MarketVVizard's Market Thoughts

Top 720. Dec 19, 2003 4:31 PM

» Kirk - Re: Re: Re: Re: CPI Analysis [The Boskin Fix]

.
In response to message posted by pbradford6:

Inflation for EQUAL QUALITY is really hard to measure. We as a society expect far more for our dollar of medical care, police protection, food, education system etc., etc. etc. then we did in past generations.

In the old days if you got cancer, you died.

In the old days if you had clogged arteries, you died.

In the old days if you had a GSW to a vital area from a drive by shooting, you died.

In the old days if you had any form of cancer, you died.

In the old days if you got HIV/AIDS, you died.

Now we have all sorts of life saving treatments but they cost a fortune and the costs are spread between all who are insured. This is a great deal for the sick, shot, infected, sexually overactive, etc. but it is quite expensive for those with healthy genes and a serially monogamous lifestyle.

In the old days if your kid acted up in school he was sent to the principal's office and given a swat with a ping-pong paddle (I know first hand for fighting once in the 5th grade). Now parents of both sides of the fight sue the school for allowing the fight to happen in the first place and they sue again if their precious, spoiled rotten little brat has his self esteem damaged with a harsh word to discourage more fighting. Schools now spend all their money protecting against law suits and parents wonder why so few resources actually go to learning.

Anyway, I think it is pretty complex. Our greater expectations cost more.

-- posted by Kirk

Top 721. Dec 19, 2003 5:00 PM

» Normxxx - Depression, anyone?

What we need is a good, old fashioned depression to get people to sort out what is important from what is not.

As Sam Johnson said, "There is nothing like the prospect of a hanging to concentrate the mind."

-- posted by Normxxx

Top 722. Dec 19, 2003 5:54 PM

» Austrian - Re: Re: Re: CPI Analysis [The Boskin Fix]

In response to message posted by MarketVVizard:

I DO believe the spit will hit the fan. The reason is because the CPI corruption is CUMULATIVE. This means that as time goes on, the difference between reported inflation and reality should get out of hand. The AARP and everyone else is going to figure it out, and the game will be over for the politicians. However this game could go on for years, and they may make further adjustments in an attempt to save face.

VViz,
All good points. As you point out the game could go on for years. Just look at Wall Street, flood the planet with liquidity and all the lemmings are once again following their favorite analyst. All is forgiven, just tell us what to think and what to do.
You yourself pointed out most investors do not understand the very basics of investing, and most spend more time planning a vacation then planning for their retirement, or managing their investments.
Like my investments in gold, silver, etc, I think inflation will be at it's peak when the masses see it for the first time. Probably peaking within 24 months leading to a bond opportunity. My guess is this will be in sync with the top of the commodities markets as the two in the 1970s were highly correlated.

Again, thanks for the great post.

Regards,

--Austrian

-- posted by Austrian

NYT July 27, 2003 It Looked Good on Paper By DANIEL ALTMAN

Top 723. Dec 21, 2003 12:31 PM

» MarketVVizard - Boskin's SS Windfall Theory looked good on paper

To give you an idea of what Boskin did AFTER his CPI work...

In a flash of intuition, Michael J. Boskin had found a silver bullet. Or so it seemed.

About six months ago, Professor Boskin, an economist at Stanford who was chairman of the Council of Economic Advisers under the first President George Bush, released a paper suggesting that the federal government had a bounty of $12 trillion coming that no one had bothered to count.

Baby boomers and others, who spent decades making tax-free contributions to their I.R.A.'s and 401(k) plans, would soon begin paying taxes on withdrawals from those accounts, Professor Boskin noted. The windfall from all that, he argued, would more than cover the deficits in Social Security and Medicare. He even suggested that the government sell securities abroad, backed by the expected revenue, to cover its more imminent deficits.

But now it appears that Professor Boskin fired a blank. On July 17, after his ideas were discussed on TV, he quietly notified his colleagues that his equations contained an error. Though he is busily overhauling his paper even now, his latest moment of fame may have already passed.

Professor Boskin worked in the White House throughout the Bush administration and, in the mid-1990's, headed a much-publicized Congressional commission to improve government measures of prices. In those years, he was known as a smart, hard-headed insider who did not hesitate to tell Congress, federal agencies and even the Federal Reserve how to do their jobs.

But in the last seven years, apart from periodically advising the second President Bush and making occasional television appearances, Professor Boskin said little that was heard outside the academic universe. That was, until January, when he released his bombshell paper.

