Jul
31
2005
“The negative personal saving rate is the darkest cloud hanging over the U.S. economy. With consumer finances pretty much in tatters and overwhelming prospects for worse to come, the fitting question to ask is when and at what rate the consumer will start saving from his current income. It has been calculated that even if the saving rate were to revert only to 3-4% of disposable income, less than half its postwar average rate, it would make for the deepest and longest recession in modern times.”
Dr. Kurt Richenbächer, May 2001
Jul
28
2005
We often point out that CPI is not all its cracked up to be. (See yesterday’s post).
As the Kansas City Start points out, sometimes common sense is all it takes to realize that the emperor is a tad scantily clad.
Jul
27
2005
Source: John Williams at Shodow Government Statistics
Lies. Damned lies… And statistics. Or so the saying goes. And its as right as could be!
Yet today most of the US operates as if the statistics pushed out by the Fed and the US Government are infallibly reliable. They presume that when the methods for calculating these were subjected to new and improved formulas (as under Nixon, Reagan, Bush I and Clinton), it must be legitimate given that the change was given some “new and improved” label… and nobody blinked twice. And, the tweaking of how such numbers are calculated has been dramatic, changing the very essence of the meaning of each number. Plus, given that one number feeds other numbers (for example, CPI is part of the GDP calculation), if each stat has a bit of a deliberate bias to make things look more rosy than it actually “is”, then the affect compounds.
And it is clear that the stats today are biased dramatically to make the economy look comparatively good when weighed against how they were previously calculated. CPI of 2005 is not our grandfather’s CPI: Substitution. Hedonics. Bias adjustments. etc. have all played a role in turning formerly reliable numbers into something totally different. Yet the world operates as if there is no meaningful difference, or for that matter, an agenda behind why such changes were promoted.
For example, whereas CPI was once a fixed basket of goods meaningful to the common man, it is now a rigged number that helps GDP seem rosier than reality, while keeping social security increases smaller than they otherwise would be.
Politicized? You bet.
And don’t take our word for it. Listen to John Williams, an economist who tracks the changes, including the how’s and why’s.
Oh. And if you think this is a meaningless subject, think again. If inflation is truly running at closer to 7% or higher as some suspect the real number to be, that difference will eventually catch up with the markets. Its just a matter of time before the markets catch on.
Jul
27
2005
While the CNBC’s of the world churn the same new cycle again and again, they rarely see the forest from the trees. Fianancial Sense has a good commentary today on subjects you just don’t hear if you subscribe to money magazine. While there is some speculation as to what is going down (who knows how it will all play out?) I particularly liked found the ARM comments insightful.
Jul
26
2005
Well.. the USAToday may be McPaper, but its no slouch on investment ideas...
Jul
22
2005
We now learn that the brain damaged may make better decisions on investing… Not surprising that what is credited is “emotional damage” in the subjects studied, given that mixing emotion with investing can be a terribly unproductive thing. That, and the fact that the 15 people studied were of normal IQ (and therefore, not severely brain damaged…).
Most in the investment industry recognize that emotional decisions cause the average investor to buy high and sell low, or just do whacky things generally speaking. That’s never good. Hence, its “common knowledge” to stay the course, and hold the fort because the market is efficient, and market timing is supposedly never good (at least, on average!).
Those drawbacks are well identified. I’m of opinion that emotionality is a door that swings both ways, as well. For example, it can lead to hanging on to dead investments for sentimental comeback reasons. As well, another form of emotionality goes unnoticed by most in the mainstream. That is, many investors on all levels reflexively dismiss information that does not fit into their comfort zone or the conventional-wisdom paradigm. To wit, when presented with much of material provided by sites like Ernharth Perspective, many reject it outright as inconceivable or even outrageous since it defies sense of world order. This trait is common among those who earned their spurs in the market and economy from 1982 through 2000, and as such, they fail to question many assumptions that today are assumed as incontrovertible doctrine.
It would not be the first time in history that such attachment to “how things were” came back to bite investors in the nether regions. That, and hubris is as old and as unavoidable as history itself.
Jul
21
2005
Another shoe has dropped on pending shifts in the global macro climate. The Chinese have decided to cut its currency link to the dollar, instead shifting its tie to a basket of foreign currencies. So for now, the juan still does not float… but the dollar is free… We shall see how markets react once they’ve had a bit more time to adjust to the news.
Jul
21
2005
“It seems to me that a $618 billion trade deficit, rich as we are, strong as this country is, well, something will have to happen that will change that. Most economists will still say some kind of soft landing is possible. I don’t know what a soft landing is exactly, in how the numbers come down softly from levels like these….”
Warren Buffett, May 2, 2005
Jul
20
2005
The question of whether the stock market is overvalued is a quandary yet to resolve. Sean Corrigan over at Sage Capital digs into the simple answer that defies any real thought (that a stock is worth what someone is willing to pay for it)… an answer that arguably overstates the true and honest demand for the stock, especially given that the transfer of shares to and fro are to an ever growing amount not the product of any deep thought beyond a the algorithm initiating the program-trading buys and sell. Is this merely indicative of a “sheeple” based system of buyers who flock to the waters mistaking safety in numbers for real safety?
This is definitely a good read if you are into stock picking and handling your own equity allocations.
Jul
19
2005
Gold is historically a hedge against severe economic downturns as well as, more frequently, inflationary monetary policies by central banks. It is the latter that causes many to theorize that the Gold market is manipulated in order to prevent currencies from getting their comeuppance for inflating by keeping gold less attractive than it would otherwise be. The real answer is unknown (although more folks are coming around to the idea that manipulation must be taking place), but in the midst of many requests, regulators seem to ignore the accusations.
The debate is important, even if a bit fringe, because if it is manipulated, gold is not just an indicator reflecting fundamentals, but instead, also a fundamental indicator of policy maker concerns over deeper trends. Read more at FallStreet.com.
Jul
18
2005
CPI is the formal inflation gauge for the US economy, and is used by economist and investment advisor alike when preparing models. Its uses are many, from helping determine the current state of the economy, to establishing models for risk premiums in all asset classes, to bond rates and all the way down to core modeling for basic questions like “how much will I need to retire comfortably?”
Yet for some time we have pointed out that there are some serious problems about the way CPI is calculated. And on that note, Jim Puplava has an excellent summary in his June Storm Watch Update giving a summary of how that fudging is a dangerous issue to ignore.
