Saturday, April 25, 2020

Stagflationary Mark on Inflation

We've been able to bring Stagflationary Mark (proprietor of the Illusion of Prosperity blog) out of retirement and he's commenting on recent posts. He made a good point last night that everyone should see:

In February 2011, Jeremy Siegel said, "As economic growth recovers and real rates rise, the price of Tips will fall leaving Tips investors with large losses in the face of accelerating inflation."

This is my favorite quote of his. It’s been a recurring theme on my blog.

30-year TIPS real yield then: 2.10%
30-year TIPS real yield now: -0.19%

Thankfully, was never a believer in the economic growth will drive real rates higher theory. Never experienced the large losses. Far from it. That theory only makes sense if the prosperity isn’t illusionary and the economy can therefore tolerate higher real yields without imploding.

Was also never a believer in the Treasury Inflation Protected Securities (TIPS) would leave me with large losses in the face of accelerating inflation theory, either. Maybe it’s because those bonds would be inflation protected in the face of accelerating inflation. Go figure. Fortunately, never really had to test that theory. Inflation never really did accelerate.

2.10% was a gift for risk-averse long-term investors, and I wish to thank Jeremy Siegel and his mindset for helping to make it possible. Locking in an acceptable real yield with intent to hold to maturity never caused me to lose much sleep. Unfortunately, those days are over. Now we can all lose sleep together. Those of us paying attention, anyway.

Just before writing this, I purchased I-Bonds and EE-Bonds for the year. Wanted to get the purchases in before rates reset on May 1st. The former are tied to the inflation rate but cannot deflate. The latter double in value if held a full 20 years (effective 3.53% annual interest rate). No greater fool ever needed.

The Federal Reserve has to maintain a delicate balance. I say that they will err on the side of sliding into Japan’s situation instead of Zimbabwe’s situation. Japan has clearly shown that as dire as it always looks, it has still been manageable. At least so far, they never really lost control. Zimbabwe’s situation is the immediate end of America as we know it. Lesser evil thinking. Delay and postpone. That’s the only end game there is now.

The Fed cannot risk any resemblance to the 1970s repeating from here on out, because the next time we will probably never pull out if it. It was so hard the first time.

The Fed can risk ZIRP and Japan level deflation though. They will stay in control. I’m thinking best case for them, given current conditions, is 0% inflation with 0% interest rates. Gives the Fed temporary infinite power to protect the banking system. There’s no way out of the trap. It will obviously fail someday. But perhaps after I’m dead.

Real yields too low and toilet paper won’t be the only thing people are hoarding. Too high and the economy implodes. That’s why I’m betting on 0%. Is it a coincidence that Japan ended there for both inflation and interest rates? Maybe not! Lesser of all evils I’m thinking.

And lastly, remember that long-term fed funds rate chart I did? It was an exponential decay chart that ends at 0%. Well, it’s happening again. We’re right back on trend. There may come a time, like Japan, when a quarter point increase in the fed funds rate is thought of as draconian. And back down to zero we will go.

Just theories. If I knew everything, then I wouldn’t have called myself Stagflationary Mark, lol.

Glad I backed up the truck on long-term TIPS quite a few years ago, back when I was told there was a bond bubble. The ones that mature in 2040 and 2041 are still paying me 2.13% over inflation. I should probably sell them to those now settling for negative yields, but I already cashed out the one TIPS bond filling my retirement account. That’s all cash now and it’s patiently waiting for fairly low risk long-term opportunity. I’m reasonably content.

If the Fed intended to shock and awe me into taking serious risk, they have failed miserably. I have never been this content in cash. I saw two different predictions for oil this week. One was negative $100 (short-term);and the other was positive $100 (longer-term). Feels like a casino and far too obvious, like nice round numbers are just being pulled out of a hat for many retail investors to choke on.

The Fed could easily get us to hyperinflation if the banking system truly wanted that. All they would need to do is announce a $180+ trillion program to protect America’s $180+ trillion pre-crisis net worth. The Fed most certainly does not want that though. Instead, they offer a much, much smaller program with intent to shock and awe us into believing they will toss unlimited amounts of money from helicopters.
Today, the National Review wrote that "it really doesn’t matter which economic theory you subscribe to, they all arrive at the same destination — more inflation."

