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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.

U.K. Inflation at 4.4% and 5.5%

On March 22, 2011, in Economy, Europe, by Tim

They’ve got quite the festering inflation problem over there in the U.K., the latest report pegging consumer prices at 4.4 percent above where they were a year ago, the highest annual rate since late-2008, and it seems that assurances from the central bank that the condition is just temporary aren’t having the desired effect.

The government’s other measure of prices – retail price inflation, which includes mortgage interest payments – just notched a 5.5 percent annual increase, the highest its been in 20 years. From the U.K.’s Office for National Statistics comes the following graphic that the British people are probably all too familiar with by now.

Central bank chief Mervyn King said that inflation-adjusted wages will probably fall again this year as they did in 2010, a feat that is not difficult to achieve at these levels of inflation, and for the first time since the 1920s, real wages are below where they were six years prior.

People are starting to get a little worried and there have been calls for Chancellor Prime Minister Osborne to include energy subsidies in his upcoming budget so that workers can still afford to go to work. Much of the recent price increases have been due to the Value Added Tax being raised from 17.5 percent to 20 percent two months ago, however, last month, heating fuel costs continued to rise and clothing prices surged 3.6 percent.

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Buy Japan!

On March 21, 2011, in Asia, Stocks, by Tim

Stock market mavens have been yelling “Buy Japan!” at the top of their lungs for about the last week, ever since the earthquake and tsunami struck and the Nikkei Index tumbled 20 percent (it’s already gained about half that back). In this story at Reuters, billionaire investor Warren Buffett  talks about how recent events have created a buying opportunity.

If not for the growing headwinds facing the global economy and Japan – rising food prices, rising energy prices, rising debt troubles, and the possibility of widespread contamination due to the nuclear crisis to name just a few – buying Japanese stocks “with both hands” would seem to make a good deal of sense.

But, with those concerns casting a pall over markets this spring, I’m not so sure…

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Consumer Prices Rise at 5% Annual Rate

On March 17, 2011, in Economy, by Tim

The Labor Department reported that, due to higher energy and food costs, consumer prices in the U.S. rose 0.5 percent in February after gains of 0.4 percent in December and January, an annualized rate of more than 5 percent over the last three months.

From a year ago, overall consumer prices are up 2.1 percent, however, this includes several months of flat or falling prices in early-2010, a trend that abruptly reversed last summer.

While the one-year inflation rate is now the highest since April of last year, the last three months have seen the sharpest increase in consumer prices since mid-2008, just prior to the financial crisis, as indicated in the chart above.

(more…)

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Is Barack Obama the New Jimmy Carter?

On March 14, 2011, in Commodities, Economy, by Tim

Yes, he’s oftentimes pompous, but Niall Ferguson also oftentimes says things are well worth listening to, things like the decline of empires and, starting at the 4:55 mark in the video below, where he compares the current era to the 1970s and Barack Obama to Jimmy Carter.

I think it all adds up to a pretty bearish scenario because of all the inflation implications of what we’re seeing right now. You already had massive deficits and money printing in the developed world. On top of that you had enormous demand-side pressure from China relative to commodities. And now you’ve got the prospect of massive geopolitical disturbance in the great oil-producing centers of the world. I mean, that has to be a pretty inflationary scenario. The best case is that we’re about to re-run the 1970s, only with Barack Obama instead of Jimmy Carter in the White House.

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Gold and Silver as Legal Tender in Utah?

On March 14, 2011, in Currencies, Our Culture, by Tim

It’s not clear whether Utah’s governor will sign off on the bill and, if so, what sort of logistical problems will be faced when enacted, but the state legislature sure seems to think it would be a good idea to get gold and silver circulating again in the economy as legal tender – at market value, not face value.

Details are provided in this story at Mineweb as economists and financiers in New York along with elected officials and sound money opponents in Washington are no doubt shaking their heads about those crazy hard money advocates in flyover country.

A bill which requires Utah to recognize gold and silver as legal tender is now awaiting the signature of Republican Gov. Gary Herbert, who has yet to take a stance on the issue.

However, HB317 does not compel a person to tender or accept gold and silver coin. The measure also requires gold and silver coins to be valued at their current market value.

Larry Hilton, an attorney and insurance salesman who authored the Utah Sound Money Act, told the Salt Lake Tribune last December, “It’s not intended to be compulsory in any way. The state is offering to taxpayers, ‘If you want to pay your taxes in gold or silver, we’ll accept them.’”

Meanwhile, the bill also establishes a nonrefundable credit for any capital gains incurred “from the exchange of gold and silver coin issued by the federal government for another form of legal tender…” While gold and silver transactions would be exempted from the state’s capital gains tax, they would still face federal taxes.

Recall that gold and silver coins are still legal tender in the U.S., that is, if you’re looking to, basically, throw money away by using them as such. It has always struck me as one of the great monetary anomalies in this country where you can take a one ounce gold coin that says $50 on its face and either deposit it in your bank account in return for a credit of $50 or go across the street to a coin shop and get almost 30 times that amount in cash.

Apparently, almost a dozen other states have similar legal tender bills, but none have made it this far. But, with gas prices approaching $4 a gallon again, that might soon change.

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Only 197 Economists are WSJ Readers?

On February 21, 2011, in Asia, Commodities, by Tim

While the central bank continues to receive strong support from the nation’s legions of economists (more on that tomorrow), according to the nearly 1,000 votes cast for this poll at the Wall Street Journal, overall, respondents think the Federal Reserve is a major factor behind soaring global inflation and growing asset bubbles.

It seems pretty clear that, even if the money printing isn’t directly responsible for higher prices around the world, Bernanke’s role as “cheerleader in chief” for higher equity prices has had a rather large spillover effect  on other risk assets such as commodities. Yet, Ben Bernanke continues to claim that inflation outside of the U.S. is not his problem.

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