The Consumer Price Index (CPI) measures among other things, the cost of living for the average person in the United States. This index measures our rate of Inflation, Deflation, and Stagflation. Investors, bankers, and the government use this index in many major financial decisions.
I used this index as a gage to tell me when to invest in the bond market. In deflationary times like today, the bond market out performs the stock market. A deflationary economy may last 20 years. That is why the bond market enjoys long bull markets. When high inflation starts to decrease, stocks outperform bonds. That is why we had a long bull market in stocks from 1980 to 2007.
Here is a link that goes into detail about this index.
http://www.investopedia.com/articles/04/102004.asp#12817290826272&close
Friday, August 27, 2010
Monday, August 23, 2010
What is Stagflation and Why Do I Care?
I know you don’t like inflation and you learned to hate deflation. But I got some bad news for you. In less than 10 years, you are going into Stagflation.
Dictionary.com says that it is a condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.
Investopedia says Stagflation occurs when the economy isn't growing but prices are - not a good situation for a country to be in. This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., the effects of inflation were considerably made worse because of this stagnation.
Now you are telling me that the government is making the car companies create better fuel efficient cars. Some of them don’t run on gasoline which is made from oil. Yea but as the economies in the US and other countries around the world pick up, the demand for oil will far exceed the supply of oil. This will cause the price of gas to double or triple what it is today. People will not be able to afford these new efficient cars because they will not have money or credit. The majority of people around the world will be driving the “gas hogs” that we have today. The price of gas and oil will make all goods and services go up.
We will not see full employment but the economy will start to come off the bottom. That is the time when Stagflation will come knocking on your door.
So what is the Consumer Price Index or CPI? We will find out next time.
Dictionary.com says that it is a condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.
Investopedia says Stagflation occurs when the economy isn't growing but prices are - not a good situation for a country to be in. This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., the effects of inflation were considerably made worse because of this stagnation.
Now you are telling me that the government is making the car companies create better fuel efficient cars. Some of them don’t run on gasoline which is made from oil. Yea but as the economies in the US and other countries around the world pick up, the demand for oil will far exceed the supply of oil. This will cause the price of gas to double or triple what it is today. People will not be able to afford these new efficient cars because they will not have money or credit. The majority of people around the world will be driving the “gas hogs” that we have today. The price of gas and oil will make all goods and services go up.
We will not see full employment but the economy will start to come off the bottom. That is the time when Stagflation will come knocking on your door.
So what is the Consumer Price Index or CPI? We will find out next time.
Saturday, August 21, 2010
What is Inflation and Why Should I Care?
Last time, we talked about deflation; that is prices and wages fall in general. We are in a deflationary period and I know you don’t like it. As you can see, in today’s stock market, it is very hard to make any money. The reason why my bond portfolio is up over 19% this year and 72% from the bottom of the market in January 2009 is because we are in a worldwide deflationary period.
The government is telling the news services to announce that we are not in a deflationary period but a disinflationary period. They are also telling you that we are in a “Great Recession.” The Federal Government is scared of deflation which is a symptom of a Depression. At this time, people do not invest, buy goods, and we have a great number of unemployed or underemployed. If you have not figured it out by now, we are in the first “Great Depression of the 21st Century.”
So What is Inflation?
Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling, according to Dictionary.com.
Investopedia puts it this way. As inflation rises, every dollar will buy a smaller percentage of an item. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year. That means that your money will lose 2% or in this example 2 cents of its value in a year. That is because you will have to pay 2 cents more next year for the same product.
Investopedia says that most countries' central banks will try to sustain an inflation rate of between 2-3%.
But it is hard for governments to do that because they are playing with so many variables, like, imports, exports, private consumption, government spending, and investments. For example, if the amount of investment falls, who is going to pay the wages and open the factories so that the products could be made? If the Government has to fight two wars and at the same time payout a high volume of money for Social Security and road repair, that may make inflation get out of control. If consumers get scared of losing their jobs, they will not spend any money. That will cause the economy to fall into a recession or depression like we are in today. If the people buy more products than we sell to people in other countries, that could cause our money to lose its value. That is inflationary.
So what would you like to see more of; Inflation or Deflation? Too much inflation and your money will be worthless. If you have too much deflation and you will not have a job or buy goods and services.
If you want to understand how business interacts with the US Economy, look at this slide show.
http://www.bergen.edu/faculty/ldeane/ib1/sld001.htm
Next time we will look at Stagflation.
The government is telling the news services to announce that we are not in a deflationary period but a disinflationary period. They are also telling you that we are in a “Great Recession.” The Federal Government is scared of deflation which is a symptom of a Depression. At this time, people do not invest, buy goods, and we have a great number of unemployed or underemployed. If you have not figured it out by now, we are in the first “Great Depression of the 21st Century.”
