Bob Brinker Free Discussion Site 59,820+

Top 474. Aug 6, 2005 8:46 AM

» Normxxx - Re: How will Brinker view the jobs report?

In response to How will Brinker view the jobs report? posted by bob90245:

In Brinker's view, higher energy prices takes money out of the consumer's pockets and thus is not inflationary.

That's probably true for the direct effects of oil price increases, but is probably NOT true of the indirect effects of an oil price (costs) increase (assuming a modicum of 'pricing power'). Of course, now that we have everything manufactured in China, and our services are taken care of by the Indians, the effects should be much less in any event. Such are the hidden benefits of outsourcing!

-- posted by Normxxx

Top 475. Aug 7, 2005 6:36 PM

» SLO219 - Re: Re: Re: Re: Brinker's Phantom Fund Notion

In response to Re: Re: Re: Brinker's Phantom Fund Notion posted by Kirk:

Kirk,

The Vanguard link is at-
http://flagship4.vanguard.com/VGApp/hnw/...

Note that you have to click on "Vanguard Lifetime Income Program" at the above page to get to a popup window. Then, click on "Request a Quote" in the popup window. This is a great resource.

It’s usually a surprise to most people (including me) to see how much money you REALLY need for a secure retirement. Also, it’s a great way to measure the true value of income streams from defined benefit retirement programs versus defined contribution programs. In my humble opinion, an income stream from a defined benefit program with a decent COLA (>2% annually) from an organization unlikely to go bankrupt in the future (such as a government) is worth a lot more than most people realize. As we know, governments can run large deficits virtually forever AND they have taxing authority to cover their future obligations. Of course, the benefit formula is key. Some governments have a generous formula (such as the state of California or certain federal agencies), others are cheap (such as the state of Maryland). Since I’ve bounced around various government and private sector employment, I have both. I consider the government defined benefit plan to be far superior. It’s amazingly generous when compared to the private sector defined contribution plan.

I’ve got friends with almost $2 million in their defined contribution plans who are about to retire (in their late 50’s) and are shocked to see that they’ll be lucky to generate a fully inflation protected $80K income stream with spousal benefits for the rest of their lives. Heck, $1 million is practically peanuts (for retirement purposes) these days.

I'd be interested in hearing the view of others on this.

-SLO219

-- posted by SLO219

Top 476. Aug 8, 2005 10:37 AM

» iamacamera - Re: Re: Re: Re: Re: Brinker's Phantom Fund Notion

In response to Re: Re: Re: Re: Brinker's Phantom Fund Notion posted by SLO219:

SLO219. I agree with all you say about the generous pensions WE give governmment retirees, but there a stealth benefit you missed.

These pensions have no actuarial reduction for early retirement. Outside of government jobs, it matters little how long you work for the company if you are only say, 55. Normally your pension is cut in half. Most voters don't register that they are giving a 100% increase to a government retiree who hangs it up at 55.

-- posted by iamacamera

Top 477. Aug 12, 2005 11:00 AM

» bbaddict - If a tree falls in the woods...

If a gallon of milk goes to $5, but nobody buys it, is it inflationary? I think they measure (CPI) inflation by sampling prices on staples and other items. But, really, they should multiply the cost of the item times the volume of sales to get the total spent on that staple. Then, they'd have to divide by the population to get a per capita number.

Sure, when gas goes to $3 and $4, people will still buy it, but will curtail spending in other areas. That is why Bob insists rising oils prices are not inflationary.

But, why wouldn't it still show up in the inflation numbers? Surely, the price of gas is one item they measure, and gas his risen about 50% in the last year.

Inflation-ex-energy, should still be higher, as rising oil will add to higher costs in most all other items.

Is the price of a gallon of milk not going to rise? Surely, it is a necessity as much as oil. Does it not rise because the demand falls due to the consumer's oil spending? What that means would be that the farmer absorbs the higher oil costs, not raising prices because of lesser demand.

Rising oil costs should add to the inflation number, but it is not the type of runaway inflation that we are used to. It is inflation in a slowing market. So, prices go up, but volume goes down. Per capita spending remains the same. Does that suggest that most consumers are about at the limit of their discretionary spending?

I guess "it depends on what the meaning of the word inflation is".

If inflation is simply a sampling of prices, then surely rising oil prices would lead to higher inflation numbers. But this type of inflation (in a stagnating market) is not the type that mandates the Fed to raise rates.

