Inflation Isn't InevitableFor anyone who has studied monetary theory, those numbers sound ominous. There's no doubt that inflation is caused by too much money chasing too few goods, and the Fed has certainly created a ton of money.I'm with you so far Mr. Siegel.Japan offers a good example of how much debt a developed country can handle without succumbing to inflation.Japan is a good example? That's really good to know. Note to self: Continue to permanently avoid the stock market.
Current policies won't spark inflation as long as policymakers keep their sights firmly fixed on their stated long-term goal of price stability.Jeremy Siegel, you are killing me!
Housing: A parabolic rise followed by an extremely hard crash.
Stocks: A parabolic rise followed by an extremely hard crash.
Oil: A parabolic rise followed by an extremely hard crash.
Copper: A parabolic rise followed by an extremely hard crash.
Aluminum: A parabolic rise followed by an extremely hard crash.
Rice: A parabolic rise followed by an extremely hard crash.
Wheat: A parabolic rise followed by an extremely hard crash.
With long-term price stability like that, who needs enemas? Badum-Ching!
Check out the opinion of one former long-term price stability policymaker. Pay special attention to the title of his book.
December 2007 - January 2008
Reigning Bull, Alan Greenspan’s ‘The Age of Turbulence’Greenspan was also far from uninvolved in the manufacture of his own myth. The phrase for which he will be recalled, he relates, came to him in the bathtub shortly after the Dow broke 6000 in October 1996.It seems like only yesterday that the Dow traded in the 6000s. Oh yeah. It was yesterday. Today too for that matter, even after the impressive rally. Of course, a 7% rise in the Nasdaq in just one day does not scream price stability. That probably goes without saying though.
For those who are as worried about long-term price stability as I am, I also wish to point out the full title of Alan Greenspan's book. The Age of Turbulence: Adventures in a New WorldWelcome to the continuing adventures of the Brave New World Order.
Brave New WorldAll members of society are conditioned in childhood to hold the values that the World State idealizes. Constant consumption is the bedrock of stability for the World State.New World Order (conspiracy theory)Numerous historical and current events are seen as steps in an on-going plot to achieve world domination primarily through secret political gatherings and decision-making processes.
Motive in Madoff case murky as expected plea nearsNEW YORK (Reuters) - The U.S. government has brought a massive case against Bernard Madoff, chronicling 11 crimes he is accused of committing over more than 20 years, but prosecutors still have not clearly stated any motive in their case.What is it that makes a complete stranger bilk investors out of $50 billion? Maybe we'll never know.What is it that makes a complete stranger dive into an icy river to save a solid gold baby? Maybe we'll never know. - Jack Handey
Street Celebrates Citi Profitability"It says something if we’re pinning all of our hopes on a one-dollar stock rising over 25 cents," Hogan quipped. Citi dropped below the $1 mark earlier in the month, causing the market to dip with it.I have nothing more to add.
Let's work our way through the 2nd half of year ponements to date.
July 17, 2007Who's Afraid Of China?A gradually weakening dollar serves U.S. interests as well as those of China. The Federal Reserve is banking on a weak dollar to boost growth in demand for exports in the second half of the year. It is also good for tourism, another economic booster, and it has the salutary effect of reducing American travel overseas. “It’s the main reason why the Federal Reserve is banking on a second half recovery,” Lien said. “The path to a stronger dollar is essentially through a weaker dollar.”May 20, 2008Fed's Kohn says economy to start slow recovery in second half UPDATEWASHINGTON (Thomson Financial) - The U.S. economy will probably begin a slow recovery in the second half of this year and then speed up in 2009, with the inflation threat receding, according to the Fed's number two official.February 13, 2009
Economists' U.S. Outlook Dims"To say 'off we go' in the second half of the year, I think that begs incredulity; I just don't buy it," he said. "It's a global thing too—trade volumes are just cratering and our exports are getting pounded. There's nowhere to hide."Feburary 27, 2009Fed's Rosengren sees U.S. recovery in second halfNEW YORK (Reuters) - The U.S. economy will begin recovering in the second half of this year, but growth could stay below potential until financial markets stabilize, a top Federal Reserve policy-maker said on Friday. March 9, 2009Battered mining sector waits for recoveryMany analysts had initially hoped stimulus packages in China and the United States would start to show some impact in the second half of 2009, but many are now hunkering down for a longer period of weak prices.2nd Half of 2007? Nope.
2nd Half of 2008? Nope.
2nd Half of 2009? Not likely.
The 2nd Half of 2010 is looking good though. There will always be time to pone it later if we change our minds. Why might we change our minds? Let's go back to the 2nd half of 2001 recovery and look for inspiration.
Where is it? Where is the 2001 recovery? Our debt situtation is much worse. The stock market is much lower. Our unemployment is much higher. The only reason our banking system hasn't completely collapsed is that we took on even more debt to bail it out. Overall, we're in much worse shape now than we were in 2001. No joke.
July 23, 2001U.S.: The Past Won't Be Prologue in This RecoveryThe upshot: If last year saw a new type of slowdown, then this second-half recovery may not resemble any of its predecessors.