So What is Inflation?
Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling, according to Dictionary.com.
Investopedia puts it this way. As inflation rises, every dollar will buy a smaller percentage of an item. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year. That means that your money will lose 2% or in this example 2 cents of its value in a year. That is because you will have to pay 2 cents more next year for the same product.
Investopedia says that most countries' central banks will try to sustain an inflation rate of between 2-3%.
But it is hard for governments to do that because they are playing with so many variables, like, imports, exports, private consumption, government spending, and investments. For example, if the amount of investment falls, who is going to pay the wages and open the factories so that the products could be made? If the Government has to fight two wars and at the same time payout a high volume of money for Social Security and road repair, that may make inflation get out of control. If consumers get scared of losing their jobs, they will not spend any money. That will cause the economy to fall into a recession or depression like we are in today. If the people buy more products than we sell to people in other countries, that could cause our money to lose its value. That is inflationary.
So what would you like to see more of; Inflation or Deflation? Too much inflation and your money will be worthless. If you have too much deflation and you will not have a job or buy goods and services.
If you want to understand how business interacts with the US Economy, look at this slide show.
http://www.bergen.edu/faculty/ldeane/ib1/sld001.htm
Next time we will look at Stagflation.
Friday, August 13, 2010
What is Deflation and Why Do I Care?
In the 1980s, I noticed from the 1960s to 1985, the expansions in the economy were getting weaker and the contractions were getting stronger. By 1984, the hyper inflation days were declining. I started thinking that the world was going into a deflationary period and it was time to prepare for that. To let you know how naive I am, I went to my local government, “The City of Harrisburg, Pa” in 2003 and told the 2003 City Council to start paying off as much debt as they could because times for City governments was about to get tough. They gave me the usual diplomacy but privately they where saying, “Here comes the nut!”
So what is deflation?
Dictionary.com says that Deflation is, “a general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression.”
Investopedia goes on to say, “declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind.”
Does any of that sound familiar?
Business has been closing factories in this country for the past 35 years and moving them to the Far East. That is how they have been able to increase profits. Have you seen increasing unemployment in the past 10 years? The true unemployment among all workers and people wanting to work has been rising since 1970.
Have you experience lower wages and benefits in the past 10 years? I noticed that my contributions to my health insurance have gone up since 1982 and my coverage has gone down. You can’t watch the news without them telling you the high number of defaults in housing. I started noticing the homeless living in the streets in 1982. Now the homeless problem is in the news all of the time. But I do see more “out of business” sales now and “buy one get one free” deals. You might know by now that we are in a major depression.
The Obama Administration, congress, and the Federal Reserve is trying to increase the money supply and deliberately induce rising prices, causing inflation. That is why banks are giving big business loans with less than 1% interest and we see one bailout after another. You might say that will cause inflation like we had in the 1970s and early 1980s. Yes it will but at least we will be working and buying things that we need like food and housing.
We will look at Inflation next time….
So what is deflation?
Dictionary.com says that Deflation is, “a general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression.”
Investopedia goes on to say, “declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind.”
Does any of that sound familiar?
Business has been closing factories in this country for the past 35 years and moving them to the Far East. That is how they have been able to increase profits. Have you seen increasing unemployment in the past 10 years? The true unemployment among all workers and people wanting to work has been rising since 1970.
Have you experience lower wages and benefits in the past 10 years? I noticed that my contributions to my health insurance have gone up since 1982 and my coverage has gone down. You can’t watch the news without them telling you the high number of defaults in housing. I started noticing the homeless living in the streets in 1982. Now the homeless problem is in the news all of the time. But I do see more “out of business” sales now and “buy one get one free” deals. You might know by now that we are in a major depression.
The Obama Administration, congress, and the Federal Reserve is trying to increase the money supply and deliberately induce rising prices, causing inflation. That is why banks are giving big business loans with less than 1% interest and we see one bailout after another. You might say that will cause inflation like we had in the 1970s and early 1980s. Yes it will but at least we will be working and buying things that we need like food and housing.
We will look at Inflation next time….
Saturday, August 7, 2010
Investments for a Better Life
As I told you in earlier blogs, people do not like to see other people do anything positive. Usually, when a person hears about something for the first time, they are against it. It does not matter if it is something that can help that person. It takes one or two generations later for the people to hear and start to do what has been presented earlier. With me and “investments for a better life” it is no different.
