patrick.net

How about moving it any place but here?

Exactly. Anywhere but here. :)

How about some mand-made islands off the continental shelf?

Peter P,

UN runs vaccination, food and peacekeeping programs. Maybe not as well as they could be, but its better than nothing. It offers a forum for smaller countries to speak and grab some attention from the global behemoths. It forces most nations, this one currently excepted, to act with a veil of legitimacy.

Maybe these things are not important to you, but they are somewhat useful functions as far as I'm concerned. I rather spend money on UN children's programs than astrologers.

astrid,

O.K, then perhaps it's time we quit "hogging all the glory" and let someone else take the credit! (Oh... and the bills). :)

UN runs vaccination, food and peacekeeping programs.

True. They could be more effective.

It offers a forum for smaller countries to speak and grab some attention from the global behemoths.

They will get attention but not action.

It forces most nations, this one currently excepted, to act with a veil of legitimacy.

This function failed miserably. One cannot enforce law without power. This is why international laws are unenforceable against powerful large countries.

Maybe these things are not important to you, but they are somewhat useful functions as far as I’m concerned.

These things are very important to everyone. But UN acts against the very nature of humanity -- self interest -- without a balance of power. It cannot possibly succeed.

I have more faith on the Bill and Melinda Gates Foundation.

Okay, I sounded like a meanie.

So no rates dropping by the Feds, and they are making rumbly noises that it'll go up before it'll go down. No help for the FBs, there.

Peter P,

Now there's an idea! Maybe Bill and the Mrs. can take over the UN's functions, make it more efficient AND pick up the tab!

To discover the real increase in the money supply, you have to subtract the increase in the efficiency of the economy and the increase in population from the growth in the M3.

So if M3 is growing at a 10% rate like you say and efficiency is growing at 3.5%/yr and population growth is at 1%/yr, then the "real" money increase rate is more like 5.5%.

If inflation (as measured by a basket of goods and services) is only growing at 3%, then the rest must be going into asset inflation.

The Fed doesn't care about asset inflation, but maybe somebody should.

Now there’s an idea! Maybe Bill and the Mrs. can take over the UN’s functions, make it more efficient AND pick up the tab!

Perhaps. First, everything will be running Windows Vista. :)

Still waiting for Randy to poke holes in my undoubtedly weak understanding of macroeconomics...

Treasurys rally as Fed drops 'tightening' clause

NEW YORK (MarketWatch) -- Treasurys rallied Wednesday, sending yields lower, after the Federal Reserve left interest rates unchanged as widely expected, but omitted a crucial clause from its accompanying statement that was viewed as signaling a tightening bias. The Fed kept rates on hold for a sixth consecutive meeting, maintaining its federal funds rate target at 5.25%. But investors were keenly focused on the accompanying statement for clues about what might happen in the remainder of the year. The statement omitted the clause seen in recent statements that "additional firming may be needed." "The tightening sentence is gone -- that's the biggie," said Joe Balestrino, senior portfolio manager and fixed income market strategist at Federated Investors. "The market wasn't expecting that with inflation so high and above what the Fed is comfortable with.

Jimbo,

Uh, does anyone have a line on that M-3 data? Maybe that's why AG never missed an opportunity to tout our "productivity gains" throughout the 90's?

Peter P,

While I think very highly of Gates/Buffet/Soros and their philanthropic activities, I prefer to trust my tax dollars with fiduciaries (however distant from me) than hope for a benevalent tyrant.

I hope Mssrs. Gates/Buffet/Soros feels the same way.

Human nature is more than the grab for the last piece of sushi. We would never have gotten out of our caves if our ancestors didn't cooperate at least occasionally.

Also - Vista sucks.

M3 used to be published regularly. Here is the historical data up to Feb 2006:

http://www.federalreserve.gov/releases/h6/HIST/h6hista.txt

The Fed stopped publishing M3 at that point and now only published M2, but I have no idea why. I think we spent some time speculating on the reasons but I can't remember what everyone came up with.

Something dark and mysterious, related to their cabal-like powers, no doubt :-D

Jimbo,

IIRC the Fed offered the explanation that it was obsolete, out-dated and unecessary. My guess is that it had become an embarrassment.

