Minyan Mailbag: Follow the Herd
What do those numbers REALLY mean?
Editor's Note: Minyanville is a community of people who share an interest in fiscal literacy. As perspective is an important aspect of our daily routine, we share this exchange with hopes that it adds balance to your process.
Prof. Succo -
My question is whether your points on the CPI are common knowledge. I have to assume that they are, at least among the investment professionals. The question then is why the bond market trades as if there really is no inflation? Or is it the old horse is on the table, but everybody is unwilling to recognize it.
I can see why one's purchase of stocks is not counted in the CPI, but why would you ignore the cost of a house?
I think that the present situation has so many obvious (at least they seem that way to me) dangers, that are being ignored. However, I felt that way a year ago and as far as I can see they have gotten worse, but with little real effect to markets.
Incidentally, amongst my friends they tolerate my opinions, but give them little credence. After all, things are really great: my house is worth 40% more that it was a few years ago. There is low unemployment - things have to be good, etc.
I appreciate your comments, even if I agree with them.
I have spoken to people who have been in the business 25 years and they did not know these facts.
But more importantly, this is an example of herd behavior. Even if they know it, the markets don't react to it, so they don't. This process is re-enforced over time. Just like you know it, but won't trade on it because others don't care.
And your house is worth more, in devalued dollars of course, because others are willing to pay more because they have "easy" loans to buy it. We have talked about that "risk" before. I wonder what bonds will do when everyone goes to "fix" their mortgages four years from now. It won't be pretty.
And the employment figures are greatly skewed as people no longer looking for work are dropped from the rolls.
It all comes out in the end my friend. I, like everyone else, must trade and deal with things day to day. So I empathize.
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