I can remember growing up; it was taught that if you want something, you save for it. Then you go buy it. “Layaway” at stores for Christmas was a big thing. No one talked about taking a credit card and going to borrow money to buy items for gift giving. People thought you would be crazy to borrow money to go on vacation. Today, this is a common practice. The banks and other financial institutions with the help of the government changed society over the past 40 years from a saving nation to a borrowing nation. All you have to do is look around and see the product of this national policy. I am one of the people trying to change the nation back from a borrowing nation to a saving nation. That is why I write this blog.
As I sit here doing my analysis of my client’s portfolios because it is the last working day of July, I see that my clients and I are still outperforming the Dow Jones Industrial Average. “Year to Date” my portfolio is up 17.82% while the Dow is up .38%. I reorganized my portfolio on January 31, 2009 and started tracking my investments against the Dow. From that date, I am up 66.69% and the Dow is up 30.83%. (At Publishing time today, my portfolio is up "Year to Date" 19.02% and since January 31, 2009, 68.39%.)
These results speak for themselves. A junk bond portfolio is safer and can produce better results in economically troubled times, when cash is king and debt is destructive. This is what I am trying to get across to the public. That means saving for big ticket items is better in such times as this.
I can remember growing up; it was taught that if you want something, you save for it. Then you go buy it. “Layaway” at stores for Christmas was a big thing. No one talked about taking a credit card and going to borrow money to buy items for gift giving. People thought you would be crazy to borrow money to go on vacation. Today, this is a common practice. The banks and other financial institutions with the help of the government changed society over the past 40 years from a saving nation to a borrowing nation. All you have to do is look around and see the product of this national policy. I am one of the people trying to change the nation back from a borrowing nation to a saving nation. That is why I write this blog.
As I sit here doing my analysis of my client’s portfolios because it is the last working day of July, I see that my clients and I are still outperforming the Dow Jones Industrial Average. “Year to Date” my portfolio is up 17.82% while the Dow is up .38%. I reorganized my portfolio on January 31, 2009 and started tracking my investments against the Dow. From that date, I am up 66.69% and the Dow is up 30.83%. (At Publishing time today, my portfolio is up "Year to Date" 19.02% and since January 31, 2009, 68.39%.)
These results speak for themselves. A junk bond portfolio is safer and can produce better results in economically troubled times, when cash is king and debt is destructive. This is what I am trying to get across to the public. That means saving for big ticket items is better in such times as this.
Wednesday, August 4, 2010
Apartment Insurance, Who Needs it?
Insurance is not an investment. Insurance is protection against loss. I thought that people who live in apartments buy insurance to insure such things as their clothing, TV sets, computers, furniture, and etc. After all, people who buy houses insure their stuff. After watching the news, I seen crazy people set fires to apartments because of some dispute over drugs, women, men, money, and etc. Some do it just for fun. They could care less that they are burning several working families out of their homes. People smoking in bed and burning other families out. Sometimes a child is playing with fire and burns down the whole building.
In many cases, I hear that maybe one or two families out of 24 have apartment insurance. The rest walk away with just the clothing on their backs.
Apartment insurance is not that expensive. You can purchase it in most cases from your auto insurance company. You can buy insurance from insurance companies for $84 per year insuring up to $25,000. You can also buy insurance for $197 per year insuring up to $75,000. Most apartment insurance is in the price range of most people. So there is no reason not to insure you or your family against loss of property.
In many cases, I hear that maybe one or two families out of 24 have apartment insurance. The rest walk away with just the clothing on their backs.
Apartment insurance is not that expensive. You can purchase it in most cases from your auto insurance company. You can buy insurance from insurance companies for $84 per year insuring up to $25,000. You can also buy insurance for $197 per year insuring up to $75,000. Most apartment insurance is in the price range of most people. So there is no reason not to insure you or your family against loss of property.
Monday, August 2, 2010
What do you know about Economic Declines?
Answer these questions below with the proper economic declines. You my use more than one answer for each.
a) The Great Depression of the Early 21st Century
b) The Great Depression of the 20th Century
c) The Recession of the 1970s
d) The Recession of 1949
1. This decline started with a Real Estate bust and bank failures.
2. This decline seen the largest stock market decline in percentage among the four mentioned here.
3. After World War II the economy had to change from a war time economy to a peace time economy.
4. Germany was the first to come out of this economic decline.
5. Before this decline in economic activity, the US landed on the moon and had its greatest number of employed. The public believed that the US would never have another decline in economic activity.
6. In this decline the Korean War got underway. Many thought that it would bring back prosperity.
7. In this decline, the symbol of the start was the stock market crash.
8. In this decline, the stock market went from 14 thousands to 8 thousand points. Many people lost their retirement savings.
9. In this decline, many people lost their bank savings accounts.
10. In this decline, many people’s life insurance policies did not pay upon death.
11. Many people became homeless and lived in the street.
12. Long lines at the gas station caused a down turn in economic activity.
13. We saw unemployment rates go from around 4% to about 8% in this down turn.
14. The average annual unemployment rate was 5.4 percent, while the average annual change in the Consumer Price Index (CPI) was 6.6 percent.