Speaking of Japan, we have an update on the Japanese consumer price index. It's up about 2% - total - over the past 20 years. Meanwhile their central bank balance sheet has expanded 6x. Japanese stocks are flat over that time period. Their 10 year bond has occasional positive yields now, but hovers around zero. What I said in 2014 about Japan:
On a long term view, Japanese CPI increases seem to have stopped right around the time that serious yen printing started. The "increased monetary base causes increased CPI" thesis has sprung a leak, and the inflationists are out of buckets. Clearly there is a different, lurking variable. In fact, an increase in monetary base and a fall in the inflation rate both look like dependent variables of population!
The expansion of the Federal Reserve balance sheet (money printing) is not exactly a secret, and seems to be more than priced in, at least in the assets and commodities that rich people buy because they think they will protect them from inflation. Lumber is cheap, but timber land is not.

The Federal Reserve balance sheet expansion is easy to measure, and people obsess about it. Deflationary forces are real, but harder to measure.

27 comments:

Allan Folz said...

Mark, that was an excellent comment!

It's hard to argue with the point that Central Banks have done a remarkable job ring-fencing the money billionaires use to keep score from the money the rest of us use to live.

It's not perfect by any means, but it really is remarkable. People, myself included, have been in disbelief about it for between 10 and 30 years.

Seems to suggest it all comes down to demographics.

Also, while I find it terribly upsetting that it is such a waste of what could be, when you look at the average person -- heck, maybe 2/3rds on down -- they don't appear capable, on multiple levels, of handling the freedom and self-determination that a more balanced distribution of wealth would provide them. It suggests while I can lament its loss, the most probable alternatives might well be a whole, whole lot worse.

CP said...

The provisional number of births for the United States in 2018 was 3,788,235, down 2% from the number in 2017 (3,855,500). This is the fourth year that the number of births has declined after the increase in 2014, and the lowest number of births in 32 years (1986).

The provisional general fertility rate (GFR) for the United States in 2018 was 59.0 births per 1,000 women aged 15–44, down 2% from the rate in 2017 (60.3), another record low for the nation. From 2014 to 2018, the GFR has declined by an average of 2% per year.

The provisional total fertility rate (TFR) for the United States in 2018 was 1,728.0 births per 1,000 women, down 2% from the rate in 2017 (1,765.5), a record low for the nation. The TFR estimates the number of births that a hypothetical group of 1,000 women would have over their lifetimes, based on the age-specific birth rate in a given year.

The TFR in 2018 was again below replacement—the level at which a given generation can exactly replace itself (2,100 births per 1,000 women). The rate has generally been below replacement since 1971 and consistently below replacement for the last decade.


Allan Folz said...

People been calling for a mini baby boom on account of the lock down. Maybe that's what they really wanted.

Allan Folz said...

Also, the rejoinder to my first post is:

1) our technocrat elite, positing there actually was one, for multiple reasons is far, far less competent today than they were one and two generations ago.

2) our 1% feels far, far less noblesse oblige toward the rest of society than whatever modicum they had in the second half of the 20th century.

3) a multi-cultural society is inherently unstable, which greatly reduces the margin of error on keeping a highly complex trickle-down asset inflation (or centrally planned trickle-down economics as I also like to call MMT) not too hot and not too cold.

In other words, they are making their job harder at the same time that they are reducing their competency to pull it off.

Mark and the rest of us may well make it out dead (heh), but it's tough to be equally sanguine for our posterity, at least among us that have any. Sadly, that's become just another quaint anachronism from the Constitution, like so many of the first 10 amendments.

Stagflationary Mark said...

As a locked down introvert during a pandemic and economic crisis, I really enjoy reading your blog. It passes the time and keeps me thinking. I do have one complaint though. As I read this latest post, I can’t help but agree with it. The more I read my own words, the more I worry about confirmation bias! Hahaha! :)

I therefore have a bonus chart for your consideration. In the distant past, on my blog, I claimed that it would be harder and harder to make money off of money. That’s the main reason I was so willing to lock in a relatively high (compared to today) real yields.

