On Feb 27, 11:03 am, darknes...[at]yahoo.com wrote:

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M0, M1 and M2. In any case, the relationship between money supply and
inflation is very unstable. None of the major central banks of the
world use money supply as the mechanism to control prices, but rather
short-term interest rates. They all target -more or less explicitly- a
core inflation rate of around 1.5-2 percent a year, and they increase
(lower) the rates if they feel that inflationary pressures -as
measured by indicators such as wage costs, producer price index,
etc..- are increasing (decreasing) .

On Feb 25, 10:29 pm, "anoop" <ghanw...[at]gmail.com> wrote:
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Which probably means it is just about relevant again!

What is the alternative monetary aggregate that they publish?

anoop wrote:
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But for those interested in the M3 numbers, the number is re-created and
tracked at
http://bigpicture.typepad.com/commen...turn_of_m.html
It appears M3 is still accelerating whether or not the Government
continues to publish the numbers.
JOE

On Feb 20, 8:20 am, darknes...[at]yahoo.com wrote:

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I meant to reply to this earlier and then forgot.
M3 numbers are no longer published by the Federal Reserve.

Anoop

On Feb 19, 5:35 pm, "kastnna" <kast...[at]auburnalum.org> wrote:

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Yes, although in certain circumstances (US in the 1930s, Japan in the
1990s) there is so much 'slack' in the economy, that the additional
money translates into more demand for goods and services, without
creating compensating inflation.

Roughly speaking conservatives (real business cycle theory and
rational expectations theory) don't believe you can create economic
activity with money (although Milton Friedman certainly thought you
could destroy economic activity with bad monetary policy), and
Keynesians (called Post Keynesians) think that you can.

Rational Expectations theory (you never meet a 'supply sider' in
academia, conservative economists are RE devotees, or its cousin, Real
Business Cycle theorists) says that you can't create economic activity
by printing money-- the market is too smart, and once it realises what
you are trying to do, it discounts it.

(actually nowadays, even Keynesians use RE theory. there is less gap
between the 2 sorts of economists than there used to be).

- quote -

Financial Planning angle

The number to watch is M3 but see below. Which is indeed soaring (or
it was) but this may reflect the constant tide of financial innovation
out there which creates new forms of deposits, rather than a real
growth in liquidity.

The Fed has raised interest rates 17 times in succession. I would
take this as a fair stance that the Fed is trying to control liquidity
and prevent inflation. Modern Fed policy is all about targetting the
inflation rate, rather than the amount of money out there.

M3 growth is a number the Fed definitely watches, but it steers the
ship more by inflation and growth data, than by monetary data.

On Feb 19, 9:44 am, "anoop" <ghanw...[at]gmail.com> wrote:
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Sadly, I'm an econ major and should know this, but its been a while so
bear with me.

Simply put, I believe printing money manages (or mis-manages?)
inflation. The gov't can "create" a billion new dollars, but that
doesn't make us a Billion $$$ richer. It just lowers the purchasing
power of the dollar. Money is added, but economic backing for that
money is not.

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Keep in mind that money is also printed to replace lost or destroyed
"old money." This does not cause inflation. I haven't seen any recent
data for or against your statement, but it could be that they are
largely printing the new "security bills" to replace the old ones.

On Feb 19, 2:02 am, darknes...[at]yahoo.com wrote:

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Indeed. Which is why I'm just using stable value/cash at this point.

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Wouldn't surprise me either with all the talk of the "credit bubble".
In fact, I'm surprise it hasn't happened already.

But I also don't understand enough about economics to know how
"printing money" affects the markets. It looks like the US is
printing
money faster than it ever has in the past.

- quote -

Yes, but that is again using past performance which is no indication
of future returns. :-)

However, I do agree with the sentiment. If it were not so, I would
have
moved 100% to cash.

Anoop

On Feb 18, 9:13 pm, p...[at]his.com (Paul Michael Brown) wrote:
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The macroeconomic and political implications of having very variable
retirement savings, for the first time in history, for a large number
of people have yet to be tested. Given that retirement is a relatively
new phenomenon (arising from the increase in longevity)I suspect that
post retirement working/ earned income is going to be a very important
component of future retirement income.

