So What's Different?

OK, maybe I'm an old fart. I lived through the horrible 1973-4 recession, the 1979-1981 inflation and recession, bank failures in the early 1980s, major frauds, the mid 1980s rust belt destruction, the 1987 crash, the 1990-3 real estate smashing, and the 2001-2003 tech smashing.

Recent events are a ... yawn.

All we hear are screeches about "SUBPRIME !!!!!!!!!!" We hear screeches about the rating agencies now downgrading some MBS. Since when aren't the rating agencies slow and cautious? They aren't traders. But they do a fine job and express an educated opinion on thousands of securities. More blame game. Is that an American chronic mental illness?

If you've ever owned a home over ten years, you know that home prices can drop or flatten for years. Nothing new.

I listened carefully to Bernanke yesterday talk about inflation expectations being so important. Here's my take: home prices flattening are a kick in the gut to inflation expectations. In the 1970s and early 1980s real inflation, home prices went up and up and up. So for consumers with memories, seeing home prices stabilize or go down will reduce their inflation expectations. The Fed has that powerful factor going for it.

I expect a Fed rate cut this fall to ratify the yield curve unless core PCE or CPI ramps. I don't expect that, particularly since oil prices are about the same or lower than at this time last year.

It's a bull market. Buy dips. Use time diversification. The trend is your friend.

PS: I just heard the Republican deputy whip in the House talk about the taxes on carried interest. He's either stupid or intentionally obfuscating the issue to protect big contributors. If the Republicans block this, I'll have to leave that party - the party of Teddy Roosevelt. Sickening.

PPS: Bubblevision is doing a disservice to viewers as they constantly frame the taxation of carried interest as raising taxes on private equity. That's just a flat lie or false statement. The investors who take the risk to their capital get the capital gains treatment. I just head Grassley state the tax raise is for the managers who are getting a low tax rate on compensation - lower than every other person.