Total Savings / GDP

1. How am I supposed to make money off of money when there is so much of it?
2. The data only goes through 2019. This is pre-pandemic and pre-economic crisis.
3. We know the denominator (GDP) is doing down right now. Where it stops, nobody knows.
4. We know the numerator always goes up (the exception being minor temporary noise).
5. $1200 in stimulus appeared in my checking account recently. I spent $25 (2%) of it on a completely discretionary compact Bluetooth speaker for my iPhone and iPad. Yay! The other $1175 (98%) now sits mingled in with my savings. Boo! Hiss! Bad consumer! Bad! Bad!

And before we start talking about hyperinflation in a meaningful way (as opposed to deflationary Japan), somebody probably needs to explain to me how I only spent $25 (including 10% sales tax and free shipping) on a wireless speaker that includes an internal rechargeable battery, that’s smaller than a baseball, 50% heavier than a baseball, adequately fills a room with reasonably quality music (for its size), and no doubt has more processing power than the $999 TRS-80 Model III that I bought in the early 1980s (that was definitely not shipped to my house for free). The Fed is dropping money from helicopters again. Right? So why so cheap? Why didn’t they immediately raise their prices on the news? Or is that not how it works? *sarcasm*

Stagflationary Mark said...

Allan,

It's hard to argue with the point that Central Banks have done a remarkable job ring-fencing the money billionaires use to keep score from the money the rest of us use to live.

Rumor has it that if the billionaires even hint that they might lose their interest in keeping score with hoarded money and instead decide to keep score with hoarded toilet paper and hoarded canned goods tonnage, the government has a plan. There’s a warehouse filled with emerald, platinum, gold, silver, and aluminum lapel pins. You don’t want to be the billionaire forced to wear the aluminum lapel pin at the golf tournament just because you unloaded all your score keeping cash. Amirite? Ha!

P.S. The emerald lapel pin requires $1 trillion in personal cash savings. A worthy goal for those keeping score. Or so I am told by the individual who started the rumor. Me. ;)

CP said...

All other things being equal, you would expect a sixfold increase in the supply of money to result in some decrease in the value of money.

In Japan, that happened but the consumer price index remained flat - for 20 years. All other things must not be equal.

I hypothesize that there are countervailing factors that prevented the price index from rising despite the monetary expansion. Since they countered inflation, why not call them "deflationary" "forces"?

Stagflationary Mark said...

CP,

I hypothesize that there are countervailing factors that prevented the price index from rising despite the monetary expansion.

I think we may see inflation and deflation be less uniform than usual (and it never was very uniform).

Let’s say that you’re an extrovert. You currently live in a crowded condominium inside a large city. You enjoy all that the city has to offer. You rarely eat at home.

1. The value of your condominium may fall as at least some people wish to move to the suburbs due to social distancing.
2. Restaurants, arenas, movie theaters, gyms, and anywhere else that counted on crowds to make money will need to raise prices in order to stay open. If they can’t raise prices, they will close.
3. Since businesses that counted on crowds to make money are either raising prices or closing, the value of your condominium may fall.

Let’s say that you’re an introvert. You currently live in the suburbs. You often eat at home.

1. The price of your home may rise (at least some people no longer choose to live in crowded cities).
2. As more people choose to have groceries delivered to their homes, the process will eventually become more efficient. As a process becomes more efficient, the price falls.
3. Home entertainment choices will continue to expand.

I was outside doing some yard work recently. One of my neighbors asked me (from a very safe distance) how we were holding up during the lockdown. I joked that as introverts, we seem to be doing okay. Not much has changed. She laughed. It’s true though.

Not a good time to be an extrovert. It is estimated that extroverts outnumber introverts 3 to 1. I don’t think an extrovert can adapt well to becoming an introvert any better than I could adapt well to becoming an extrovert. Therefore, do we just pretend none of this ever happened and go back to the way it was before the pandemic? Maybe. If reality is too painful then we may cling to the illusions. Wouldn’t be the first time.

