The Last Boomer

The Mac vs. PC Debate Was Never Clearer

Steve Jobs is the master of marketing. Macs are not superior to PC in any way but the OS. I just bought a laptop after months of careful research and consideration and even though Macs looked appealing, I could not accept their inferior specs: processor speed, memory, hard drive. I need speed when running multiple statistical applications at the same time and Dell does a better job at meeting my needs. Anyway, my point was that Apple is all marketing. Steve Jobs is a a brilliant marketer and a mediocre technologist. He just takes promising products (Apple did not invent either MP3 or smart phones), makes them sleeker and more stylish and then sells them at exorbitant prices. Good for him but what does this say about his customers?

Inflation Expectations: A Primer

Why should I believe that markets are capable of pricing correctly anything, future inflation including. Did the markets get right the house prices from 1998 to 2006? Did they get right the price of the CDS, MBS, or any derivatives? It looks like economists are just absolutely incapable to accept that markets are not always efficient, and may be they are very rarely efficient at pricing correctly anything. So, why should I trust that markets get it this time right at predicting accurately the inflation even tomorrow, and how about 30 years from now?

Nobel Laureate Stiglitz: The Administration's Ersatz Capitalism

What does this all mean to me as an investor?
1) the banks will be OK. The government will get them out of the mess.
2) this will cost dearly to the taxpayers with all the inevitable consequences: budget deficits, huge public debt, soaring interest rates, inflation, increased inequalities and political instability, etc.

Conclusion: long on banks, short on US?

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

I think that your math is right but you missed the little detail that all this is done with MY MONEY. AIG can pay only because we gave them $170B. The paper is worth now 60c only because we covered the difference between the real market price and the price that the two parties negotiated and they were able to negotiate this price using MY MONEY. I'd love to negotiate a sale of my house at the price I bought it in 2006 and I guess I'll be able to find a willing buyer if you cover the difference with YOUR money, Mr. IsThatRight. Does this work for you?

"Let me try to understand the loop :

Figures below are FICTITIOUS --- just as a model ...

1- AIG, as an insurance company, holds contracts with HIGH liability - let's say 60 cents liability on the dollar ( assuming the subprime papers are worth 30 cents in the Itraxx index).

2- The banks hold/own the actual subprime paper which is mark-to-market at 30 cents. But the banks believe that the value ( based on cash flow) is closer to 60 cents..............."

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

I am not sure that this is a "one-time event". They can keep the scam running for as long as they want because they have the support of the government. I read somewhere that AIG has has much more stuff to unwind.

We're in Danger of Being Blinded by Market Bottom Predictions

The cultural change will be accompanied by a large scale change in the allocation of our productive resources. The reallocation of these resources will cause certain companies and industries to shrink and others to expand. Unfortunately our government is firmly standing on the way of these changes. It spends enormous, hard to comprehend amounts of money to preserve a financial services industry that cannot exist in its current form. It does the same disservice to the auto industry. I understand that the government is caught between a rock and a hard place. They inherited an impossible to maintain status quo that is doomed to collapse but the pain from this collapse is so big that almost instinctively the government tries to prevent it from happening. They may succeed in this and then we'll postpone the inevitable until we dig ourselves into a hole so deep that it will be impossible to get out of it without completely reinventing ourselves and our country.

The Toxic Assets Plan - Yes, It's a Subsidy

It looks like a good deal for the private investors. They will receive a loan to buy assets with only 3% downpayment. If the asset price goes down, they will incur losses not greater than their downpayment. I would like to invest at these terms. I lost so much of my 401K that I would gladly participate in a plan like this with the hope that I can recover some of my losses. Is there a way for common folks like me to get a piece of the pie?

Inflationary Problems Facing the Fed

I think that the author asks one very important question: is the current inflation driven by the output gap or not? We have output gap and therefore, inflation is not possible; that is the common wisdom. However, in situations when the output gap is related to economic restructuring, inflation may coexist with widening output gap. We had this in Eastern Europe in the 90s. I'd love if somebody comments on this.

The Downhill Slide: And February Makes Three

Hey,
how about gold? It looks like a winning bet in February, doesn't it?

What Does Dr. Doom Say About U.S. Home Prices?