15. Four Years after the war, this economic downturn in the United States lasting for 11 months.
There have been as many as 47 recessions in the United States since 1790. This link looks at these downturns.
http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
No matter what you scored on this one, I bet that you learned that economic declines take away your money, no matter who you are.
Answers:
1- a, b
2- b
3- d
4- b
5- c
6- d
7- b
8- a
9- b
10- b
11- a, b
12- c
13- d
14- c
15- d
a) The Great Depression of the Early 21st Century
b) The Great Depression of the 20th Century
c) The Recession of the 1970s
d) The Recession of 1949
1. This decline started with a Real Estate bust and bank failures.
2. This decline seen the largest stock market decline in percentage among the four mentioned here.
3. After World War II the economy had to change from a war time economy to a peace time economy.
4. Germany was the first to come out of this economic decline.
5. Before this decline in economic activity, the US landed on the moon and had its greatest number of employed. The public believed that the US would never have another decline in economic activity.
6. In this decline the Korean War got underway. Many thought that it would bring back prosperity.
7. In this decline, the symbol of the start was the stock market crash.
8. In this decline, the stock market went from 14 thousands to 8 thousand points. Many people lost their retirement savings.
9. In this decline, many people lost their bank savings accounts.
10. In this decline, many people’s life insurance policies did not pay upon death.
11. Many people became homeless and lived in the street.
12. Long lines at the gas station caused a down turn in economic activity.
13. We saw unemployment rates go from around 4% to about 8% in this down turn.
14. The average annual unemployment rate was 5.4 percent, while the average annual change in the Consumer Price Index (CPI) was 6.6 percent.
15. Four Years after the war, this economic downturn in the United States lasting for 11 months.
There have been as many as 47 recessions in the United States since 1790. This link looks at these downturns.
http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
No matter what you scored on this one, I bet that you learned that economic declines take away your money, no matter who you are.
Answers:
1- a, b
2- b
3- d
4- b
5- c
6- d
7- b
8- a
9- b
10- b
11- a, b
12- c
13- d
14- c
15- d
Sunday, August 1, 2010
How Much Have You Learned About the Market?
Match the words or phrases that most closely match the statements made below.
Match these phrases
a) Growth Stocks
b) Corporate Bonds
c) Share Builders Account
d) Municipal Bonds
e) Short Sale or buy puts
f) Payout Ratio
g) Margin Account
h) Treasury Bonds
i) P/E Ratio
j) Income Stocks
k) Warrants
l) Cash Account
With these statements
1. The type of securities that you want to buy to receive an income while you wait for the securities to appreciate.
2. The type of securities that you want to buy when you believe economic activity will dramatically increase in the next six months to a year.
3. This is what you do when you believe that economic activity will fall in the near future, that will cause stock prices to do the same.
4. Price divided by Earnings
5. Dividends divided by Earnings
6. Evidence of an IOU from a company
7. Evidence of an IOU from a county within a state
8. Evidence of an IOU from the United States
9. An account where you can buy and sell full and fractions of securities
10. An account where you can borrow money
Answers
1 – j 4 - i 7 – d 10 - g
2 – a 5 – f 8 - h
3 – e 6 – b 9 – c
How did you do?
10 -9 right is an expert. 8 - 7 is knowledgeable. 6 – 5 need improvement. 4 and below does not have a clue of what we are doing here.
Match these phrases
a) Growth Stocks
b) Corporate Bonds
c) Share Builders Account
d) Municipal Bonds
e) Short Sale or buy puts
f) Payout Ratio
g) Margin Account
h) Treasury Bonds
i) P/E Ratio
j) Income Stocks
k) Warrants
l) Cash Account
With these statements
1. The type of securities that you want to buy to receive an income while you wait for the securities to appreciate.
2. The type of securities that you want to buy when you believe economic activity will dramatically increase in the next six months to a year.
3. This is what you do when you believe that economic activity will fall in the near future, that will cause stock prices to do the same.
4. Price divided by Earnings
5. Dividends divided by Earnings
6. Evidence of an IOU from a company
7. Evidence of an IOU from a county within a state
8. Evidence of an IOU from the United States
9. An account where you can buy and sell full and fractions of securities
10. An account where you can borrow money
Answers
1 – j 4 - i 7 – d 10 - g
2 – a 5 – f 8 - h
3 – e 6 – b 9 – c
How did you do?
10 -9 right is an expert. 8 - 7 is knowledgeable. 6 – 5 need improvement. 4 and below does not have a clue of what we are doing here.
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