-- posted by bbaddict

Top 478. Aug 12, 2005 11:40 AM

» bbaddict - Housing bubble and economy

Here are some numbers I have gleaned from some recent BB broadcasts (most from Terry Savage):

35% of homes are owned outright
51% of new loans are fixed rate

That means that 1/2 of new loans are variable rate. This does not mean that 1/3 of all homes are owned outright, 1/3 fixed rate financing, 1/3 variable. A lot of owners have been in their homes since before the new creative financing, so I would guess that of all current homeowners...

35% owned outright
maybe 40-45% fixed rate
that leaves about 20-25% with variable rates

That is still a very large number of households whose payments would rise dramatically if rates rise. And they WILL rise eventually. Maybe not this year, but within the terms of their loans for sure.

If rising oil takes money out of other spending, and rising mortgage rates take a HUGE bite, then 20-25% of US households are perched precariously on a cliff above Laguna Beach. Most with these creative loans bought as much house as they could afford at the current low rates. With their big mortgages and rising rates, their payments will rise into the pain zone. And their home values also fall, slowing the housing market and diminishing their ability to take out that 2nd mortgage to spend.

Rising rates in this environment will be greatly magnified in the amount of economic slowdown caused. And a flow from equities to bonds would occur.

I don't want to be one of those doomsday bears... Bob sees market strength in low inflation, little pressure on the fed to raise rates, the 'sweet spot' in jobs numbers, and decent corp earnings. And we would be many months away from any recessionary economy, if rates and oil prices rise.

And, what forces would cause interest rate to rise? Any small movement upward slows the economy and takes the pressure off the rise in rates. So, are rates also in the 'sweet spot'?

The only thing I see putting pressure to raise rates is the need to finance the crazy spending in Washington, coupled with the Chinese buying less treasuries. Or, the migration of investors from equities to bonds.

So, S&P in the 1400's in the next 9-12 months, then let's see where the numbers are?

-- posted by bbaddict

Top 479. Aug 12, 2005 12:30 PM

» Normxxx - Re: If a tree falls in the woods...

In response to If a tree falls in the woods... posted by bbaddict:

If a gallon of milk goes to $5, but nobody buys it, is it inflationary? No, because the people who do the stats 'assume' you will just substitute a cheaper drink (powdered milk? water?)

If steak goes up in price, it is 'assumed' you will switch to hamburger. So is our CPI doctored (and is one reason Alan Greenspan, for one, does not use it as a measure of inflation.) It is so doctored to keep the CPI artificially low and minimize the impact of inflation on TIPs, I-Bonds, all of those government COLAs, etc.

Also, it's good PR. Nobody likes inflation; so we lie about it.

You can blame the new methods of calculating the CPI on Clinton; it was under his admin that the change was made.

-- posted by Normxxx

Top 480. Aug 12, 2005 12:43 PM

» Normxxx - Re: Housing bubble and economy

In response to Housing bubble and economy posted by bbaddict:

A lot of owners have been in their homes since before the new creative financing, so I would guess that of all current homeowners...

Who said an 'old' homeowner cannot take advantage of those new, esoteric financing schemes? In case you haven't noticed, refinancing mortgages is now a major industry in the U.S. And for the past few years, average net equity in their houses of U.S. households has fallen, not risen.

-- posted by Normxxx

Top 481. Aug 12, 2005 12:59 PM

» bbaddict - Re: Re: Housing bubble and economy

In response to Re: Housing bubble and economy posted by Normxxx:

tough crowd...

I guess I should have said, "A lot of homeowners have been in their homes since before the current creative financing craze, and have not refinanced...

I was just trying to calculate the current percentage of households that would have adjustable rate mortgages. It is somewhere between 20 and 33%.

And, thanks for mentioning Clinton. I had forgotten about when he and his co-conspirators changed the way we measure the CPI to make their administration look better. He was/is the master of twisting statistics to his own favor, to gain the hearts of those with limited logic/analytical skills. The truth and the Clintons are not friends.

-- posted by bbaddict

Top 482. Aug 12, 2005 2:20 PM

» bbaddict - Re: Housing bubble and economy

Sorry, I misspoke earlier...Any migration of investors from equities to bonds would tend to reduce bond rates..

-- posted by bbaddict