News flash: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.2 percent before seasonal adjustment.http://www.bls.gov/cpi/cpid1210.pdf OTOH, as you can see from a chart of the 10-year bond, which is a reasonable proxy for the level/direction of interest-rates and whose yield is now roughly 1.7%, the price of money is lower than the YOY increase in the cost of good and services. In other words, the Bernank has choosen to continue the transfer of wealth from savers to borrowers. http://finance.yahoo.com/echarts?s=^TNX+Interactive#symbol=^...So, what does this mean for fixed-income investors? The prices of whatever financial assets you already own will continue to be supported. The prices of what you need to own (or might want to own) --be they real things like food and fuel, or imaginary things things like securities-- have gotten more expensive.I might yet come to grief for the systematic bond buying I did in 2009, 2010, 2011, and this year (altogether, roughly $700k face, at a cost of roughly $500k, spread across roughly 300 positions). But my prospects for profits seem very favorable at this point, supported as they are by the Fed's unchanging policies. Yes, in truth, Ben and his buddies are destoying the US economy. But, meanwile, there's a helluva party on the after-desk of the USS Titanic for anyone involved with financial markets. As an investor, I'm making twice the money I ever did working a real job. But also, in truth, I'd readily give back half of it if the US Congress acted resolutely to cease deficit-spending immediately and to repay every penny of the national debt within ten years. In other words, I'd be more than happy to exchange the current, temporary prosperity for a few for a longer-term, broader prosperity for all. That's the double-down, go-for-broke bet that the Fed is making. If a combo of economic-recovery and debt pay-downs through currency depreciation doesn't work out as Ben is hoping, we are all doomed. But, then, we've seen this movie before, right? or --better said-- our parents or grand-parents did in the 20's and previously and cycically about every 20 to 30 years before that for as long as there have been markets and governments have intervened in them. Herodotus and Cicero wrote of financial follies. What we are seeing is nothing new, and the smart money bet is that the ship will sink because the captain and his crew weren't paying attention to maintenance and navigation. Know where your lifeboat station is, and do the financial equivalent of sleep in your clothes, readily to depart on a moment's notice. Charlie
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