My girlfriend recently gave me a haircut out of necessity. As a first attempt, it wasn’t half bad. As an introvert, never really enjoyed having strangers cut my hair (the exception being one person who cut my hair for years until he moved away). Do I continue to get haircuts at home once the lockdown is over? Maybe. Not good for the local strip mall though.

Carl Icahn is hoarding cash and shorting commercial real estate. I certainly understand the appeal of cash right now. If you shouldn’t hoard cash when long-term TIPS yields are negative, stocks seem very overvalued, unemployment is spiking higher, many businesses are closed and/or struggling, oil recently hit negative $40 per barrel, and we’re in the midst of a pandemic, then when exactly should you hoard cash? Never? Never never works for me. Never say never, lol. Sigh.

Stagflationary Mark said...

2019 Novel Coronavirus Outbreak (COVID-19)

On January 21, 2020, the Centers for Disease Control and Prevention (CDC) and Washington State Department of Health announced the first case of 2019 Novel Coronavirus (COVID-19) in the United States in Washington state.

Same day:

January 21, 2020
10 potential risks to the global economy in 2020

A recession is inevitable, but less likely in 2020 than in any of the previous 10 years.

Fantastic!

Inflation and long-term interest rates will probably rise somewhat this year, but it is almost out of the question that central banks will tighten monetary policy.

Hasn’t been a problem!

Every global recession in the past 50 years had been preceded by a doubling of the oil price (although not every doubling of the oil price has been followed by a recession). To double year-on-year, oil prices would have to soar above US$110 per barrel.

Oil hasn’t doubled in price!

There are two other moderate risks to growth this year. One is that debt ratios in US corporations have risen to unprecedented levels, far exceeding the levels that preceded the global financial crisis. But this is hardly surprising, given that interest rates have never been so low for so long. While a leverage bubble will probably be a risk sometime in the future, there is no reason why it should burst, or even deflate, until interest rates significantly rise. This is why corporate leverage seems only a modest threat in 2020.

Uh-oh.

The last moderate risk is of a car industry collapse.

Uh-oh.

The biggest of the 10 risks stems from the US presidential election.... Given that Mr Trump is bound to make statements that alarm investors, and that some opinion polls will suggest a possible Democratic victory at some point in the campaign, US politics is almost certain to trigger occasional bouts of panic before Nov 3.

Uh-oh.

Taylor Conant said...

This is an email comment that CP asked to poast here, so it may be somewhat wide of the mark/non sequitur; I also don't want to invite any personal debate or discussion with anyone present as I don't plan to check back on the thread, so apologies if this stirs your inner demons in any way.


Perfectly reasonable.

You are, as Mises mentioned, engaged in verstehen, an "understanding" of the meaning of historical data in light of theories you believe to be true.

I think my sarcasm is aimed at the desire to see more explication of those theories. What are they? How do they work? Why do you think they apply here and help to explain the phenomena being observed?

Without reference to these things, there are two risks:

A.) Pet project rationalization, where you fit data that fits and ignore data that doesn't to tell a story you like
B.) "Theorizing from data" which doesn't work where human action is concerned because there are no repeatable, controlled experiments and "history doesn't show us anything but people's biases in relating history"

But I liked this quip because it did sound a lot like Keynesian Animal Spirits... Ie, "I don't know what's going on but I'll blame inexplicable things on undefined and metaphysically suspect things"

I actually think it's fair to point out there there appear to be deflationary forces that are countering (or better, overwhelming) inflationary forces. What I want to see is them all spelled out in one place and some thorough answer that provides for why they're overwhelming here but not overwhelming otherwise, and even how they're selectively overwhelming.

I think you've made various attempts (price increases in stuff rich people buy, but not other things where cost increases are offshores and externalized, etc) it just seems piecemeal. Or maybe I'm not good at keeping track.

Anyway, on to the Central Thesis essay!

As you and I both know, the major unexplained phenomena is timing. How have they managed to make it last so long? How have they not fully lost control? And I've hinted at this before-- what playbook are they using to "predict their own response" that others can divine and don't appear to be aware of from some shared corpus of knowledge? That is indeed puzzling, otherwise we could effectively front run them by knowing in advance what they'd do and how it would play out.