On Feb 14, 9:38 pm, "anoop" <ghanw...[at]gmail.com> wrote:

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I should add:

- short to medium term bonds probably look good value relative to TIPS
right now

- volatility, and other measures such as the yield spread of risky
assets over safe ones, suggest that the market in the short term is
way too sanguine about risk

It wouldn't surprise me in the least if stock markets dropped 20% at
some point in the not too distant future.

You could plausibly be in 40-50% fixed income, but the long run has
always been that that is a losing strategy. I don't think equities
will outperform by anything like what they have in the past, but I
still think they will outperform.

On Feb 14, 9:38 pm, "anoop" <ghanw...[at]gmail.com> wrote:
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At 1.1% real yields, I wouldn't be in a hurry to move into TIPS. I
tend to see Real Return Bonds as a key part of a portfolio, but
typically 20% of a retirement portfolio.

By contrast, the earnings yield (inverse of PE) of very large cap
stocks is on the order of 7%. Yes, earnings are at a cyclical high,
but that's still a pretty good yield.

On Feb 18, 9:13 pm, p...[at]his.com (Paul Michael Brown) wrote:
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Agreed

Or put it another way, a defined benefit stream is a form of fixed
income investing.

If your DB pension (or US SS) is higher, you can afford to have more
equities for the same risk.

Conversely, one could opt to have lower risk altogether.

darkness39[at]yahoo.com cogently observed:

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I've had this discussion with colleagues of mine in the federal workforce
who are coverd by the Federal Employees Retirement System, or FERS. We are
covered by Social Security *and* we are also are entitled to a pension
(albeit one with less generous COLA adjustments than the old CSRS system).

Many federal employees agree with Darkness, and they are comfortable with
equity allocations of 70 percent or more -- especially at younger ages.
These investors eschew the lifecycle funds offered in our defined
contribution program (www.tsp.gov) which they view as too heavy on fixed
income. Many of these investors plan to retire in their late 50s after a
~30 year career, and they realize they'll need to accept equity risk to
get to their 25X goal in such a relatively short period of time.
Generally, these investors tend to be more highly educated and highly paid
than your average federal employee.

But there is also another way to look at this. If an investor is covered
by a generous defined benefit program, he can be MORE conservative in his
asset allocation because he doesn't need to shoot the lights out. This is
especially true for those who work longer periods of time and make a lower
salary. For these people their Social Security benefit combined with their
pension will replace a larger relative share of their pre-retirement
income. Throw in modest expectations for retirement in a low cost of
living area, and many of these investors are happy with a conservative
asset allocation that's heavy on fixed income. Generally, these investors
tend to be found at lower salary levels and they often spend their careers
in low cost of living areas.

On Feb 17, 2:11 pm, "Andrew Koenig" <a...[at]acm.org> wrote:
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Yes that is the strategy he is suggesting.

On Feb 17, 3:15 pm, "anoop" <ghanw...[at]gmail.com> wrote:

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Apologies. I had forgotten-- a while since i read the book.

1 nil to you ;-).

On Feb 17, 6:17 am, darknes...[at]yahoo.com wrote:

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He does actually address this. He reduces the minimum required
savings by the an amount equal to what it would take to generate
the expected social security payments. (He points the reader to
a website where he/she can compute the expected social security
payment based on their current income, age, and retirement age.)

So, if you saved the amount assuming no social security, you
could invest a portion that is expected to be covered by social
security in stocks.

Anoop

On Feb 17, 9:57 am, darknes...[at]yahoo.com wrote:

1. Pointing out the analogy to US Social Security in Bodie's strategy

I wanted to add, that for a US based investor, Bodie's strategy is
already being pursued on their behalf.

This is by the US government, and it is called Social Security. In
economic terms, what SS does is take a contribution from the member,
invest it in inflation indexed government securities, and return the
money when they retire, in the form of a guaranteed, lifetime, indexed
annuity.

Now the mechanism SS does this is unique to SS (ie unlisted government
securities plus a direct claim on the wages of existing workers).

