My true thoughts now since the government is so BROKE...how do you trust bonds and CD's and the like...when will the banks start to fall!!!! You know if we keep this up it will happen. Just want to preserve is number one to me and liquidity...would love to gain but how!!!
<< <i>Well I just got back from the Trust Planners and Estate Planners...they say Annuities are not the way to go with an IRA....SOOOOOOOOOOOOOOOOOOOOOOOOOooooo!!!! >>
I'm glad you found someone honest. And to keep this 'on topic' This is not a good bullion buy, but I like it.
Here is a nice 3-5 minute read on the effects of the BLS birth death model. This model replaced an earlier version that just plugged in numbers. And it came about because coming out of the last recession the model did not forecast enough new jobs. In summary Williams states 3 major conclusions.
1. The BLS model assumes a recovering economy, hence +900K jobs per year are factored in over 12 months. If we aren't in a growing and recovering economy these #'s are overstated. The BLS has revised the numbers downward in 3 out of the last 4 years. The last 2 years in May showed downward revisions of 688,000 jobs. Hence each year was overstated by an average of 344,000 jobs.
2. The Birth Death model jerks the monthly findings one way or the other. It is not a good model and the pundits place far too much weight on its accuracy. Recall that the April #'s had +257,000 jobs added by this model (vs 274,000 new jobs claimed). It is not seasonally adjusted.
3. The statistical significance of these stats shows no difference from NO GROWTH (that is using the BLS's own confidence interval data)
In reality the BD model doesn't work all that much better than what existed before. But adding +900,000 jobs each year certainly helps to support a recovering economy. Maybe the model should be adjusted for down years? The real numbers show up long after the fact and those are the ones that count. But for the immediate gratification society we live in, that won't do.
Why is the XAU getting plastered? Price of Gold is not that bad. Looking at a 1-year chart, Gold is nowhere near breaking it's uptrend. What's the deal?
The XAU is comprised of stocks. Stocks are leading indicators. You can see from the charts below that the XAU bottomed and started higher about 4-5 months before the price of gold. On the bright side, the XAU is nearing a big support area. If it holds the all should be ok.....if not, look out below.
Dollar is getting support (might just be short covering)
Gold is sliding down (Silver and copper too)
Oil is down
Stocks are up or down depending on what day it is.
Is there any real direction here?? Are the markets starting to react to the perception that the rate hikes are going to continue and stiffle the inflation concerns?? The dollar will bounce back?? Gold and silver will consequently decline??
Is inflation once again going to be slowed by a large cumulative effect of rate hikes in spite of the mass deficits??
Is this just a small blip in the general downward spiral for the dollar?? Or will we see a 10% prime in 24 months and a sharp rebound in the dollar ( gold/silver drop and foreign currency drop, unemployment and Bankruptcy increases)??
Will the increased rates put water on the coin market?? Stock market?? or will the fed provide more lip service and less hikes this year??
<< <i>Let's look at the current short term trends.
Interest rates are going up
Dollar is getting support (might just be short covering)
Gold is sliding down (Silver and copper too)
Oil is down
Stocks are up or down depending on what day it is.
Is there any real direction here?? Are the markets starting to react to the perception that the rate hikes are going to continue and stiffle the inflation concerns?? The dollar will bounce back?? Gold and silver will consequently decline??
Is inflation once again going to be slowed by a large cumulative effect of rate hikes in spite of the mass deficits??
Is this just a small blip in the general downward spiral for the dollar?? Or will we see a 10% prime in 24 months and a sharp rebound in the dollar ( gold/silver drop and foreign currency drop, unemployment and Bankruptcy increases)??
Will the increased rates put water on the coin market?? Stock market?? or will the fed provide more lip service and less hikes this year?? >>
Yes. No Yes Yes Yes....but for reasons other than listed No... No No No Yes
Streeter, italics and <> mean it's a QUOTE, not my opinion. And in case you didn't notice, the oil comment was SARCASM, making fun of the notion that Bush supposedly went to war to get us oil. Although personally I AM of the opinion that if all the Arabs want to kill each other, we should just pull out and let them do it. If we are to stay over there, we should at least be taking their oil for ourselves. But no, our stupid president just wants to spend hundreds of billions policing the country, while letting them fleece us on oil prices.
I heard they were making a French version of Medal of Honor. I wonder how many hotkeys it'll have for "surrender."
Ddink i didn't ask you for a spin as with most of you i ask a question can you cpmpare or is spin the best you can do i'm not putting my words out i'm asking for your's or as with most is the spin the best you can do !!!!
I doubt President Bush wants to spend hundreds of billions policing ANY country. Besides, he ain't spending it-you and I are footing the bill.
BTW--oil is a world commodity and no particular person, country or entity sets the price.
You and I have the distinct priviledge of voting with our checkbook--you don't like the price-then don't buy it. Personally, my gas consumption is off by at least 33% by volume since last year at this time.
I am not sure there were enough answers or that I have them properly assigned. See below.
Monday May 16, 2005 9:02 PM (NEW!)
<< Let's look at the current short term trends.
Interest rates are going upYES. No Yes Yes Yes....but for reasons other than listed No... No No No Yes
Dollar is getting support (might just be short covering) Yes. NO Yes Yes Yes....but for reasons other than listed No... No No No Yes
Gold is sliding down (Silver and copper too) Yes. No YES Yes Yes....but for reasons other than listed No... No No No Yes
Oil is down Yes. No Yes YES Yes....but for reasons other than listed No... No No No Yes
Stocks are up or down depending on what day it is. Yes. No Yes Yes YES....but for reasons other than listed No... No No No Yes
Is there any real direction here?? Yes. No Yes Yes Yes....but for reasons other than listed NO... No No No Yes
Are the markets starting to react to the perception that the rate hikes are going to continue and stiffle the inflation concerns?? Yes. No Yes Yes Yes....but for reasons other than listed No... NO No No Yes
The dollar will bounce back?? Yes. No Yes Yes Yes....but for reasons other than listed No... No NO No Yes
Gold and silver will consequently decline?? Yes. No Yes Yes Yes....but for reasons other than listed No... No No NO Yes
Is inflation once again going to be slowed by a large cumulative effect of rate hikes in spite of the mass deficits?? Yes. No Yes Yes Yes....but for reasons other than listed No... No No No YES
Is this just a small blip in the general downward spiral for the dollar??
Or will we see a 10% prime in 24 months and a sharp rebound in the dollar ( gold/silver drop and foreign currency drop, unemployment and Bankruptcy increases)??
Will the increased rates put water on the coin market?? Stock market?? or will the fed provide more lip service and less hikes this year?? >>
Yes. No Yes Yes Yes....but for reasons other than listed No... No No No Yes
Of course we went to war to help police the oil supply in the middle east. We are at the point of world peak oil production (the US peaked back around 1970) and Bush wants to ensure we don't get cut out of the pie. It's all about the oil and being in control.
Any bets on whether gold is headed under $400 from here or will it stand pat?
<< <i>Of course we went to war to help police the oil supply in the middle east. We are at the point of world peak oil production (the US peaked back around 1970) and Bush wants to ensure we don't get cut out of the pie. It's all about the oil and being in control. >>
I don't understand what Bush's supposed motive was. Can you explain a little more? Thanks.
I heard they were making a French version of Medal of Honor. I wonder how many hotkeys it'll have for "surrender."
ddink, don't be silly. Oil availability ensures the future of America. The mathematics are staggeringly in favor of intermediate-term oil supply shortages. Iraq must be strategically controlled since it is the next Saudi Arabia in terms of future oil production. I'm not talking about a simple supply shortage - like might occur when a hurricane enters the Gulf of Mexico. I'm seeing the need to discover two more oil supplies *equivalent* to what Saudi Arabia was in the 1930's.