One answer, though it's more "deflationary forces" than an answer because it is itself mysterious and incomplete, is criminality and conspiracy, two factors that can't be predicted or discerned. Many great historical events don't make sense with the known, public info, but then when you learn about the criminal and conspiratorial elements that took place, it all clicks. The very nature of this knowledge makes it completely esoteric to the likes of you and me in the present and near future.

Stagflationary Mark said...

Taylor,

I also don't want to invite any personal debate or discussion with anyone present as I don't plan to check back on the thread, so apologies if this stirs your inner demons in any way.

Apology accepted. Ha! Please forgive me for discussing this further, even after you’ve left the thread. :)

Here’s a thought. I would argue that our growing economy hasn’t just needed low interest rates, but actually falling interest rates. I bought my home in 1997. I used financing. Paid 7% interest. A few years later, “free“ money appeared. I refinanced my home at a lower interest rate. Falling interest rates benefited me.

This has been going on for about 40 years. So what happens when interest rates can no longer fall? Where will more “free” money come from? We don’t seem like we’re all that open to basic universal income. At least not yet. The stimulus checks came but how many more will follow?

Interest rates could continue to fall, I suppose. Two problems:

1. We’d have to ditch physical cash in our system, because physical cash earns 0%.
2. Negative nominal rates will most likely have many unintended consequences.

August 26, 2019
Federal Reserve Bank of San Francisco: Negative Interest Rates and Inflation Expectations in Japan

We examine movements in yields on inflation-indexed and deflation-protected Japanese government bonds to gauge changes in the market’s inflation expectations from the BOJ moving to negative policy rates. Our results suggest that this movement resulted in decreased, rather than increased, immediate and medium-term expected inflation. This therefore suggests using caution when considering the efficacy of negative rates as expansionary policy tools under well-anchored inflation expectations.

I don’t think the “animal spirits” of the US economy will take kindly to negative interest rates as a long-term solution. As a retiree, when I assumed that I would only earn a -2% real yield on my investments, I adjusted my spending down. Not up. The goal is to not run out of money before I die. If the government wants to trick me into becoming an excellent consumer again, then it will need to trick me into thinking that I will earning a higher long-term real yield, not a smaller one.

Should the stock market actually stagnate with zero (or negative) real yields on bonds, very few people will be tricked into thinking it is still easy to make money off of money. We’ll need to all start learning Japanese so we can share our horror stories with Japanese investors. Sigh.

Hopefully, I’m wrong to think this way. I do not wish to slide into Japan’s situation. It just seems to be more and more likely as time goes on though. Note that the article was written on August 26, 2019, back when the Fed Funds rate, the 3-month Treasury bill, and the 30-year Treasury bond were all over 2%. Seems like only yesterday. Good times.

Allan Folz said...

A long time ago I commented that negative interest rates were Central Banks telling us the 1% have all the money now and they don't intend to share it with anyone.

CP said...

We are in a [vicious] doom loop where slowing growth causes the dollar to rise, which causes slower growth, which causes the dollar to rise, as all borrowers play musical chairs to get access to the dollar to service debts. Dollar swap lines, QE, jawboning, etc have done nothing to stop this. Nothing. The issue is here that swap lines cant help the weakest sovereign borrowers as they have no reserves. And the $13trn dollar short is held mainly by corporations, which struggle to get access to dollars due to the fact that they are suffering massively weakened cash flows from trade tariffs, collapsing commodity prices, slowing world growth and a shrinking US trade deficit... (tariffs, oil and slow growth). The global system is just not set up to deal with this. It is an UGLY situation with almost zero options without a change in the entire system. No printing of money will solve this. It is structural.

My guess is that the next Debt Deflation signal will come when bonds begin to price in negative interest rates. That day is coming soon... And that will be the signal to sell equities and the INSOLVENCY phase will begin.

https://twitter.com/RaoulGMI/status/1254110879479746562

Stagflationary Mark said...