That has got to be the understatement of the century.I know. It's an elevator and it only goes down. - Jack Burton, Big Trouble in Little China (1986)
'£35.7 trillion' lost by recessionIn a study commissioned by the Manila-based lender on the impact of the financial crisis on emerging economies, it estimated the value of financial assets worldwide - currency, equity and bond markets - to have dropped by $50 trillion (£35.7 trillion) in 2008.Time to do some math.
Let's say we can buy a couch for $500 at a discount store and that it is five feet long. Let's start stacking the couches end over end to see how far we can go if we spend $50 trillion.
Total Distance = $50,000,000,000,000 / $500 x 5' = 500,000,000,000 feet
That's 94.7 million miles.
Now picture us aiming this structure towards the sun. Our sun is only 93,000,000 miles away. It would actually reach!
Too bad we lost the money. It would have been one heck of a cool looking structure. Imagine the top of it burning as it sweeps through the sun once every 24 hours as our planet rotates.
I'm resorting to cartoon physics of course. There's no way that that even couches made in America could have supported the weight. There's also no way the structure could have reached that level of rotation without flinging off into space.
In my defense, studies suggest that cartoon physics works better for simulating cartoon economics though. More of the humor is retained. Who am I to argue? The stacking math is real though. All too real. Sigh.
Don't panic; get a financial adviser (Liz Pulliam Weston)Frightened Americans are making lots of stupid moves with their investments right now. They need more professional guidance -- and Uncle Sam should help pay for it.Uncle Sam should help pay for it? You have got to be frickin' kidding me. Investors have been given professional guidance and it was a blood bath. They sure as heck don't need more professional guidance. The professionals at Citigroup can't even help the entire banking system remain solvent, so what are the odds they can help us? Those are the cream of the crop professionals too, not the sort of mom and pop professional advisers we are likely to find on our own.What the bloody hell is going on in this country? Have we completely lost our minds? You just know I'm going to go digging up past articles again and I have no great desire to disappoint you.
September 18, 2006
Why bad 401(k) advice is better than none (Liz Pulliam Weston)When your 401(k) plan offers investment advice, you shouldn't assume it's worthwhile. But if it gets you to invest, take it.Maybe we can get Uncle Sam to pay for that bad advice too, retroactively. Uncle Sam is sure willing to pay for everything else these days.The cost of their confusion is enormous. Here's an illustration: A worker who puts aside $4,000 a year starting at age 25 could have a nest egg worth more than $1 million at 65, assuming 8% average annual returns, which is reasonable given the long-term historical gains from a balanced portfolio of stocks and bonds.Apparently the cost of their confusion wasn't so enormous after all. That money was better spent on beer and cigarettes, especially if those items were saved/hoarded as part of a diversified nest egg.
The S&P 500 closed that day at 1,321.18. It closed today at 682.55. That's a 48% loss. That's what bad advice gets you. How could we possibly know at the time that it was bad advice? It says so right in the article's title. That's how. Using hindsight, bad advice actually turned out to be bad. Shocking.
That brings me back to the first article. Don't panic is the professional advice that was given every month since this crisis started. Using hindsight, it was really bad advice. At some point it is destined to be good advice though, much like a stopped clock is right twice a day.
January 25, 2008Don't panic on roller-coaster market ride: experts"Just because it's on the front page of the newspaper doesn't mean that the world's coming to an end and just keep that in perspective," Phillips said, which will allow individuals to face things and be successful.
Those in the role of advising investors are taking similar strategy to heart.The S&P 500 closed that day at 1,330.61. I'll spare you the bloodmath.
What on earth does the Bank of England do now rates are near zero?Just as the Bank or Government always do when they buy assets, they fund the purchases by issuing gilts - this ensures that they do not increase the amount of cash sloshing around in the economy unduly.
What is happening today is different. The key point is less the amount being spent on assets, or precisely what the Bank is buying, but the fact that it is to buy a large chunk of assets off private sector investors without issuing the gilts in order to finance the purchases. The direct result is to mechanically increase the supply of money in the system. This is true quantitative easing - because the Bank is aiming to affect directly the quantity of money in the economy.What about the risks of hyperinflation? What about the risks of hyperinflation? A very important question.Sweet! I nailed it.These methods are inherently extremely inflationary - after all they aim directly to increase the quantity of cash in the economy, and as Milton Friedman pointed out, inflation is always and everywhere a monetary phenomenon. The Weimar Republic and Zimbabwe suffered hyperinflation after doing something very similar. In the long run, if the Bank was to continue pumping extra newly magically-created cash into the economy it would cause hyperinflation.
So it is their intention to stop using "magic" at some point?However, it is expressly not doing this for an extended period: merely until the threat of deflation and depression appear to have been diverted.They will stop once the magic of freshly printed paper money creates the appearance of a more prosperous economy. Further, the leaders won't be corrupted by the power of the magic, nor will they be corrupted absolutely by the power of absolute magic. That's a huge relief!
You know what? I'm feeling much better about my long-term stagflationary outlook. Go figure.
Posts
