Advice Worth Considering

Posted on March 15, 2011 by MN Gordon

The Ides of March

“Beware the Ides of March,” warned a soothsayer on March 15, 44 B.C.  “Well, the Ides of March have come,” joked Julius Caesar.  “Ay, they have come,” replied the soothsayer, “but they are not gone.”

Before the day was over Julius Caesar was stabbed to death in the Roman Senate, marking an inflection point in Roman history.  “The Ides changed everything,” said Cicero.

Natural disasters, melting nuclear fuel rods, wars, riots, revolutions, Charlie Sheen…we’ve seen a rapid series of inflection points this year and it’s only the Ides of March.  What else could possibly go wrong?

A bond market collapse?  A stock market crash?  Perhaps both.  We’ll begin with some foreboding indications that are testing the nerves of bond investors…

An Unappetizing Mess

Inflation is the enemy of bond investors.  Once the inflation rate rises above a bond investors established yield, the investment generates a negative real return.  In other words, the income generated does not keep up with rising prices. Continue reading →

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A Monument to Ugliness

Posted on March 11, 2011 by MN Gordon

Here in the land of fruits and nuts we paid $3.89 for a gallon of the cheap stuff on Monday night.  No doubt, gas prices will soon top $4 per gallon.  No doubt, these gas prices bite.  But not only do they bite at the pump…soon they’ll take a big fat bite out of the economy too…

“Nouriel Roubini, the economist who predicted the global financial crisis, said an increase in oil prices to $140 a barrel will cause some advanced economies to slide back into recession,” reported Bloomberg on Tuesday.

‘“If you had the oil price going up to where it was in the summer of 2008, at $140 a barrel, at that point some of the advanced economies will start to double dip.”’

Rahm Emanuel, Chicago Mayor-elect and former Obama Chief of Staff, once remarked that a crisis should never be ‘wasted.’  Sensing a budding crisis of rising gas prices, Atlanta Fed President Dennis Lockhart preemptively seized the opportunity on Monday to warm the hearts and soften the minds to QE3.

“If oil prices continue to climb, it could force the Federal Reserve to make a new round of asset purchases, according to Atlanta Fed President Dennis Lockhart,” reported CNNMoney.com. Continue reading →

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Is the Risk Worthy of the Reward?

Posted on March 8, 2011 by MN Gordon

Grab your party hat and whistle.  It’s time to celebrate.  Tomorrow’s the two year anniversary of the stock market boom that followed the 2008 financial panic.

What a boom it has been.  The S&P500’s up nearly 95 percent since the March 9, 2009 low when it closed at 676.  On that day the S&P500 was down 57 percent from its all-time high of 1,565 set in October, 2007.  Since then, it has logged its sharpest rise since 1955.

Those who bought the market on March 9, 2009, back when the sky was falling, have doubled their money.  Naturally, no idiots were buying stocks on March 9, 2009.  On that day, after watching the halving of their 401Ks, idiots were selling stocks.  Only the shrewd, astute, and fearless were buying.

Of course, when you buy and when you sell are the two most important trading decisions to make.  Obviously, you want to buy low and sell high.  Yet, most do the exact opposite…they buy high and sell low.

So now, after doubling in price, the idiots are jumping back in to the market at what may be the worst time possible.  Let’s explore… Continue reading →

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Anything’s Possible

Posted on March 4, 2011 by MN Gordon

The captain manning the monetary controls is quite a tricky fellow.  On Tuesday, in an appearance before the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke was remarkably cunning and astute.  Through measured sentences and stately prose he told nothing but 100 percent of the half-truth.

When asked whether rising gasoline prices would spread inflation through the economy he remarked…

“The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation.”

Bernanke cleverly ties inflation to the U.S. consumer price index.  If you didn’t know it, the core CPI, which is the CPI that is generally referenced, excludes food and energy.  In this respect, Bernanke is right.  Rising gasoline prices will not represent an increase in U.S. consumer price inflation.

But for those of us who eat food and put gas in our cars the CPI does not reflect real changes in the cost of living that everyone’s experiencing.  What’s more, through hedonic price adjustments the CPI artificially diminishes the cost of living because you can now get Continue reading →

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