Follow the Money
rutledge, john
"FOLLOW THE MONEY" FORGET GDP-WATCH THOSE MOVING ASSETS BY JOHN RUTLEDGE wenty years ago I wrote a piece for The Wall Street Journal op-ed page called "Why Interest Rates Must Fall in 1982 "At...
...Earliest orders receive the knvrst registration numbers...
...In that case asset prices will remain at current levels...
...They spent the whole time arguing about budget deficits and trade deficits and revising their quarterly GDP forecasts.Their fixation on macroeconomics unemployment rates and the GDP accounts-made them miss the greatest show on earth: the $20 trillion repricing and restructuring of the U.S...
...By goods and services I mean things with lots of current production relative to existing stockpiles...
...Bonds are assets-their outstanding value is many years' new supply...
...The lights of the Twin Towers may be gone...
...The balance sheet for U.S...
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...At the turn of the year, Germany's capital-gains tax rates were reduced to zero for corporate shareholders...
...Investors ignore this at their peril...
...or 5 for only S 159 ppd...
...It has also played havoc with the economics of durable-goods industries, which are forced to compete with their own previous products...
...Hundreds of businesses volunteered their services, in that spirit, the National Collector's Mint is releasing the "America United" Silver Eagle Dollar, a Brilliant Uncirculated 2001 U.S...
...Government Silver Eagle, with the Twin Towers of the World Trade Center standing proudly in full color across its obverse as the Stars and Stripes flies above them...
...This stock-to-home ratio increased to four in 1996, and peaked at more than eight in late 1999, before falling to just under six today (which makes the stock market about fairly valued, at today's inflation and tax rates...
...Your country needs your help...
...Help America Rise Again The "America United" Silver Eagle Dollar is a statement of your commitment to support America's struggle against the shadowy enemy...
...Don't delay...
...Macroeconomics narrowly beats out Modern Portfolio Theory as the most destructive invention of the 20th century...
...In fact, it's the onh thing that's Important...
...households and nonprofits showed $48.8 trillion of total assets on October 30, 2001...
...20008...
...Thursday...
...Balance sheet disturbances in other parts of the world are just as important as asset shifts at home...
...Some people on the island catch fish, other people pick coconuts.They exchange fish and coconuts with each other, presumably so they get all two major food groups...
...There will be no fix for the Japanese banks, and no Japanese recovery, until this deflation ends...
...government with headquarters at S Slater Street, Port Chester NY 10573,1-800-452-4381-e2001 N(M 110-x15 Ix SPECIFICATION'S Composition .. Full Color an .999 Pure Silver Wighr • One Troy Ounce Diameter 40.6 mm Condition Brilliant Uncirculated Series • •• • • AB Release Limit 75,000 Worldwide Registration By number in ascending order 1 I i I / •' / k X isit our nsehsite at: wnw.nrmint,cui y pretty good sense of where they belong in this stock/flow continuum...
...Given the myopia at the Bank of Japan, the likely reason for that will be a major drop in the value of the yen, which will have important effects on the economies of China and other Asian nations...
...If you had gotten that one thing right in 1981...
...Hays To Order Call now to ensure availability...
...8:55 AM - Today history is being made...
...It gives people the illusion the government can control the economy by manipulating spending and taxes...
...As it turned out, I could not have been more right...
...Perishable products like professional services, airline seat miles and fresh strawberries are good examples...
...America is uniting as it has not done since the Japanese attacked Pearl Harbor 60 years ago...
...In that Wall Street Journal piece twenty years ago, I outlined a simple idea...
...A $100,000 investment then in default-risk-free, thirtyyear zero-coupon Treasury bonds, the quintessential financial asset, would be worth more than $2 million today, more than twenty times your initial investment...
...thousands of men and women came forward to help res= cue efforts...
...Worst of all, it corrupts our thinking by telling us our standard of living is determined by how much money people are willing to spend...
...Between 1981 and 2001 people in the U.S...
...I have fish in front of my house and coconuts in the back, just like in the textbooks,When I go to sleep every night, however, I don't worry about fish and coconuts...
...So their prices, and therefore interest rates, will be whatever it takes to make people willingly hold the existing stock of bonds along with other outstanding assets...