When word of his findings entered the public domain, Professor Boskin instantly became a darling of the business news media. "The doom-and-gloom red-ink budgetary forecasts of recent years have overlooked some astoundingly good news for the government," crowed Barron's in its issue of June 16. BusinessWeek declared Professor Boskin "clearly back on top of his game" in its June 30 issue, calling him "the Alan Greenspan of his generation."

Yet while the news media were bubbling with praise, the academic backlash was coming to a boil. On Feb. 10, just weeks after he drafted his new paper, Professor Boskin presented his results at a seminar held by the economics department of the University of California at Berkeley. Immediately, said Emmanuel Saez, an associate professor at Berkeley who attended, participants took issue with one of his crucial assumptions: that the I.R.A.'s and 401(k) plans were earning a much higher effective return than the government was paying on its debt.

TYPICALLY, an unpublished paper like Professor Boskin's would have circulated among academic economists, who would then have offered their comments in private. But in this case, Alan J. Auerbach, the organizer of the seminar, joined William G. Gale and Peter R. Orszag of the Brookings Institution, a research group, to rebut the work of Professor Boskin even as he was revising the paper.

They reiterated the question about rates of return and raised several new, equally profound concerns. To begin with, they wrote, the vision of trillions of uncounted dollars to save Social Security and Medicare was just a mirage. The government's statistics already account for the effects of all the contributions, they wrote, and about 85 percent of withdrawals from tax-deferred saving accounts.

The three also said Professor Boskin was overestimating the tax rates that would apply to the withdrawals, another factor that would artificially inflate the amount of revenue the government might garner. Then they took issue with his assumption that all changes in private saving by Americans would be matched by new corporate investment in the United States.

Indeed, this last assumption by Professor Boskin was a trifle contradictory. Early in his paper, he called the notion that a dollar of debt sold by the government would replace a dollar of corporate investment an "unrealistic assumption in an open economy." But if foreigners could buy Treasury bonds, why could Americans not send their savings overseas, too?

While Professor Auerbach and his co-authors prepared their paper, other commentators took a whack at Professor Boskin's results. Bruce Bartlett, a senior fellow at the National Center for Policy Analysis, a lobbying group, complained that the government would not be able to sell bonds backed by the deferred tax revenue. "It's not like a corporation that suddenly discovered an asset that it didn't know it had," he said in a phone interview last week. "Everybody realized, after they thought about it for a while, that there was less there than met the eye."

Academics, meanwhile, spotted yet another problem. When people take money out of I.R.A.'s and 401(k) plans, securities like stocks and bonds are sold. Because these people are often retired, they may spend most of the withdrawals. The more they spend, the more the nation's stock of private saving falls.

When that happens, according to Professor Boskin's own assumptions, businesses would invest less in new projects, and their ability to generate profits would therefore decline. With smaller corporate profits, the government would lose revenue from the corporate income tax — enough to offset a substantial chunk of the revenue gained from the individuals' withdrawals. But Professor Boskin, it seemed, did not take this into account.

This month, on the same day Professor Auerbach and his colleagues released their report, Professor Boskin sent a short, apologetic e-mail message to a number of notable economists and pundits. He wrote that most of his paper was correct, but he acknowledged that his equations had indeed omitted the complete effect on corporate investment.

"While the qualitative discussion remains valid, this did lead to a considerable overstatement of future deferred taxes," he wrote. "I am in the process of correcting this problem."

He also called Douglas J. Holtz-Eakin, the director of the Congressional Budget Office, to notify him personally of the flaw. Professor Boskin serves on the budget office's advisory panel and, Mr. Holtz-Eakin said, his ideas had contributed to a similar analysis of deferred tax revenue in the coming decade.

"He made a real effort to let me know that he had made this mistake," Mr. Holtz-Eakin said.

Professor Boskin, reached by telephone last week, defended his main point. "The government has already included the bulk of what's been lost in the contributions, and is yet to collect on the withdrawals," he said. "A balance sheet for the government would show a large deferred tax asset, currently roughly equal to the national debt held outside the government. And that will grow substantially in the future."

"Mistakes were made in the projection of business taxes and interest, and in circulating the draft electronically," he added. "But the Auerbach, Gale and Orszag criticisms also deal with other issues in dispute between us that have nothing to do with this matter."

For the moment, however, economists' hopes for a "pot of gold," as Barron's first called it, have been dashed. Meanwhile, Professor Boskin will be girding for the next joust with his critics.

-- posted by MarketVVizard

First shall be last CBS.MarketWatch.com By Peter Brimelow Dec. 15, 2003

Top 724. Dec 21, 2003 7:20 PM

» MarketVVizard - Price Inflation Has Never Disappeared

Price Inflation Has Never Disappeared
by Gary North November 28, 2003

I don't want to see you make an investment decision based on a view of the American economy that says that it is headed toward price deflation. Some of you may have seen such forecasts in the last three years. You may be new to all this. These predictions may seem like the latest & greatest. Actually, they are quite ancient, as economic forecasts go.