Some are embracing the debt deflation mindset, but think it’s deflation first, then inflation. Most of the thinking seems to be based on food and supply chains. Well, food is only 14% of the CPI. Shelter is 33%.

Table 2. Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, by detailed expenditure category

Deflation first, then 0% inflation, and then some more 0% inflation? Automated warehouse robots don’t need much shelter, and even if they did there should be plenty of commercial real estate available. Sigh.

Japan. Thank you very much (domo arigato), Mr. Roboto.

The 30-year TIPS real yield is currently -0.25% and is also directly tied to the CPI. The March CPI fell 0.4%. I hope most investors pouring money into LTPZ (a long-term TIPS fund) for safety understand that the bonds in the fund are currently deflating. I hope some realize that they could instead be buying a 30-year I-Bond with a 0.2% real yield that is not only also directly tied to the CPI, but as an added feature, can never actually deflate. Even month to month, they can never lose so much as a dollar. And if interest rates do somehow rise, I-Bonds can be cashed out without losing so much as a dollar either. Further, I-Bonds don’t even carry LTPZ’s 0.2% expense ratio. No fees at all. No middlemen. Just buy directly from the government. With deflationary friends paying -0.25% interest, tying you to a -0.4% monthly CPI loss, and charging you 0.2% in fees per year for the privilege, who needs inflationary enemies?

Probably too much to hope for, in a world where retail money has been flooding into USO thinking it was the perfect investment to track the price of oil. (It most definitely is not.) USO lost yet another 15% today. Sigh.

The I-Bond real yield for new purchases will drop to 0.0% on May 1st. I won’t guarantee it, but I’d probably die of shock and awe if it doesn’t happen. Last chance to lock in a better yield.

Stagflationary Mark said...

‘There are too many restaurants,’ food-industry experts say | Poll

What’s more, the party is over, and most of us are blithely unaware.

The restaurant industry is frequently the precursor for a market correction, an early harbinger of a bear market or even a recession to come. And some experts are saying that an unfortunate confluence of factors — over-saturated restaurant markets, rising labor and food costs, weak sales, changing consumer tastes and loyalties, a shrinking middle class, declines in mall traffic, bank and investor skittishness about returns on investments — means the near future looks bleak.


I should probably mention that this was written last year, before COVID-19.

Henkes thinks the restaurant market is overbuilt. And while he predicts a raft of closures of wobbly chains and individual locations, he says dining out is an ingrained consumer behavior and unlikely to diminish significantly across the board. Even during the recession of the last decade, dining out was a relatively cheap way to indulge, the same way that lipstick sales spiked during the Great Depression.

“People aren’t suddenly going to learn to cook in the next three years,” Henkes says.


No, not 3 years. More like 1. Now, who has a great recipe for canned SPAM and Vienna sausage? Asking for a friend. Sigh.

Allan Folz said...

Funny about the lockdown introverts. Confession time: The only thing I like more than sitting at home doing almost nothing all weekend long is feeling zero guilt about it.

Mark, my wife's been cutting my hair, and I've been cutting the boys' hair for almost 15 years. You'll love it. Maybe she will too. No guarantees though. ;)

Speaking of stimulus checks and velocity of money, sending them to retirees was the stupidest thing ever. At least, if it's inflation they want. Where does money go to die? Retirees. They have to know this by now, right? It's almost like they don't want inflation. They just want us to think that they want inflation.

Two pieces of advice for your stimulus check because what else are ya going to do with it:

1) Spring for some good clippers. $100 Wahls were what I got. That was 15 years ago. No idea if they're still being made well, but they are still being made for $100. (lol hyperinflation)

In fact, ours need replacing. I tried honing the blades, but it didn't work too well -- didn't even get an extra year out of them. And now the switch is acting wonky. So, I'm in the market now. Been thinking of ponying up for a set of real professional clippers. We got about 30 man-years of haircuts out of them, so for your purposes Wahls should be good.

2) Buy a chest freezer and a back-up gen-set, and fill it with meat. Almost as good as stocking up on nickels and forever stamps. Carrying cost is a little higher, but your 2% real yield should be enough to cover it.