I am not a housing expert. Just a regular guy who tries to decide if the home prices are low enough in order to buy a house. Is it safe to get back to the market as a buyer?
I used data from the OFHEO monthly seasonally adjusted index of home prices in the US. The data is from 1991 through 2008. The index rose with an average of 0.2-0.3 from the beginning of 1991 through the beginning of 1998. In April 1998 the index is 123 (100 in January 1991). Then it accelerates and rises much faster until 2006. In 2006 the growth slows down and after reaching a high of 224 in April 2007, the index starts decreasing and it is 199 in December 2008.
The interesting question is: where the index would have been if its growth rate were the rate it had in the period 1991-1998? I recalculated the index using this historical growth rate and its theoretical value in December 2008 was 155. This is much lower than the actual level of the index: 199. In the scenario that excludes the housing boom the index level of 199 should have been reached in 2023. But unfortunately it is still only 2009 and we have index of 199 suggesting that the housing prices are still way too high. My conclusion: I am not buying. It is too early to call the bottom.

The Economy, And Why It's Taking So Long to Fix It

I am not sure what people are talking about when they say that we were spendthrift. The vast majority of the Americans did not waste money on lobster dinners and vacations abroad. The vast majority of Americans live paycheck to paycheck and an increasing part of their incomes goes directly into the coffers of credit card companies and other creditors who pray on them with high interest rates. The rest goes for medical expenses, student loans payments, etc. and very little is left. If not for Walmart, we would be walking around in tattered clothes and no shoes. We need to reform the financial industry, the healthcare industry, and the education industry because they take so much of our incomes. I think that Obama is on the right track with his top priorities being to reform these three industries. If he fails, our standard of living will keep going down and we won't get out of this recession for many, many years.

Inflation: Demand Destruction and Wealth Erosion Trump Money Growth

I wonder what it means to "destroy wealth". In terms of physical goods we don't have today less than what we had a year and a half ago when the market hit its peak. We have even a little more houses, cars, clothes, refrigerators, and large screen TVs. Are we poorer as a result of this? "Yes" is the answer that I hear all around me and it does not make much sense, does it? The total monetary value of all the physical assets is lower than a year and a half ago but this has nothing to do with the quality or the quantity of the assets themselves. At the same time we have an increased amount of money released by the government. For the time being the money is not chasing the physical goods (and intangible services) the way it usually does but once the confidence is restored, we will face the reality: approximately the same amount (or even smaller) of goods and services being chased by a much bigger amount of money. How is this not inflation?

Evidence That Big Inflation Is Coming

Yes, I finally got it. There are tons of fresh money that the Fed is trying to put in our pockets but we won't spend it because we are different people now. We are prudent, smart, idealistic savers. We realize now how foolish we were to spend money we didn't have and how overly optimistic we were and we won't do this again. Never, ever again. Really? Come on. Now we are just scared but the moment the unemployment rate starts inching down, or the moment the stock market starts inching up, or the moment Bernanke and Geithner say the worst is behind us, we'll rush to to the store with wallets full of fresh new greenbacks while the banks will be littering our way with plastic because they have to put to work all this money they were given. And it ain't gonna be Walmart where we'll be rushing to. More like Neiman Marcus. We have not change and we never will. You combine this fact with the fact of mounting money supply and you get the perfect conditions for the perfect inflationary storm.

Welcome to Parity

Pitaking is worried about the decreased velocity and thinks it's a sign of deflation but let's not forget that the equation of velocity has not only a numerator (total transactions*price level) but also a denominator (money supply). The velocity could be slowing down either because the numerator is getting smaller (lower prices and fewer transactions) or because the denominator is getting bigger (too much money). My guess is that all components are changing in the direction that slows the velocity: prices are falling, fewer transactions are executed, and the money press is running non stop.

The Shallowest Generation

I agree with most of this post. Unfortunately, this sober point of view is not shared by any of the powerful politicians. Both Obama and McCain voted to keep the frat party going on. The mainstream media and the mainstream economists are concerned with only one thing: how to keep the credit flowing. In order to sustain our economic growth we are gearing up to create another bubble or two: alternative energy seems the most likely candidate. There is one prediction in the article that is particularly interesting to me and I would appreciate if Mr. Quinn elaborates on this: the hint that there may hyperinflation ahead of us. Are we really heading in this direction and how likely is to experience hyperinflation?