patrick.net

Randy

A pithy post? I am impressed. ;)

While going back through some old threads I noticed some advice I gave DS once about the value of brevity. Then I saw the length of my topics. It's a great feeling when one laughs out loud at themselves.

I'm going to hold all my econobabble mumbo jumbo until tomorrow. Until then, I just want to read everyone else's comments :)

I expect a bifurcation of the value of the dollar. Internationally, the dollar will depreciate. Inside the US, the dollar will appreciate, to pay back all the debts that were built up. Americans will be poorer or, better, less rich, compared with the rest of the world, and won't be able to buy so much oil for themselves anymore.

Peter T,

That would be an rather painful scenario for Americans, especially since so many are leveraged to an inch of their economic life (that's a bit of a pun, since bankruptcy is essentially the death of the legal person).

I just read about BP shutting down their Prudhoe Bay operation for pipe repair. That sounds rather bad, especially when oil prices are already so high and August tends to be the peak of the summer travel season.

ajh,

How much leverage does the US really have to inflate its foreign debts away?

I would be curious about how inflation and the bursting of the housing bubble plays out in November.

Woops –sorry Randy. I was furiously typing away at "In the Mind of a F@cked Borrower" and published before I saw your “Inflation” thread.

ajh,

I've never paid a CA electric bill, so I googled this up

http://www.insidebayarea.com/trivalleyherald/oped/ci_4114568

" Under the new rate plan, a customer who chooses time-of-use rates will pay 9 cents per kilowatt-hour during off-peak times, rather than the normal rate of 11 cents an hour. They will pay the same 11 cents an hour as everyone else during partial peak hours. And they will pay the premium rate of 21 cents an hour during peak periods, from 1 p.m. to 7 p.m. weekdays.

A second option, known as critical peak pricing, would charge 60 cents per kilowatt-hour during peak times on no more than 15 of the hottest summer days each year. During all other hours from May through October, the customer would get a 3 cent per kilowatt-hour discount off the regular price. "

So price does play a part. I know that CA has some of the highest energy prices in the US, because of their reluctance to build new electric plants within the state and partly as a legacy of the Enron caused energy crisis.

But $1000/month heating or cooling bills seem rather common. Last winter, my mom's coworkers were running $600/month gas bills on their modest 200 sq meter homes. $1000/month seems rather common in the hotter and colder parts of the country like Houston and Buffalo.

Consumption habits, the size of houses, outside temperature, building codes, and the type of the household electronics. By and large, American appliances are use a lot of energy - Americans are on the whole likely to have central HVAC (instead of window units), hot water boilers (rather than coil heaters that heat water as needed), use HVAC instead of room heaters or fans, live in 300 sq meter or bigger houses, and so on.

My parents consistently kept their electric and gas bills at 1/3 to 1/2 that of their neighbors, simply by keeping the thermostat at 85F during summer ( venting at night and turning off AC during the day and spending a lot of time in the basement) and 45-50F during the winter.

My parents consistently kept their electric and gas bills at 1/3 to 1/2 that of their neighbors, simply by keeping the thermostat at 85F during summer ( venting at night and turning off AC during the day and spending a lot of time in the basement) and 45-50F during the winter.

I can live wth 45-50 during winter. But I cannot set the thermostat above 75 during winter.

I need to review the rate plans though.

Is Peter T ptiemann?

I know that CA has some of the highest energy prices in the US, because of their reluctance to build new electric plants within the state

I'm pretty sure that's a myth (or maybe I have it confused with refineries).

But it makes sense. As a capitalist, you're looking for the best returns on your invested capital.

So... why would you want to invest in a deregulated power plant? Why would you want to put money into something that's only going to add to supply and lower prices?

You'd be better off putting that money into a HSBC savings account and get 5% interest on it!

In an unregulated world, building a power plant is a stupid investment. (Unless, maybe, you're in the business of selling some really high profit device that consumes a lot of electricity I guess.)

oil's just gone up again... bp america just shut down the biggest american oil field in alaska with 'severely corroded' pipes, and there will be a ripple effect around the world... not to mention israel/iran and nigerian uncertainty...

