There’s probably some truth to this view of how millions of unemployed American workers see things these days. Twenty percent does seem kind of high though…
From the Joel Pett archive at the Lexington Herald-Ledger.
REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.
On August 23, 2010,
in Economy,
by Tim
On August 23, 2010,
in Bonds,
by Tim
There will be much more about the “bond bubble” here tomorrow via some excerpts from the current issue of the Weekend Update at Iacono Research, but, it’s pretty hard not to hear people talking about this subject these days, conditioned as we are to expect another bubble of some sort. Here’s a good summary of the situation from Adam Shell at USA Today.
Those warning of a bubble say the infatuation with U.S. Treasuries – long considered one of the safest investments in turbulent times -may be morphing into a fatal attraction. Some analysts and academics, such as Citigroup’s chief U.S. equity strategist Tobias Levkovich and University of Pennsylvania Wharton School finance professor Jeremy Siegel, compare this love affair with U.S. debt with investors’ head-over-heels crush on technology stocks in 2000.
The risk is that just as tech stock investors thought the good times would never end, current bond fund investors have a too pessimistic view of the future.
The anti-bubble crowd, including David Rosenberg of Gluskin Sheff and Julian Jessop of Capital Economics, argues that the massive shift into bonds is rational. They say that low yields make financial sense because inflation is virtually non-existent, the Federal Reserve has said short-term rates will remain near 0% for a long time, the economic recovery is losing steam, and risk assets such as stocks are performing erratically.
Those warning of trouble ahead point out that investors are leaving stock mutual funds and piling into bond funds, including funds that invest in Treasuries, in an extreme fashion. Since the start of 2008, bond funds have had $601 billion of cash inflows, vs. outflows of $240 billion for stock funds, the Investment Company Institute says.
Perhaps the Federal Reserve should look into this possible new bubble, that is, the same group that just announced they’ll buy almost $300 billion more Treasuries over the next year with what could possibly be trillions more in purchases in a second round of quantitative easing that looks like it will come sooner rather than later.
The Economist reports on the rising rate of personal bankruptcy filings since sweeping new laws were enacted back in 2005, right around the time the housing bubble was fully inflated.
One could argue that this is yet another case of U.S. government policy “pulling demand forward”, that is, demand on the part of U.S. consumers to more easily wiggle out of debts that they owe. At The Economist they note, “The data suggest that an older trend is reasserting itself. This could be more bad news for America—or it could just mean that creative destruction is alive and well.” Bet on the former, not the latter.
On August 23, 2010,
in Banks,
by Tim
More warnings about the perils of “too low for too long” come from the IMF chief economist Raghuram Rajan and former BIS head William White in this story at Bloomberg.
Raghuram Rajan accurately warned central bankers in 2005 of a potential financial crisis if banks lost confidence in each other. Now the International Monetary Fund’s former chief economist says the Federal Reserve should consider raising rates, even as almost 10 percent of the U.S. workforce remains unemployed.
Interest rates near zero risk fanning asset bubbles or propping up inefficient companies, say Rajan and William White, former head of the Bank for International Settlements’ monetary and economic department. After Europe’s debt crisis recedes, Fed Chairman Ben S. Bernanke should start increasing his benchmark rate by as much as 2 percentage points so it’s no longer negative in real terms, Rajan says.
“Low rates are not a free lunch, but people are acting as though they are,” said White, 67, who retired in 2008 from the Basel, Switzerland-based BIS and now chairs the Economic Development and Review Committee at the Paris-based Organization for Economic Cooperation and Development. “There will be pressure on central banks to follow an expansionary monetary policy, and I worry that one can see the benefits, but what people inadequately appreciate are the downsides.”
He and Rajan will have the chance to make their case at the Fed’s annual symposium in Jackson Hole, Wyoming, this week. In 2003, White told attendees central banks might need to raise rates to combat asset-price bubbles. In 2005, Rajan, 47, said risks in the banking system had increased. They were met with skepticism from then-Fed Chairman Alan Greenspan, 84, and Governor Donald Kohn, 67.
Will they listen this time? Probably not. Yes, the Kansas City Fed’s annual group therapy session is being held in toney Jackson Hole this week. Maybe yours truly should take a drive down there and have a look around – it’s only a few hours away.
On August 23, 2010,
in Banks,
by Tim
The physical embodiment of excessive self-confidence and arrogance is on display in this clip of former Fed Governor Frederick Mishkin who is confronted about a 2006 paper he wrote sanctioning banking practices in Iceland for which he was paid $124,000.
It’s not clear which was the bigger sin here – blind faith in central banking (i.e., “You have faith in the central bank” as a basis for thinking the Icelandic system was sound) or that he was a paid shill who, if memory serves, also makes a ton of money on textbook sales.
See also: Zero Hedge, Jr. Deputy Accountant, WC Varones, Max Kaiser, Mish, FavStocks
On August 23, 2010,
in Uncategorized,
by Tim
MUST READS
Mortgage Fraud Is Rising, With a Twist – WSJ
Wall Street debates prospect of bond bubble – USA Today
America no longer needs Chinese money, for now – Telegraph
Housing Fades as a Means to Build Wealth, Analysts Say – NY Times
Housing Slide Threatens to Drag Economy Into Recession – Bloomberg
USD Collapse in the Cards – Hussman, The Burning Platform
“We the Parasites” Benefiting from HAMP – Firedoglake
Let’s Change the Debate – Noland, Prudent Bear
Debt’s Deadly Grip – NY Times
MARKETS/INVESTING
Oil above six-week low as dollar slips – Reuters
Gold Hovers Around $1,230 Amid A Mixed Dollar – RTT News
Russia’s grain harvest falls 25%: Hints higher imports – Commodity Online
Investors Shake Up Fund Industry With Record Bond Love Affair – Bloomberg
Bonds are Most Certainly NOT in a Bubble – Wall Street Cheat Sheet
Gasoline prices should fall after Labor Day – Washington Post
Still in stocks? You’re hardly alone – LA Times
ECONOMY/WORLD/HOUSING/BANKING
The Economy Must Change – American Thinker
Bury Keynesian Voodoo Before It Can Bury Us All – Bloomberg
False Shanghai data muddies China property picture – Fox Business
U.K. Economy Set to Take a Pounding as Traders Turn Bearish – Bloomberg
Euro crisis has not gone away, it is merely masked by other troubles – Telegraph
More than 35,000 short sales, DILs done on failed HAMP mortgages – REO Insider
Federal aid doesn’t go far in solving Valley’s foreclosure crisis – McClatchy
Bernanke Must Raise Benchmark Rate 2 Points, Rajan Says – Bloomberg
Inflation, not deflation, Mr. Bernanke – MarketWatch
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