odin

Struggling with Divergences

Not sure about Fannie and Freddie but I have heard a variant of that explanation in China. Several retail punters claimed that lower priced equities were "cheaper" and thus a better value than higher-priced equities.

Unemployment: Historical Chart Sends Scary Message

To chap08's point about long-term structural employment -- there is also a expectations' adjustment over the years (willingness to be employed, not just ability). Unemployment insurance is indeed a good thing if it gives people the cushion they need and prevents people from being underemployed (taking the first job they are offered). However, I fear, there is a sense of entitlement thats creeping in that translates these safety-net benefits into a belief that its a right (without corresponding responbilities.)

Furthermore, with youth unemployment figures much higher, I bet that a lot of young people are headed back to graduate education and are not counted in this figure.

(Anecdotally, to support both statements above:I had a conversation with a young lady recently who was lamenting the fact that she could not get unemployment benefits when she quit her job to go to post-graduate school. Far be it from me to tell her that she is technically not "unemployed" or the irrationality of expecting to be "bailed out" for something she was doing to further her own career).

Inflation by Shortage

Mr Ingram --

The conclusion that will have higher (nominal) profitability at the expense of the consumer comes with an assumption -- that they are able to pass on higher input costs (assuming inflation) to consumers.

I think this is the point that MHFT is making. There is an output gap. The pricing power of firms is eroding. I do get one point in your article: that the supply curve itself is shifting left as producers shut down production capacity but thats coupled with the reality that demand is falling as consumers deleverage and repair their b/s) . This is true especially in the energy sector (shutting down of nat gas wells for e.g.)...however, it remains to be seen whether the economy/demand recovers enough to cause a shortages.

As far as using leverage in real estate to play inflation goes -- real estate prices are sensitive to expectations of real appreciation. If inflation and rising rates affect affordability, what would be the impact on house prices? (Hint: the 1980s)

U.S. Hyperinflation: Is Faber's Prediction Realistic?

While it is politically difficult to rein in the monetary supply accomodations (esp. when a recovery is nascent), at least in theory, central bankers are supposed to be indepedent. Just as they have many tools of money creation, they have equally enough and potent tools to destroy fiat money.

It will be politically much more difficult to rein in public spending and the size of the government (fiscal policy), a distinction not made in the article above. However, the impact of that policy on inflation is a lot more indirect.

There is record amounts of overcapacity in the global economy. Unemployment rates are still rising. Commercial real estate and credit card default hits are yet to hit the bank's bottom lines (and further impact their ability to lend). The money multiplier has completely broken down. For several years, just as with private individuals, balance sheet repair will the primary goal of these banks and they will use the steep yield curve to rebuild the equity side of their balance sheets and deleverage...not lend the excess. The consumer cut off from credit, employment will be kept on life-support with government transfers but will save more rather than go on another spending binge. Against this backdrop, inflation-mongering doesnt make sense.

Education and Healthcare seem impervious to any deflation worries...and there might very well be inflation, even hyperinflation in our future. (and it depends of many 'ifs' and inflation expectations especially can rapidly materialize), however, when you've been starving for two weeks, it seems hardly prudent to keep worrying about the fat content on your next meal (i.e. being too early on a call is no different than being wrong).