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  • A Basic Accounting Equation Applied to Financial Markets Today [View article]
    You're absolutely right. What you are essentially describing is an increase in productivity; which next to population growth is the driver of value creation.

    Certainly consumption is too high. However, when interest rates are at the floor people are not incentivized to save either!
    Aug 19 05:01 PM | Likes Like |Link to Comment
  • A Basic Accounting Equation Applied to Financial Markets Today [View article]
    I fully understand the velocity component of inflation; too many dollars chasing too few goods, which would be a happy problem for us. However, you should note that the word "inflation" appears only once in the article, and it is in reference to emerging markets, not the U.S. Rather it is currency debasement, the creation of too many currency units, that will destroy our standard of living here in the States. Eventually, we run the risk of the dollar's replacement in global trade.

    On interest rates; I encourage you to be more skeptical or even cynical in your analysis of U.S. policy. "To encourage investing" is a nice PR tool, but in reality it the government cannot afford an increase to its weighted average cost of capital. Remember, those interest rates dictate the rate at which our government borrows money. As Kyle Bass and his team at Hayman Capital estimate, a 1% increase to the government's WACC signifies an additional $150B interest expense!
    Aug 12 11:07 AM | Likes Like |Link to Comment
  • Don't Worry About U.S. Downgrade [View article]
    It is all relative; if all of the developed world is in the same boat then how does a downgrade affect the cost of borrowing for the U.S. relative to Europe or Japan or Switzerland? It doesn't. As one friend in real estate said regarding credit scores; 680 is the new 780!
    Aug 8 05:25 PM | Likes Like |Link to Comment
  • TIPS: A Poor Inflation Hedge Today [View article]
    While I agree with the general thesis that TIPS are not a great investment, the analysis in your linked article applies to a security held to maturity. When dealing with a fund or portfolio of TIPS as we are here, there is turnover.
    Jul 5 02:14 PM | Likes Like |Link to Comment
  • TIPS: A Poor Inflation Hedge Today [View article]
    I suggest you go direct to the Vanguard site for more accurate/timely data. The site lists an average duration of 7.7 years, and though we would prefer effective duration, this figure implies greater interest rate risk.
    Jul 5 02:09 PM | Likes Like |Link to Comment
  • TIPS: A Poor Inflation Hedge Today [View article]
    It would be wise to use the word "contrived" when discussing all government data no? Funny how the composition of CPI is part of the debt ceiling/spending discussion in Washington...
    Jul 5 02:07 PM | Likes Like |Link to Comment
  • TIPS: A Poor Inflation Hedge Today [View article]
    Thank you for this succint review; well said.
    Jul 5 02:06 PM | Likes Like |Link to Comment
  • TIPS: A Poor Inflation Hedge Today [View article]
    If only the financing was available... Banks have too many concerns with their capital structure given the abundance of garbage held-to-maturity issues they continue to value at par as well as the hundreds of billions in securities fraud claims outstanding. It's hard to imagine them loosening the purse strings anytime soon.
    Jul 5 02:04 PM | Likes Like |Link to Comment
  • TIPS: A Poor Inflation Hedge Today [View article]
    Such hoarding should be expected in the current interest rate environment; no opportunity cost.
    Jul 5 02:01 PM | Likes Like |Link to Comment
  • TIPS: A Poor Inflation Hedge Today [View article]
    As you should be given the current policy environment. However, we must at least acknowledge the poor economic fundamentals which threaten asset prices. There is no indication of too many dollars chasing too few goods; stubbornly high unemployment, no upward pressure on wages, and muted velocity.
    Jul 5 02:00 PM | Likes Like |Link to Comment
  • TIPS: A Poor Inflation Hedge Today [View article]
    Exactly right. The government's excess is the problem not the solution. Free markets tend to eliminate profligacy.

    With respect to inflation, the Fed/Treasury posse is targeting a modest rate to gradually devalue the debt in real terms; the challenge will be managing the second derivative, rate of change. We should also expect more political gimmicks like the release of trivial quantities of strategic reserves, etc.
    Jul 5 01:58 PM | Likes Like |Link to Comment
  • TIPS: A Poor Inflation Hedge Today [View article]
    Floating rate paper is very illiquid and introduces substantial credit risk to a portfolio for an only modest increase in income. Ironically it is near the top of the list with respect to mutual fund flows. Probably good to be a contrarian here.
    Jul 5 01:53 PM | Likes Like |Link to Comment
  • What's Driving Markets Today? [View article]
    I agree 100% with what you put forth here. Conventional inflation is "too many dollars chasing too few goods.: With persistently high unemployment and weak lending the "chasing" or velocity component remains subdued despite the expansion in money supply. Furthermore, the uncertainty you alluded to prevents companies from making high conviction capital deployment. This is not to say deflation will prevail, but that it is stronger than most think.
    Jun 30 03:21 PM | Likes Like |Link to Comment
  • What's Driving Markets Today? [View article]
    I agree; age or time horizon is always an important consideration.
    Jun 30 03:15 PM | Likes Like |Link to Comment
  • What's Driving Markets Today? [View article]
    Thank you for the kind words. I hope you continue to enjoy and share these pieces.
    Jun 30 03:14 PM | Likes Like |Link to Comment
COMMENTS STATS
65 Comments
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