Inflation Watch

[oldguy]

When commodities "come out of that bull", I suspect that they will have been monetized, not via the government, but via the markeplace,

When commodities will be monetized , investors will have to reinvest that money somewhere in an other asset class. They will try to create momentum , bull , bubble somewhere else.

I've been trying for sometimes to follow the flow of money as an indicator. It's not an easy task.

Any suggestions for indicators in order to follow the flow of money per asset class ?

[Norbert Schlenker]

Market timing. Easy to analyse in hindsight, especially since the commodities were bought in 1980.

Horse manure. The Zeitgeist in 1980 was that Simon was out of his mind and almost certain to lose the bet. The world was running out of oil, gold, silver, even soybeans (maybe you don't remember "beans in the teens"). Simon bet the other way. Even I will admit that Simon took an incredible risk making a bet with only ten years to run. But it's the way to bet over long periods. Since the industrial revolution began, "stuff" has only gotten cheaper. It's the way to bet.

Give my regards to "helicopter Ben" if you see him.

Well, he made that remark when he was young and crazy. Kinda like Greenspan and gold.

[agape]

What if these get monetized, as per the market ?

Commodity based ETF's are currently an investment vehicle, but a simple e-comm integration can turn them into money. Granted there would be calls for increased transparency, I'm sure, but the means are present to develop a commodity for commodity, commodity for real goods trade system that reaches down to the individual consumer via smart card technology, hopefully a card that he will eventually own, outright.

Monetized commodities would place a perpetual demand on commodities as the new form of digital money, where the mathematical value of fiat currency (real time) would act as the "bridge" of instantaneous transaction. Transactions would be fee based. Some commodities are better suited to others for money applications, I would agree, but I see nothing wrong with having commodities compete, especially considering that there would be no debt associated with the commodity and "inflation" would be a matter of having produced measures of real wealth and would not be inflation as we typically think of it, since "inflation" would be synonomous with real production. Money is wealth. How novel !

I think the bull in commodities could be here for a longggggg time. The "script" is being followed. Did you read it ?

Plethora of new commodity ETFs :
http://financetrends.blogspot.com/2006/ ... -etfs.html

[TrueMrP]

Someone explain it to me. I'm just trying to understand how the world works.

Let's say GDP is 5% Does it mean there is 5% more products and services than last year? If inflation 3% (official figures) then those products cost 3% more. Does that mean there was more money printed? If yes then how is it released to the market?

[WishingWealth]

TrueMrP:

If yes then how is it released to the market?

The Illuminati did it!

Do I win something?

True WW

[TrueMrP]

not Freemasons?

[oldguy]

Someone explain it to me. I'm just trying to understand how the world works.

If yes then how is it released to the market?

Good question !

Now there are two of us hoping for an explanation.

[ghariton]

Let's say GDP is 5% Does it mean there is 5% more products and services than last year?

If the GDP growth is in real terms, then generally yes, with some accounting-type qualifiers. (Also remember that not everything gets counted in the GDP measures, e.g. cleaner air, blow-jobs). If the GDP growth is in nominal terms, you have to first subtract inflation (actually, divide).

Does that mean there was more money printed?

Not generally. In the old days, governments increased the money supply by buying up some outstanding Canadian government bonds, etc. They could also lower commercial banks' reserve requirements. Now they just pay their bills on time

If yes then how is it released to the market?

I understand that the standard technique is by helicopter.

Georges

[George$]

Is this of Interest - from the Bank of Canada - 39-p pdf file
Measurement Bias in the Canadian Consumer Price Index

Abstract
The consumer price index (CPI) is the most commonly used measure of inflation in Canada. As an indicator of changes in the cost of living, however, the CPI is subject to various types of measurement bias. The author updates previous Bank of Canada estimates of the bias in the Canadian CPI by examining four different sources of potential bias. He finds that the total measurement bias has increased only slightly in recent years to 0.6 percentage points per year, and is low when compared with other countries.

[ghariton]

Thank you very much, George$. I didn't have a soft copy.

Georges

[agape]

Forget about the Illuminati, the masons , black pope and any of their following bum fu**ers, it's the IMF that's behind all this subterfuge. ;-") Seems they're putting out a warning about the dollar.

I better get mine off the close line before the birds mistake them for nesting materials.

http://www.bloomberg.com/apps/news?pid=20601085&sid=aYXu7ScpRXC4&refer=europe

[yielder]

Seems they're putting out a warning about the dollar.

Yabbut it doesn't mean anything. They're part of the banking fiction, aren't they?

[agape]

Seems they're putting out a warning about the dollar.

Yabbut it doesn't mean anything. They're part of the banking fiction, aren't they?

I dunno. I guess that would depend on what your definition is of a "banking fiction" ?

Ummm .... is that like an institution that isn't really there because they create an illusionary currency that only people with no reflections think has value ?

By Jesus, I think you've nailed it !

[Bylo Selhi]

[ghariton]

Got a chart for nominal bond returns?

