The Latest American Export: Inflation By Ronlad McKinnon, The Wall Street Journal "Now we have what one might call the Bernanke shock. The Fed has set U.S. short-term interest rates at essentially zero since September 2008, followed in 2010 by quantitative easing to drive down long-term rates. Predictably, primary commodity prices in 2009-10 surged. In 2010 alone, all items in the Economist's dollar commodity price index rose 33.5%, while the industrial raw materials component soared a remarkable 37.4.%" "First, sharp general price increases in auction-market goods such as primary … [Read more...]
Know Your Limits
Charles Plosser, the President of the Philadelphia Federal Reserve Bank gave a speech in Chile over the weekend titled The Scope and Responsibilities of Monetary Policy. Mr. Plosser is one of the few Federal Reserve Board members that seems to understand or at least acknowledge that monetary policy has limits. Below are some highlights from the Speech. The emphasis is mine. You can read the entire speech here. …I would like to begin with a quote that some of you may recognize. “...we are in danger of assigning to monetary policy a larger role than it can perform, in danger of asking it to … [Read more...]
You are paying 2 and 20 for what?
The typical fee structure for a hedge fund is a 2% management fee and 20% of the profits. After reading this article in the Wall Street Journal, one gets the impression that some hedge fund investors are getting bilked. Hedge Funds’ Pack Behavior Magnifies Swings in Market - WSJ By Jenny Strasburg And Susan Pulliam Hedge funds are crowding into more of the same trades these days, amplifying market swings during crises and unnerving investors. Such trading has stoked market jitters in recent months and helped to diminish the impact of corporate fundamentals on stock-market movements. Droves … [Read more...]
Up 5,000% in 10 Years
Do you dream of buying shares of the next Microsoft before they take off? How about the next Apple? Apple shares are up 4,200% over the last decade. Even better than Apple, shares of priceline.com are up almost 5,000% over the last 10 years. These are life-changing returns. A modest $20,000 investment in priceline.com 10 years ago would be worth more than $1 million today. If only you had the foresight to identify the last decade’s winners ahead of time, you could be 10, 20, or 30 times richer than you are today. Sound like the beginnings of a pitch you’ve heard before? My … [Read more...]
Accelerating Inflation
The December Producer Price Index (PPI) was released today. Producer inflation jumped 1.1% in December. Over the last two years, producer prices have increased at a 4.33% annual rate. Over the last six months, producer price inflation is running at a 6.9% annual rate. Producer inflation is accelerating, yet the Federal Reserve is consumed by the risk of deflation. It’s a head scratcher, is it not? … [Read more...]
In Illinois, a Giant Deficit Leads to Talk of a Giant Tax Increase
In Illinois, a Giant Deficit Leads to Talk of a Giant Tax Increase By Monica Davey, The New York Times "SPRINGFIELD, Ill. — With Illinois’s budget crisis reaching dizzying, desperate levels, lawmakers here over the weekend were seriously pondering something that would have been unimaginable even a few months ago: a 75 percent increase in the state’s income tax." "In a moment when states around the country are wrestling with withered revenues, Illinois faces a deficit of at least $13 billion; more than $6 billion in unpaid bills to social service agencies, schools and funeral homes; the most … [Read more...]
Redefining Success
The Federal Reserve released the minutes of the December 14 FOMC meeting this week. The FOMC’s meeting minutes provide an expanded discussion of the Fed’s views on the economy, financial markets, and future monetary policy. This is required reading for investment managers. The minutes from the December 14 meeting are particularly important because that was the first meeting since the Fed started its second round of money printing, aka Quantitative Easing 2.0 (QE 2). At the FOMC’s November 3 meeting, Bernanke & Co. decided to print an additional $600 billion to buy Treasury … [Read more...]
Indicators Point to Accelerating Economic Growth
Initial Claims for Unemployment and the Chicago Purchasing Managers index were released today. Unemployment claims dropped to their lowest level since July of 2008—two months before the Lehman collapse. And the Chicago Purchasing Managers Index (PMI) reached its highest level in over 20 years. Strength in the Chicago PMI was broad based. Employment was up, prices paid were up, as were the important categories of production, new orders, and inventories. Both indicators point to accelerating economic growth. … [Read more...]
Beijing city to raise minimum wage 21%
Beijing city to raise minimum wage 21% By Jamil Anderlini in Beijing and Rahul Jacob in Hong Kong, Financial Times "Beijing city is to raise its minimum wage 21 per cent next year, the second such rise in barely six months, amid rising inflationary pressure and growing concern over China’s widening wealth gap... The government is worried about the disproportionate burden of rising food costs on low-income households, which spend a larger share of their income on basic necessities. It also fears that persistent price rises could stoke social unrest, as they often have in the past...“In just … [Read more...]
IMF Completes Gold Sale Programme
IMF completes gold sale programme - Javier Blas, Financial Times “The International Monetary Fund has said that it has completed its large programme of gold sales, removing one of the few bearish elements restraining the bullion market…In a statement released on Tuesday night, the Washington-based IMF said that it had already sold the expected 403.3 tonnes of gold – equal to around 10 per cent of annual demand for bullion – partly through direct sales to central banks, including one large disposal to the central bank of India, and partly on the open market…The conclusion also means that in … [Read more...]
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