Day: May 7, 2011

When Things are Nuts

When Things are Nuts

When Everything is Strong

When Everything is Strong, Redux

It Would Have Happened Already

It Would Have Happened Already, Redux

Four recent posts of mine.? They warn against assuming that trends will continue.? This past week, we gained some evidence that trends won’t continue.? I’m not talking about the upset in commodities, led by silver and crude oil.

Those matter little compared to the low yields for Treasury bills and notes (from Bloomberg.com).

3-Month 0.000 08/04/2011 0 / .01 -0.005 / -.005 05/06
6-Month 0.000 11/03/2011 0.06 / .06 0 / -.000 05/06
12-Month 0.000 05/03/2012 0.16 / .16 -0.01 / -.010 05/06
2-Year 0.625 04/30/2013 100-04+ / .55 0-01? / -.024 05/06
3-Year 1.250 04/15/2014 100-29? / .93 0-01? / -.020 05/06
5-Year 2.000 04/30/2016 100-21? / 1.86 0-03 / -.020 05/06
7-Year 2.625 04/30/2018 100-20 / 2.53 0-02 / -.010 05/06
10-Year 3.625 02/15/2021 104-00 / 3.15 0-01 / -.004 05/06
30-Year 4.750 02/15/2041 107-24? / 4.29 -0-17 / .030 05/06

These low rates threaten the repo market and money market funds.? They also force people into riskier investments.

This is why I view the commodity market weakness as a hiccup.? Speculators, those that follow momentum, got ahead of themselves.

But there is weakness in Europe that should not be ignored.? Will Greece be tossed out of the EU or not?? Given past actions, the answer is no, but who can tell for sure?

We face cross-currents here, there is no yield for savers, which makes many speculate.? But speculation in commodities has blown up recently.? What to do?

Personally, I would edge into commodities, and commodity-related stocks.? When one-year Treasury rates are so low, it is an incentive to buy stuff/commodities.? Why should I hold a worthless dollar when I can hold a lump of copper?

This is a guess, and it is only a guess, but I would favor commodity strength over the weakness in short-term bond yields.? Play it carefully, and wait for strength before joining in.

How to Shrink the Deficit

How to Shrink the Deficit

It annoys me that Republicans argue against elimination of special tax benefits for anyone, calling it a tax increase.? Let’s get things straight here: tax increases are things that affect everyone.

The tax code needs to be cleaned up, as do subsidies.? It is not the proper place of government to be handing out special favors.? If the Republicans want to do what is right they need to trade — eliminate a subsidy/tax break that some of their constituents like in exchange for eliminating a subsidy/tax break that the Democrats like.? Rinse, lather, repeat, until we are back to something like the Tax Reform Act of 1986, or better.

Much as I am a libertarian, I would like the government to survive after shrinking considerably.? Part of that involves paying debts, unless we are thinking of doing an external default.? My but the rest of the world, particularly China, would be hurt by that.

Cutting taxes has a limit, unless one wants to see our entitlement programs end.? I’m all for that, but I think it is political suicide, because a large portion of the American public believes in magic — they think that they are entitled to a meager pension and healthcare in their old age, whether the government can afford it or not.

Look, I am for cutting the Defense budget bigtime, because it is offense, not defense; we do not need so much to defend us.? Fold Homeland Security into Defense.? Also cut Social Security and Medicare — we can’t afford them at the level indicated, but not promised… remember that these programs are statutory and not guaranteed.

After that, go after the discretionary budget, and eliminate whole departments.? Why do we need an energy department when prices are beyond control?? Why do we need an agriculture department when food prices are high, and likely to remain so?

Education department?? Things have gotten worse since its creation — eliminate it.? HUD, HHS — great big wastes, eliminate them.? Commerce, Treasury, Labor, State, Interior, Transportation, Veterans Affairs — cut them in half, and see how they adapt.? Make the Fed shrink by 90% or more… what does it take to do monetary policy?

I have no doubt that this policy would make my house price fall, but it is the right thing to do.

The deficit can be cut.? It is all a question of will.

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