right now. Few ever went broke taking profits.

    2. For long-term buy and hold types such as myself, TIPS have done very well over the last decade compared to both riskier assets such as stocks AND supposedly safer assets such as cash, even when factoring in TWO stock market crashes AND a housing market crash. Hindsight is hardly beating me up.

    In other words, perhaps both strategies are perfectly rational going forward. It may just come down to timing, pain tolerance, and/or patience. I don't want to try and time the next down leg, I don't panic easy if pain does appear, and I have the resources to be patient.

    My last big purchase was a 20-Year TIPS several years ago. I will be holding until it matures. I could care less what the market thinks it is worth on any given day. I'll be earning interest every year regardless. Although I have inflation protection, my real purchasing power would do best during deflation. There would be far less taxes.

    20-Year TIPS yields are still decent by the way. I think there's still value there. I don't think the market is nearly as bearish as I am long-term, at least not yet.

    ReplyDelete
  4. Mark said:

    "Here's the post that earned me my first 1 star ("awful") rating on Yahoo. 4 people voted."

    What do you want to bet that those 4 people don't have their toilet paper hoard put back yet? : )

    ReplyDelete
  5. watchtower,

    Hahaha! I won't take the other side of that bet!

    I swear, the wool needs only appear in the room and the eyes of investors gravitate to it.

    What do you want to bet that they think I'm a nutcase for owning TIPS and hoping for deflation?

    If they think a little inflation is good for TIPS, then hyperinflation must be awesome for TIPS! Can't wait to earn 10,002% on my investments if inflation hits 10,000%! Just think of the bragging rights as I send the IRS a check representing one-third of my nest egg, per year, just to pay the taxes! Woohoo!

    I do love sarcasm.

    ReplyDelete
  6. Never mind. At least the reduction from $30,000 to $5000 means that they still exoect to repay them on maturity. You should start to worry if they begin to let you buy $100,000 worth; they'd mean to repudiate those.

    ReplyDelete
  7. Yeah, I remember reading that release when it first was issued by the politburo. The ridiculous part is that $5000 in 1973 is closer to the equivalent of $20-30k today.

    In inflation adjusted terms, they would have lowered the limit in 1973 to $1000 to be equivalent with what they did in 2007. Though to be fair you could double that since they didn't have electronic bonds in 1973.

    Regardless it is a bald-faced theft from savers. The question really becomes do they execute their theft perfectly and have "manageable" inflation (Krugman's approach), or do they screw-up and under/overshoot such that we get either Depression-era type deflation or run-away inflation?

    ReplyDelete
  8. my first 1 star ("awful") rating on Yahoo

    I'm shocked, SHOCKED, to find that there's will-full stupidity going in here.

    http://www.youtube.com/watch?v=nw-Xgpulf64

    ReplyDelete
  9. In inflation adjusted terms, they would have lowered the limit in 1973 to $1000 to be equivalent with what they did in 2007. Though to be fair you could double that since they didn't have electronic bonds in 1973.

    Ugh, not sure that made sense. Let me try again...

    In inflation adjusted terms, they already had us at the 1973 limit and then lowered it to $1000.

    ReplyDelete
  10. dearieme,

    I thought the same thing when I saw it. It actually made me feel pretty darned good about all those previous I-Bonds I still own.

    AllanF,

    "The question really becomes do they execute their theft perfectly and have "manageable" inflation (Krugman's approach), or do they screw-up and under/overshoot such that we get either Depression-era type deflation or run-away inflation?"

    "Age of Turbulence" - Alan Greenspan

    As a side note, I am also very thankful for the quality of comments that are posted here. I always look forward to seeing what erveryone will post next.

    I'll be spending the evening watching 2012 with some friends. I need an escape from reality and think a disaster movie of epic proportions just might take my mind off of our country's ongoing economic disaster of biblical proportions. Call me an optimist! ;)

    ReplyDelete
  11. I agree with dearieme:
    "Never mind. At least the reduction from $30,000 to $5000 means that they still expect to repay them on maturity. You should start to worry if they begin to let you buy $100,000 worth; they'd mean to repudiate those."

    Absolutly the case.

    ReplyDelete
  12. At least the reduction from $30,000 to $5000 means that they still expect to repay them on maturity.

    Unless, they know that's what we'd think. I call it the STS I-bond gambit. ;-)

    ReplyDelete
  13. I am thinking of that scene in the film the Prncess Bride.