The current head we installed in Afghanistan is the former head of Unocal for the region.
Now that we control Afghanistan the pipeline is being built
afghan pipeline You can believe what you want but understand that this is how the world views the Bush war in Iraq. Why are we building bases in the Middle East and closing bases in the US. Are we protecting America or the interests of Multinational corporations??
This isn't about who is Patriotic and who is not. Saddam was an evil that needed to go.
Unfortunately this about the US military, once again doing the bidding for the rich corporations.
Remember, IRAQ had NO WMD and there was no proven link to terrorism or Bin Laden.
<< <i>ddink, don't be silly. Oil availability ensures the future of America. The mathematics are staggeringly in favor of intermediate-term oil supply shortages. Iraq must be strategically controlled since it is the next Saudi Arabia in terms of future oil production. I'm not talking about a simple supply shortage - like might occur when a hurricane enters the Gulf of Mexico. I'm seeing the need to discover two more oil supplies *equivalent* to what Saudi Arabia was in the 1930's. >>
This makes no sense at all. If we were after the oil, we would be SEIZING IT and selling it, not buying it from the Iraqis. So you propose that we invaded Iraq not for oil, but simply to be able to have the option to get oil in the intermediate- to long-term future? That's like holding up a bank and camping out there for a few years before you finally rob the place. But hey, if it Democrats rationalize things, be my guest.
We have not yet found any WMD--and we also have not yet found all of Hussein's money yet, either. I challenge YOU and a few hundred thousand of your friends to dig up every square inch of the state of Texas while being constantly under attack from terrorists, and see how well your systematic search goes. Iraq is kinda a big place, ya know?
WMD or not, oil or not, we removed a mass murderer who was a threat to his neighbors (First Gulf War, in case you don't remember) and to his own people (the Kurds). At the very least we a) got revenge for what he did to our POWs and b) ensured that he won't be murdering anyone else anytime soon.
<< <i>Then answer this question. Do you really think that Bush plans on leaving Iraq anytime soon >>
Nope. And the Democrat that becomes president in 2008 will not be removing any troops either. Democrats are really good at promising to end wars and instead escalating them. Can anyone say Vietnam? LBJ?
<< <i>The rest of the world views this whole thing a little different than we do >>
Screw what the rest of the world thinks.
I heard they were making a French version of Medal of Honor. I wonder how many hotkeys it'll have for "surrender."
I think you mixed up some of my answers. I took some of the questions as rhetorical so I didnt answer them.
In short......the economy hit a soft patch....there is no need for higher rates........inflation is yesterdays news.....the dollar is bouncing off of 2 decades worth of support that will not be broken anytime soon.......Why?.......becasue what currency will replace the dollar....not the Yen(nobody cares about Japan)....not the Euro(too many countries with problems), so whats left?
I know we keep thinking that the Fed is done here with interest rate hikes, but maybe not. I still think they want to slow the credit bubbles, and the Real-Estate market. What’s weird is that mortgage rates are actually dropping even after 8 Fed rate hikes? It still looks like stagflation for at least some time and I think the Fed keeps raising the rates.
Tuesday May 17, 3:10 pm ET By Jeannine Aversa, AP Economics
A Labor Department report showed the producer price index, which measures the costs of goods before they reach store shelves, increased 0.6 percent in April, reflecting more expensive energy, cars and cigarettes. The increase in wholesale prices came on top of an even larger, 0.7 percent advance in March.
The latest price figures bolstered economists' belief that Federal Reserve Chairman Alan Greenspan and his colleagues will continue to push up short-term interest rates for much of this year to combat inflation.”
It's amazing that the Gov't won't combat the CAUSE of inflation, excess government spending, but will use the interest rate vise to squeeze the system and counteract inflation by syphoning the money from the little guy to the rich. (think about it, the rich lend, the poor borrow). The effect is that the little guy has less to spend and prices stabalize. In the mean the rich double thier wealth and get tax brakes doing it while the poor get poorer. Something is wrong here.
I grew up hearing how the Democrats tax and spend and how they push for big government. The last 3 Republican presidents have created huge budget deficits spending billions on thier military toys and thier oil wars. Times change.
<< <i>I grew up hearing how the Democrats tax and spend and how they push for big government. The last 3 Republican presidents have created huge budget deficits spending billions on thier military toys and thier oil wars. Times change. >>
I always thought Congress had some say in the matter.
I heard they were making a French version of Medal of Honor. I wonder how many hotkeys it'll have for "surrender."
On a slightly different note... has anyone here heard much about this website--Goldmoney.com? I'm not saying I'm advocating for or against it..just curious.
"Why no Mr. Tax Collector, I didn't sell any Gold Eagles at a profit, I merely exchanged it for an equal amount of bullion"
On a different note, I generally nickel and dime bullion from a couple places I like, but I stumbled across this one. Anyone ever shop there? usagold.com.
Interesting website. I highly recommend, however, that you actually take delivery of any precious metal you buy. There is a lot of "paper" silver and gold floating around, and if everyone suddenly demanded delivery, not everyone would get their gold/silver. Of course, this site might have different (better) business practices and actually have enough metal for all its customers. Still, I suggest having your metals in hand.
I heard they were making a French version of Medal of Honor. I wonder how many hotkeys it'll have for "surrender."
I know you are going to say that the govt just reported this and that, but I will go on record now saying that we have seen the end of this cycle of inflation. The govt stats are always 6-9 months late. Every major worldwide economy has slowed. Notice I didnt say stopped, just slowed its demand for commodities. Prices will remain stable.
The last 3 Republican presidents have created huge budget deficits spending billions on thier military toys and thier oil wars.
Must've slept through History 101. Bush Sr. allowed Cheney and the Democrats to decimate military spending and close dozens of bases. The Defense cuts (REAL cuts not phoney Democrat slowed increases) were spent by the Democrats on social handouts, popularly known as the Peace Dividend.
You are correct that for Democrats no amount of social spending is ever enough, and the Peace Dividend is the perfect example. Tax cuts for people who don't pay taxes is another.
I remember Reagans big State of the Union speech about how we had a huge national debt. Then he spent Billions on military toys and the National Debt Trippled during his presidency. Nixon spent so much on Vietnam that runaway inflation ruled the 70's.
Yes the Democrats spend way too much also, on too many social programs, but at least its spent here and not to feed the International Military Industrial Cartels.
Why is it that Carter and Clinton were able to get through 8 years without a major war but the Republicans need one for every president. After every war is inflation and this one will be no different.
Not if you look at today's economic data. The 10 and 30 yr bonds are rallying big-time. Yield on 10yr is down to almost 4%. There are 100's of billions of dollars that say there is no inflation. Thats precisely what I posted yesterday. Inflation is yesterdays news.
The first three years of the 21st century saw a worldwide equity market crash followed by a recession plagued by overcapacity, over-indebtedness and over-leverage. And the responses of central banks were always more liquidity through lower short-term interest rates, which helped pump up the bond bubble in 2003, with the high fixed yields of outstanding long bonds translating into higher bond prices. Excess liquidity supported artificial rallies in housing prices, equities, corporate debt, commodity prices and mushrooming emerging markets, particularly China. Fools are calling it a US-led recovery.
The Fed was caught again in its own ideological vice between contradicting interest rate policies to balance stimulating growth and preventing inflation. To avoid the boom-and-bust cycle, the Fed attempted to drive its monetary vehicle in opposite directions at the same time, simultaneously fighting inflation and stimulating the economy. Despite the Fed's announcement that it will raise interest rate to ward off inflation only at a "measured pace", much talk of a repeat of a 1994 burst of the bond bubble has since been circulating. Pushing China to raise yuan interest rates now will only heighten the Fed's difficulty in keeping its "measured pace" of interest rate hikes.
