Comments on: Investors Are Thinking: Inflation is Coming, But it Isn’t Here Yet

By: Gernot Hassenpflug

Gernot Hassenpflug — Tue, 15 Dec 2009 02:47:37 +0000

Richo wrote:
"Ross, productivity measurement, like inflation has now been fudged into a meaningless value. IMO labor productivity should be measured in units output per hour. Instead it is measured in dollars which means it's subject to inflation, and other factors. I suspect that most of the so-called productivity gains in Western economies over the last 10 years have really consitituted paying people less real wages for an hour of work rather than producing more in an hour."

Agreed. A classic case explained by Bastiat as people first confusing produce with cash, and then cash with "money", after which they draw totally incorrect conclusions about reality.

By: Biker Pete, Halifax NS

Biker Pete, Halifax NS — Mon, 03 Aug 2009 10:55:42 +0000

You're not wrong, Ned. Take that raft of cash our eldest put into indexed funds... . I'd have counselled him a.) not to do it; b.) to cash it in back at 3800. My wife counselled me to STFU! I think you and Greg have summed it up fairly well between you: * higher interest rates; * higher taxes; * higher inflation. Looking at rents abroad, I suspect that the long-term trend will be up and up. My guess is that property may stay flat for a year or so more. Greg is correct that some energy stocks are worth watching. It's amusing to see how different the Canadian attitude to energy is (so far). The US is burning the stuff up at a rate which is utterly staggering... while a few kilometres across the border, Canadians conserve it conscientiously. Dozens of examples, but here's a quickie: Our NY hotel needed 800W of lighting above the bathroom mirror... a row of eight 100W bulbs! Our Halifax hotel has one simple low-energy bulb drawing 15W. Equally effective and at my age, I don't need 800W to reflect my image! Previous travels in the US ('78, '87, '95) were an eye-opener, but we thought some things might have changed in the interim... sadly, the US is _still_ asleep at the wheel.

By: Ned S

Ned S — Mon, 03 Aug 2009 04:08:43 +0000

Biker - Bear in mind that there is truth in the underlying implication of both cliches "hard to put old heads on young shoulders" and "old generals fight old wars" I think. But you and yours seem to be doing way better than most in striking a balance there. Regarding the rest; I've gotten real cynical about all this stuff (or should that be realistic?) but regardless, the thought occurred to me a while back that the masters of the universe would probably be happy to see Dow at about 10,000 before announcing a bunch of bad news re regulatory changes that potentially drives it back down to 8,000. (I notice Bill Bonner recently mentioned Dow 10,000 being his toppish punt as well - But more based on a belief in the operation of free markets perhaps? Which I no longer have.) There are two guaranteed givens for the future: 1) Higher taxes in the West and 2) America continuing to exert influence regarding international energy markets. And one strong likelihood: Increasing regulation of the financial industries. Plus a sure knowledge: If the wallys running the world can possibly cause inflation without thinking they'll destroy it, they will.

By: Coffee Addict

Coffee Addict — Mon, 03 Aug 2009 02:03:40 +0000

Rick e At the moment I'm worse than Greg. I can't even work out what is happening today - particularly given some apparent insider trading on 2 stocks that I hold. I'm also trying to articulate (or rather say plainly) why the investment approach of a particular super fund will continue to lose money.

My gut feel has always been that the green shoots will continue to grow until such time as interest rates rise and / or the USD tanks. The hypotethical 4.5% interest rate increase you mooted would put most of OZ underwater - perhaps after other segments of the Asian market recover (this could be the event to drive the rates up).

I've invested in selected energy stocks knowing well that it will be a roller coaster ride but in the hope that milestone production & discovery events will prevail over all else. I see gold as stable for the time being but who knows? The market isn't recognising fundumental relative risk/ reward shifts and everything continues to be mispriced as a result(as I see it).

Cheers

By: Greg Atkinson

Greg Atkinson — Mon, 03 Aug 2009 00:14:54 +0000

Rick I have trouble working out what will happen next week let alone months or years ahead but my guess at the moment is that inflation will creep up in Oz because of such things as increased government charges and the ETS. (since energy prices are going to increase) Also remember our banks need to borrow money from overseas (as do many companies) so the RBA rates do not reflect the true cost of borrowing in many cases. With so many governments racking up so much debt this would tend to push up rates simply because the people lending the money can ask for a higher return and get it.