Sean Who Is Not Different Sean Says:

he's back! I knew i shouldn't have changed my name... unless it's a different sean...

Harm,

NP, we can run more than 1 thread at a time.

RE: Inflation, below is an editorial from yesterday's (8/7) WSJ: basically, as many of us suggested, the Fed is in a damned if you do, damned if you don't position.

http://online.wsj.com/article/SB115490432853028234-search.html?KEYWORDS=inflation+fed&COLLECTION=wsjie/6month

It concludes,

The Federal Reserve has a difficult task ahead. It is understandable that it would like to achieve the soft landing of low inflation with continued solid growth. But that may not be possible. And if the Fed wants to convince the markets that inflation will be contained in the future, it must show that it is willing to take the risk of tightening too much.

Randy said:
DS,
Can you provide reference for the history of Fed reserve requirements over the past 3 decades?

wrong sean, randy, but i'll answer for him, heh.

seriously, NI. the intricacies of the banks and Reserve don't interest me, except inasmuch as they are a sop propping up the rot of capitalism and usury, good on the other Sean for having a go tho...

my answers are:
'if banks didn't exist, it would be necessary to invent them', and
'they (bank managers) will be the first against the wall, come the Glorious Revolution'

i think First Sean makes a good point about cheaper commodities disguising inflation of other sorts... i personally fear 'flow-on' inflation from the housing boom, the latest oil price shocks, etc...

the 'Fed' here (Reserve Bank) just raised interest rates 25 points again 2 days ago... clearly this will cool the housing market some more, in conjunction with petrol prices at the pump. the hottest markets have already plateaued and cooled for 1-2 years. however, i'm still getting emails suggesting where the next 'hot market' will be for keen specuvestors, i.e. in commodities-rich areas, the 'quarries of Asia'. these greedy spruiking f*ckers should be shot, it's a sick, rotten society...

Sean Who Is Not Different Sean

So again: when were reserve requirements last changed?

Sorry to beat on this, but with all the "big evil Fed fiat hedonic conspiracy" talk around here, I'd just like to know exactly when and how the Fed has supposedly pulled the rate lever one direction while moving the reserve lever the other.

hmmm, anti-Federalists...

Anyone have the word on the Fed rate hike/no rate hike yet?

HARM Says:

Anyone have the word on the Fed rate hike/no rate hike yet?

"Minutes are released at 2:00 p.m. (eastern time) unless otherwise noted."

from,

http://www.federalreserve.gov/FOMC/#calendars

2:15ET, or whenever you start seeing volume spike on the big board, whichever comes first.

5.25%. The pause is upon us. The statement sounded like as much a pause as a hold to me.

I get the feeling rate hikes are over for the time being. Dove.

Only 1 dissenting vote (Lacker, who wanted another hike). What a bunch of losers. Bendover Ben really fits now.

Barnanke will be a short-termer, especially if this is the dawn of stagflation.

I don't know why he didn't at least use the recent oil-shock as an excuse to pre-emptively cut inflation.

Oil-shock + high debt + slowing economy + inflation + flat rates = future unhappiness.

Bill Gross on CNBC right now.

Sucks for us non-homedebtor savers, but can't say I didn't fully expect it. Pausing is the path of least political resistance right now, and gives the appearance of "helping out" distressed FBs. I don't think Bendover Ben wants to endure another Senate grilling at the hands of Jim Bunning anytime soon.

My view of soft-landing v hard-landing has shifted a little further towards soft.

You can still do ok as a saver if you revisit your diversification strategy. Short rates are very strong right now, and may actually rise with a slowing economy.

Got GLD anyone?

The pause was already priced into GLD. GLD dropped slightly on the news.

Randy H Says:

My view of soft-landing v hard-landing has shifted a little further towards soft.

It still seems possible to me that BB's wussing out will only serve to delay the inevitable correction. As all asset bubbles are inherently unstable, an alternative outcome is that this will make for a harder landing in the end, just farther down the road.

Long & short rates already dropping, but yield curve maintaining inversion:

http://www.bloomberg.com/markets/rates/index.html

Maybe we are in for a Japan-style "soft landing." Unfortunately, 20 years later they are just now starting to take off again.