Bond traders know that a five-year duration bond fund can drop 5% in value with an interest rate rise of one percentage point. Conversely, a one percentage point drop in rates would cause the same fund to increase by 5% in value. For long-term bond funds with effective durations of at least seven years, a rise in long-term interest rates of 2 percentage points over the next 12 months would cause at least a 14% drop in value. With yields on long-term Treasury bonds now around 5%, such an increase would translate into a loss of 9% or more for shareholders - similar to the last time the Fed tightened monetary policy in 1994.
Many market participants intuitively concluded that long-term rates, following the ffr, would also rise, causing prices of outstanding long bond to decline. Speculators shorted Treasury long bonds - that is, they borrowed bonds to sell by promising to return them at a later date when they hope to buy back the same bonds at a lower price, profiting from the anticipated price differential. But long-term rates moved counter-intuitively in the credit markets. What the short-sellers failed to take into account was that foreign central banks now must buy each day between $1-2 billion of government bonds to park the additional foreign exchange reserves they earn from the US trade deficit. This was a factor of much smaller scale and consequence in 1994 when the bond market collapsed from the Fed raising the ffr target in quick succession.
Because traders grossly misjudged the bond market's likelihood to rally in the face of the Fed tightening and stubbornly hanged onto conventional intuitive moves in expectation of an easy killing, throwing in the towel only when it was too late, the rush to cover short positions pushed bond prices even higher from technical effects of a short squeeze. On Wednesday, September 22, the 10-year-note fell below the psychological 4% (3.98%) for the first time since April when the Fed made its third tightening in 2004. That shifted market sentiment, and traders decided to stop throwing good money after bad just to humor Greenspan's fantasy of a recovery. They reacted to the rise in bond prices as a signal to buy more. It was the market's vote that the economy would not be heading north for a while.
Shorting on bonds began when the non-farm payroll unexpectedly surged by 308,000 in March 2004, suggesting that an end might be in sight for the three-year-long recession and the corresponding bull run on bonds. In June, the 10-year note yielded 4.9%, only a few weeks before the Fed raised the ffr target for the first time in four years. Surely, bond prices had no place to go but down with a rising ffr, so figured the smart money intuitively. The market, however, moved counter-intuitively against the smart money. Morgan Stanley announced on Wednesday, September 22, that its fixed income trading revenue fell 35% in the quarter ended August 31 from the previous quarter due mostly to betting wrong on bond prices falling and rates rising. Most of the other big firms suffered similar fates. The October 6 Wall Street Journal reported on dismal second half 2004 bonus outlooks for Wall Street bankers and traders.
At the current inflation rate of 1.5%, the neutral rate for ffr is 3.5%, double the current 1.75% target. According to Greenspan's announced strategy of the "measured pace" of short-term interest rate rises, it may take a long time to raise seven steps of 25 basis points each to reach the level of neutrality, if ever, because below-neutral rates cause more inflation. The Fed may be pedaling hard to reach a moving target mounted on the front of his interest rate bike. The harder he pedals, the faster the target moves with him. But the longer the Fed takes to bring ffr back to neutral or restraining levels, the bloodier will be the crash of the bond market when it happens. And it will happen. Reality does not stop merely because some short-sellers lost money. Borrowing short-term to finance long-term bets is a deadly game that cannot be made safe by hedging, no matter how sophisticated the strategy. Hedging does not eliminate risk; it only transmits unit risk onto systemic risk.
Once the genie of excess liquidity is out of the bottle, it is almost inevitable that more genies will get out of more and bigger bottles to keep the ongoing bubble from bursting to avoid nasty consequences for the financial system and the real economy. In a planned economy, liquidity provided by a national bank can serve a constructive purpose by financing planned growth. In a market economy, liquidity provided by the central bank lets the market allocate credit to the highest bidders rather than to where it is needed most in the economy. This means the liquidity often ends up fueling high-profit speculative bubbles.
Central banks, led by chief wizard Greenspan, despite their central role in helping to create financial bubbles, nevertheless declare that bubbles cannot be anticipated and nothing can be done to prevent them. But central bankers comfort markets by claiming near-magical power to handle the destructive consequences of bubbles, through a one-note monetary policy of rate cuts to inject more liquidity, to save a bursting bubble by creating a bigger bubble. Greenspan asserted in his Jackson Hole symposium speech on August 30, 2002 that it is virtually impossible to diagnose a bubble with any certainty until it bursts, and even if a bubble could be diagnosed, it is not the task of central banks to target asset price, but only to control inflation and target growth. And even if central banks were to react to asset bubbles by raising interest rates, the extent of the rate hikes needed to reverse asset prices in times of exuberance might be so large that it would destabilize the real economy worse than a bubble bursting in its own course would. Greenspan has admitted more than once that one of the roles of a central bank is to support the market value of financial assets.
.7% in April. That's just the beginning folks. I own a small manufacturing co. in SoCal and if you think inflation is under control-then you is just plain NUTS.
As we all know the gov. is playing with the numbers, perhaps we should be buying both Gold coins and (I) bonds and play the middle?
May 19, 2005
Pro-forma CPI, or Lets Pretend there's No Inflation by Peter Schiff
Today, as the Labor Department reported that April consumer prices rose at a faster than expected .5%, which follows yesterday's release of a .6% rise in April producer prices, Wall Street and the financial media once again celebrated the irrelevant fact that core consumer prices were unchanged. What I have repeatedly dubbed as "pro-forma CPI," a benign "core CPI" despite ever increasing actual CPI is as meaningless a statistic as positive pro-forma corporate earnings despite consistent losses. Bond investors foolish enough to believe the "core CPI" propaganda will likely be just as disappointed as stock investors who fell victim to the same scam with pro-forma earnings.
The reality is that year-over-year consumer prices are up 3.5%. Thus far, during 2005, CPI is rising at an annualized rate of 4.8%, its fastest pace since 1990, and .3% higher then the 4.4% rise in 1971, the year in which inflation was so bad that Richard Nixon imposed wage and price controls to contain it. Perhaps had President Nixon been a little more "tricky," he might have come up with the concept of "core CPI" himself, rather than resorting to such draconian and misguided measures.
In fact, those arguing that inflation is not a problem often point to low bond yields to support their conclusion. This is similar to the arguments that were made during the tech bubble that high stock prices reflected the present value of all the future earnings such companies were sure to generate. The reality is that just as stock investors of the 1990's were wrong about future earnings, today's bond investors are wrong about future inflation. Also, since so many of today's bond buyers have no intention of holding their bonds to maturity, the fact that they are buying does not necessarily reflect a benign outlook for inflation. With the market dominated by leveraged hedge funds, mortgage hedgers, and foreign central banks, today's demand for treasuries has much more to do with speculation, hedging, and politics, than it does with actual investment merit. Once these forces reverse, expect bond prices to plunge, and interest rates to soar, as there is no legitimate investor demand for a ten year bond yielding 4% with CPI inflation running at an annualized rate of 4.8% and heading higher.
This is interesting about the manipulation of the CPI and not good for those (I) bonds!
Pro forma CPI “Today's government announcement of the CPI should be given as much creditability as an Enron earnings report. That is why the CPI should be referred to as Pro-Forma CPI. The government manipulates the data to artificially minimize increases in consumer prices. That is because the government has a vested interest in maintaining the illusion that inflation is not a problem, just like Enron had a vested interest in maintaining the illusion that it had earnings!
