Thursday, July 11, 2013

Billion Prices Project

The Billion Prices Project uses computers to make a price index from a huge number of prices listed on the Internet.  This index is updated daily and provides a better real time indication of price changes than anything else I have found.   It is up about 2% in the last 6 months.  This is an annual rate of about 4%.  Maybe this is just a blip and maybe it is the start of something.   In any case, BPP will be interesting to watch.

Taper Tantrum

Bernanke's talk of tapering down the rate of quantitative easing seems to have triggered a tantrum in the bond market.   But the more people get out of bonds, the more the remaining people are losing and deciding to get out.  This could be a chain reaction or positive feedback loop.  If foreign governments/central-banks also sell, as seems to be the case, there could be a lot of selling.   If the US dollar also starts going down, as the central bank make more and more new money to buy more and more bonds, we might get the hyperinflation feedback loop.   So this taper tantrum might just end in hyperinflation. 

I really expect Japan to go first as the central bank there is monetizing very fast to hold interest rates very low.   But the US is not very stable at the moment either. 

Sunday, July 7, 2013

Bond Bubbles Popping?

For years now central banks around the world have been making new money and buying bonds to drive up the price of bonds and down interest rates.   In the short term central banks can make interest rates go down, but in the long run all the new money they make while doing this will cause interest rates to go up.   I think we might be going from short run to long run.

Another way to look at it is that central banks have spent trillions driving up the prices for bonds.  This has made bond bubbles all over the world.  At some point these bond bubbles will pop.  We may be seeing the start of that pop now.

Interest rates in many countries have been going up fast the last couple months and bond prices are falling.