You already have one? F*ck You. Buy another. Every self-respecting Depression-WW2 Gen Retiree had two chest freezers. You obviously make a sh*t Boomer retiree, so embrace it and go full WW2.

Allan Folz said...

Misspoke on the cost of clippers. Just did a quick check on eBay when I wrote that, lol. Yeah, they are still $100 if you want to spend that much on the price gougers. If you shop Wahl direct, and shop hard because a lot (but not all) of their stock is sold-out. I got clippers and and trimmers for $85.

Have to buy from the "multi cultural" line. LOL. Is it racist to have a product line dedicated to multi cultural barbers? Is it racist that the only combo's not sold out were from the multi cultural line? I hope that buying multi cultural clippers proves I'm not racist.

https://wahlpro.com/store/5-star.html

I'm guessing you're not too picky on haircuts. If you're not, trimmers are not necessary. I figured after all these years I should up my game. Alternatively, if you prefer short hair, you could buy only clippers. Good luck! :)

CP said...

The people who are always wrong are wrong again:

https://www.bloomberg.com/news/articles/2020-04-27/gold-buyers-are-forking-over-lofty-135-premiums-for-u-s-coins

Can anyone think of a time when rubes were paying a "record premium" to own something and it worked out well?

And that goes for both the underlying they were trying to get exposure to, and the overpriced proxy for it that they bought.

The bitcoin ETF, the USO oil ETF would both be examples of rubes getting taken to the cleaners.

Stagflationary Mark said...

Allan,

Spring for some good clippers.

Bought some Conair clippers at Costco quite a few years ago. Never used them. They work great. No complaints. Wasn’t top of the line, so no idea how well they will hold up though. Cheap brand, but purchased before overall quality went down perhaps.

Many, many years ago I bought a relatively cheap compact Remington beard trimmer because I’m often too lazy to shave (it’s faster and easier to almost shave). Figured it would take the pressure off my high quality electric shaver’s beard trimmer (it has).

Figured it was time to replace my cheap Remington beard trimmer recently. It’s been a great one. Replaced it with a newer Remington model from Amazon. Although they looked very similar (same compact design) and cost similar, the new one was absolute crap. Could not hold a charge. Yanked hair as much as it cut it. Sent it back. Continued to use the old one until Costco recently had a sale. Bought a Philips Norelco stainless steel one for $43.99 (including tax and delivery). Same compact head. Much better battery and cutting head. Would have preferred the old Remington in its prime, but good enough.

I'm guessing you're not too picky on haircuts.

Good guess! Since it was my girlfriend’s first attempt ever, I put a 1” guard on the clippers and told her to just go for it. Everywhere. Hahaha! Certainly looked a lot better (and was more comfortable) than doing nothing. Next attempt will be a 7/8” guard everywhere and a 3/4” guard on the sides. Baby steps. 3rd attempt might actually include some detail work around the ears and neck. Maybe. Ha!

I bought an upright Kenmore freezer for the garage in 1997. Still going strong. Considered a chest freezer at the time (had one growing up). Like the convenience of a door instead of a lid. Yeah, I know a chest freezer is better for many reasons. I’’m lazy though.

Stagflationary Mark said...

CP,

Can anyone think of a time when rubes were paying a "record premium" to own something and it worked out well?

November 1, 2010
Illusion of Prosperity: Gold Porn and Instant Gratification

The "pleasure" of being able to buy instant gold is now worth a 20%+ premium over spot price? Seriously?

In hindsight, those who paid a 20%+ premium to buy gold out of vending machines in 2010 did not do all that well. I will say this for them though. They certainly did better than those buying out of those very same vending machines in 2011. ;)

CP said...

Just did a Costco trip to stock up on meat. Everything more expensive -- seafood, beef, pork. And no fresh chicken breast in stock. Are we headed toward stagflation?
https://twitter.com/michellemalkin/status/1255254458713374723

Not interested in gold coins, but you know what I would buy? A lifetime supply of Costco beef at current prices. A lifetime supply of free range eggs at current prices.

Stagflationary Mark said...