I first heard someone predict imminent price deflation in 1967. The forecaster was J. Irving Weiss. His prediction was made at the very first gold investment conference, sponsored by Harry Schultz. I attended that conference.

According to the Inflation Calculator of the Bureau of Labor Statistics, it would take over $5.50 to purchase what $1 purchased in 1967. Mr. Weiss's prediction was wrong. But he never changed his mind.

His son, Martin Weiss, continued the same theme after his father retired. I debated him in 1982 on audiotape. He was sure that deflation was imminent. I was sure that it was not. Today, it would cost $1.91 to buy what $1 bought in 1982. As recently as 2002, he was quoted by gold coin dealer James R. Cook:

"Debt is dangerous. Deflation is worse – it destroys the ability of borrowers to pay back debts. Throw the two into the same pot, and the resulting explosion can blow up the `strongest' economies, sabotage the most `astute' central bankers, and destroy the wealth of the `smartest' investors.

Mr. Weiss goes on to tell us, "Nearly every nation is on the verge of a debt-and-deflation blowup, threatening to drive its economy into the gutter and its stock prices into the toilet. As a result:

U.S. banks and investors will be slapped down or even wiped out.

U.S.-based multinationals will get killed, their exports gutted, their foreign subsidiaries in shambles.

Worst of all, foreign investors, who now own a whopping $10 trillion in U.S. assets, will have no choice but to begin dumping their holdings at any price."

I am happy to report that Mr. Weiss has at long last abandoned the Weiss family forecasting heritage and has come over to my position. According to a November 14 column in "The Daily Reckoning," Richard Daughty, the Mogambo Guru:

Martin Weiss of the Safe Money Report figures that the $500 billion budget deficit, the borrowings from the Social Security Trust Fund, the war in Iraq, planned tax cuts, prescription drug coverage and the money needed to bail out the Pension Benefit Guaranty Corporation add up to a total deficit for 2004 of, and I hope you are sitting down for this, over one trillion dollars. That's just the deficits. Add in the regular budget of two trillion bucks, and suddenly we are looking at government spending of about 30% of GDP!

He also warns that inflation is barreling down upon us. He says that in the 80's he accurately predicted falling inflation. In the late 90's he warned about deflation. Then, figuring that we had had enough suspense, adds, "And now, for the first time in over two decades, it's time to prepare for rising inflation."

Actually, Weiss never predicted falling inflation in the 1980's or any other time. He has spent his entire career predicting outright price deflation. In every year that he made this prediction, he was wrong. So was his father. It is good to see that reality has at last caught up with his forecast. I hope this continues.

The inflation vs. deflation debate heated up in 1974, when gold bug newsletter writer C. V. Myers began predicting deflation. In every year since 1974, the U.S. consumer price index has risen. This has taken place even in the face of what Dr. Kurt Richebächer calls "hedonic price indexing" by the government's statisticians: attributing increased efficiency by computers as a major factor in putting deflationary pressure on the overall economy. There has been a deflationist faction inside the hard-money newsletter camp ever since.

The price index that I monitor most closely is the Median CPI, which is published by the Cleveland Federal Reserve Bank. It has begun moving up, after a year of stability in the 2.4% range. In October, it moved up by 0.3% over September. September had moved up by a mere 0.1% over August.

When you look back over the preceding two decades, month by month, you discover that the annual rate of increase has been in the 3% range or higher. Only in 2003 did it fall into the 2% range.

We have been living for a year in a uniquely low price inflation period, but October indicates that the economy may be heading back toward 3% per annum or higher. _____________________________________________________________

NEW YORK (CBS.MW) -- Good news, bad news: It's the season to pick the best and worst performing letters. We'll start with the worst.

The dividend-reinvested Wilshire 5000 was up 25.9 percent through the end of November. The 10 worst-performing letters of 2003 as monitored by the Hulbert Financial Digest [See bottom of column] ranged from a gain of 0.9 percent (Coolcat Total Market Reports and Graphic Fund Forecaster) to a loss of 37.9 percent (Martin Weiss' Safe Money Report).

Sneak preview: The top 10 performers had gains that got into the triple digits. I'll write about them later this week.

And the first shall be last. Two of 2003's worst-performers were among the top 10 performers of 2002 -- Minogue Stock Index Futures and Martin Weiss' Safe Money Report. (See my Dec. 9 2002 column).

