Monday, May 31, 2010

Inflated what?


I try to avoid debates about TIPs, inflation adjusted treasuries. TIPs are returns on inflation adjusted government bonds, the government covers inflation for you. Returns for these bonds should closely reflect a conservative estimate of real growth.

What does the chart tell us? That expected real growth in our economy sucks, as low as 1.5%. When we have 1.5% growth, we will have few trading partners because 1.5% real growth is impossible to plan for. Inventory variance in oil supplies are likely to be greater than 1.5%. So, what's an oil trader to do? Readjust oil delivery channels and focus on emerging markets where growth is 3-5%.

What happened to cause this low growth recently? The Keynesian experiment drove up oil imports, and oil prices to nearly $87, and the economy contracted in adjustment. We never suffered a general glut, the whole idea that we undergo a depression because we have too much stuff?

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