The U.S. government is the world's largest borrower, with a $7,771,734,475,210 dollar plus national debt, mostly financed with short term paper, a large percentage of which in the hands of foreign creditors. If our creditors were to get wise to the true inflation threat, they would demand that the United States government pay much higher rates of interest on its debt. This would cost the government hundreds of billions of dollars in additional annual interest payments, sending the annual budget deficit soaring, creating a self-perpetuating spiral of bigger deficits causing rising interest rates, causing bigger deficits, etc. Not to mention the negative effect sharply higher interest rates would have on the American economy so heavily dependant on spending from over-leveraged consumers deriving their incomes from over-leverage employers and collateralizing they’re borrowing with over-valued real estate! Also, by manipulating the CPI data the government is able to reduce its cola adjustments to social security recipients and other inflation indexed programs, while limited increases in inflation indexed income tax exemptions, not to mention the money the government saves on interest pays to holders of inflation protected treasury obligations (TIP's).
Inflation, properly defined, is an increase in the supply of money and credit. The Federal Reserve has recently pursued the most inflationary monetary policy in its 89 year history. Initially inflation resulted in the stock market bubble. However, as stock prices are not components of the CPI no one cared. Next, inflation made its way into rising real estate prices. Again, no one cares. More recently, inflation is causing commodity prices to rise. Inevitability inflation will result in rising consumer prices, and will ultimately be reflected in significant increases in the CPI, despite the government's best efforts to manipulate the data.
One of the main reasons that the CPI has not been increasing at a more rapid rate (other than government manipulation) is the enormous merchandise trade deficit. As dollars flow out and foreign manufactured products flow in domestic consumer prices are held in check. But when the bubble in the dollar finally busts consumer prices will soar as wealthier foreigners out-bid poorer Americans for all sorts of merchandise and natural resources, sending the CPI through the roof. In fact, it is the trade report, not pro-forma CPI, that is the one truly significant economic release of the day, for it shows just how unproductive, non-competitive and mal-invested the U.S. economy really is.”
Have you been food shopping lately?? Prices are still rising.
My wife does the shopping. But a loaf of bread cost 99 cents. It was 99c 10 years ago. 20 years ago when I was in college a bottle of beer cost $3.00. It still costs $3.00. A case of coca-cola was $5.00 It is still $5. If food prices are rising then it is at a rate of 1-2% per year...which is expected and very healthy. The only inflation I see is in the cost of labor, which as risen dramatically. Thankfully we have become more productive to offset this.
Look guys...you could turn the time machine back 40 years and we would be saying the same exact things about inflation, deficits, immigration, foreign policy, monetary policy, ect.. There is nothing new to be told here. The US is not going to default on their bonds and it will remain a superpower for a long time. China we must watch out for, but at the very most they will only be equals.
And I will say it again......inflation is so yesterday.
If you want to listen to someone on wall street then it should be Bill Gross from PIMCO. This is what he said this morning.
Pimco's Bill Gross believes the 10-year treasury yield will range 3 - 4.5% over a 3-5 year secular timeframe and that yields on Euroland bonds will be slightly lower due to their structural unemployment problems, disinflationary incorporation of new Central and Eastern European countries into their existing family of nations, and more growth-inhibiting demographics. The firm believes the risk to bond markets going forward will not be from having too much high quality duration, but too little. The demand for treasuries should continue at high levels from foreign central banks and from private global bond investors who will sense no threat from accelerating inflation over the firm's secular 3-5 year timeframe. Furthermore, the Gross believes the inherent leverage throughout the global financial system will pose a danger to risk-oriented markets (stocks, high yield debt, CDO structures, real estate) as owners gradually realize returns can no longer be pumped anywhere near double-digit expectations. In addition, Gross believes that if institutional and retail investors in levered products become increasingly disenchanted with quarterly/annual returns, an unwind of levered structures could take place even in the face of continued economic growth, similar to what has been seen in recent weeks.
Bill Gross of PIMCO, the world's largest bond fund, recently wrote: "The CPI inaccurately calculates Americans' cost of living. Since social security and pension benefits as well as the level of wage hikes are predicated upon the specific number and/or the perception of annual increases, Americans are being in effect conned by their government and falling behind the inflationary eight ball year after year. After slamming the concept of the core CPI, the primary culprits I cited were the government's use of hedonic and substitution adjustments to lower the CPI by as much as 1% in recent years."
America's hedonic pleasures But further, far more substantial downward adjustments in the price indices have resulted from the spreading use of "hedonic" pricing methods, used to translate quality improvements in products into price declines even if the actual prices are climbing. Automobiles that now sell for $30,000 used to sell for $10,000, but the inflation rate of automobiles is registered as declining because cars are technically more sophisticated. The consumer is supposed to be getting more "car" per dollar, never mind no one can now buy a $10,000 car. Rents for apartments are registered as declining even when rent payment rises, because renters get air-conditioning, marble bathrooms and granite kitchens and high rise views. Yes, the higher up you are from the dirty, noisy street, the more housing you allegedly get per dollar, a real bargain in hedonic price while the square foot price goes through the roof. Thus prices can rise with no inflation.
The US Bureau of Labor Statistics (BLS) expanded the use of hedonic regressions to compare quality differences in prices. Hedonic regressions attempt to estimate econometrically the value that households put on quality differences. These methods are used for measuring quality distinctions in the categories of apparel, rent and computers and peripheral equipment, and as of January 1999, they have been used for television prices. Research is under way to extend this technique to other categories.
As this measuring technique is being extended to a growing number of goods, it has become a most important factor in reducing the US inflation rate, and intrinsically raises nominal GDP growth while the real GDP may actually decline. Its overall effect on monitoring the economy is kept secret from the public. The hedonic price adjustments for computer hardware and software alone went a long way to explain US growth and productivity miracles of the past decade.
Another device to lower the measured US inflation rate is the shift to "chained" price indexing, used since 1996. It changes the weight of items in a basket of goods on the assumption that people generally tend to shift their spending to cheaper goods. If the price of apples rises, people buy more pears, whose lower prices go into the price index instead. It is reasonable to suspect that US inflation before the 2001 crash had been hovering around 5% on the old basis, the highest in more than a decade, and virtually twice the rate in Europe. Inherently, this would have cut real GDP growth by about 1.5 percentage points and kept interest rate higher. All this suggests two important things: first, that the reported new paradigm increases in real GDP and productivity growth have been exaggerated by a statistical illusion; and second, that real interest rates have been far too low in relation to real inflation, which also explains the most rampant money and credit creation that the US has ever seen in recent history.
Hedonic price indexing, by keeping the official inflation rate significantly lower than reality, not only played a key role in fueling the stock market boom, but also magnified the budget surplus during the Bill Clinton years and now understates the George W Bush deficit. Such indexing reduces social security payments and welfare benefits across the board, as well as undercutting inflation-related wage adjustments. Essentially, lower hedonic prices in computers and electronic gadgets are paid for by less money for food and housing of the elderly, the unemployed and the indigent as well as the average worker.
The most troublesome fact is that the BLS does not keep contemporaneous calculations of the "old" method for historical consistency, or reveal the degree of "new" versus "old" distortion. This cover-up opens government statistics to challenges of reporting honesty.
Prices of all assets are cyclical. Sometimes they are up and sometimes down. The only way to look at things is too step back and look from a longer time perspective.
