Sisyphus and the Third World Written By: Alan Geik 2008-06-05 15:28:46 Photo: litmuse, Creative Commons, Flickr
Since the first Western explorer set foot in the New Worlds, those inhabitants have had to roll the rock up an ever steeper hill. From outright military domination and expropriation of resources for the smelters and factories of the industrialized countries to decades of struggles for national liberation and the realities of dependent one-commodity nations, the losers in these relationships were never difficult to identify.
The Fed Considers Collateral Value vs. Inflation Written By: David Neubert 2008-06-12 09:16:16 Would the Fed hold back on stopping inflation just to protect its new mortgage portfolio? Michael Pento at GreenFaucet certainly proposes the idea. I think the proposal is wrong. The value of collateral held by the Fed is much less important to them than the long-term effects of inflation. Inflation hurts the credibility of the Fed and thus long term interest rates (in the long term). And having an untrustworthy central bank would wreck havoc with the economy and the Fed greater than any losses on the collateral value of loans to banks.
The real worry? Stagflation. The Fed is now considering raising interest rates to stop inflation in the face of a slowing economy.
I continue to buy overweight financials, especially the big ones like Citigroup (C), Bank of America (BAC), JP Morgan Chase (JPM), Morgan Stanley, Goldman Sachs (GS) and Lehman Brothers (LEH). I'm even short some puts on the Financials ETF (XLF). In the short term, financials have to go higher as hedge funds cover shorts and, more importantly, mutual fund managers buy to correct the underexposure to the financial sector. Most Fed easing cycles imply very good returns if you buy just as they begin. The exceptions? The last one. I'm hold financials for the short run but I'm going to lighten up on these as this rally progresses. Why? The recipe is in place for some stagflation.
Stagflation is a period of inflation and low or no growth in the economy. The last time this existed was back in the 1970's in Britain and the US.
The Inflation Data Conspiracy Written By: Eben Esterhuizen 2008-05-14 00:25:47 Photo:peterandringa, Creative Commons, Flickr
Call me a conspiracy nut if you like, but I'm starting to believe that the U.S. government is actively manipulating inflation data. PIMCO's Bill Gross recently suggested that the U.S. government wants to keep Social Security payments and other government costs pegged to an artificially low index, and he even suggested that this practice may have fueled the housing bubble. "The government can claim there's no inflation but all they're measuring is a reduced standard of living," argues Peter Schiff at Euro Pacific Capital.
