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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (14145)	10/28/2004 5:40:40 AM
From: zonder	Respond to of 116555

Not sure what he is talking about, Mish. I was looking at a chart of Real US yields (nominal less inflation) maybe calculated from TIPS and the like, and it averages 2-3%, is 2% right now T-bills have yielded an average 230 basis points above the CPI rate over the last 23 years. Currently, real yields are below CPI. So, I don't know what he is talking about with this "2% real yields" being in line with "2-3% average". It would help if he actually knew what graph he was looking at - "calculated from TIPS and the like" is not very clear. Yesterday's 2-yr TIPS yield at close was 2.596%. September yoy CPI was 2.5%. The real yield is nothing near 2%. And this is what the current real yields look like: ustreas.gov my main argument for lower still real yields is that globally there's too much propensity to save and too little propensity to consume... US savings rate is what 1-2% now down from a steady 10% up to the early 1990s. This has to rise... Isn't he contradicting himself here - yields should go down because there is too much saving going on, and but saving is too low in the US? If you want to encourage people to spend you have to keep asset prices high so they feel good and you have to not give them any alternative to buying high asset prices or spending. This could be one of the strangest statements seen on SI, and that is against some competition from Haim :-) This is not rocket science and I feel bad having to explain this, but people save more when real interest rates are higher, exactly contrary to what this person seems to be saying. The reason is very simple - You save now to buy more later if you see high real returns for your money, and spend now to at least enjoy the full value of your money when real rates are negative. Low real rates fall in between the two, closer to "spend now". I didn't look closely at the rest but "demand for property is not so buoyant in Japan" was another strange assessment that caught my eye. Really...