...Even minor disturbances in our huge balance sheet can make waves so large that they swamp the changes in spending, savings rates, budget deficits, and other "flow" measures that macroeconomics talks about...
...It works for bonds, Rembrandt paintings, and other storable assets.To get useful answers we must be careful to use the right price theory for a given situation...
...A vel et prescmation cuss is available for 53.50...
...Assets, by contrast, are things with large stockpiles relative to the rate of production...
...Real interest rates should be measured using the tangible-asset inflation rate, to ensure that the result properly reflects the spread between tangible and financial asset yields...
...Relying on rating agencies for investment information is just too slow...
...Advance Discount Price The issue price of your "America United" Silver Eagle Dollar was originally set at $49.570...
...homes...
...By measuring their stockpile as a multiple of a year's production, though, we can get a 18 THE AMERICAN SPECTATOR • JANUARY/FEBRUARY 2002 \utiotrul Call <Trrr:ti .llitrt aiwini fc'c'+ rr limited reletise of'the ». 2001 U.S...
...Falling land prices are the heart of Japan's economic problems, implying that real interest rates, measured properly, have been extremely high for more than a decade...
...Iike your "America United" Silver Eagle Dollar purchase, the Statue of Liberty's torch will burn a little brighter...
...The first-supply and demand-is the price theory of Alfred Marshall and George Stigler...
...Reach hint at jr@rutledgecapital...
...Indeed, this must be true for all assets...
...Examples include Rembrandt paintings (he is no longer painting), `57 Chevy's, and beachfront property (they aren't making any more...
...Deluxe velvet presentation cases are only $3.50 each ppd...
...There are two price theories...
...If the volcano erupts during the night, we won't be there to calculate GDP in the morning...
...It's the next volcanic eruption in the balance sheets that is going to make you money or eat your lunch...
...24 hours a day, 7 days a week with your credit card or we'll take your check by phone...
...7502, 4401A Connecticut Avenue NW, PMB-850, Washington, D.C...
...An increase in tax rates also shifts demand toward tangible goods by reducing the relative return of financial assets...
...1-888-NAT MINT Ext,7502 (1-889-628-6468) Timely mail orders will be accepted if directed to: National Collector's Mint, Dept...
...I actually live on the island of Maui, so I know something about island economies...
...Regulatory changes such as the 1996 Telecommunications Act, by distorting relative returns, exert profound and destabilizing effects on the economy and the financial markets...
...This will tilt relative after-tax returns toward Germany, push the Euro up against the dollar and let loose a wave of intra-European business consolidations...
...But, with each step to rebuild them...
...economy, equal to 8.6 years worth of this year's projected $10 trillion GDP...
...FOLLOW THE MONEY FORGET GDP-WATCH THOSE MOVING ASSETS BY JOHN RUTLEDGE wenty years ago I wrote a piece for The Wall Street Journal op-ed page called "Why Interest Rates Must Fall in 1982 "At that time Wall Street economists were divided up between those who believed Reagan's tax cuts would lead to big budget deficits, which would drive interest rates up, and those who argued that Reagan's tax cuts would stimulate more savings, and drive interest rates down...
...GDP serves as a measure of the value of the work people did during the year...
...You may order one solid silver "America United" Silver Eagle Dollar for $29.95, plus 55 shipping, handling & insurance: 3 for only S99 ppd...
...The island economy's gross domestic product is measured by adding together all the fish and coconuts produced in a year, using an appropriate exchange rate (the market price...
...The mechanism that makes this work is portfolio balance...
...Land, homes, copper, gold, and even automobiles (there are 150 million used cars, about 10 years production) are assets...
...Strict Limit To give as many Americans as possible an opportunity to participate, there is a strict limit of five "America United" Silver Eagle Dollars per customer- Orders will be filled on a first-come, first-served basis...
...corn...
...But, after their sacrifices, helping victims and their families is more important...
...shifted more than $10 trillion out of their existing holdings of stuff tangible assets, like gold, commodities and property-and Jolu Rutledae is chairman of Rutledfe Capital, a private equity and hedge fund ntattagentetit firm based in New Cauaan, Connecticut...
...7502 National Collector% Mint, Inc...
...We are committed to this campaign, even if we lose money...
...To a first approximation this means stable land, property and commodity price values...
