April 10, 2013

Quote of the Day

In June of 2012, Calpers lowered the expected rate of return on its portfolio to 7.5% from 7.75%. Mr. Milligan suggested 7.25%. Calpers had last dropped the rate in 2004, from 8.25%. But even the 7.5% return is fiction. Wall Street would laugh if the matter weren't so serious. -- Andy Kessler
Nonsense, I bet Cypriot bonds are paying 7.5. There would be a certain poetry in California's choosing them as an investment vehicle.

UPDATE: Persuant to the comment thread, Helicopter Ben got the job done today!

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California Quote of the Day Posted by John Kranz at April 10, 2013 9:54 AM

Nonsense. The Bernanke bubble will make 8% returns the norm, at least until the music stops.

Posted by: johngalt at April 10, 2013 11:21 AM

Harrumph. Is that before or after the black UN helicopters invade and impose Communism, or we all die for fluoridated water or mandatory vaccinations?

I'll happily critique the absence of competing currencies, the Fed's dual mandate, and imperfections of monetary policy -- well into the night if there is enough beer.

Yet I cannot join the "New Ron Paul Monetary Malthusians" who are the only ones bright enough to see what is going on.

Could a lot of things end badly? Yes. Is the entire worldwide economy a Potemkin village with no realistic endemic underlying value? No. Are bond traders unable to comprehend risk? No. As I suggested to our dour Monday speaker, there remain many opportunities for soft landings.

A sax player friend lived with me in the early '90s. Three times in the year he rented my basement, he got up early to remove all of his money from the bank. Each time he was in wonder that there was no line. You may call me a Pollyanna. So did he.

Posted by: jk at April 10, 2013 1:52 PM

I can't tell which part of my comment got your hackles up... 8% returns? Bubble? That it might pop? All three?

Let me simplify and just say, I see 7.5% returns as child's play for as long as the Fed continues its current policies. Anything controversial about just this?

Posted by: johngalt at April 10, 2013 2:38 PM

Heh. Some hackle inducement is residual from Monday's Liberty on the Rocks. Rampant belief that assets valued today will not be after the <your favorite apocalyptic term here>. Predicting gloom & doom is a long & noble enterprise which probably existed prior to prostitution. But the real Mad-Max, no possible soft landing scenarios infer no fundamental underlying value underpinning financial assets. I cannot join the bomb shelter crowd there.

QEn liquidity is certainly inflating stock prices, and it will be unimaginably difficult to unwind the expanded Fed balance sheet. Yet my Deutch-ian optimism suggests that human reason will find a way out.

Each clause of your comment is defensible. I take some exception to the 8% bit. I do not believe Chairman Bernanke is targeting, ever expected, or has achieved eight percent nominal investment growth. And I read "music stops" as the hard landing which so many of my fellow liberty lovers and Austrians are too certain will transpire.

Posted by: jk at April 10, 2013 5:25 PM

Could not say it better than blog friend Terri:

Jk over at Three Sources sees humanity as capable of finding better ways out of bad situations. Especially Americans. I prefer to agree with him rather than with Mr. Wright who is “optimistic” that in the end after the fires and ravages of the BIG ONE, conservatism will win.

Posted by: jk at April 10, 2013 5:35 PM

1) Didn't intend to imply that 8% was Big Ben's target, but did mean to imply that since his "inflation targeting" does such a piss-poor job of measuring real inflation, said real inflation will be all or more of that 8% "growth."

2) I agree that "human reason" can solve this problem, now or in the future, but human reason has heretofore not been at the helm. Government has.

3) I heard only the Brushfire Radio interview and not the LOTR talk, but what I took from Mr. Wright was not that America will collapse, or even our financial system, but the Federal government is almost sure to do so, and may or may not take its dollar with it. Now that's a dystopia I can wish for!

So yes, I do see a hard landing of a sort. I think Jeff called it the mother of all bubbles or something like that. The "Grand Correction." Yeah, that was it. But things with real, intrinsic value will not become valuless. And even the dollar is fairly safe, for in this age of Global Currency War it is still the particular flavor of Monopoly (TM) money that more people believe in than any other.

Posted by: johngalt at April 10, 2013 6:19 PM | What do you think? [6]