The real wild card with inflation is oil. If demand for oil picks up again we could see oil prices run back up near $100 a barrel and that would certainly give inflation a push up.

By: Biker Pete, Halifax NS

Biker Pete, Halifax NS — Sun, 02 Aug 2009 12:33:23 +0000

Rick, it's all anybody's guess. My kids have a totally different perspective to mine... and they're both doing really well in their mid-twenties. Flexibility and maximising income streams is the way I've chosen to go, in a very chaotic world. Are we ten years behind the US? I don't know about that... . It's in Australia's favour that our systems appear to be far less complex... and need less maintenance and repair. US infrastructure maintenance represents a future nightmare... .

By: rick e

rick e — Sun, 02 Aug 2009 12:02:59 +0000

Hi Greg, biker Pete, and ca and the crew.
Love reading your stuff keep the DR in perspective
Just on interest rates in oz.
ReadinG BetweeN ThE LineS.
There is no real reason for interest to go up by more than say 4.5% in the next 2 years(oz).
The banks can get there cheap credit from RBA (print money)
So they don’t need to raise interest rates to get borrowers in to balance the books (as Dan mention)
So only other reason to raise rates (OZ) is to slow the economy down to par with rest of the world as did in 2007, so they could stimulate it as the G 20 told OZ in 2008.

I picket 4.5% as that was the height of the USA rates around maybe 04 or 2006 then they went down.
So I think the next round for OZ rates say 2011 to 12 will be the next to fall in house price as Steve keen says (or interest rates will fall (1 to 2%) to keep us going)
It is true we are behind the USA by 5 to 10 years for better or worse?

If the (w)hole world needs credit to survive then when does it end, it does not.
If this is not a bear market rally because a bull market runs more than 1 to 3 years
Then things will drop cycle 2010 to 2012
It is not sustain able
What will the G 20 say lets all take one zero off all the currencies around the world so we can keep the dollar value at bay.

It is only a matter of time can some one pick it for OZ (house correction)
The age of borrowing time life expectancy 30 years for a loan.
Life expectancy for a worker to pay a loan off 30 to 40 years, what 50 years.
Do the maths and tell me.

I can see the stock market going off on stimulus in oz maybe for a year or 2.
But it is after that
Something got to give
Make your money in 1 to 2 years.

When the matrix change yes I will change my forecasts
That’s how it works.
DR in oz were to optimistic so I gave me my own fix.
Remember this is just crap I wrote
Make your own mind up as it is made by some one else.

By: Lachlan

Lachlan — Sat, 01 Aug 2009 11:17:40 +0000

USDX poised to drop off a cliff this coming week (now 78.31). There's some potential for inflation. S'pose it may bounce again but it seems to be running outa bounce.

By: Ross

Ross — Thu, 30 Jul 2009 07:31:53 +0000

Richo, I basically agree with you re the measure of productivity but in extreme circumstances like the 70's or right through until Volcker it could be counted in inflated dollars or most any other widget. The McEwen inspired hang on to the protectionist era for a couple of decades past the reform due date got a boost from Fabius Maximus Whitlam public sector spending and wage largess and that left productivity in the hole in anyone's measure. And then Keating and his wallies that still hang around the economics profession saved us ....

And banking productivity gains have languished despite the internet banking revolution in the past decade which is one of those amazing things that you allude to.

By: Richo

Richo — Thu, 30 Jul 2009 04:45:52 +0000

Ross, productivity measurement, like inflation has now been fudged into a meaningless value.
IMO labor productivity should be measured in units output per hour.
Instead it is measured in dollars which means it's subject to inflation, and other factors.
I suspect that most of the so-called productivity gains in Western economies over the last 10 years have really consitituted paying people less real wages for an hour of work rather than producing more in an hour.

Inflation is also affected by directors and shareholders paying themselves excessively in the short term when they should have been looking ahead to tougher times. They neglected to pay down debt and strengthen their companies for the tough times.
This excess money brought forward from the future drove up prices and hence inflation, assisted by the lending multiplier.