16 replies to this topic

[OEXCHAOS]

I find Marks comments telling, and won't speak for him. For myself, it is DEFLATION that looms, not inflation
Most peoples most important asset class-their homes-has already taken a big step in this direction, and considering the overall interplay, I feel commodity prices will soon folllow suit. A weaker US consumer going forward will also add to the effect. Many site global growth rates, especially China, when viewing inflation-but lets not forget for a moment who is buying those Chinese goods.

Spooky

I have been wrong on the deflation case before (more than once) over the past 10 years, so I won't be making that prediction, but I will say that deflation is once again a real risk.

Experience tells me, however, that steps will be taken to avoid most of that deflation. The first thing we need to do, however, is listen to the market. It's speaking loudly on inflation.

Mark

[pdx5]

and I tend to agree with that viewpoint. This tinkering with rates is what gave
us the credit bubble. We don't need to start building another one for future.
Housing will stabilize in 2008 since people can't live in trees. Glad to see cooler
heads are around in the Fed groupies.

http://www.bloomberg...6...&refer=home

Agree, but not with your 2008 housing comment. When the ARMs reset, there well be many more foreclosures and prices will continue dropping. Tightening of the lending standards and rising inventories will exacerbate the decline. It'll be another 3-5 years before housing stabilizes.

You may be right, it may be 2009 for housing to resume inflating. But there is no
arguing the fact that housing over-inflated last few years, and it will take a while
to stabilize. Housing can not outrun people's earnings for very long.

I find Marks comments telling, and won't speak for him. For myself, it is DEFLATION that looms, not inflation
Most peoples most important asset class-their homes-has already taken a big step in this direction, and considering the overall interplay, I feel commodity prices will soon folllow suit. A weaker US consumer going forward will also add to the effect. Many site global growth rates, especially China, when viewing inflation-but lets not forget for a moment who is buying those Chinese goods.

Spooky

I have been wrong on the deflation case before (more than once) over the past 10 years, so I won't be making that prediction, but I will say that deflation is once again a real risk.

Experience tells me, however, that steps will be taken to avoid most of that deflation. The first thing we need to do, however, is listen to the market. It's speaking loudly on inflation.

Mark

Bonds are simply adjusting to perceived lowering of rates by Fed in the near future.
You can bet if inflation rears its ugly head, bond holders will take a beating.

When I look at what is happening in the BRIC's it is hard to imagine deflation as far
as the eye can see. The 3.5 Billion (3500 Million) people in BRIC's are growing
wealthier by double digits, and they are consuming!

Edited by pdx5, 09 September 2007 - 12:07 PM.

[relax]

pdx go to www.drybulkindex.com and you will know where you should have invested, where you need to invest and that global growth is very sound only 7 per cent of the dry bulk market is tied with the US BRIC's are going crazy and can't be stopped

[selecto]

Banks and other players are hording cash and parking in bonds. I am not sure bonds are a good tell right in here.

[nimblebear]

[quote name='OEXCHAOS' date='Sep 9 2007, 10:14 AM' post='313933']
I have a question.

What do YOU know about inflation that the long bond buyers don't?

Looks to me like they think that inflation has dropped by almost 90 bp.

When the largest expense/asset anyone has falls 20%, that's not inflation.

Mark

......

LOL, you're kidding me right ?

The long bonds are probably telling us of a nice little pending recession.

Inflation ?

Let's see:

In 2000, when I bought my first truck, Unleaded gas was $1.38/gallon. Today in the same zip code, its $3.15 per gallon.

Milk could be bought well under $2.00/ gallon. Here it is now approaching $4/gal, unless a store uses it as a loss leader, to get traffic in.

TV's - you could easily buy a 30 inch regular tube TV for under $400. Now they are mostly unavailable, or built by unknown companies. Prcing still the same, but everything is now HD and Plaszma. Most advertised are between $1000 and $2000 dollars. Better picture ? yeah right. Worth $2000 ? (maybe to people won't afford them in the first place, and bought them using money from their home equity lines.

Cereals: Most have doubled in price since 2000. (you can say the same or worse for all breakfast items.)

Look at prices of all Ag commodities.

Health care premiums : Have literally doubled, or more. I still have my payment stubs to prove that.

College education: You don't want to know. If I have to tell you, you can't afford it. The single biggest expense parents face in raising their kids.

Electricity: gone up at least 40% in our area. Locked in prices, are projected for next 4 years to climb between 8% and 10% PER YEAR ! (this is no lie. Electric company just sent us the notice.)

Natural gas: Used to be around 20 cents per therm in late 90's. Those days are long gone. Now its well over 50 cents per therm,and we've seen prices in the winter get as high as $1.20 per therm.

Tanks of propane: Could get them filled for $11 in 2000. Now its $19.00.

Life insurance : premiums doubled in 8 years.

Home insurance: went from $530/year to $780 this year. Home hasn't changed. Must be the cost of building materials or something like that, eh ?

Property taxes: $5200 to $7900 this year.

These are things most people (average people) have to pay for day in/day out, year in/year out.

