To the average person on the street, the economy is OK. Not great, but OK. So when we carry that concept further, there is nothing to fix because nothing is broken. If we were to ask if the economy is in need of being fixed, we would get the expected 3-5% lead pipe cinch return of yes. The thing to remember here is that these five percent opinions have more than two solutions to “fix” the problems.
At this point, 95 percent of the population has no idea that there are economic problems. Everything worked yesterday and everything works today. So if there is a problem, it is pretty much invisible. Remember economics is not a course that many study. Government debt and inflation are things we have always lived with in our life time.
We have a national debt of 18 trillion and a collective mentality that this is something that Congress can fix every year. The same with Social Security and any other financial problems, the solutions for all have been pushed into the future.
Do you get the idea that the average person is more into sports twitter and Facebook? Reality is where your mind meets the road. There are no pressing world financial problems as far as the average man is concerned. Providing for, and feeding your family are the goals for the present. Infrastructure, retirement, government finances will all be taken care of; if they aren’t we will elect someone else. The mindset of the 95 percent of the population is very simplistic, it works, and will keep working.
How can the concept of nation debt out of control be explained, or where the money went that was in the Social Security fund? These problems project no immediate peril to the Hoi Polloi, they are of little concern.
The basic concept of public officials is to push all of the pending problems past their time in office. So here we go with the coming New Year. Forget the canaries in coal mines, the deck chairs on the Titanic, people are tired of the stories and no longer pay attention to them. A while ago, the Vice President, referred to the last six years as “The greatest recession since the Great Depression.” All I can say to Obama and Biden, the horse ride is not over, there are still two more years for them in the saddle. And they are definitely not out of the woods, they’re part of the woods.
The coming year could be very telling. With the drop in oil prices, the Middle East will have to choose between guns and butter, and by the way, you can’t grow much food in a fox hole. Russia’s currency could hyper inflate to nothing, they don’t produce much for consumer consumption (if it explodes, it's not editable). The EU as a currency for the European Union could end, Greece and Spain want out. Look for our stock market to hit 26,000. It’s the last game in town. We are all going to get rich.
Belly up to the bar, our government will fix what ails you. I’m not sure how we will pay for all of this, but we know it will involve Republicans; they still have a few dollars left.
So with the year at an end, a toast to the incoming year; here’s wishing everyone a Happy New Year.
Tuesday, December 30, 2014
Saturday, December 20, 2014
Inflation coupled with deflation
It seems very unlikely to have both Inflation and deflation at the same time, but we have it. Health care costs are skyrocketing and gasoline prices are dropping.
The big items are not even being mentioned. The bond market is at an all-time high. If interest rates were to rise 600 basis points to about 8 percent, the bond market if marked to market would suffer a 75% loss. The bond market is at a top, it can go no higher from here, it can only go down. The California housing market is still unaffordable to the middle class unless both husband and wife work. This too could face a 50 percent cut in value, home values do not support the current rental rates so why own a home, rent.
Interest rates are low, so why save your money for later? Spend it now while it will still buy something and borrow some more or put it on plastic. Stocks are going up, and who cares if its selling for 200 times earnings, buy it and hold on for profits. It doesn’t matter what it’s worth, if it’s going up. For some reason, the housing fiasco seems to come to mind. Buy Apple at $1000 and sell it when it hits $1100 or borrow more and double your bet. The interest on the loan is peanuts compared to the rise in stock values.
The government is printing money, which is inflationary. The job market is not quite as it appears, people are returning to work, but most new jobs are a lot lower paying; less earnings is deflationary. Of course if you don’t have a job, no money is very deflationary.
Social Security retirement paychecks are inflationary. The government already spent the money paid into the program for other things, now they have to print dollars to cover the plan. Food stamps are a similar animal.
Once your unemployment runs out, you can go back to school on a student loan. Your own family might not have the ability to loan you money for school, but the government has a ready and willing check book. Sell your soul to the company store for a 4 year edu-vacation.
The one thing that is very easy to understand about the economy, is that it is not in a composed settled state, it is in a state of turmoil, a dynamic state of flux, twisting in different directions. Our bond market which is 10 times bigger than the stock market is not an area to park money for investment purposes. Interest rates are at zero. Investment funds are now dealing in indexes which are a step removed from the stock market. They don’t have to buy and sell stocks, just hold the index. The stocks on the stock market are real, the index options are a synthetic creature. There is a finite value of stocks to be purchased, but there are an infinite number of index options that can be sold on the stocks traded.
The real question, how long can the consumer be the driving force for our economy? Sooner or later people will either run out of items they deem necessary to buy or run out of funds to buy them with. At that point we begin to see deflation. Exhaustion of consumption from a lack of funds or credit. In 1929 it was different, there were no credit cards. In today’s world, let the good times roll, put it on plastic.