I prefer the Volcker approach. Get it over with. Like ripping off a band-aid.

From ben's blog --thought you'd appreciate it:

Comment by moqui

last week; buy now b/c rising interest rates will price you out of the market forever.
this week; buy now b/c rising inflation will price you out of the market forever.
Realtors confuse Mongo...

Will the pause effect cd rates? I'm short term right now - should I look into longer term cds? I'm worried about my down payment savings.

lanarpark,

In my opinion, there's not a huge amount to worry about unless your savings are pretty large. If you're talking about enough $, then look into a large fund group like Vanguard. There are lots of tax-exempt and tax-managed vehicles there that will beat CD rates at a very low risk profile.

Randy,

Thanks. I appreciate your input. I'm going to check out Vanguard.

Randy,

I have been wondering the same. How "safe" are the money market funds ? Esp. the CA tax exempt ones ? If FDIC is 100% on scale of safety, are these 99% ? How do I determine their risk ? Historically, they have been very safe. But can a long term recession increase their risk ?

Thanks in advance.

Stuck,

(here we are talking only about market risk, not inflation risk, which complicates things tremendously)

I personally think the money funds are pretty safe. They are 100% safe up to 100K for FDIC deposits. Call those a market risk of 0, and the S&P a risk of 1.0, then most of the Tax-Exempt money & bond funds come in 0.2 or lower. I think Vanguard has one that ranks about 0.3, but it is a short-term tax-exempt bond fund with a small portion invested below premium. Maybe it's an ultra-short fund, now that I think of it.

I'm not affiliated with these guys, but I recommend them often to friends and family because I like their approach:

http://www.financialengines.com

They use a pretty sophisticated Monte Carlo simulation to do a mean-variance-optimization of your investment based upon whatever goal and time frame you set. Most of it is retirement-focused, but I've used it to set up home-purchase goals for folks. It lets you carefully evaluate the riskiness of any portfolio, and then you can slide a little bar up and down to fit your own sentiment.

It's a pay service. Not free though.

As for the risk of commercial paper suddenly failing, you're talking about the simultaneous destruction of the balance sheets of just about every public corp in the US and most globally. I'm not going to stay awake worrying about that.

If you want to factor in inflation then you need a much more sophisticated model. Mainly because various stocks/sectors/funds have different exposure to inflation.

SGV,

Thanks for the repost. Obviously some of that was satirical and some of it wishful thinking, but I still stand by the reasoning (except for the last couple of points which are my dream).

The problem is this:

* But the Fed has to raise rates again and again to keep inflation in check.

If that point fails to occur, then all bets are off. At least for now, that is the case. Many FedWatchers are saying today's comments signal an end to rate increases, not just a pause. In fact, the market priced in about a 20% chance of a CUT at the next Fed meeting, at least according to some talking head on CNBC (I'm not a Fed Watcher, so I cannot independently verify this, but someone here will correct me).

If rates EASE, then inflation kicks up -- continuation of the credit bubble. Here's my forward looking view based upon that possible case:

* The Fed Eases rates.
* Inflation ticks up much worse than my previous scenario.
* But, it is largely hidden at first because of a weird, quiet, lingering "near-recession" that isn't called a recession for probably 6+ quarters.
* Because of the falling consumer confidence, the Housing Bubble soft-lands.
* The credit bubble goes on to fuel another speculative bubble. Probably not just one, but a few simultaneously. An easy guess is the stock market + other smaller, but rapidly inflating things like gold, commodities, maybe even a giant expansion of millions of "self-employed small businesses". Imagine everyone able to get free money to start their own little company, work from home, and think they're going to sell it to some bigger company for 100X in a year or two.

Eventually all that ends in stagflation and a new Fed Chairman who surprisingly resembles the zombified corpse of Paul Adolph Volcker.

But really, isn't September a bit late for a rate hike? Wouldn't they just wait til after the November elections to do it? The Fed's move this time is obviously motivated partly by political pressure, wouldn't that pressure increase by September?

Conor,

Thanks. He did say that (actually 25% hike). But he wasn't invoking Fed Futures, but something including Economists consensus, which included a 20% easing sentiment.