Dear rss free blog,
Paul Renaud (of www.thaistocks.com) writes that inflation in the
past 20 years and likely in the near future is exaggerated. Consider:
“Inflation is mostly low and likely to stay
that way for a while longer.
“How much does an internet connection cost
today vs. a few years ago? It’s better now at lower cost. The same with flat
screen TVs.
“How much do long-distance phone calls
around the world cost vs a few years ago? A bare fraction – and with Skype
you can call for free.
“The same with mobile phones, DVD players,
cameras, and computers…even cars are made better today yet are cheaper then
some years ago, inflation-adjusted. Most also get far better gas
mileage!
“A good video player cost near $800-1000 in
the 1980s; now its costs $80-100 for a much superior less bulky DVD player.
“Also long distance travel, well down
compared to 20-30-40 years ago.
“And at least in the US or Spain, in many places homes
are cheaper today then 10-15 years ago!
“Today many baby boomer retirees (a huge
global populatio) can beat the high cost of living by moving to places like Thailand or Costa Rica where cost is some 1/5 of that in USA or EU. So
there is a way to beat inflation, even where it does exist. This option was not
available before the rise of the internet and cheap phones and calls.
“Ah yes, let’s not forget stock
transactions commission which have fallen worldwide by 2/3 over the past 20
years. This is why people in the investment business can’t make money from
transaction business any more. So they invent alternatives to the real
thing.
“The real thing is diversified equity
ownership of real growth companies paying high dividends, the true
performance stars.”
On his last point regarding financial innovation, let me add another view from the most recent quarterly report by Jeremy
Grantham (of Boston
fund managers Grantham, Mayo, Van Otterloo):
“The underlying problem in
the recent crisis was a touching faith in capitalism. This faith was based on
50 years of a dominant economic theory that was shockingly not based on facts
but rather on unproven assumptions: rational expectations and the Efficient
Market Hypothesis (EMH). Believe them and you don’t have to regulate new
instruments or, indeed, anything. Capitalism will look after itself. So
Greenspan, Rubin, Summers, and Levitt of the SEC could beat back Brooksley Born
when she dared to suggest regulating the new instruments.
“But as Keynes knew by 1934,
markets are behavioral jungles wracked by changing animal spirits that can
mock the best laid plans. It is a world of agency problems and the ‘beauty
contest.’ The EMH has proven to be the most wildly mis-specified theory in
the history of finance, and the most expensive. Without it, we would have
recognized market dysfunctionality and instituted more controls to help limit
the wild expansion of the financial business. We might easily have steered
clear of the three-sigma (100-year) bubbles in tech and U.S. housing
that led to our present crisis.”
Your editor is
abandoning her Quixotic crusade to defend the U.S. government from the charge
that it engages in stock market transactions to shore up prices, as charged in
the Barron’s Roundtable by Marc Faber.
The
“Plunge Protection Team” is a term of art used by
conspiracy theorists about the behavior of stock markets in the early years of
the past decade, and it is now passé. But it refered to brokers not Uncle Sam. Every now and again someone would say the words “dark pool” and set
them off again.
My
experience trying to show up Faber’s silly idea that the U.S. government
buys stocks has been instructive.
The
Fed can’t. It is audited and Congress looks at reports with a magnifying
glass. The Treasury could but there is simply no evidence even with Neil Barofsky, my college classmate Betsy Warren, and the
TARP watchdogs looking for scandals.
But trying
to prove a negative is virtually impossible. I tracked down a report from one
of my readers regarding an FT article supposedly telling us which stocks were
being bought by the US Treasury and how a Brit bank was benefitting. It turned out
to be about bonds and quasi equity that we knew the Treasury was buying when presented
for open market operations.
Then
another reader led me down the garden path by telling me about his trading govt
paper in the commodity pits in the 1970s. That was GNMA futures, not
exactly a precedent for the current crisis.
I hereby
abandon my attempt to reason people out of this conspiracy theory because time-consuming
and not really my job.
But here
is a question to ask yourself right now. Do you think the recovery in
the stock market on Monday was engineered by some strange coupling of Goldman
Sachs, Tim Geithner, and Ben Bernanke? If you believe that I have a bridge I would
like to sell you.
Apologies to Wisdom
Tree for calling their series of
unsuccessful Exchange-Traded Funds “cookie-cutter” copies of other
funds. They are closing down 10 funds, mostly non-US. In fact, using a dividend or total return weighting made the Wisdom Tree
funds unique. The trouble was they could not be sold to the investing public in
sufficient numbers to cover the costs. Look back at Paul Renaud’s ultimate
paragraph. Wisdom were trying to sell Paul’s performance stars in a market
looking for hype. Readers are advised that our take-no-prisoners special report on Exchange Traded portfolios is available for purchase on the www.global-investing.com website.
More good news for our paid subscribers
follows, with another hot item from Israel
to match our hot development yesterday from Brazil. We pick good stocks. They go up. We can afford to buy French chocolates with our gains…