    ReplyDelete
  14. Stag,

    While you are hoarding TP, China is hoarding cities! No joke:

    http://www.youtube.com/watch?v=0h7V3Twb-Qk&feature=player_embedded

    If you build it, the mal-investors will come.

    How long can the current global, financial pretense last?

    ReplyDelete
  15. mab,

    "While you are hoarding TP, China is hoarding cities!"

    2012 spoiler alert. Read the following at own risk.

    Modern day Noah's Arks intended to save the human species were Made in China. It wasn't really possible to rescue middle class working families in USA though. Picture the original Noah's Ark. Couldn't actually travel until the flooding.

    Definitely an escape from reality. We all know China will rescue us. We just need them to grow. I think once every person on the planet is driving an SUV there might be a small reason to worry about future growth, but we're not there yet!

    Wake me when we get there. Until then I shall continue to read...

    A Locust's Guide to Unsustainable Growth and Exponential Prosperity, Volume MMXII

    Great book. Packed with optimism! I especially enjoyed the Gorging on Crude Oil chapter. I had no idea just how good it could feel. A close second was the The Hypocrisy of Burning Coal to Power Eco-Friendly Electric Cars chapter.

    ReplyDelete
  16. Everyone,

    You really need to watch the video that mab just posted. Wow!

    There was an "expert" on Bloomberg the other day who told us just how impressive China's GDP numbers are and how it is all real. He can see the skyscrapers pop up all around him. He's never seen anything like it. (He looked to be American but said he lived in China.)

    I very much thought he was confusing economic activity with stable prosperity. There was VAST economic activity heading into OUR Great Depression (and we too were becoming the manufacturing superpower). We know how that worked out. Further, we NEVER did what was in mab's video. That's just insane. Our free market system had at least some checks and balances.

    You will not see me invest in China. I've been bearish on them since I turned bearish in general (2004). Commodity bulls Rogers and Schiff love China though. They were certainly both wrong once so far. There's at least a decent chance they are wrong again.

    There seems to be 3 types of bears.

    1. Anti-dollar (inflationists).
    2. Pro-dollar (deflationists).
    3. Anti-prosperity.

    I find myself mostly in that third camp. I'm sitting in TIPS. I'm pro-dollar enough to be in dollar denominated paper assets (as toxic as our situation is, it isn't like I'm moving to another country). I'm anti-dollar enough to want the inflation protection though.

    One more thought about Peter Schiff's theories. He claims the USA won't pay China what we owe them, either through default or through inflation. Let's say that is true (which actually seems very likely to me at some point in the future if we stay on our current path). Could someone explain to me why I should be bullish on China then? I certainly wasn't bullish on Citigroup when I thought their customers would default.

    ReplyDelete
  17. "as toxic as our situation is, it isn't like I'm moving to another country"

    Exactly! And that's what drives us all to hedge against our own rotten currencies that we're forced to swallow willy-nilly (& that's why being out of gold could be dangerous to your wealth)

    I think I'm mainly in camp 1 and partially in 3, but only as it applies to the developed world. I've read a fair bit about China and I'm sure they've got their problems but feel (from the little I know) that they're more likely to overcome them in say the next 5 years than "we" in the developed economies are.

    As an aside on TIPS (& just like other things) can the index on which they're based not be manipulated to the holder's disadvantage?

    ReplyDelete
  18. Stag,

    Great book. Packed with optimism!

    Here's an optimistic report on Chinese (un)real estate:

    http://documents.scribd.com/docs/dzixr9rk6a7nbgg.pdf?t=1255682546

    Despite my panglossian outlook, I can't seem to shake this nagging feeling that basing an eCONomy on real estate that people can't afford is a bad idea. It feels like deja vu all over again.

    ReplyDelete
  19. mab,

    I'm inspired to do another post on income inequality and why it really, really matters.

    I'll be posting it shortly. This time I will be offering a concrete example of an economy with just three people in it and not just a long rant using theoretical mumbo-jumbo [loans].

    ReplyDelete
  20. Stevie b.,

    I think I now see our fundamental differences more clearly. I am more bearish on China than the USA. You are the other way around. This seemingly minor detail has huge implications on how we try to protect ourselves.

    I said from the very start that being a bear is SO much harder than being a bull.

    If one is a bull all that is needed is a stock index fund and a pillow, lol.

    If one is a bear, there are still many more decisions to make and most contradict each other! Hoard cash? Dump cash? Hoard then dump? Dump then hoard? Dump, hoard, then dump again? Hoard, dump, then hoard again? Hoard oil at $11, dump at $140, hoard at $35, dump at _____? Dizzying!

