Sunday, May 04, 2008

Wealthtrack Review - May 04, 2008

One of my favorite things to do on the weekend if I am not already busy is to watch Consuelo Mack: Wealthtrack on my local PBS station. This show features investment and finance gurus from all different major firms like Merrill Lynch, BlackRock, MorningStar etc.

The reason that I really like the show is that it focuses on two very interesting parts of finance. The first is the economy in a macroeconomic view. Too often as personal investors focus on personal finance, they become deeply entrenched in the ideas around debt repayment, debt snowballing, 401ks, IRAs and other types of personal finance.

While all of these items are critical to personal finance, there becomes a point where the average person begins to have money to invest. And in order to know where to invest, it is critical (in my opinion), to understand the global economy, particularly at a macroeconomic view. Of course, it is fairly well known that the past is no guarantee for the future, but I am still bullish on personal, ongoing education and awareness when it comes to personal finance.

Frontier Markets
There were two interesting things I learned on the show this morning. The first is that there is a series of markets called Frontier Markets. These are markets in very new stock markets like Khazakstan, Vietnam etc. These markets are often only a small part of existing emerging market mutual funds, although products that feature these types of investments are likely to be introduced soon.

Also, while inflation is a major concern for the US Economy, I find the interesting fact to be the change in the relative value of the dollar. Compared to other currencies, the dollar has lost approximately 10% of its value year over year. What does this mean for real value? Of course, no one will say that we've seen 10% increase in the price for anything except gasoline. And the Fed's measure of inflation continues to say that we're in a period of low inflation.

When this comparison was raised on the show, one guest put it rather simply. And I'll paraphrase here. The real driver and indicator of inflation is wages. And currently, wages have have only been increasing by about 3% each year. Therefore, there is not that much more money chasing that many goods.

Oil Prices
This type of inflation, demand pull inflation is the one that some people are worried about.
And this, many people believe, is the real result of higher costs in oil over the long run. And therefore, the inflationary forces will happen whether we have the money for it or not. That is simply supply push inflation where the costs of goods (raw inputs) are more expensive.

If that is your real concern, you might be tempted to look at the Fed. But certain people (see these links), are claiming the Fed has no control over oil. At least, this is the implication:

The econbrowser take

The NY Times Take

A wealthtrack guest submitted this contrary point of view: If the dollar is weak, then it is natural for people to flee into other assets that hold their value better when there is speculation that the value of the dollar could continue to plummet. Therefore the real question is whether or not the dollar will continue to fall, or if its value will return. And the other interesting consideration is how much of the value of Gold and Oil and other commodities has been part of a speculative bubble and how much of it is real, perceived, lasting value over the long term.

There are lots of questions, but not too many answers at this point. Maybe that is why the many people believe that the Fed is going to pause. I mean really. Who isn't confused at this point?

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