Dimson et al show U.S. real returns of -2.1% for the 1940s, -2.2% for the 1950s, -1.0% for the 1960s, and -1.7% for the 1970s. Indeed, over the period 1940 to 1979, the average annual real return on a U.S. government bond was -1.8%.

TIPS/RRBs anyone?

Georges

[biker]

Well I certainly hope that the stock market continues to deliver returns well in excess of inflation recognizing that 2% inflation knocks off 25% of your pension in 10 years.

[patriot1]

And let's not forget that Bylo's chart is in inflation-adjusted US$.

Total return for the SP500 since 2000 in inflation-adjusted C$ would be worse.

[agape]

Yes, indeed.. People are waking to understand why God invented gold. :-")

[YogiBear]

Yes, indeed.. People are waking to understand why God invented gold. :-")

Yes indeed- nominal USD price gains of ... 0% in 25 years:





What was US inflation during that period? What was the real- inflation-adjusted- return on gold during that time?

Gold- invented to soon part fools and their money ...

[yielder]

What was US inflation during that period? What was the real- inflation-adjusted- return on gold during that time?

Gold- invented to soon part fools and their money ...

Nice cherry picking. How do you think the mid-70s to early 80s period compares to the early 01 onward period, ie, what were/are the price drivers?

[YogiBear]

What was US inflation during that period? What was the real- inflation-adjusted- return on gold during that time?

Gold- invented to soon part fools and their money ...

Nice cherry picking.

Thanks. Glad to see my efforts are appreciated ...

How do you think the mid-70s to early 80s period compares to the early 01 onward period, ie, what were/are the price drivers?

Er, you wouldn't be talking about oil, now would you?!

I've heard- without being interested enough to verify in depth- that gold and oil prices in USD have a fairly high positive correlation (over what period exactly? ... post 1971, presumably). I have seen data showing gold maintaining more or less real purchasing power over the past X centuries.

That wasn't my point, though. Goldbugs- among whom our friend Agape would surely include himself (even if not by that name precisely!)- take an overly simplistic view of the world. How many people, facing potential runaway inflation and skrocketing gold prices in 1980, say, bought the line about "why God invented gold"? What happened to them? You surely don't think it's wrong to call the goldbugs on their one-sided enthusiasm, do you?!

[yielder]

Er, you wouldn't be talking about oil, now would you?!

Among other things.

You surely don't think it's wrong to call the goldbugs on their one-sided enthusiasm, do you?!

Absolutely not but rejecting their arguments entirely without looking at the last round of hyper-ish inflation seems equally one-sided.

[YogiBear]

You surely don't think it's wrong to call the goldbugs on their one-sided enthusiasm, do you?!

Absolutely not but rejecting their arguments entirely without looking at the last round of hyper-ish inflation seems equally one-sided.

Are you equating the gold price increase during the 1976-1981 "round of hyper-ish inflation" with the current price increase since 2001? Read back to the context of Agape's comment (in reply to the post by patriot1) ...

[yielder]

Are you equating the gold price increase during the 1976-1981 "round of hyper-ish inflation" with the current price increase since 2001?

I said: How do you think the mid-70s to early 80s period compares to the early 01 onward period, ie, what were/are the price drivers?

ISTM that one compares & contrasts the two periods before saying the gold-bugs are wrong in their one-sided enthusiasm.

[YogiBear]

You surely don't think it's wrong to call the goldbugs on their one-sided enthusiasm, do you?!

Absolutely not but rejecting their arguments entirely without looking at the last round of hyper-ish inflation seems equally one-sided.

Are you equating the gold price increase during the 1976-1981 "round of hyper-ish inflation" with the current price increase since 2001? Read back to the context of Agape's comment (in reply to the post by patriot1) ...

I said: How do you think the mid-70s to early 80s period compares to the early 01 onward period, ie, what were/are the price drivers?

ISTM that one compares & contrasts the two periods before saying the gold-bugs are wrong in their one-sided enthusiasm. [emphases added by Yogi]

Am I the only one who sometimes feels like I've entered the House of Mirrors at the carnival?

I do not "[say] the goldbugs are wrong" nor do I "[reject] their arguments entirely". As I said upthread, I've seen evidence- that I believe is valid- that gold has been a good inflation hedge over very long periods ... emphasis on "very long periods".

Gold is also, however, subject to extreme price swings - at least over the past 35 years (see the chart I posted). If one takes the roughly 25 years between the early 1980's peak and today, there has been virtually no change in nominal price in USD/ ounce. Yet during that time, the US annual inflation rate was such that the real return for gold over that period was highly negative- IOW, gold did not hedge against inflation at all.

So we have an observed 25 year period during which gold did not accomplish its stated role. Yes, these are certainly cherry-picked dates- to make the point: for periods as long as 25 years, when it comes to the lure of the yellow metal, "a fool and his money are soon parted". Ask anyone who heard and followed the last time the siren song of gold rang forth in 1980, and ask yourself how you would feel if it had been you ...

If someone thinks there is a place for a small allocation to gold as part of a diversified asset allocation plan, fine- as long as the investor understands what the allocation is meant to accomplish within the portfolio. As for inflation protection- did I hear someone mention RRBs/ TIPs?