    I would argue that ALL assets can and are manipulated to the typical holder's disadvantage. I would agree that TIPS are no exception. That's true of cash, stocks, bonds, gold, real estate, oil, copper cement, futures, and so on too though. The media manipulates us every time a particular asset is mentioned, whether they intend to or not.

    People are certainly being manipulated in the many gold TV ads these days. So far those who owng gold (such as yourself) are doing extremely well. My hat is off to you. Congrats! Just do keep in mind that past performance may not indicate future returns. All things being equal, parabolic commodity rises eventually end in tears.

    ReplyDelete
  21. Mark - it would be ruddy boring if we had no differences!

    Being a bull is terribly tedious and I agree that being a bear is much more of a challenge, as is knowing when to stop being bearish - something I have been singularly bad at! I am not so much bullish on China as more bullish on the developing economies in general. They will be our salvation eventually, and we need that "eventually" to allow e.g. alternative energy technologies to come into their own so that we are not screwed economically by oil as soon as there is any sign of global recovery.

    I think maybe you (& I) are getting gold a tad out of perspective. As I think I said on my 1st comment on your fascinating blog, I hope gold goes to ZERO! It represents less than 10% of my investible assets and I have much more interesting assets as back-up that involve a pleasurable multi-decade dedication of specialist knowledge-gathering to help hedge against my rotten native currency. If gold tanks, some of my other assets may well do the same, but the value of the pension I hope to get -which hopefully will still have proven to be a good deal- should balance things out. In essence, it is all about ones perception of balance, and I do still feel I would be disgustingly naked without the comfort(-blanket perhaps) that gold gives in these perilous times.

    Thanks for your congrats, but I never seek approval or pat myself on the back over anything. When I get complacent, I will lose. So far and like you perhaps, by luck and a seriously tiny bit of good judgement I seem to have made more right than wrong decisions, but maybe some meaningful decision I made is just about to prove I am a complete dork. Being alert as to when to admit one has been wrong is vital - and i just wonder whether you feel you are a tad too wedded to e.g. t-p, which is why I asked on the other thread what might change your mind and I was tempted to ask "when" to try and give you less wriggle-room, but asking you to put a time-limit on t-p investment may well be a tad unreasonable...

    ReplyDelete
  22. Stevie b.,

    I love debating people who disagree with me, as long as it is friendly and sincere, which this clearly is.

    Our differences gap continues to close, as we learn more from each other. I am especially drawn to your risk management way of thinking about investment balance.

    When I worked as a programmer, I made it a point to underinvest in technology. I did not want all my eggs in one basket. That mindset really reduced my risk, which was especially true when the Nasdaq imploded. I was bearish on dotcoms, but I was overly bullish on tech in general. What really saved me money was risk management.

    When I quit my job, I gave up some stock options that would have been worth roughly three months pay had I stayed just another six months. I was miserable though. Risk management saved me there too. By not having a job, my investments immediately turned more conservative. My last purchases were Puget Sound Energy and Caterpillar (both in 2000 if memory serves). I didn't expect Caterpillar to double. All I wanted was safety.

    My gold and silver investments were similar. I put a third there and only wanted an inflation hedge. It did too well for my comfort. When it started to affect my sleep as they turned parabolic in 2006, I sold. The profits allow me to "risk" being even more conservatve with my investments now. I can handle a net1% loss per year in investments long-term (I'm frugal).

    Now I just have one simple goal. If I am destined to be financially ruined, then I'd prefer not to be first. In other words, if TIPS financially ruin me then heaven help everyone else.

    Gold at less than 10%? Why am I even debating you? I can't heckle that! You should be heckling me. My "hoard" of stuff (TP, etc.) is less than 1%. That means 99% is at risk if Zimbabwe starts to heckle us. ;)

    ReplyDelete
  23. "I love debating people who disagree with me, as long as it is friendly and sincere, which this clearly is."

    Could have written that myself.

    "You should be heckling me. My "hoard" of stuff (TP, etc.) is less than 1%."

    Well that does put a different perspective on things, but I guess here at least the principle's still at stake...But now I understand that you're not sitting on a mountain of t-p, whether to lighten up on a roll or 2 (other than through the natural course of events) is certainly not giving you sleepless nights and whether to add to your hoard the cheapest way possible is hopefully not giving you constipation!

