The Unstoppable Rising Cost of Tuition

It’s funny how, in recent years, the cost of domestic services such as college tuition and health care – services that can’t be outsourced or purchased from abroad – have been two of the few items in the consumer price index that have risen relentlessly. The Economist looked at how college costs stack up with inflation and wages in this story the other day.

They note that college fees have been rising far faster than incomes. Perhaps if all higher education could be conducted somewhere in Asia where salaries are lower and benefits are not so generous, a college degree wouldn’t be so expensive.

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The “Bond Bubble”

[The following commentary is from the latest issue of the Weekend Update (Volume V, Issue 34) at Iacono Research. For subscription details, click here.]

The increasing amount of commentary on the subject of whether or not the world now faces a “bond bubble” combined with a recent article detailing the poor performance of inverse bond funds in 2010 seemed like sufficient justification to revisit a topic that was discussed here three weeks ago when I took “A Quick Look at Rising Rate Funds” (see Volume V, Issue 31).

Recall that, in the referenced discussion topic, short-term and long-term charts of Treasury yields were shown, in which it is clear to see that interest rates rose for decades to a peak in the early 1980s and have retreated from there to what now appears to be the end of another secular trend. Also, 13 inverse bond funds were presented in table form with the following three being suggested as likely candidates for the model portfolio when the time is right:

  • Profunds Rising Rates Opportunity 10 (RTPIX)
  • Rydex Inverse Government Long Bond Strategy (RYJUX)
  • ProShares Short 20+ Year Treasury (TBF)

Obviously, as should be clear when looking at the graphic below, the time has not been right over the last four months because all three of these “unleveraged” funds – a key consideration for a position that may be held in the model portfolio for a very long time – have been big losers. Funds that apply leverage of between 1.25x and 3x have done much worse than the 1x funds, in some cases the year-to-date losses exceeding 40 percent.

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When Suitcases Replaced Wallets

Spotted over at The Prudent Investor, this BBC documentary details the events that led up to the great Weimar hyper-inflation of the early 1920s. If you have 20 minutes or so to kill while waiting for the leaders to tee off at the PGA Championship, this is a great way to do it.

Parts two is below and this Wikipedia chart shows how bad things got in 1923.

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Prices Rise, Deflation Takes a Holiday

The Labor Department reported that the rising cost of energy products pushed consumer prices 0.3 percent higher in July following three straight months of modest declines, most recently a dip of 0.1 percent in June.

With all of the big year-over-year energy price increases now wrung out of the system, the annual rate of inflation now stands at 1.3 percent, up from 1.1 percent a month ago. Last month, energy prices rose 2.6 percent and are now 5.2 percent higher than a year ago.

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Chris Martenson was on tech ticker the other day and, when asked whether we’ll see in-flation or de-flation in the period ahead he replies with a resounding “Yes”.

Says Martenson: “The Continuous Commodity Index is absolutely screaming inflation at this point in time over the past eight or nine year timeframe, but, at the same time, we’re seeing houses decline in price, we’re seeing a number of other things – asset prices – move lower, which, I think is what the Fed is most concerned about at this point in time. So, I think we’re going to see both”. He’s also convinced that a double-dip recession is imminent.

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Is the Stock Market or Bond Market Right?

Another item from Dow Jones, this one offering a few thoughts by Allen Mattich on the subject of whether the stock market or the bond market is correctly forecasting the future.

One thing is certain, they both can’t be right and, at some point in the not-too-distant future, stocks and bonds will stop rising together. What would really stump market analysts is if they both started falling together… Oh Dear… Maybe I shouldn’t have brought that up…

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