There's no way out of here
When you come in
You're in for good
There was no promise made
The part you played
The chance you took
When you come in
You're in for good
There was no promise made
The part you played
The chance you took
Last night I received an email from the superintendent of my daughters school. He informed us that the much anticipated/planned/delayed groundbreaking ceremony for the $100+million high school remodeling project will be postponed. It appears that when the construction bids were opened last week, the lowest bid was a mere 16% above our cost estimates. Now this is simply shocking. When asked how this could be, the most common answer had something to do with inflation, the cost of materials and energy had gone up. The reason we are all so shocked at this "inflation" excuse is because our Fed chairman, Ben Bernanke, consistently tells us that core inflation remains low, and that any increases in food or energy are "transitory".
One of the questions I would like to ask Mr Bernanke at his press conference today is, "How exactly do you define transitory, and how do we factor this transitory increase in prices into long term construction projects?"
Here is a nice picture of price increases over the last year. It does not include construction materials.
Last September, the Fed stated that one of their goals was to see prices rise more rapidly, and on that score they have succeeded. But, has their success in promoting inflation actually started to undermine the economic recovery?
Deja Vu All Over Again:
I don't know about you but my radar is starting to go off again. It feels like we have been here before, just three short years ago. The stock market is hitting new highs, as well as oil, gold, and commodities. Corporate earnings are strong, and the job market is showing some signs of strength (or at least stabilization). My net worth has increased, and my clients are happy. Clearly everything is right in the world, and I should be enjoying the ride. But something gnaws at me.
Maybe I'm just imagining things, but something just doesn't feel right.
The Fed is happily forcing money out of savings and out of bonds, and into risk assets. Those that are wealthy, are the predominate owners of those risk assets. Wealth disparity is at a record high. Asset inflation will spur an economic recovery, RIGHT?
In many ways today's problems are worse than those in early 2008.
We have structural unemployment. Only 45.4% of Americans were employed in 2010, the lowest level since 1983. Only 66.8% of American men were employed, the lowest number ever.
We've transferred the problems of the failing banks onto the backs of our governments/citizens. Those governments are now in the process of trying to figure out how to shrink their deficits.
The failing banks that were bailed out are now actually Too Bigger To Fail.
We're now fighting an extra war in Libya.
The Fed's massive printing of dollars has caused the US dollar to depreciate versus other currencies, and commodities.
Commodity inflation is very real, and has led to sparks of unrest throughout the Middle East.
Home prices are still falling.
I could go on but I'm getting depressed.
These problems are all well known, and the markets continue to ignore them and march ever higher. The Bernanke talks of transitory inflation, and the Feds ability to handle it when the time comes, and the markets march higher.
At least we know that the President was born in Hawaii.
My job is to diversify and stay in harmony with the markets, and right now that means being nearly fully invested (just underweight bonds). Enjoying the ride, but it's a ride that feels increasingly unstable.
I wonder if we can really buy enough time, and grow the economy enough, to work our way out of this hole.
Wish I could be more hopeful, but I still don't believe you can fix a debt problem with more debt, eventually there will have to be defaults and a shrinking of the economy. I applaud the Fed's efforts in trying to make this as painless as possible, I just believe that the pain will eventually come.
Until then, and until our indicators turn negative, we'll go along for the ride.
Be careful out there, and keep the lights on,
Chris Wiles, CFA
412-260-7917
For prior Rockhaven Views visit:
This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
No comments:
Post a Comment