Apparently New Century has declined to show up for a round of congressional finger pointing. Honestly, at this point I can't blame them. If they show up, the others will keep using THEM as a scape goat.

I should probably include a link to the story about the congressional hearings, huh?

Also - Vista sucks.

My wife ordered me a refurbished HP laptop with XP. I will see how that goes.

Human nature is more than the grab for the last piece of sushi. We would never have gotten out of our caves if our ancestors didn’t cooperate at least occasionally.

I think people collude more than they cooperate. I have not much faith on fiduciaries because they are also run by people.

Anyway, I hold a very dim view on humanity. I do not expect you to agree with me. I do not even expect people to like me.

The Fed effectively signaled:

* End to Tightening bias, meaning inflation fears are less than or equal to recession/credit crunch fears

* They are worried about the housing market, particularly with relation to people having increasing trouble getting credit (loans) to buy houses

* They are likely to cut to prevent either a recession or a credit crunch

This could have the effect of stretching out a housing price correction over many years. Of course the subprime meltdown could spread and a credit crunch could happen anyway. But short of that contagion, which is far from certain at this point, we may be looking at seeing a good portion of the housing price correction come in the form of inflation -- that is housing real prices drop even while sticker prices stay flat or even go up slightly.

My own current opinion is that we're likely to see accelerating nominal price drops in many areas over the next 6 months, but these won't be anything like 40-50% drops. They'll be maybe half of that or less. Then the rest gets taken out over 3-6 years, mostly due to Fed induced inflation. But house prices won't inflate again for a while due to new lending standards. It will take at least 10 years or longer before the banks forget what they've "learned" in this round.

I have a question about the CPI - which is inflation as measured using prices of certain goods and services.

It's hard to do. The prices of plasma TVs and digital cameras are going down sharply, but their quality is getting better. So they are deflating at a faster rate than indicated by their price. Same may be true for many services. The cell phone plans are much more expensive than they were a few years ago, but they have more features - useless features or not, there are more. So they are not appreciating that much. It's hard to factor these things in, hence the adjustments seem deliberate manipulations to many.

So it seems to me that the real price increases that should be important are food and energy. A glass of milk or a gallon of gasoline hasn't changed it's utility that much. Nor has it changed its features. But these are precisely the items that are not part of the "core" CPI ! To me that IS core CPI.

Just because they are volatile, doesn't mean I am not paying higher/lower prices for them. Can they not use a trailing 12 month moving average or something to smooth out the volatility ?

So is there a good theoretical reason that I am missing ?

We will see if global wage arbitrage allows this.

That may be more sticky than home prices. And there can be stagflation.

Randy H,

I'd heard the Fed's comments described as "tightening lite". Obviously the markets liked it and even the builders rallied but with subprime effectively cut off it's tough to script upside for recent home buyers. :(

Does Home Depot carry wheel barrels?

Randy,

Agreed with your interpretation of the FED decision. This was a preparation for the rate cuts coming in future meetings.

To extend your analysis of its effects on housing, I can say that the near elimination of subprime, credit tightening WITH reduced rates might be favorable to some Patrickiites. You will pay less nominal value in 2008-09 than in 2005, and still get a good low rate. That is if there is no recession. If the recession is severe, the prices may fall more, but our risk appetite may be tamed due to employment uncertainties.

Obligatory note. On the other hand, if inflation keeps increasing, FED will have a tough time reducing more than 100 bp. I don't think they can do that again as they did after the dot com crash. That WILL make the USD suffer more than what the policymakers want.

And there can be stagflation.

Stagflation had been my call for sometime. (Uninformed, uneducated guess. But that's how I am positioning.)

StuckinBA,

Not only that but in addition FB's will do all of the property tax re-negotiation for us as well! Believe me I'm way past laying awake nights worrying about what the Fed does or doesn't do (as they're painted into a corner on this one) but of equal concern is the fear of re-igniting the speculative bubble. Trust me there's plenty of people out there that think they're owed and they'll be looking to make it back. Fast.

CPI is inflation hedonized to 2.0%.

We will see if global wage arbitrage allows this.

