Question: Could you please clarify the relationship between interest rates and inflation. Why would rising interest rates cause an uptick in inflation? I understand that a strengthening economy puts upward pressure on both yields and inflation, but how (on the absence of economic growth and ignoring forex rate changes) can interest rate hikes directly affect inflation? Help!

ANSWER: The idea that rising interest rates will reduce demand perhaps might apply if the ONLY borrower was the private sector. But the biggest borrower that a rise in rates has ZERO impact on is government. When Volcker raised rates to insane level in 1981 to stop inflation, he succeeded in sending the US national debt from $1 trillion to $8 by the end of the decade. About 70% of the entire debt is past interest.

Rate hikes today cause the government deficits to rise and thus the national debt will explode. I will be publishing a book very soon that takes the newspaper accounts before 1929 and after demonstrating that it has been socialism that has altered our thinking. Before 1929 rates rose and that was seen as bullish because people were still borrowing and the economy expanding. Rates declined in recession and depressions.

After 1929, rates rose and people said “OH GOVERNMENT WANTS TO STOP US FROM BUYING!” Sorry, but rates decline in Japan for 23 years and it stimulated nothing. Rates decline with the lack of borrowing (demand) and rise with expansion (demand).

– More from Martin:

Interest Rates & the Bell Curve

The reasons why the technology has so much potential are as follows:

It lowers energy intensity by saving energy, by eliminating production steps, by enabling the reuse of by-products by producing lighter products and by cutting the need for transportation. It is in these respects obviously environmentally-friendly as well.

AM techniques yield less waste. The US Department of Energy estimates that by building objects layer by layer instead of traditional machining processes that cut away material AM processes could reduce material needs and costs by up to 90%.

It heightens incentives to innovate by eliminating traditional design restrictions. It makes it possible, for example, to create items previously considered too intricate and accelerates final product design. The ability to improve performance and functionality – literally customizing products to meet individual customer needs – should open new markets and improve profitability.

It yields greater flexibility in the production process by enabling rapid response to markets and new production options outside of the manufacturing factory. Spare parts can be produced on demand, for example, reducing the need for inventory and complex supply chains.

In short the technology enriches the capital base and enhances the scope for an economy to achieve faster capital- and total factor productivity growth. Its disruptive qualities emerge from the ongoing fall in its relative costs and the increasingly broad reach of its potential. Arguably of most significance from the vantage point of potential global economic benefits the technology lowers the barriers to entry in manufacturing and allows almost anyone to become an entrepreneur.

As we have explored in more detailed research in recent weeks there are a large number of technologies that are rising to the surface of the world economy at present which offer a great deal of promise. AM in isolation would arguably not be so potent were it not for these other innovations that are acting alongside it. The marriage of nanotechnology and AM techniques is perhaps the bestillustration of this. But the increasingly connected world economy via the increasing use of mobile and cloud technology and the ease with which digital designs can now be transported around the planet are notably also helping to foster the take-up and deployment of AM techniques.

We have tentatively estimated that the efficient deployment of new technologies in the information and communications sector, in manufacturing (including AM) and in energy could lift the potential growth rate of the world economy by as much as 0.5 percentage points in the coming years. The winners from this potential transformation, however, are more likely to be those economies, sectors, companies and consumers that are active users of these new technologies and not necessarily its active producers.

….continue reading this very detailed article HERE

“We really can’t forecast all that well. We pretend that we can but we can’t. 

And markets do really weird things sometimes because they react to the way people behave, and sometimes people are a little screwy.” 

Alan Greenspan, speaking to Jon Stewart (at 6.20min) on The Daily Show. More quotes from this interview (paraphrased):

• The banks did not fully understand the risks out there.
• We analysts thought the actors would be rational.
• We couldnt believe their (bank’s) leverage.
• You cannot tell which are the toxic assets.
• Let banks suffer the consequences, don’t let them default.

Alan Greenspan was Chairman of the U.S. Federal Reserve from August 1987 to January 2006. Vancouver has been screwy since the spring of 2005 when commodity markets launched bringing other physical and paper assets along for the ride as private sector investors and government managers abandoned fundamentals.

(Click HERE or Chart to enlarge)

More from Canadian Housing Price Charts:

“Blackstone Group LP (BX), builder of the biggest single-family rental home business in the U.S. is using its experience to replicate the model in Spain where property prices have dropped 40 percent.”

….read Spanish Inquisition

Produced by McIver Wealth Management Consulting Group

Mark Jasayko, CFA,MBA, Portfolio Manager with McIver Wealth Management of Richardson GMP in Vancouver.

www.McIverWealth.com

There is an old adage that “they do not ring bells at the top.”

This is factually not true, there are usually multiple warnings that a top is forming in the stock market, but most investors ignore them.

A big reason for this is psychology: tops form when investor sentiment has become extremely bullish. Being bullish usually means enthusiasm and overconfidence in a positive outcome. Neither of these items lend themselves towards taking note of negative developments or “signs of a top.

For this reason it’s important to note market developments. I’ve got a few that should give investors pause.

1)   Carl Icahn wants Apple (AAPL) to leverage up.

AAPL has maintained low debt and a sizable cash hoard for years. The company recently issued $17 billion in bonds (the single largest corporate offering in history) in order to pay out a dividend to shareholders. A company with a record of no debt issuing the single largest corporate offering in history is definitely a “bell ringing.”

Now Carl Icahn wants the company to take out more debt to implement a stock buyback. This is effectively “leveraging” up the company (adding debt to increase profits per share). This is another “bell ringing.” Regardless of one’s views on AAPL or Icahn, the notion of the former world’s largest company which has never had much debt to suddenly consider issuing debt to increase EPS is a “bell ringing.”

2)   Former top performers, particularly Tesla (TSLA) and Netflix (NFLX) appear to have topped out or are topping.

Facebook saw a massive reversal yesterday based on announcements that it is losing out in the important “teen” demographic.

Google has entered a blowoff top.

Apple floundering.

One by one the market leaders are beginning to crash and burn. Take note.

3)   The “smart money” is selling.

The smart money is getting out of the market. Fortress Investment Group, Apollo Investment Group and other large “smart money” investors are literally “selling everything” they can. They’re not doing this because they expect things to improve and the market to continue to move sharply higher.

Indeed, even investment legend Warren Buffett, who has virtually never advocated against investing in stocks (with the exception of the Tech Bubble) has stated the market is “fully valued” at today’s levels.

Buffett loves stocks. He’s made his fortune investing in them. He is a near eternal optimist. For him to state the markets are fully valued and be sitting in the single largest cash hoard of his investment life is a major indicator that stocks are topping.

Please take note of all of this. There are multiple bells ringing.