But in economic terms, if the government took 6% of each monthly wage,
and invested it in inflation indexed securities

AND

bought an insurance policy which pays out in the form that SS does
(benefits for the disabled and widows, etc.) as well as lifetime
indexed annuities for each retiree.

You would get to the same place.

I will *not* reply to any discussions or posts regarding the politics/
fairness/ equity/ durability of the US SS system, pay as you go v.
private accounts etc. I've made that point regarding my views many
times.

2. Making Sure I am Staying on Financial Planning

The practical implication (which Bodie doesn't really address) is that
a US-based worker with a good SS payout expectation (ie many years of
continuous service) can afford to take *higher* risks with their
personal savings, eg by investing in equities, because of this
existence of this income which is guaranteed (by legislation) against
inflation and against longevity risk (you can't outlive your SS).

The existence of that guaranteed payout allows American personal
investors to take higher risks with the rest of their investments.

<darkness39[at]yahoo.com> wrote in message
news:1171703676.731850.223490[at]h3g2000cwc.googlegroups.com...

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There's a problem here: Although TIPS may guarantee a return, they do not
defend against fluctuations in principal value. So that means you can't
just invest in a TIPS fund and then cash it out at 65 -- if you do, there's
the risk that interest rates will be high at that point and your principal
won't buy as much of an annuity as you thought it would.

For example, the Vanguard TIPS fund went *down* in price by 2.85% during
2005 and down by another 3.12% during 2006. On the other hand, it went up
in price by more than 12% during 2002--which suggests you'd be unhappy if
you had cashed it in 2001.

Which means, I think, that if you're going to adopt this strategy, you need
to buy individual TIPS that mature at the time when you expect to buy the
annuity. Otherwise, you still aren't going to know how much money you'll
have to spend on the annuity, not even after inflation.

On Feb 17, 12:45 am, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
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I presume, buy a life annuity when you are 65: the Canadian and
British 401k equivalents require that.

Seems like a 50X number
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He's assuming tax deferred accounts. Yes you would need a substantial
chunk of money.

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The point is about safety of return. Bodie's point is that only TIPS
guarantee a return. Every other asset class has the *potential* to do
worse. Only TIPS guarantee your buying power.

The old point about past performance not guaranteeing future
performance is seminal here. Broadly, you can grab higher
performance, but only by taking on higher risk. And the returns of US
equities since 1900 have been extraordinary, and are very unlikely to
be repeated*.

*If you take a basket of the 12 top stockmarkets in the world in 1900,
then the US has far outperformed all of them-- by something like 2%
pa, compounded. So there is survivor bias, ie the US stock market is
the top performing 'fund' amonst leading markets.

I think one can be decently bullish about the prospects for the US (I
am) but think that PEs are unlikely to do what they did in the 1900s
(ie more or less treble). So a major source of return is cut out.

On Feb 17, 2:50 am, "Elizabeth Richardson" <erich...[at]worldnet.att.netwrote:
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Which Bodie is explicitly not dealing with ie his point is you can
work out how much you need in TIPS, make that investment, and be sure
that you will have it.

When you turn 65, you buy the requisite annuity.

(in economic terms, this is actually what Social Security does.)

Even if 25x income is enough, though Joetaxpayer questions
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Bodie's point is that equities risk is never mitigated. That is one
of those fundamental theorems of finance*, that 'equities in the long
run' simply means you have more risk. Yes you have more money, but
you are still exposed to the risk of a stock market crash at the *end*
of your holding period.

* I think the original paper was by Samuelson. I'd have to dig out a
reference.

<darkness39[at]yahoo.com> wrote in message
news:1171662181.547513.292590[at]h3g2000cwc.googlegroups.com...
- quote -

I would think there is a risk with a TIPS strategy: that of not being able
to save enough. Even if 25x income is enough, though Joetaxpayer questions
this with a TIPS only portfolio, accumulating even 25x without the type of
growth of equities seems improbable. I realize we've been discussing the
point of view that TIPS is certain, rather than the risk of equities.
However, it seems to me that the long-term accumulation period (20+ to 40
years) mitigates the equity risk entirely.

Elizabeth Richardson