The present conflict is a war pitting inflation against deflation. We have a very good shot at the hyperinflation Germany experienced before WWII. They had everything with no deflation. Inflation won out, the Mark's value went to zero the hard way, a beer in the end cost 4 billion marks. Of course if you were a senior citizen who manage to save a million marks, that turned worthless as far a buying power went. From there, it wasn’t hard for Adolf Hitler to rise to power, he was going to change things and help those who had been screwed out of their life savings by a democracy that listened to no one, had all the answers and spent what they didn’t have.
The thing that needs to be pointed out is that there are contradictive things in motion. We just had a 400 point move in the stock market. And bonds are at a rate so low, you wouldn’t loan money to a relative. Does there seem to be something wrong with the way we value risk? Buy a stock it will go higher. As for bonds, compound interest used to be the 8th wonder of the world, now all investors do, is wonder who's buying them?
As long as the stock market goes up we are going to make money. That seems a bit artificial to me, an "investor" can make just as much money on a fast falling market as they can on a market going up. If you examine it, a majority of the players only play the up side. I once asked my broker why? And he said that it was easier to sell a market going up than a market going down. The human mind is geared for appreciation, not the negativity it takes to short a market.
So here we are with, an elf like looking, Janet Yellen posturing how great the economy is. She has a cute cherubic look that could sell just about anything. It's Christmas and everyone wants the good times to return. One or two weeks of holiday cheer should fit the bill.
Merry Christmas everyone, and God Bless.
The big items are not even being mentioned. The bond market is at an all-time high. If interest rates were to rise 600 basis points to about 8 percent, the bond market if marked to market would suffer a 75% loss. The bond market is at a top, it can go no higher from here, it can only go down. The California housing market is still unaffordable to the middle class unless both husband and wife work. This too could face a 50 percent cut in value, home values do not support the current rental rates so why own a home, rent.
Interest rates are low, so why save your money for later? Spend it now while it will still buy something and borrow some more or put it on plastic. Stocks are going up, and who cares if its selling for 200 times earnings, buy it and hold on for profits. It doesn’t matter what it’s worth, if it’s going up. For some reason, the housing fiasco seems to come to mind. Buy Apple at $1000 and sell it when it hits $1100 or borrow more and double your bet. The interest on the loan is peanuts compared to the rise in stock values.
The government is printing money, which is inflationary. The job market is not quite as it appears, people are returning to work, but most new jobs are a lot lower paying; less earnings is deflationary. Of course if you don’t have a job, no money is very deflationary.
Social Security retirement paychecks are inflationary. The government already spent the money paid into the program for other things, now they have to print dollars to cover the plan. Food stamps are a similar animal.
Once your unemployment runs out, you can go back to school on a student loan. Your own family might not have the ability to loan you money for school, but the government has a ready and willing check book. Sell your soul to the company store for a 4 year edu-vacation.
The one thing that is very easy to understand about the economy, is that it is not in a composed settled state, it is in a state of turmoil, a dynamic state of flux, twisting in different directions. Our bond market which is 10 times bigger than the stock market is not an area to park money for investment purposes. Interest rates are at zero. Investment funds are now dealing in indexes which are a step removed from the stock market. They don’t have to buy and sell stocks, just hold the index. The stocks on the stock market are real, the index options are a synthetic creature. There is a finite value of stocks to be purchased, but there are an infinite number of index options that can be sold on the stocks traded.
The real question, how long can the consumer be the driving force for our economy? Sooner or later people will either run out of items they deem necessary to buy or run out of funds to buy them with. At that point we begin to see deflation. Exhaustion of consumption from a lack of funds or credit. In 1929 it was different, there were no credit cards. In today’s world, let the good times roll, put it on plastic.
The present conflict is a war pitting inflation against deflation. We have a very good shot at the hyperinflation Germany experienced before WWII. They had everything with no deflation. Inflation won out, the Mark's value went to zero the hard way, a beer in the end cost 4 billion marks. Of course if you were a senior citizen who manage to save a million marks, that turned worthless as far a buying power went. From there, it wasn’t hard for Adolf Hitler to rise to power, he was going to change things and help those who had been screwed out of their life savings by a democracy that listened to no one, had all the answers and spent what they didn’t have.
The thing that needs to be pointed out is that there are contradictive things in motion. We just had a 400 point move in the stock market. And bonds are at a rate so low, you wouldn’t loan money to a relative. Does there seem to be something wrong with the way we value risk? Buy a stock it will go higher. As for bonds, compound interest used to be the 8th wonder of the world, now all investors do, is wonder who's buying them?
As long as the stock market goes up we are going to make money. That seems a bit artificial to me, an "investor" can make just as much money on a fast falling market as they can on a market going up. If you examine it, a majority of the players only play the up side. I once asked my broker why? And he said that it was easier to sell a market going up than a market going down. The human mind is geared for appreciation, not the negativity it takes to short a market.
So here we are with, an elf like looking, Janet Yellen posturing how great the economy is. She has a cute cherubic look that could sell just about anything. It's Christmas and everyone wants the good times to return. One or two weeks of holiday cheer should fit the bill.
Merry Christmas everyone, and God Bless.
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