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Old 11-30-2008, 10:21 AM   #21
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If only that were true! I have research (private newsletter I can't post unfortunately) which has looked into consumer finances, and it really is that bad. The average baby boomer has saved only $46k for retirement, and that was before the stock crash. . . There's a lot that could be said about the U.S. consumer, but unfortunately the only spending growth we should expect in the decade is from the Govt.
I think you are addressing the consumer's ability to spend (low, based on current debt/savings levels). I was looking more at the consumer's willingness to spend (which I believe remains high). So, if Uncle Sam makes it possible for the consumer to spend more (through sponsorship of easy credit, more tax rebates, etc), then the consumer will oblige by doing so (and getting farther into debt, whether it be public debt or private debt). Hey, indentured servitude for us and the kids--a small price to pay for continuing the good time party a few years longer!
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Old 11-30-2008, 10:26 AM   #22
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Good point, but isn't it two sides of the same coin? Take auto's for example, I'm pretty sure that there's plenty of 0% financing available, but the metal still isn't moving. Why? Who really needs a new car? Who wants to take on the debt, even if the money is loaned out to you for free?

Sure everybody wants to spend forever, but after 25 years it seems the tilt is finally going the other way. It makes more sense to shore up the balance sheet than get the new bedroom set.

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I think you are addressing the consumer's ability to spend (low, based on current debt/savings levels). I was looking more at the consumer's willingness to spend (which I believe remains high). So, if Uncle Sam makes it possible for the consumer to spend more (through sponsorship of easy credit, more tax rebates, etc), then the consumer will oblige by doing so (and getting farther into debt, whether it be public debt or private debt). Hey, indentured servitude for us and the kids--a small price to pay for continuing the good time party a few years longer!
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Old 11-30-2008, 11:21 AM   #23
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...just where is this money actually coming from
why, from thin air, of course. from within the smoke and mirrors. yes we can. just like all the other money in this construct called capitalism. yes we can.

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And, did they have it all the time?
yes and no, all the time. yes we can. how can you have what does not exist yet what does not come from nothing: god, big bang, universe, life. yes we can. what if universe stopped inflating? deflation destroys capitalism. inflation expands the empire. expansion requires exploitation of natural resources and cheap labor. black and blue and green. yes we can.

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why wasn't it used for daily physical education in the elementary schools or looking for a cure for cancer? Or both? Or for other things worthwhile?
worthwhile to whom? doctors make more money than garbage men. yes we can. jail hookers. yes we can do that too. if everyone was healthy the health system would collapse. can't have that. no we can't.

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how might it affect you
in god we trust has been broken. what money i thought i have, i have not and so i do not trust what money i think i have.
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Old 11-30-2008, 11:29 AM   #24
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why, from thin air, of course. from within the smoke and mirrors. yes we can. just like all the other money in this construct called capitalism. yes we can.



yes and no, all the time. yes we can. how can you have what does not exist yet what does not come from nothing: god, big bang, universe, life. yes we can. what if universe stopped inflating? deflation destroys capitalism. inflation expands the empire. expansion requires exploitation of natural resources and cheap labor. black and blue and green. yes we can.



worthwhile to whom? doctors make more money than garbage men. yes we can. jail hookers. yes we can do that too. if everyone was healthy the health system would collapse. can't have that. no we can't.



in god we trust has been broken. what money i thought i have, i have not and so i do not trust what money i think i have.

Well, at least you were willing to take a shot at that part of the original post.
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Old 11-30-2008, 02:36 PM   #25
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Not to worry. It's all been figured out by the theory cats!

Vanguard Total World Stock Index, started 6/26/2008, VTWSX

That plus some interest bearing fixed in whatever your local currency is for some walking around money and you have it all covered.

Theory wise - right?



heh heh heh - it's good to have academic stuff to work it all out. .
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Old 11-30-2008, 02:55 PM   #26
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The classic way to beat inflation is to own commodities (PCRIX type stuff, physical gold, etc.), hard assets (stuff like real estate, timber, factories that make stuff people want, etc.), and commodity producers.
In the 70s WEB wrote many classic letters that gave his somewhat different take on how to beat inflation with equities. His choice was companies that could run with very little incremental investment, either in plant or current assets. He wanted high profit margin, high ROA businesses. It almost turned the "hard assets" idea on its head, as what he wanted was a company that was as close to being a pure cash generator as possible. He sometimes used the analogy of a tollgate. By this time in his career, he was no longer attracted to the classic hard assets such as mines, feeling that whatever cash the miner got from selling his product was more than used up in buying new equipment, and prospecting for more places to dig big expensive holes.