You could say that food is higher, gas is higher, clothes are higher. But so are your wages. How much $$$ did you make when you graduated from high school or college. I would guess that if you have been in the workplace for at least 20 years then your income has more than tripled and should be alot higher. You have a better lifestyle now than you did 20 years ago. So all this inflation that you talk about has has no affect. If it was a major problem then we would all drive 15 year old cars, live in a trailer, and eat Ramen noodles. I dont think this is the case for any of us.
cohodk--your examples are proof you need more lurking
You need real world experience my man. You need to get out of an office and deal with REAL SUPPLIERS that are SELLING REAL stuff. I don't know what coca-cola costs because I do not drink soda pop---The last time I bought a decent loaf of sourdough it was almost 3 bucks.
The problem with you guys who sit at in an office and get their 'experience' from the web and information junkies is that those yahoos have very little contact with reality. I'm not saying that I'm a guru but I AM ABLE TO LOOK AT MY INVOICES and not the govt's propaganda machine. Those numbers that they produce for public dissemination are plain bunk.
Last time I checked, the following still holds true.There are three types of lies...Lies, Damn Lies and Statistics.
Comments
<< <i>Well I just got back from the Trust Planners and Estate Planners...they say Annuities are not the way to go with an IRA....SOOOOOOOOOOOOOOOOOOOOOOOOOooooo!!!! >>
I'm glad you found someone honest. And to keep this 'on topic'
This is not a good bullion buy, but I like it.
Here is a nice 3-5 minute read on the effects of the BLS birth death model. This model replaced an earlier version that just plugged in numbers. And it came about because coming out of the last recession the model did not forecast enough new jobs. In summary Williams states 3 major conclusions.
1. The BLS model assumes a recovering economy, hence +900K
jobs per year are factored in over 12 months. If we aren't in
a growing and recovering economy these #'s are overstated.
The BLS has revised the numbers downward in 3 out of the
last 4 years. The last 2 years in May showed downward
revisions of 688,000 jobs. Hence each year was overstated by
an average of 344,000 jobs.
2. The Birth Death model jerks the monthly findings one way or
the other. It is not a good model and the pundits place far
too much weight on its accuracy. Recall that the April #'s
had +257,000 jobs added by this model (vs 274,000 new
jobs claimed). It is not seasonally adjusted.
3. The statistical significance of these stats shows no difference
from NO GROWTH (that is using the BLS's own confidence
interval data)
In reality the BD model doesn't work all that much better than what
existed before. But adding +900,000 jobs each year certainly helps
to support a recovering economy. Maybe the model should be adjusted for down years? The real numbers show up long after the fact and those are the ones that count. But for the immediate
gratification society we live in, that won't do.
roadrunner
Why is the XAU getting plastered? Price of Gold is not that bad. Looking at a 1-year chart, Gold is nowhere near breaking it's uptrend. What's the deal?
Knowledge is the enemy of fear
Interest rates are going up
Dollar is getting support (might just be short covering)
Gold is sliding down (Silver and copper too)
Oil is down
Stocks are up or down depending on what day it is.
Is there any real direction here?? Are the markets starting to react to the perception that the rate hikes are going to continue and stiffle the inflation concerns?? The dollar will bounce back?? Gold and silver will consequently decline??
Is inflation once again going to be slowed by a large cumulative effect of rate hikes in spite of the mass deficits??
Is this just a small blip in the general downward spiral for the dollar??
Or will we see a 10% prime in 24 months and a sharp rebound in the dollar ( gold/silver drop and foreign currency drop, unemployment and Bankruptcy increases)??
Will the increased rates put water on the coin market?? Stock market?? or will the fed provide more lip service and less hikes this year??
<< <i>Of course this savings is irrelevant because the current administration is determined to drive us into bankruptcy no matter what >>
Just wait till the Democrats get in office.
<< <i>The real con job is spending 200 billion a year playing around in Iraq. >>
But don't you remember, we only did it for the oil! That's why gas prices are so low!
<< <i>OK DDink and the NAME FITS YOU compare now to then you see or let us know how good it is now to then >>
Let me guess: you must be a Democrat!
My name means "bushwacker" as in "highwayman." You can guess what the occupation of my ancestors was
Not sure how that fits me, but whatever.
Many things are being accomplished. If you do not have the ability to understand then please do not project your ignorance.
<< <i>Let's look at the current short term trends.
Interest rates are going up
Dollar is getting support (might just be short covering)
Gold is sliding down (Silver and copper too)
Oil is down
Stocks are up or down depending on what day it is.
Is there any real direction here?? Are the markets starting to react to the perception that the rate hikes are going to continue and stiffle the inflation concerns?? The dollar will bounce back?? Gold and silver will consequently decline??
Is inflation once again going to be slowed by a large cumulative effect of rate hikes in spite of the mass deficits??
Is this just a small blip in the general downward spiral for the dollar??
Or will we see a 10% prime in 24 months and a sharp rebound in the dollar ( gold/silver drop and foreign currency drop, unemployment and Bankruptcy increases)??
Will the increased rates put water on the coin market?? Stock market?? or will the fed provide more lip service and less hikes this year?? >>
Yes.
No
Yes
Yes
Yes....but for reasons other than listed
No...
No
No
No
Yes
Knowledge is the enemy of fear
i didn't ask you for a spin as with most of you i ask a question can you cpmpare or is spin the best you can do
i'm not putting my words out i'm asking for your's
or as with most is the spin the best you can do !!!!
BTW--oil is a world commodity and no particular person, country or entity sets the price.
You and I have the distinct priviledge of voting with our checkbook--you don't like the price-then don't buy it. Personally, my gas consumption is off by at least 33% by volume since last year at this time.
Monday May 16, 2005 9:02 PM (NEW!)
<< Let's look at the current short term trends.
Interest rates are going upYES.
No
Yes
Yes
Yes....but for reasons other than listed
No...
No
No
No
Yes
Dollar is getting support (might just be short covering)
Yes.
NO
Yes
Yes
Yes....but for reasons other than listed
No...
No
No
No
Yes
Gold is sliding down (Silver and copper too)
Yes.
No
YES
Yes
Yes....but for reasons other than listed
No...
No
No
No
Yes
Oil is down
Yes.
No
Yes
YES
Yes....but for reasons other than listed
No...
No
No
No
Yes
Stocks are up or down depending on what day it is.
Yes.
No
Yes
Yes
YES....but for reasons other than listed
No...
No
No
No
Yes
Is there any real direction here??
Yes.
No
Yes
Yes
Yes....but for reasons other than listed
NO...
No
No
No
Yes
Are the markets starting to react to the perception that the rate hikes are going to continue and stiffle the inflation concerns??
Yes.
No
Yes
Yes
Yes....but for reasons other than listed
No...
NO
No
No
Yes
The dollar will bounce back??
Yes.
No
Yes
Yes
Yes....but for reasons other than listed
No...
No
NO
No
Yes
Gold and silver will consequently decline??
Yes.
No
Yes
Yes
Yes....but for reasons other than listed
No...
No
No
NO
Yes
Is inflation once again going to be slowed by a large cumulative effect of rate hikes in spite of the mass deficits??
Yes.
No
Yes
Yes
Yes....but for reasons other than listed
No...
No
No
No
YES
Is this just a small blip in the general downward spiral for the dollar??
Or will we see a 10% prime in 24 months and a sharp rebound in the dollar ( gold/silver drop and foreign currency drop, unemployment and Bankruptcy increases)??
Will the increased rates put water on the coin market??
Stock market??
or will the fed provide more lip service and less hikes this year?? >>
Yes.
No
Yes
Yes
Yes....but for reasons other than listed
No...
No
No
No
Yes
Any bets on whether gold is headed under $400 from here or will it stand pat?
roadrunner
<< <i>Of course we went to war to help police the oil supply in the middle east. We are at the point of world peak oil production (the US peaked back around 1970) and Bush wants to ensure we don't get cut out of the pie. It's all about the oil and being in control. >>
I don't understand what Bush's supposed motive was. Can you explain a little more? Thanks.
