Lisa

The Reverse Wealth Effect

Excellent overview.

Here's an alternative way of looking at the situation:

Unlike the 70s, there's no wage-price spiral now. Inflation is being fuelled by growing global demand due to the opening of the Soviet Union and E Europe and the economies of China and India. That's boosting demand for commodities, particularly oil. But wages are being held down because those countries are also supplying a ton of low-cost labor. As a result, it's hard to imagine that there will be an inflationary spiral as there was in the 70s.

Rather, we're suffering from a repricing of commodities due to a step shift in demand. That means that countries like the U.S. are facing a decrease in relative wealth, because their "cost of living" just went up due to external factors. Nothing to do with printing money. U.S. consumers now have less to spend on other things, because the price of gas and food just went up. Combine that with a negative wealth effect from declining house prices as the article suggests, and there's a big hit to consumer demand. A weak U.S economy will lead to loose monetary policy, and that will leave the dollar weak. Weakness in the U.S will spread to Europe and China; it's only a matter of time.

How best to invest in that environment? The only thing I can think of that's a cert is agricultural commodities. But as the comment above points out, that's somewhat backward looking.

Muni Bond ETF Yields Holding Steady

Perhaps the closed-end funds are a better bet, if they're trading at a discount to NAV. Any thoughts on any of the ones listed here?:

seekingalpha.com/artic...

Four Subprime ETFs

I didn't know that there was an ultrashort real estate ETF -- thanks. Great article.