Another sneak preview: two of last year's worst-performers are in the top 10 this year.

There's a reason for these turnabouts. Letters that take a radical stand on the market, or specialize in specific areas, run higher risks for higher rewards.

Thus Martin Weiss is a superbear; the market just didn't cooperate this year. Overvalued Equities specializes in short sales; ditto. The Minogue service takes a small number of carefully placed, highly leveraged bets in the extremely volatile area of stock index futures. It didn't work this year, but the service's overall record is not bad. So who knows?

The letter most likely to bounce back: maybe Peter Eliades' Stock Market Cycles. Eliades has a record of occasional remarkable success -- the "hot hand" associated with speculators like Jess Livermore -- but, unlike Livermore, he seems to be able to keep his down years under control. (See my Sept. 18 column).

In 2003, Eliades lost some 2.4 percent. Phooey.

Doug Fabian has the distinction of having two services in the bottom 10 performers.

His VIP Investing, which was advertising this fall that it could effectively guarantee returns of 50 percent or more per year, lost 15.1 percent in 2003 to date.

This is no surprise to Mark Hulbert, based on his long study of feasible sustained rates of return earned by investors. (See Mark's Sept. 17 column.) But it must be a considerable surprise to Fabian's subscribers, who pay a remarkable $2,000 or so a year.

Fabian's Successful Investing is the successor to Telephone Switch Letter, founded by his father Dick Fabian, which is still the second- best performer over 20 years as measured by HFD. But the letter has achieved 0.8 percent this year, just below the T-bill rate. This is basically because Fabian abandoned his father's stunningly simple 39- week moving average system and stayed out of the market when the indexes rose through it earlier this year.

Admittedly, moving average systems have not worked as well recently as they did in the 1980s. But it would have worked this year. Quite an Oedipal drama.

Final word: Coolcat Total Market Reports is a new service specializing in sector funds and exchange funds, run by Kevin Kennedy of Coolcat Explosive Small Cap Growth Stock Report, one of the most interesting (and successful) of the newer letters.

Kennedy's aggressiveness doesn't seem to apply to his fund letter, which has been in cash all year. But (here's another sneak preview) Coolcat Explosive is one of 2003's top 10.

Here are the worst performers of the year, along with their 11-month results:

Coolcat Total Market Report: 0.9 percent

Graphic Fund Forecaster: 0.9 percent

Doug Fabian's Successful Investing: 0.8 percent

The Yamamoto Forecast: 0.1 percent

Sy Harding's Street Smart Report: 0 percent

Peter Eliades' Stockmarket Cycles: -2.4 percent

Dick Fabian's VIP Investing: -15.1 percent

Charlie Buck's Win Before You Buy: -17.3 percent

Minogue Stock Index Futures : -20.8 percent

Overvalued Equities: -36.9 percent

Martin Weiss' Safe Money Report: -37.9 percent

Ouch, a hard core gold bug lost 37.9% this year??? smile Ahhhh, the chump life of a PPET. Must be hard.

-- posted by MarketVVizard

See http://www.suite101.com/discussion.cfm/i...

Top 725. Dec 21, 2003 7:54 PM

» Normxxx - Re: Price Inflation Has Never Disappeared

In response to message posted by MarketVVizard:

This does NOT include Sy Harding's 'Seasonal Timing System,' (STS) for conservative investors, which is UP 9.5% for the year. His trading system wound up at 0% because he was short for several brief periods over the summer.

I'll have the complete details for 2003 in January, 2004, if you want.

"Because, in spite of this year’s underperformance, STS has had an average annual return of 15.1% over the last 6 years compared to only 5.1 % for the Dow, and 2.1% for the S&P 500. And has significantly outperformed the market over the last 2-year, 3 year, 4-year, 5-year, and 6-year periods, based on following the strategy rules mechanically (far right columns), and even though we messed with the re-entry this year (the 2nd column from the right). All with 50% of market risk!

"We’re often asked how badly STS is out-performed by the Nasdaq since the Nasdaq has such stellar gains. Well, the Nasdaq has never made any better gains than it made in 1998, 1999, and this year. Yet at the beginning of 1998, the Nasdaq was at 1570. It closed yesterday at 1924, so has gained only 22.5% over the last six years, significantly beaten by our STS strategy. That is even though STS utilizes the less volatile and therefore less risky S&P 500 and Dow index funds in its two trades a year, and has only 50% of market risk since it is in the market roughly only 50% of the time (from four to eight months each year). We also need to realize that in spite of being up 44.2% YTD this year, the NASDAQ is up only 22.5% over the last 6 years."