Oreville, I see you have too much time on your hands again now that tax season has wound down.
roadrunner
<< <i>I don't understand what Bush's supposed motive was. Can you explain a little more? Thanks. >>
Do a little research on the Caspian sea. It holds the largest untapped oil supply in the world...but its landlocked.
caspian sea oil reserves
Unocal (Texas based) owns a lot of the Caspian oil
unocal and the caspian sea
The current head we installed in Afghanistan is the former head of Unocal for the region.
Now that we control Afghanistan the pipeline is being built
afghan pipeline
You can believe what you want but understand that this is how the world views the Bush war in Iraq. Why are we building bases in the Middle East and closing bases in the US. Are we protecting America or the interests of Multinational corporations??
This isn't about who is Patriotic and who is not. Saddam was an evil that needed to go.
Unfortunately this about the US military, once again doing the bidding for the rich corporations.
Remember, IRAQ had NO WMD and there was no proven link to terrorism or Bin Laden.
The only links I see are here.
Links
The rest of the world views this whole thing a little different than we do
Turkish news
Do your homework and form your own opinions. Then answer this question. Do you really think that Bush plans on leaving Iraq anytime soon.
<< <i>ddink, don't be silly. Oil availability ensures the future of America. The mathematics are staggeringly in favor of intermediate-term oil supply shortages. Iraq must be strategically controlled since it is the next Saudi Arabia in terms of future oil production. I'm not talking about a simple supply shortage - like might occur when a hurricane enters the Gulf of Mexico. I'm seeing the need to discover two more oil supplies *equivalent* to what Saudi Arabia was in the 1930's. >>
This makes no sense at all. If we were after the oil, we would be SEIZING IT and selling it, not buying it from the Iraqis. So you propose that we invaded Iraq not for oil, but simply to be able to have the option to get oil in the intermediate- to long-term future? That's like holding up a bank and camping out there for a few years before you finally rob the place. But hey, if it Democrats rationalize things, be my guest.
We have not yet found any WMD--and we also have not yet found all of Hussein's money yet, either. I challenge YOU and a few hundred thousand of your friends to dig up every square inch of the state of Texas while being constantly under attack from terrorists, and see how well your systematic search goes. Iraq is kinda a big place, ya know?
WMD or not, oil or not, we removed a mass murderer who was a threat to his neighbors (First Gulf War, in case you don't remember) and to his own people (the Kurds). At the very least we a) got revenge for what he did to our POWs and b) ensured that he won't be murdering anyone else anytime soon.
<< <i>Then answer this question. Do you really think that Bush plans on leaving Iraq anytime soon >>
Nope. And the Democrat that becomes president in 2008 will not be removing any troops either. Democrats are really good at promising to end wars and instead escalating them. Can anyone say Vietnam? LBJ?
<< <i>The rest of the world views this whole thing a little different than we do >>
Screw what the rest of the world thinks.
I think you mixed up some of my answers. I took some of the questions as rhetorical so I didnt answer them.
In short......the economy hit a soft patch....there is no need for higher rates........inflation is yesterdays news.....the dollar is bouncing off of 2 decades worth of support that will not be broken anytime soon.......Why?.......becasue what currency will replace the dollar....not the Yen(nobody cares about Japan)....not the Euro(too many countries with problems), so whats left?
Knowledge is the enemy of fear
Whats left? China.
But not for another 20 years.
I know we keep thinking that the Fed is done here with interest rate hikes, but maybe not. I still think they want to slow the credit bubbles, and the Real-Estate market. What’s weird is that mortgage rates are actually dropping even after 8 Fed rate hikes? It still looks like stagflation for at least some time and I think the Fed keeps raising the rates.
Tuesday May 17, 3:10 pm ET
By Jeannine Aversa, AP Economics
A Labor Department report showed the producer price index, which measures the costs of goods before they reach store shelves, increased 0.6 percent in April, reflecting more expensive energy, cars and cigarettes. The increase in wholesale prices came on top of an even larger, 0.7 percent advance in March.
The latest price figures bolstered economists' belief that Federal Reserve Chairman Alan Greenspan and his colleagues will continue to push up short-term interest rates for much of this year to combat inflation.”
I grew up hearing how the Democrats tax and spend and how they push for big government. The last 3 Republican presidents have created huge budget deficits spending billions on thier military toys and thier oil wars. Times change.
<< <i>I grew up hearing how the Democrats tax and spend and how they push for big government. The last 3 Republican presidents have created huge budget deficits spending billions on thier military toys and thier oil wars. Times change. >>
I always thought Congress had some say in the matter.
One of you has to change your icon!!!
I thought you guys were arguing with yourself.
"Why no Mr. Tax Collector, I didn't sell any Gold Eagles at a profit, I merely exchanged it for an equal amount of bullion"
On a different note, I generally nickel and dime bullion from a couple places I like, but I stumbled across this one. Anyone ever shop there? usagold.com.
Thanks for input!
Cathy
edited to correct brain-fart-grammar sentence
I know you are going to say that the govt just reported this and that, but I will go on record now saying that we have seen the end of this cycle of inflation. The govt stats are always 6-9 months late. Every major worldwide economy has slowed. Notice I didnt say stopped, just slowed its demand for commodities. Prices will remain stable.
Knowledge is the enemy of fear
Must've slept through History 101. Bush Sr. allowed Cheney and the Democrats to decimate military spending and close dozens of bases. The Defense cuts (REAL cuts not phoney Democrat slowed increases) were spent by the Democrats on social handouts, popularly known as the Peace Dividend.
You are correct that for Democrats no amount of social spending is ever enough, and the Peace Dividend is the perfect example. Tax cuts for people who don't pay taxes is another.
I remember Reagans big State of the Union speech about how we had a huge national debt. Then he spent Billions on military toys and the National Debt Trippled during his presidency. Nixon spent so much on Vietnam that runaway inflation ruled the 70's.
Yes the Democrats spend way too much also, on too many social programs, but at least its spent here and not to feed the International Military Industrial Cartels.
Why is it that Carter and Clinton were able to get through 8 years without a major war but the Republicans need one for every president. After every war is inflation and this one will be no different.
Inflation is returning with a vengence.
Not if you look at today's economic data. The 10 and 30 yr bonds are rallying big-time. Yield on 10yr is down to almost 4%. There are 100's of billions of dollars that say there is no inflation. Thats precisely what I posted yesterday. Inflation is yesterdays news.
Knowledge is the enemy of fear
The Fed was caught again in its own ideological vice between contradicting interest rate policies to balance stimulating growth and preventing inflation. To avoid the boom-and-bust cycle, the Fed attempted to drive its monetary vehicle in opposite directions at the same time, simultaneously fighting inflation and stimulating the economy. Despite the Fed's announcement that it will raise interest rate to ward off inflation only at a "measured pace", much talk of a repeat of a 1994 burst of the bond bubble has since been circulating. Pushing China to raise yuan interest rates now will only heighten the Fed's difficulty in keeping its "measured pace" of interest rate hikes.
Bond traders know that a five-year duration bond fund can drop 5% in value with an interest rate rise of one percentage point. Conversely, a one percentage point drop in rates would cause the same fund to increase by 5% in value. For long-term bond funds with effective durations of at least seven years, a rise in long-term interest rates of 2 percentage points over the next 12 months would cause at least a 14% drop in value. With yields on long-term Treasury bonds now around 5%, such an increase would translate into a loss of 9% or more for shareholders - similar to the last time the Fed tightened monetary policy in 1994.