    I also now better understand your TIPS rationale, and reading between the lines assume a fair wedge of dosh as a %age of your overall assets is involved, and I guess it does seem relatively (underlined) riskless, but still think you could possibly be left behind re the relative price of stuff I posted previously on -the cone of turbulence-. TIPS may just be your comfort blanket, precluding you from thinking outside the box perhaps...if at some point (soon let's say) the "net loss of 1% a year" that you can handle grows unexpectedly, how have you prepared for that/hedged against it/balanced it?

    I don't mean to lecture, but to play the devil's advocate and as someone 20 years your senior, for all I know just maybe you didn't retire with enough - I certainly was hugely tempted to drop-out many times in my life. I sort-of did eventually but I'm really glad I didn't do it earlier cos now my modest life-style allows me a fair amount of latitude well in excess of a 1% annual setback...for the time being anyway. A net loss of 1% a year is an awfully tight margin of maximum error for a young whippersnapper of 45ish.

    By way of analogy, someone near and dear to me once thought he'd cracked this investment stuff. Buy a few blue-chips and add to them in bear markets. The bear market was bigger than he thought, he couldn't add enough and couldn't wait to sell bits cos he needed to live and his (basic) living costs exceeded his expectations - and the blue-chips weren't quite as blue as he thought. He anticipated none of this. It wasn't a pretty picture.

    ReplyDelete
  24. Stevie b.,

    I absolutely know where you are coming from and I honestly do appreciate your input. A friend made a LOT more money than me on the investment that retired me. From what I hear, it's all gone now. Easy come, easy go. Sad story. Further, you make some great points. It was my plan to work a bit longer. Not much. Just a bit.

    I should be fine long-term but there are certainly no guarantees in life no matter what I do. I retired in 1999 and so far I've managed to avoid more than my fair share of the pain. I'm at least as well off as I was then and in theory now have 10 fewer years to live.

    I spent less than 2% of my total net worth last year (not counting income tax), and that even counts helping my girlfriend out now that she's on unemployment. I am really frugal. I can count the number of times I've eaten out in the last year on one hand. It comes from growing up in a small farming community. The best things in life really are free.

    In theory, even if I earn -2% on my investments (after taxes and adjusted for inflation), I should still have some money left at 78 (my life expectancy). I track every penny I spend and also project my expenses forward in Excel.

    I also worked just long enough to qualify for Social Security. I'm not counting on any of it in my calculations but you never know.

    I also live in a nicer home in the Seattle area that's on 1/3rd acre and completely paid off. I replaced the roof a few years ago so that shouldn't be an issue for many years to come.

    I drive a 1996 Camry with less than 80k miles on it. Still feels new. Plan to drive it into the ground and am currently doing so at a 3k miles per year rate. No idea what my next car will be. Would not find it a hardship to downsize.

    I require very few luxuries to be happy. Hand me a used book and point me towards the hammock if times turn really tough.

    My big risks are on the expense side, and they are big. Although I am reasonably healthy, I cannot get health insurance. I had a chalazions in my right eye lid (basically acne). They were minor and are no longer an issue. However, it was considered an eye infection and really hurt my scoring. I am choosing to self-insure rather than pay big in the high risk pool for lousy coverage. I cannot afford a million dollar problem. I can afford the bill, but not the aftermath I should say. I would have enough left to last quite a while though, so I'd still have plenty of options.

    The other risk is my girlfriend's financial situation. She's unemployed and has a variety of health issues. She's back in school and doing well. In theory, she will have a career that pays well in the health care field when she gets out. The government is paying for most of it as worker retraining.

    I therefore keep track of two what-if scenarios. What if I do have to help my girlfriend because she needs it and what if she doesn't need it. I'm basing my comments above on having to permanently help her to some degree, but not fully support her. She needs a job eventually or I will.

    Worst case is how I lean when I plan things. It sounds bad but it is just the opposite. Life is full of pleasant surprises that way, which is way better than unforeseen disasters.

    ReplyDelete
  25. One more thought.

    "TIPS may just be your comfort blanket, precluding you from thinking outside the box perhaps..."

    I think you can see in my most recent post that we can rule that out to some degree. I just ****ed on some of my comfort blanket! ;)

    ReplyDelete
  26. Mark - well sounds that we're kinda similar & clearly you've thought it all through comprehensively.
    In fact the "2% of your net worth annual spend" is an interesting way of looking at it and I guess I'm at 2 1/2% but of course 20 years further on and fortunate enough to still be able to afford private health insurance... for now. And life-expectancy is growing all the time....so for you something like 88 may be the new 78.

