Danger said:
Joekerr31 is absolutely right on the CPI.
You have several things going on here,
One is the substitution effect, where as the price of one good goes up, people buy a cheaper alternative good instead.
The result? The Government changes the basket of goods to reflect the new cheaper good as opposed to the now more expensive good. So inflation is now not quite so high and you have a lower standard of living.
Another item is the Hedonistic measurement, where a new pc isn't really the same product as an old pc, as you have more memory, better processor, bigger drive, newer DVD drive, etc,....
The result? The government "indexes" the cost of this item, declaring that you got a better item at the same price as the originaly inferior item, artificially lowering the inflation number.
If you ever really want to know what the true inflation rate is or should be, check out M2 or M3 growth rates (M3 isn't calculated anymore however some parties are deriving the number through methods I'm not familiar with). That's a better indication of what inflation is or will be.
he's absolutely wrong. so are you actually.
could you elaborate on how looking at the supply of money alone will tell you anything about inflation...the quantity theory of money notwithstanding. i need to update my models. thanks.
i think the monetary base and M1 might be a little better, however, as a metric for inflation. and...i dunno...perhaps a metric for the DEMAND for money as well.
few economists look at CPI these days because you cannot adjust for prices based on quality differences, perceived or real. we look at PPI and Core. at the producer level, steel, lumber, corn, oil, etc. there are little differences in quality that can account for prices changes, as opposed to the consumer level, which also has advertising capitalized into prices (when is the last time you saw an advertisement for wheat?).
Core subtracts food and energy from PPI because of seasonal factors, which are not permanent structural changes. some including myself subtract out tabacco products because the price increases from it are mainly due to taxes.
does anyone even know who calculates CPI? it's the Bureau of Labor Statistics. they track over 25,000 goods and services in 100 metro areas (which covers 80% of the population). and yes, this includes food, energy, and housing. they collect data from over 50,000 landlords, including mega multi-residential landlords. it's comprehensive data, folks. backed up independently by at least 100 major institutions.
knee surgeries and heart surgeries are better on a cost adjusted basis. plasmas and LCD's, phones, electronics, computers, etc. you can get a 25% better flat panel today for the same price you could get last year. that's a 25% real price REDUCTION. health care is going up on the whole, so is university education, so is fuel.
add the online shopping factor into the mix. it's almost impossible for the government to deal with all of the killer deals you can get online, with coupon codes, sales, etc. this is chopping inflation off at the knees. i just bought a 50' plasma for $1,600 including no tax and white glove delivery. last year, it would have cost $3,000. that's about a 50% price reduction, because it's the exact same tv i was looking at last year.
on the whole, most economists put CPI at 2 percentage points ABOVE what the actual real inflation rate is. my personal professional opinion is that we've been at 0 inflation for the last decade (at the consumer level). when you ***** and moan about high gas prices, also remember how f'in cheap (and good quality) the furniture is that you buy from China.
there is also tremendous political pressure to OVERSTATE the CPI because seniors want their cost of living increases (and they vote). that's fine, because they have a disproportionate amount of expense due to health care, which is rising in cost for them in particular. i say do away with SS, but that's another story.
you also have to factor into the mix, productivity (labor and capital). if business resource costs (producer level, PPI) rise by 3%, but at the same time they become 3% more productive, they do not have to raise their prices (at the consumer level, CPI) to maintain their margins. this is what's been happening over the last decade. producer prices rising at about a 3% clip, but business productivity washing it out due to price competition. expect more of the same for the next decade.
people internalize and project onto the world their personal experience. you might think prices are rising for YOU, but that doesn't mean that they are for the economy as a whole. and i say "think" because they may not be rising at all for YOU. it just might be that you are actually spending more on the whole, buying various stuff, and at the end of the month, the ends don't meet. your conclusion is that things are expensive, when in fact you are living beyond your means.
it's amazing but true...the President's and Congress's approval rating, going back to Kennedy, is directly inversely proportional to the PRICE OF GAS. gas prices go up, and the approval rating goes down. gas prices go down, and the approval rating goes up. so Joe Schmuck is at the pump with his gas guzzling suv, watching it drain his bank account, and at the same time saying I HATE BUSH...I HATE BUSH...this economy sucks. his brother loses his job and now we are in an economic disaster.
then Hillary comes along and says if she is elected President, she will personally see to it that gas prices will fall under HER administration.
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on the diversification issue; you can be about 75% diversified by owning just one stock. that stock would be General Electric. they don't just sell light bulbs in the US. add two more diversified multinational conglomerates and you will be asymtotically diversified. what your returns will be is anyone's guess. but for the sake of diversification itself, that will do it.
to answer the OPs question. dump 40% in SPX and 40% in QQQQ and forget about it. you are fully diversified, with a beta of a little greater than 1, and no overhead or trading costs per se.
use the remaining 20% to play around with. focus on no more than FIVE stocks. not 10, not 20. that is silly. to find 20 good stocks that you think are trading at a discount, or will be excellent long term plays, you will have to evaluate at least 100. good luck bro, you might as well throw darts. (which isn't a half-bad strategy as a matter of fact).
read A Random Walk Down Wall Street. that will put you in the right frame of mind on what investing is and is not.
never take a stock tip from your Uncle Jim. never take the advice of an analyst. never....EVER....take the advice of a stock broker, unless you think used car salesmen know a lot about cars.
never take financial advice from anyone on sosuave.
the best companies in the fastest growing industries as a long term play. go from there.