Many market participants intuitively concluded that long-term rates, following the ffr, would also rise, causing prices of outstanding long bond to decline. Speculators shorted Treasury long bonds - that is, they borrowed bonds to sell by promising to return them at a later date when they hope to buy back the same bonds at a lower price, profiting from the anticipated price differential. But long-term rates moved counter-intuitively in the credit markets. What the short-sellers failed to take into account was that foreign central banks now must buy each day between $1-2 billion of government bonds to park the additional foreign exchange reserves they earn from the US trade deficit. This was a factor of much smaller scale and consequence in 1994 when the bond market collapsed from the Fed raising the ffr target in quick succession.
Because traders grossly misjudged the bond market's likelihood to rally in the face of the Fed tightening and stubbornly hanged onto conventional intuitive moves in expectation of an easy killing, throwing in the towel only when it was too late, the rush to cover short positions pushed bond prices even higher from technical effects of a short squeeze. On Wednesday, September 22, the 10-year-note fell below the psychological 4% (3.98%) for the first time since April when the Fed made its third tightening in 2004. That shifted market sentiment, and traders decided to stop throwing good money after bad just to humor Greenspan's fantasy of a recovery. They reacted to the rise in bond prices as a signal to buy more. It was the market's vote that the economy would not be heading north for a while.
Shorting on bonds began when the non-farm payroll unexpectedly surged by 308,000 in March 2004, suggesting that an end might be in sight for the three-year-long recession and the corresponding bull run on bonds. In June, the 10-year note yielded 4.9%, only a few weeks before the Fed raised the ffr target for the first time in four years. Surely, bond prices had no place to go but down with a rising ffr, so figured the smart money intuitively. The market, however, moved counter-intuitively against the smart money. Morgan Stanley announced on Wednesday, September 22, that its fixed income trading revenue fell 35% in the quarter ended August 31 from the previous quarter due mostly to betting wrong on bond prices falling and rates rising. Most of the other big firms suffered similar fates. The October 6 Wall Street Journal reported on dismal second half 2004 bonus outlooks for Wall Street bankers and traders.
At the current inflation rate of 1.5%, the neutral rate for ffr is 3.5%, double the current 1.75% target. According to Greenspan's announced strategy of the "measured pace" of short-term interest rate rises, it may take a long time to raise seven steps of 25 basis points each to reach the level of neutrality, if ever, because below-neutral rates cause more inflation. The Fed may be pedaling hard to reach a moving target mounted on the front of his interest rate bike. The harder he pedals, the faster the target moves with him. But the longer the Fed takes to bring ffr back to neutral or restraining levels, the bloodier will be the crash of the bond market when it happens. And it will happen. Reality does not stop merely because some short-sellers lost money. Borrowing short-term to finance long-term bets is a deadly game that cannot be made safe by hedging, no matter how sophisticated the strategy. Hedging does not eliminate risk; it only transmits unit risk onto systemic risk.
Once the genie of excess liquidity is out of the bottle, it is almost inevitable that more genies will get out of more and bigger bottles to keep the ongoing bubble from bursting to avoid nasty consequences for the financial system and the real economy. In a planned economy, liquidity provided by a national bank can serve a constructive purpose by financing planned growth. In a market economy, liquidity provided by the central bank lets the market allocate credit to the highest bidders rather than to where it is needed most in the economy. This means the liquidity often ends up fueling high-profit speculative bubbles.
Central banks, led by chief wizard Greenspan, despite their central role in helping to create financial bubbles, nevertheless declare that bubbles cannot be anticipated and nothing can be done to prevent them. But central bankers comfort markets by claiming near-magical power to handle the destructive consequences of bubbles, through a one-note monetary policy of rate cuts to inject more liquidity, to save a bursting bubble by creating a bigger bubble. Greenspan asserted in his Jackson Hole symposium speech on August 30, 2002 that it is virtually impossible to diagnose a bubble with any certainty until it bursts, and even if a bubble could be diagnosed, it is not the task of central banks to target asset price, but only to control inflation and target growth. And even if central banks were to react to asset bubbles by raising interest rates, the extent of the rate hikes needed to reverse asset prices in times of exuberance might be so large that it would destabilize the real economy worse than a bubble bursting in its own course would. Greenspan has admitted more than once that one of the roles of a central bank is to support the market value of financial assets.
Interesting article
Yuan and the Dollar
Inflation is no way done. The long term bond is staying low because of foreign reinvestment of our deficit.
Have you been food shopping lately?? Prices are still rising.
Producer Price Index
.7% in April. That's just the beginning folks. I own a small manufacturing co. in SoCal and if you think inflation is under control-then you is just plain NUTS.
May 19, 2005
Pro-forma CPI, or Lets Pretend there's No Inflation
by Peter Schiff
Today, as the Labor Department reported that April consumer prices rose at a faster than expected .5%, which follows yesterday's release of a .6% rise in April producer prices, Wall Street and the financial media once again celebrated the irrelevant fact that core consumer prices were unchanged. What I have repeatedly dubbed as "pro-forma CPI," a benign "core CPI" despite ever increasing actual CPI is as meaningless a statistic as positive pro-forma corporate earnings despite consistent losses. Bond investors foolish enough to believe the "core CPI" propaganda will likely be just as disappointed as stock investors who fell victim to the same scam with pro-forma earnings.
The reality is that year-over-year consumer prices are up 3.5%. Thus far, during 2005, CPI is rising at an annualized rate of 4.8%, its fastest pace since 1990, and .3% higher then the 4.4% rise in 1971, the year in which inflation was so bad that Richard Nixon imposed wage and price controls to contain it. Perhaps had President Nixon been a little more "tricky," he might have come up with the concept of "core CPI" himself, rather than resorting to such draconian and misguided measures.
In fact, those arguing that inflation is not a problem often point to low bond yields to support their conclusion. This is similar to the arguments that were made during the tech bubble that high stock prices reflected the present value of all the future earnings such companies were sure to generate. The reality is that just as stock investors of the 1990's were wrong about future earnings, today's bond investors are wrong about future inflation. Also, since so many of today's bond buyers have no intention of holding their bonds to maturity, the fact that they are buying does not necessarily reflect a benign outlook for inflation. With the market dominated by leveraged hedge funds, mortgage hedgers, and foreign central banks, today's demand for treasuries has much more to do with speculation, hedging, and politics, than it does with actual investment merit. Once these forces reverse, expect bond prices to plunge, and interest rates to soar, as there is no legitimate investor demand for a ten year bond yielding 4% with CPI inflation running at an annualized rate of 4.8% and heading higher.
This is interesting about the manipulation of the CPI and not good for those (I) bonds!
Pro forma CPI
“Today's government announcement of the CPI should be given as much creditability as an Enron earnings report. That is why the CPI should be referred to as Pro-Forma CPI. The government manipulates the data to artificially minimize increases in consumer prices. That is because the government has a vested interest in maintaining the illusion that inflation is not a problem, just like Enron had a vested interest in maintaining the illusion that it had earnings!
The U.S. government is the world's largest borrower, with a $7,771,734,475,210 dollar plus national debt, mostly financed with short term paper, a large percentage of which in the hands of foreign creditors. If our creditors were to get wise to the true inflation threat, they would demand that the United States government pay much higher rates of interest on its debt. This would cost the government hundreds of billions of dollars in additional annual interest payments, sending the annual budget deficit soaring, creating a self-perpetuating spiral of bigger deficits causing rising interest rates, causing bigger deficits, etc. Not to mention the negative effect sharply higher interest rates would have on the American economy so heavily dependant on spending from over-leveraged consumers deriving their incomes from over-leverage employers and collateralizing they’re borrowing with over-valued real estate! Also, by manipulating the CPI data the government is able to reduce its cola adjustments to social security recipients and other inflation indexed programs, while limited increases in inflation indexed income tax exemptions, not to mention the money the government saves on interest pays to holders of inflation protected treasury obligations (TIP's).