I could list literally hundreds of other things. Are you suggesting that the long bond is saying the price of these things will go down ? What is it you are suggesting that I don't know about inflation ?

In 2001 the dollar index peaked above $1.20 - today its under $80.

The only thing most normal americans aren't seeing inflating are their incomes.

P.S. I locked a fixed rate of 5.375 percent years ago, so yeah my house payment hasn't gone up. On paper who cares what it does ? On paper its value has gone up 80% since I bought it in 98. Thats 8.8% per year on average. No thats not inflation. Is it? The CPI says we are only around 2.5%- 3.0% for inflation. By the way, I don't see house "expenses" falling at all. any house needs annual maintenance. Its a huge chunk of change to keep up with it. In the short term you can avoid it. In the longer term, what you avoided will come back to bite you harder. And I don't see people refinancing to lower rates. So where is it that you see that house expenses are falling ? I'm confused by your statement.

[OEXCHAOS]

[quote name='nimblebear' date='Sep 9 2007, 11:50 PM' post='314007'] [quote name='OEXCHAOS' date='Sep 9 2007, 10:14 AM' post='313933']
I have a question.

What do YOU know about inflation that the long bond buyers don't?

Looks to me like they think that inflation has dropped by almost 90 bp.

When the largest expense/asset anyone has falls 20%, that's not inflation.

Mark

......

LOL, you're kidding me right ?

The long bonds are probably telling us of a nice little pending recession.

Inflation ?

Let's see:

In 2000, when I bought my first truck, Unleaded gas was $1.38/gallon. Today in the same zip code, its $3.15 per gallon.

Milk could be bought well under $2.00/ gallon. Here it is now approaching $4/gal, unless a store uses it as a loss leader, to get traffic in.

TV's - you could easily buy a 30 inch regular tube TV for under $400. Now they are mostly unavailable, or built by unknown companies. Prcing still the same, but everything is now HD and Plaszma. Most advertised are between $1000 and $2000 dollars. Better picture ? yeah right. Worth $2000 ? (maybe to people won't afford them in the first place, and bought them using money from their home equity lines.

Cereals: Most have doubled in price since 2000. (you can say the same or worse for all breakfast items.)

Look at prices of all Ag commodities.

Health care premiums : Have literally doubled, or more. I still have my payment stubs to prove that.

College education: You don't want to know. If I have to tell you, you can't afford it. The single biggest expense parents face in raising their kids.

Electricity: gone up at least 40% in our area. Locked in prices, are projected for next 4 years to climb between 8% and 10% PER YEAR ! (this is no lie. Electric company just sent us the notice.)

Natural gas: Used to be around 20 cents per therm in late 90's. Those days are long gone. Now its well over 50 cents per therm,and we've seen prices in the winter get as high as $1.20 per therm.

Tanks of propane: Could get them filled for $11 in 2000. Now its $19.00.

Life insurance : premiums doubled in 8 years.

Home insurance: went from $530/year to $780 this year. Home hasn't changed. Must be the cost of building materials or something like that, eh ?

Property taxes: $5200 to $7900 this year.

These are things most people (average people) have to pay for day in/day out, year in/year out.

I could list literally hundreds of other things. Are you suggesting that the long bond is saying the price of these things will go down ? What is it you are suggesting that I don't know about inflation ?

In 2001 the dollar index peaked above $1.20 - today its under $80.

The only thing most normal americans aren't seeing inflating are their incomes.

P.S. I locked a fixed rate of 5.375 percent years ago, so yeah my house payment hasn't gone up. On paper who cares what it does ? On paper its value has gone up 80% since I bought it in 98. Thats 8.8% per year on average. No thats not inflation. Is it? The CPI says we are only around 2.5%- 3.0% for inflation. By the way, I don't see house "expenses" falling at all. any house needs annual maintenance. Its a huge chunk of change to keep up with it. In the short term you can avoid it. In the longer term, what you avoided will come back to bite you harder. And I don't see people refinancing to lower rates. So where is it that you see that house expenses are falling ? I'm confused by your statement.

[/quote]

I'm asking if you think that your analysis is something that has somehow evaded recognition by the best and brightest bond managers deploying billions of dollars?

Why would they deploy assets for a negative return?

As for housing, if you are going to buy a home today, you'll be paying 20% or so less for the same type of house than you would have a year and a half ago, maybe even more. No other asset has depreciated that much, and no other asset accounts for a larger piece of individual assets.

As for your inflation stuff, without going into it line by line, I'll say, you're looking over your shoulder while driving forward. That's yesterday's news, long ago priced in.

Mark


[quote name='selecto' post='313966' date='Sep 9 2007, 04:36 PM'] Banks and other players are hording cash and parking in bonds. I am not sure bonds are a good tell right in here. [/quote]

OK, Mike. Make the case. You've got a huge chunk of money you need to find a home for. Why put it in the long bond? Why that instead of something nearer in and less volatile?

I wouldn't do it. I'm not going to be paid for the risk, if I'm just parking cash.

Mark

[redfoliage2]

He said "The drag from housing will ``gradually'' ease, concluding sometime next year. " I think he does not know housing market at all. Oh, he is a Fed member.