    I'd just add that if you're really frugal now, it doesn't sound as if there would be a lot to cut if things got tough, although perhaps you could put your 1/3 acre to more productive use if you're not doing so already. If it's going to take say 5 years minimum for a sniff of enduring better economic times, i guess you've still got time to continue to cogitate and realise (as you do of course given e.g. the health insurance situation) that if possible and despite your girlfriend's prospects, perhaps some sort of part-time work might be neccessary before you're too old to even be considered.

    Nice chatting!

    ReplyDelete
  27. Stevie b.,

    "I'd just add that if you're really frugal now, it doesn't sound as if there would be a lot to cut if things got tough..."

    You are one smart cookie!

    Times are tough though. I have to think that my girlfriend will be employed again at some point (she's smart and currently competing with kids in school that don't know hard times). If that was the case, I could cut close to 50%. The spending to support only myself last year was about 1% of my net worth.

    Further, I am still making some money even in this environment (adjusted for inflation).

    "...perhaps some sort of part-time work might be neccessary before you're too old to even be considered."

    It is certainly something I think about. I'm not there yet though.

    I do not think I can beat the market long-term but so far I've either been VERY lucky or at least somewhat skillful. It's possible that might continue. I was 80% in the stock market (about 20 stocks picked by me) through the dotcom crash. I did sell them for a decent profit in 2004. Had I held them until today I'd have done even better. One did almost as good as the investment that retired me. Bought Hansen (HANS) when nobody else wanted it. Their Monster Energy Drink sent them into the stratosphere. Sold it WAY too early. Even absent that investment, I still would have done better than most over the crash. I bought unloved stocks.

    Further, I did heckle the dotcom bubble, the real estate bubble, the second stock bubble, and the Chinese stock bubble when most were bullish. I also managed to get over 20% of my investments into "safer" I-Bonds at much higher rates before the government closed that barn door.

    In August of 2007 the cracks in the banking system were really expanding. No idea why most couldn't see it. It prompted me to start this blog.

    I say all of this because it is possible that I already have a job. I spend a decent amount of time just trying to keep my nest egg out of harm's way. If taking on a low paying part time job took time away from that, the job could actually cost me money. In theory, of course. I'm really not trying to suggest I think I am smarter than the markets though. I think that's how a lot of people lose money.

    ReplyDelete
  28. "I'm really not trying to suggest I think I am smarter than the markets though. I think that's how a lot of people lose money."

    BINGO!!

    ..and 1% p.a. just for you [given your girlfriend's potential] makes me think I'm not as smart a cookie as you are!

    ReplyDelete
  29. Stevie b.,

    Here's what really gets me.

    Day traders see incredibly cheap trading costs every time they make a trade. Why not? They'll make it up because they are so smart. Right?

    I made one trade this year. It cost me roughly 3 hours of minimum wage pay to click the sell button ($18, due to tiny sales fee tied to size of trade). Didn't seem at all cheap to me.

    I don't think in terms of price when I buy things. I think in terms of labor. How many hours would I need to work for "The Man" to pay for that? That goes a LONG way towards explaining my old car. Since I also tend to be worst case...

    How many hours would I need to work for "The Chinese Man" to pay for that? Based on Chinese factory pay, that could someday be a LOT of hours if the world rebalances.

    ReplyDelete
  30. Mark - well based on your last sentence i was going to say damn! - looks like we've got nothing to argue about...

    But....then I thought about the way you price stuff in terms of labour - and I'm not sure about that one. Surely demand is an equal if not greater factor? Let's say some factory takes a long time to produce stuff but no-one really wants it. Too much supply relative to demand surely = poor pricing regardless of time taken.

    ReplyDelete
  31. Stevie b.,

    That's true. My way of looking at hours of pay when I buy things does not factor in shortages and gluts. I rely somewhat on efficient market theory to set prices relatively appropriately. I do try to adjust for that somewhat by avoiding items I feel are overpriced and gravitating to underpriced items. That does presume that I'll know it when I see it though. I also try to factor in future expected prices. It's not like I'm hoarding electronic equipment.

    That said, you've described pricing power problems but you've also described wage problems. In other words, I may not even find a Chinese factory job in your example. That would still make me frugal.

    And lastly, the main reason I think in terms of hours worked is because I know how to value that. In contrast, I could stare at a paper dollar bill for an hour and be utterly stumped when trying to come up with its value. So few even seem to try, especially for the dollars stored in little plastic credit cards. Some seem to think those dollars are free.

    ReplyDelete
  32. This comment has been removed by a blog administrator.

    ReplyDelete