Inflation, properly defined, is an increase in the supply of money and credit. The Federal Reserve has recently pursued the most inflationary monetary policy in its 89 year history. Initially inflation resulted in the stock market bubble. However, as stock prices are not components of the CPI no one cared. Next, inflation made its way into rising real estate prices. Again, no one cares. More recently, inflation is causing commodity prices to rise. Inevitability inflation will result in rising consumer prices, and will ultimately be reflected in significant increases in the CPI, despite the government's best efforts to manipulate the data.
One of the main reasons that the CPI has not been increasing at a more rapid rate (other than government manipulation) is the enormous merchandise trade deficit. As dollars flow out and foreign manufactured products flow in domestic consumer prices are held in check. But when the bubble in the dollar finally busts consumer prices will soar as wealthier foreigners out-bid poorer Americans for all sorts of merchandise and natural resources, sending the CPI through the roof.
In fact, it is the trade report, not pro-forma CPI, that is the one truly significant economic release of the day, for it shows just how unproductive, non-competitive and mal-invested the U.S. economy really is.”
My wife does the shopping. But a loaf of bread cost 99 cents. It was 99c 10 years ago. 20 years ago when I was in college a bottle of beer cost $3.00. It still costs $3.00.
A case of coca-cola was $5.00 It is still $5. If food prices are rising then it is at a rate of 1-2% per year...which is expected and very healthy. The only inflation I see is in the cost of labor, which as risen dramatically. Thankfully we have become more productive to offset this.
Look guys...you could turn the time machine back 40 years and we would be saying the same exact things about inflation, deficits, immigration, foreign policy, monetary policy, ect.. There is nothing new to be told here. The US is not going to default on their bonds and it will remain a superpower for a long time. China we must watch out for, but at the very most they will only be equals.
And I will say it again......inflation is so yesterday.
Knowledge is the enemy of fear
Pimco's Bill Gross believes the 10-year treasury yield will range 3 - 4.5% over a 3-5 year secular timeframe and that yields on Euroland bonds will be slightly lower due to their structural unemployment problems, disinflationary incorporation of new Central and Eastern European countries into their existing family of nations, and more growth-inhibiting demographics. The firm believes the risk to bond markets going forward will not be from having too much high quality duration, but too little. The demand for treasuries should continue at high levels from foreign central banks and from private global bond investors who will sense no threat from accelerating inflation over the firm's secular 3-5 year timeframe. Furthermore, the Gross believes the inherent leverage throughout the global financial system will pose a danger to risk-oriented markets (stocks, high yield debt, CDO structures, real estate) as owners gradually realize returns can no longer be pumped anywhere near double-digit expectations. In addition, Gross believes that if institutional and retail investors in levered products become increasingly disenchanted with quarterly/annual returns, an unwind of levered structures could take place even in the face of continued economic growth, similar to what has been seen in recent weeks.
Knowledge is the enemy of fear
Bill Gross of PIMCO, the world's largest bond fund, recently wrote: "The CPI inaccurately calculates Americans' cost of living. Since social security and pension benefits as well as the level of wage hikes are predicated upon the specific number and/or the perception of annual increases, Americans are being in effect conned by their government and falling behind the inflationary eight ball year after year. After slamming the concept of the core CPI, the primary culprits I cited were the government's use of hedonic and substitution adjustments to lower the CPI by as much as 1% in recent years."
America's hedonic pleasures
But further, far more substantial downward adjustments in the price indices have resulted from the spreading use of "hedonic" pricing methods, used to translate quality improvements in products into price declines even if the actual prices are climbing. Automobiles that now sell for $30,000 used to sell for $10,000, but the inflation rate of automobiles is registered as declining because cars are technically more sophisticated. The consumer is supposed to be getting more "car" per dollar, never mind no one can now buy a $10,000 car. Rents for apartments are registered as declining even when rent payment rises, because renters get air-conditioning, marble bathrooms and granite kitchens and high rise views. Yes, the higher up you are from the dirty, noisy street, the more housing you allegedly get per dollar, a real bargain in hedonic price while the square foot price goes through the roof. Thus prices can rise with no inflation.
The US Bureau of Labor Statistics (BLS) expanded the use of hedonic regressions to compare quality differences in prices. Hedonic regressions attempt to estimate econometrically the value that households put on quality differences. These methods are used for measuring quality distinctions in the categories of apparel, rent and computers and peripheral equipment, and as of January 1999, they have been used for television prices. Research is under way to extend this technique to other categories.
As this measuring technique is being extended to a growing number of goods, it has become a most important factor in reducing the US inflation rate, and intrinsically raises nominal GDP growth while the real GDP may actually decline. Its overall effect on monitoring the economy is kept secret from the public. The hedonic price adjustments for computer hardware and software alone went a long way to explain US growth and productivity miracles of the past decade.
Another device to lower the measured US inflation rate is the shift to "chained" price indexing, used since 1996. It changes the weight of items in a basket of goods on the assumption that people generally tend to shift their spending to cheaper goods. If the price of apples rises, people buy more pears, whose lower prices go into the price index instead. It is reasonable to suspect that US inflation before the 2001 crash had been hovering around 5% on the old basis, the highest in more than a decade, and virtually twice the rate in Europe. Inherently, this would have cut real GDP growth by about 1.5 percentage points and kept interest rate higher. All this suggests two important things: first, that the reported new paradigm increases in real GDP and productivity growth have been exaggerated by a statistical illusion; and second, that real interest rates have been far too low in relation to real inflation, which also explains the most rampant money and credit creation that the US has ever seen in recent history.
Hedonic price indexing, by keeping the official inflation rate significantly lower than reality, not only played a key role in fueling the stock market boom, but also magnified the budget surplus during the Bill Clinton years and now understates the George W Bush deficit. Such indexing reduces social security payments and welfare benefits across the board, as well as undercutting inflation-related wage adjustments. Essentially, lower hedonic prices in computers and electronic gadgets are paid for by less money for food and housing of the elderly, the unemployed and the indigent as well as the average worker.
The most troublesome fact is that the BLS does not keep contemporaneous calculations of the "old" method for historical consistency, or reveal the degree of "new" versus "old" distortion. This cover-up opens government statistics to challenges of reporting honesty.
Prices of all assets are cyclical. Sometimes they are up and sometimes down. The only way to look at things is too step back and look from a longer time perspective.
You could say that food is higher, gas is higher, clothes are higher. But so are your wages. How much $$$ did you make when you graduated from high school or college. I would guess that if you have been in the workplace for at least 20 years then your income has more than tripled and should be alot higher. You have a better lifestyle now than you did 20 years ago. So all this inflation that you talk about has has no affect. If it was a major problem then we would all drive 15 year old cars, live in a trailer, and eat Ramen noodles. I dont think this is the case for any of us.
Knowledge is the enemy of fear
cohodk--your examples are proof you need more lurking
You need real world experience my man. You need to get out of an office and deal with REAL SUPPLIERS that are SELLING REAL stuff.
I don't know what coca-cola costs because I do not drink soda pop---The last time I bought a decent loaf of sourdough it was almost 3 bucks.
The problem with you guys who sit at in an office and get their 'experience' from the web and information junkies is that those yahoos have very little contact with reality. I'm not saying that I'm a guru but I AM ABLE TO LOOK AT MY INVOICES and not the govt's propaganda machine. Those numbers that they produce for public dissemination are plain bunk.
Last time I checked, the following still holds true.There are three types of lies...Lies, Damn Lies and Statistics.