-- posted by Normxxx

Top 726. Dec 21, 2003 8:17 PM

» MarketVVizard - Re: Re: Re: Re: CPI Analysis [The Boskin Fix]

In response to message posted by pbradford6:

"I am surprised that a politician from the right or left hasn't jumped on this pressing issue"

I'm not really that surprised. BOTH Republicans and Democrats have been playing these games because it is the only way they know how to avert disaster (delay the purse string tightening into the future). The Boskin Commission happened during the Clinton administration, and no changes have been made under the Bush administration, in fact Boskin even came back with his attention grabbing headlines of "social security is fine, don't worry be happy" during the Bush administration. He got lots of positive attention (he was even being heralded by many as the next fed chief), but after he realized the mistakes he had made in the initial report all the hype just quietly disappeared.

The AARP has even apparently been appeased somehow (duped is more like it). I found this research report ON THEIR OWN SITE: http://research.aarp.org/econ/ib37_cpi.h...

Seem a little complacent?

The conclusion is hysterical:

"Our analysis shows that the forthcoming reduction in the growth of the CPI would increase federal budget surpluses; expand trust fund balances; and increase fixed investment in plants, structures, and equipment. An increase in investment, in turn, would help increase the national product in the long run, thus making the economic pie bigger for all. On the other hand, it would also cut Social Security benefits, welfare payments, and unemployment benefits. Because the CPI also governs the adjustments to the poverty line year by year, it would also influence the measured numbers of persons in poverty every year."

smile IT IS NO COINCIDENCE THAT THIS REPORT WAS WRITTEN IN APRIL 1999 DURING THE MANIA MARKET BOOM.

p.s. Norm, I don't think you can really judge a newsletter based on one year anyway, or even two. Only reason I posted it was because it seemed remarkable to me that a gold bug like Weiss was down so much this year. Felt that performance fit well with the article about his multi-decade deflationary stand.

I think anyone who holds to the view that we are still in a secular bear market, especially someone who trades nasdaq stocks, did well this year just by breaking even given that the NASDAQ is up 45%. Many of the same people hopefully made >20% a year in 2000, 2001, and 2002. If they were also bullish during the bull market, they are doing well. If they were nimble enough to be bullish during the bull market, bearish during the bear market, AND caught the big gains in the cyclical bull of 2003, they are probably best of breed (I am not in this category). It will be interesting to see how the super performers of '03 do over the next 3 years.

-- posted by MarketVVizard

Top 727. Dec 21, 2003 9:48 PM

» Normxxx - Re: Re: Re: Re: Re: CPI Analysis [The Boskin Fix]

In response to message posted by MarketVVizard:

If I seemed a little sensitive, it is because I use Sy to time my entries and exits for the stock market portion of my assets. I use Dynamic Portfolio theory, which permits/encourages the use of high probability analyses to determine asset class weightings, and entries and exits. I have been using Sy for 4 years, and so far I find him to be extraordinarily pragmatic, and neither a bull nor bear. I must admit, that this year, the marke seems to have outsmarted him (he was a top ten trader for the 5 or 6 years leading up until this year). STS is seperate from his trading program; it is a purely mechanical system. As far as I know, only Sy and Yale Hirsch ('Stock Market Almanac') espouse the modified version which produces impressive results (except for this year). But I'm a convinced devote. So far, for 6 years, it has worked even better than the period over which it was originally tested. It got me through the bear unscathed. It was uncanny how virtually all of the drops were in the 'out' periods and the rises were in the 'in' periods. It was enough to give me religion about the markets 'seasonal' tendencies.

My other asset classes are Bonds, Gold, REITs, and EMFs. I have been thinking of adding a commodities/oil class. I also have a 'junk' bond subclass in my stock group, since they behave more like stocks than bonds. Gold is a problem, since I do not have a good exit strategy (I tend to just draw it down when I move funds into stocks).

As far as I know, Weiss is simply a(n equal opportunity) Financial Armageddon peddler; I don't think he cares what the actual cause might be. His father may have been more intellectually honest.

If you are interested in a serious deflationist, there is A. Gary Schilling (who writes for Forbes.

I personally believe we are in an entirely new paradigm: inflation for all commodities and services (and domestic goods that are not impacted by international competition, e.g., real estate) and deflation for all manufactured goods, especially those in competition with Chinese imports.

-- posted by Normxxx

Top 728. Dec 21, 2003 10:57 PM

» Normxxx - Global Deflation?

The biggest deflationary force is the .5 to 1 billion Asiatics and Indians looking for work. It is also likely to make the near future very interesting, as in the old Chinese curse, "May you live in interesting times."

-- posted by Normxxx