I think he is right. Hard asset plays can be excellent speculations, but a company with a capital sparing business and good pricing power will grind out the money every time. As Brewer mentioned, timber as a pure tree farm operation fits this, except that demand for the product can be very volatile. Tree farmers are price takers, not price makers. Their main salvation is that if they are well capitalized they can cut way back on harverst and just let the trees grow. They generally have little in the way of fixed committment to labor, and almost no plant other than the tree farms. Planting, thinning, pest and weed control and harvesting are contracted out. They can even contract road maintenance, and the logger will build the roads too.

Some capital intensive businesses with very long lived assets can fit it too, as long as there is not a great need for maintenance capital.
Generally these businesses don't get real cheap, except when people are scared out of their wits. I wonder if shipping as in the bulkers that we have been following might fit well, as long as they can avoid bk in the troughs such as now. No real pricing power, but I guess the ones with financial breathing space can pretty cheaply mothball excess capacity. I guess because I don't really know.

Ha
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Old 11-30-2008, 03:36 PM   #27
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The real yield on Vanguard's TIPS fund is quoted at 3.62%. The highest real yield on the TIPS fund occurred in early 2001 at 4.27%. The lowest
real yield was 0.63% in April of this year.

IMHO, and I am no economist, the TIPS fund is a bargain. I am seriously considering supplementing my IRA with a chunk. I think TIPS are a relatively safe haven for the next year or two and could even provide some nice capital gains when the economy re-inflates.

Cheers,

charlie
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Old 11-30-2008, 04:04 PM   #28
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As Brewer mentioned, timber as a pure tree farm operation fits this, except that demand for the product can be very volatile. Tree farmers are price takers, not price makers. Their main salvation is that if they are well capitalized they can cut way back on harverst and just let the trees grow. They generally have little in the way of fixed committment to labor, and almost no plant other than the tree farms. Planting, thinning, pest and weed control and harvesting are contracted out. They can even contract road maintenance, and the logger will build the roads too.
I am a tree farmer (technically speaking, because I have pretty much deferred the job to family members since I moved away) and so are my dad and uncle (full time for him). We have an integrated "operation": We all own some woodland, my uncle cuts down the trees and hauls them away to the saw mill that both my dad and uncle own. Then the wood gets sold as fire wood or lumber (some to my cousin who is a cabinet maker) depending on grade. As a youth, I spent my summer in the business. I can confirm that it can be a very profitable operation. In our case there is NO commitment to labor (we do most everything ourselves, but some times we have to rely on temp workers) and the overhead costs are minimal (taxes is probably the largest cost burden). We do our own planting, growing, maintenance, cutting, sawing, drying etc... so we can sell a semi-finished product with a higher value added. Still price swings can be pretty severe and cash flow very irregular. In years where prices are too low, we do minimal logging and we focus on maintenance (weeding, thinning, etc...) instead. In our case, we purchase woodland close to municipal roads/tracks, so road maintenance is mostly not our responsibility.
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Old 11-30-2008, 04:25 PM   #29
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Some elementary questions:

1. This government of ours that's giving out $800 billion (or whatever the amount is), just where is this money actually coming from?
2. Anyhow, with all this money the government is giving out, how is this going to affect the economy in 2-3 years? (And, more importantly, how is going to affect me--and less importantly, how might it affect you)?
1. US bonds, i.e. more debt for our future.
Higher taxes...more industries moving overseas, less pocket money, less savings by public.
Agency budget cuts.
Special earmarked funds - slosh Congressional pork around and cut "fat" programs

2. Tea is brewing as I type.
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Old 11-30-2008, 08:39 PM   #30
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If I could accurately predict what is going to happen 2 or 3 years into the future on a consistent basis, I'd be too busy cruising the world in my 120 foot yacht with the latest supermodels to be posting here.
And the same is true for everyone else here.

None of us know what the market will look like in 2 to 3 years, let alone 2 to 3 days. Which is why most of us stick with a balanced portfolio of fixed income (good for deflation) and stocks (less bad for inflation).

However, I'd agree with others here who have expressed a greater concern over potential inflation than deflation. Although we are currently experiencing a deflationary credit crisis, the Fed is throwing everything under the sun at that problem and the risk of over correcting is very real.