It's my opinion that "global wage arbitrage" is in it's late phase. There are still more knowledge jobs being created globally, including in the US, than there are graduates in the pipeline.

I also think we're at the end of a free-market bias period, and we're likely to see growing protectionism. Mostly, at first, in the form of bi-lateral agreements and regional trace blocs. I'm expecting there will be both wage growth and wage inflation over the next couple decades.

This is not necessarily good news, btw, if you don't like stagflation and you think freer markets are the best path to world prosperity.

DinOR :

Believe me I’m way past laying awake nights worrying about what the Fed does or doesn’t do

Same here. Has the FED ever delivered a surprise ? Their actions are quite predictable. (I am sure they must have surprised a few times, but the fed funds futures is a very reliable indicator.)

Sanity check please:

http://www.burbed.com/2007/03/15/how-to-lose-272-dollars-a-day-on-a-san-jose-townhouse/#comment-7333

What will you do with the California state tax savings?

Property and Mortgage Interest are -NOT- deductible from California state income tax, right?

It's only deductible from Federal Income Tax, right?

Just heard from a friend: bidding wars (15+ offers) still exist in Sunnyvale.

Looks like school addicts have laser visions and they see no housing bubble.

An old friend of mine in Sunnyvale who bought a little place in 1998, expanded it in 2001 after having a child, and did more upgrades through 2004 just sold. They had put it up in Spring 06, but only got (as he put it) "joke offers". (funny, because that could have been me making the lowball offer in another timeline)

Anyway, the point is they only paid something like $475K, probably put about $150K in, maybe $200K at most. He listed in 06 at $1.2m, and got no where. They didn't mark down like the realtor pushed them to. They delisted, let the agent contract expire and decided to ride it out (being they had lots of equity and low payments).

Come Spring 07 and they got 3 strong offers, 5 total, and the house went over $1.3m. And they're leaving the state, but still decided not to sell down even a little, rather stay here a year or more longer to "get their price".

This is why prices are sticky. Not everyone is a panicky Casey FB. People are *irrational* and *creative* when it comes to trying to manage their pocketbook.

I've got other friends who are a dinc couple in the hinterlands of the East Bay in a McMegaMansion which is well under their purchase price now (they bought in late 05). They have probably 30-40% equity, and can make payments so long as both work. They want to move because now they're both commuting well over 1.5 hours each way. They won't even consider selling until they "get back to even". They think they can't afford to. Mental accounting is very powerful, and people who don't have NAAVLP loans will follow their intuitions, not our rational calculations.

Peter P.,

I think the UN and WHO vaccination projects are pretty decent. The UN also brokered an agreement in Darfur two years ago to get the rebels to agree to a 21 day cease fire there to vaccinate children for polio. I'm not sure why people would agree to stop fighting for 21 days so kids can get vaccinated, then go and burn down their village and kill the inhabitants, but they did.

I was actually approached on the street one day in Mexico City by UN polio vaccine workers offering to vaccinate my kids for polio. My kids are vaccinated, but with the injectable vaccine we use here, not with the live vaccine, which I think is better. I was tempted, because I'm not getting the live vaccine in the US.

I have used an overseas vaccination programme to get my kids immunized for TB (with BCG). SF has a high rate of TB, and with the xDR TB that's out there now I'm quite glad I did.

Fortress Sunnyvale. :(

I have used an overseas vaccination programme to get my kids immunized for TB (with BCG). SF has a high rate of TB, and with the xDR TB that’s out there now I’m quite glad I did.

Is BCG any good? Doesn't it gives false positives for skin tests?

Mental accounting is very powerful, and people who don’t have NAAVLP loans will follow their intuitions, not our rational calculations.

True, but not as powerful as fear when bubbles are popping everywhere else.

Most people follow their whims and wishful thinkings, not intuitions.

After being rational for 20+ years I have decided to take a vacation from logic. :)

RE: programme

It definitely sounds overseas. ;)

meaning you have to get a chest xray every time you get tested

Yep. It annoyed the heck out of me.

PS - nobody is interested in free veggie seeds? I have 30+ varieties of tomatoes.

Astrid,

I have no yard in which to plant them. I BLAME GREENSPAN FOR MY LACK OF TASTY TOMATOES!