CP,

Me too. I’d lock in the price of everything I need long-term but none of the optional things I want. That’s been true for me since 2004. The 1% yield on the 3-month Treasury bill caused me to buy more stuff back then, almost as the Fed intended. Almost. Not sure they fully understand that I have no need to buy any more aluminum foil though. Ever. Even at 0% interest rates. D’oh!

I’d really like to lock in the price of sewage removal. I have a septic tank. Every time the economy starts doing better there’s talk of installing sewer lines up my street at a huge personal expense to me. That said, every time the economy starts doing poorly again, that talk goes away. Something tells me, based on the current level of local economic activity, that talk won’t be coming back anytime soon.

CP said...

One of the worst things about an economic bubble is that the mania makes neighbors want to make malinvestments that we have to help pay for.

It's true at every scale, from the medical practice (let's build a new building!) to the city (let's build a new building!) to the country (let's import the whole world to live on the dole).

It's why the bubble can't end soon enough.

CP said...

The parallels between Japan and the U.S. make it clear that this is human nature and socialist economy incentive structures at work. Saying that these banks should be liquidated with their shareholders and bondholders to suffer the losses, while obvious, is like saying that you should be able to cut hair without a government license. True free market economics, but is not going to happen.
http://www.creditbubblestocks.com/2015/02/review-of-saving-sun-wall-street-gamble.html

Stagflationary Mark said...

CP,

One of the worst things about an economic bubble is that the mania makes neighbors want to make malinvestments that we have to help pay for.

Isn’t that the truth. At the height of the housing bubble years ago, my neighbors decided it would be a great idea to hire a lawyer to update our homeowner association rules and regulations so that they could actually be enforced. For the first time ever, the fines for not complying were laid out. This caused dues to go up to cover ongoing attorney expenses. After the bubble popped, I attended a homeowner meeting (first time in a long time). Everyone was so much more easy going. Few seemed to care as much. The dues never went back down though.

Not sure any fines were ever imposed. Hard to actually enforce something that hadn’t ever previously been enforced. One of the original rules stated that there could be no basketball hoops installed. Our cul-de-sac still has one. Don’t know who originally put it there. Owner of it might not even live here any longer. Don’t care. Both adults and kids use it. No big deal to me. It’s not the only hoop In the neighborhood either. There are a lot of them.

The fines for barking dogs clearly isn’t happening. Most have dogs. Most bark. Once again, no big deal. Our houses are spread out. I rarely hear the dogs of others, and our German Shepherd only barks when she spots delivery trucks. Granted, she’s been barking a lot more lately, for obvious reasons. A lot more!

CP said...

We are often asked, "what protection does cash give investors against inflation?" Most people assume the question relates to consumer price inflation (CPI), for which the year-over-year average over the last five years has been 1.3%. The answer is, barely. The average yield on the 5-year U.S. Treasury note has been 1.4%, before taxes. The irony is that the well-to-do investor's well-being would not be threatened by consumer price inflation rates two or three times the current level. Compared to most of the population, he or she spends only a modest portion of income or wealth on consumables, while expending a far greater portion on asset purchases, the prices of which have inflated dramatically in recent years. Nothing will destroy the wealth of the wealthy as fast as deflation in financial and real assets. Only cash protects against that risk. Interestingly, we rarely get the question, "how do I protect my portfolio against asset price deflation?" Ironically, CPI deflation will precipitate or accompany asset price deflation. Cash, the all-purpose hedge, ends up being the perfect asset in both scenarios. Of course, most investors think they are not getting their money's worth when they see their investment manager holding large amounts of cash. Some "enterprising" investors may gradually realize instead that they are paying someone who has demonstrated the necessary expertise to buy cash as a call option when it is utterly out-of-favor and thus compellingly cheap, despite the agonizing wait for bargains to appear. Such careful thought and deliberate inaction may chip away at the foundation of the institutional imperative that only sees value creation where there is activity. Enlightened passivity is expected of philosophers, not investment managers. [Frank K. Martin]

CP said...

Mark - new trend failure post in your honor

http://www.creditbubblestocks.com/2020/05/another-trend-failure-looming-for-real.html