One potential way to protect against inflation is by investing in commodities. Another way (and a better way, in my view) is to allocate some of your fixed income investments in TIPS, which at current yields, are very attractive right now.
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Old 11-30-2008, 08:54 PM   #31
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One potential way to protect against inflation is by investing in commodities. Another way (and a better way, in my view) is to allocate some of your fixed income investments in TIPS, which at current yields, are very attractive right now.
A question from a "TIPS Novice:" I assume buying the actual securities (at auction or through a broker) is the preferred way of locking in today's high rates and the only way to guarantee your principal (if held to maturity), right? I know that you have to pay tax on the interest as it accrues, even though you don't actually receive it, so these things should be held in tax advantaged accounts.

Would a TIPS fund offer the same inflation protection, though without the guarantee of return of principal?

Also: Any significant differences (in costs, in reaction to changes in inflation or interest rates) between a TIPS ETF and a TIPS MF?

Thanks!
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Old 12-01-2008, 12:24 AM   #32
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Some elementary questions:

1. This government of ours that's giving out $800 billion (or whatever the amount is), just where is this money actually coming from? And, did they have it all the time? And, if so, why wasn't it used for daily physical education in the elementary schools or looking for a cure for cancer? Or both? Or for other things worthwhile?

2. Anyhow, with all this money the government is giving out, how is this going to affect the economy in 2-3 years? (And, more importantly, how is going to affect me--and less importantly, how might it affect you)?
It'd be like playing Monopoly, and the banker adds more money to the board

Prices get bid up (inflation) and if you're holding money, you're money is diluted.

The govt doesn't care about education, infrastructure, roads, health care. Funny, they can never find the money for that....but they can find the money to bail out banks and brokers

I think there's a very real risk of Japan, L shaped recession/depression for 10 or 15 years. That's what happens when you keep propping up the system.

My theory for the next 5-10 years....

-Higher commodity prices. Jim Rogers commodity super cycle theory. Makes sense to me. Will last 18-25 years and started in 98/99. Higher oil, gold, crb, agriculture.

-Higher inflation, interest rates. Bonds are making a gigantic top now.

-Weaker US debt rating.

-Stocks, flat to down. I don't know how you make the case for a sustained bull market coming out of this. These companies....bac, ge, goldman sachs...they aren't going to come out of this unimpaired.

Negligible returns over cash. But a real risk of...DOW 5,000 in 10 years or something. What's going to happen to stocks if the 10 year or 30 year goes to 8 or 10%? In the 70's, stocks went to nothing and we flat for 10 years. And they were coming off a smaller top in the late 60's vs the late 90's.

So many bubbles have built up over the last 30-50 years, I find it hard to believe the market has discounted *all* the bad news going forward. Has it discounted 10 or 15% unemployment?

A bigger risk in 10 years...China, Japan, S Korea, Taiwan, Singapore, etc. They've got all the cash in the world and reserves...why are they going to continue to hold dollars?

Who's going to be holding the dollar in 20 years?

Funny, in sept and oct, everyone thought the world was going to end....weren't we suppose to be living in shanty towns by now?

These things take time...you don't turn around the Titanic just like that. Turning the American economy is like a super tanker. 2-3 years, probably similar to what's happening now. But 10-15 years....who knows.
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Old 12-01-2008, 10:44 AM   #33
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A question from a "TIPS Novice:" I assume buying the actual securities (at auction or through a broker) is the preferred way of locking in today's high rates and the only way to guarantee your principal (if held to maturity), right? I know that you have to pay tax on the interest as it accrues, even though you don't actually receive it, so these things should be held in tax advantaged accounts.

Would a TIPS fund offer the same inflation protection, though without the guarantee of return of principal?

Also: Any significant differences (in costs, in reaction to changes in inflation or interest rates) between a TIPS ETF and a TIPS MF?

Thanks!
There are also Series I savings bonds, and IIRC, you don't have to pay tax on I-Bond interest until you cash in the bonds. I buy these on payroll deduction but I think they can also be purchased at banks, and possibly also online from treasurydirect.gov (web address from memory). I don't know whether I-Bonds are similar enough to TIPS to be interchangeable in a portfolio.
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Old 12-02-2008, 04:50 AM   #34
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I Bonds are limited in purchase I think - $5K limit per year. Here is the link to I Bonds: http://www.treasurydirect.gov/indiv/...nds_glance.htm
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Old 12-02-2008, 06:18 AM   #35
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Me too! Meaning? I'm just Holding steady with my current 40/60 mix of Balanced Funds ( 4 of them) and Intermediate and Short Bond funds..
having kept 25% out from 07's gains and Reinvesting Now and just adding to my Balanced Funds on the Dips ( S&P 800 or less )

and hope they repeat and know what they're doing again, this time around vs in the apst 10 yrs with them..

So far YTD is down about -15%..not the best of times, but could be alot worse..
having 3 yrs of COH? Just hope that is enough toget thru this Mess and things are fully recovered by this time in 3 yrs...1/11

Having ride out the last 3+ yr Bear was alot easier with the Bonds & My Bal. Funds doing very well, but not this time around..

BTHOMe!
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Old 12-02-2008, 06:36 AM   #36
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Bail out and cost?

Being On the Otherside with More than enough $ to be Financially Retired?

I have to admit, I really don't care how much it takes to get things back to Normal..adn if it cost another 1-2% in one's Taxes? Fine with me..

Meaning? If it's going to cost everyone another 1-2% in our taxes to get our Savings ( #401k/#403's/Retirement Ports) back to 1500 S&P levels?
Seems like a Small price to pay..

I mean, if it cost me $1,000/yr more in taxes for the next 3-5 yrs to get back over Double or more than that on a per $10,000 ?
It's a no brainer to me..

It seems that everyone on the lower Economic income scale wants The Gov't to Provide More from A Nat. health Plan to Everything else, but don't want to pay directly for it thru Higher Taxes ( that other countries have to pay for it) and they just have to come into A Reality Check ..

and with Group Health Plan Premiums now exceeding $10k yr? It's time to start taxing that as well to employees getting it paid by their employer..

If self employed and even Seniors can't Deduct their Health Ins. Costs, why should Employees get it tax free? It doesn't sound fair to me..

We need alot more $ going Into Medicare and SS to increase it's services and keep it In business...

maybe Obama's Idea of Converting #401k $ into SS and get 50% more SS in return is a Good Idea as well..? Seeing as Most #401k investors can't handle their own Investing anyway..and it's a Stacked Deck against them ....

Can have all the Regulations they want, but Businesses will just figure out new ways to circumvent the System... Considering your Dealing with a Devious Insurance & a used car salesman Attitude to begin with..

and our system is designed to Clean up AFTER the Fact and not prevent much of anything..until after it's been done..and not prevent it..

Their is justToo Much influence on our Congress and Senators to Do or expect otherwise from them...in the real world..If they want to stay in office and achieve other things for the people of their District/State.. and get everyone else to pay for it.. That's their real job..isn't it?

Bank America drops-25%? Just a Month Before , 60 min. did a Story on them and how their CEO was saying How Great of shape they were in...?
Yeah... More BS.. But did we expect him to Tell the truth and have it's Co. Crash back then?
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Old 12-02-2008, 08:37 AM   #37
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I Bonds are limited in purchase I think - $5K limit per year. Here is the link to I Bonds: Individual - I Savings Bonds
True, but that is a much lower limit than I remembered. I just did a quick check, and the limit was $30,000 until the beginning of this year. This article says the limit is $5K in paper I-bonds and $5K in electronically purchased I-bonds, per Social Security number, per year. So a single person could buy $10K I-Bonds/year and a couple, $20K.
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Old 12-02-2008, 10:20 AM   #38
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Thanks. I bought some I-Bonds a few years ago when the fixed portion of the yield (the part added on to whatever the inflation adjustment is. This part represents the real yield.) was 3%+. That was a good deal. Now the fixed portion is less than 1% and it's hard to get very excited about it. With 10-20 year TIPS paying an effective real yield of approx 2-3%, I'm getting interested. . .
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Old 12-05-2008, 12:47 PM   #39
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This is the scenario that I think is a bigger risk than deflation. The Fed and other regulators know pretty well how to combat deflation. Not so easy to corral the other side, though.
The Feds don't want to combat inflation, they want to CREATE it. With your economic background brewer, you understand the concept of monetizing debt better than most of the rest of us here.

Pay off you debts with cheaper dollars. The only average citizens who count are mostly those up to their ears in debt. They are a prime reason the "printing presses" will be turned up to high.
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Old 12-05-2008, 02:17 PM   #40
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A great deal of "money" (assets that people believed they owned at a certain value) disappeared in the past year. This may be the perfect time to "print" more money. I just hope we can bring ourselves to stop when the economy picks up, after deflation stops and before substantial inflation starts.
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