...The reason I split the household balance sheet into tangible and financial assets is that changes in tax rates and inflation affect tangible and financial assets in qualitatively different ways...
...Over the past twenty years, inflation and tax rates have both decreased, caus ing households to steadily reduce tangible holdings as a percentage of total assets...
...In response to the terrorist attack on the World Trade Center and the Pentagon the morning of September 11, 2001...
...Here are just a few of the implications of balance-sheet analysis: *To keep the economy healthy, the proper inflation target for monetary policy is zero inflation of tan gible asset prices, not consumer or producer prices...
...I worry about the volcano the island is sitting on...
...Most products, of course, fall somewhere in between: they are somewhat storable and wear out over time...
...20 THE AMERICAN SPECTATOR • JANUARY/FEBRUARY 2002...
...Holders of Argentine debt and currency are learning the same lesson...
...Increased inflation, as we experienced during the 1970s, encourages households to increase the share of assets they hold as tangible assets at the expense of financial holdings...
...It provides a rhetorical smokescreen for politically driven tax, spending and regulatory policies...
...biggest portfolio event of the century...
...Each coin is a legal tender Silver Eagle Dollar, the biggest, heaviest and purest silver coin ever minted by the U-S- Government with color enhancement by National Collector's Mint...
...Medical services, food and apparel are all pretty much goods and services...
...As investors in Enron recently learned, new information hits asset markets fast and hard...
...Portfolio balance refers to the situation where owners are just content to hold the stock of assets that exists...
...economy is sitting on is our s86.5 trillion balance sheet the total value of all the financial and tangible assets in the U.S...
...GOVT "AMERICA UN l'1'ED" SILVER EAGLE DOLLAR 14 An Memory September 11, 2001 a GOD BLESS AMERICA Al Obverse To benefit the victims and families of the September 11, 2001 attack on America WASHINGTON, D.C., Corp...
...you would be reading this article on the beach...
...Late orders may not be honored and remittance will be returned uncashed...
...Each solid silver "America United" Silver Eagle Dollar comes with an individually numbered Certificate of Authenticity...
...The volcano the U.S...
...into financial assets including stocks, bonds and mutual funds...
...How many of you can say that about your house: Don't look around you for economists on the beach: they missed the whole thing...
...Your satisfaction is absolutely GUAR•ANTFED...
...On the reverse is the great heraldic eagle...
...I argued they were both wrong: Their deficit and savings rate changes would be rounding errors in the The volcano the U.S...
...is an independent, private corporation not affiliated with the U.S...
...The changes described above have pretty much run their course, so don't look there for your next investment idea...
...For each "America United" Silver Eagle Dollar order placed, National Collector's Mint is making a $7.110 donation to the toiled NN av's September 11th Fund, providing immediate and long-term aid to victims and their families...
...economy is sitting on is our $86.5 trillion balance sheet-the total value of all the financial and tangible assets in the U.S...
...But, in order to raise funds as quickly as possible, and to put as many of these precious coins into the hands of Americans who want to memorialize this tragedy, and proclaim our unity, the issue price of this pure silver masterpiece has been cut to just $29.95...
...Roughly a third were held as tangible assets, the remaining two-thirds as financial assets-stocks, bonds and money market funds...
...This shift in the national balance sheet has deflated commodity prices to their lowest levels in decades, pushed stock price multiples to historic highs and interest rates to today's low levels...
...Keep your eyes on the balance sheets, not on GDP accounts, and I will see you on the beach in Maui...
...But anything that materially alters the relative risks or returns of the assets in the portfolio will cause investors to revise their preferred asset mix, forcing asset prices to change until investors are again content to own the existing assets...
...balance sheet over the past twenty years...
...Macroeconomics textbooks begin with an island metaphor...
...ID Center...
...September 11, 2001...
...The point is that inflation and tax rates exert powerful influence on asset markets and asset prices...
...Emblazoned across it stands the American flag in full-color, and the legend, "God Bless America...
...It works well for haircuts, guitar lessons, and other perishable goods and services.The second-portfolio theory-is the price theory of Irving Fisher and James Tobin...
...Beneath this brilliant image, Lady Liberty strides toward us out ofthe dawn...
...Responding to the collapse of inflation and to tax rate reductions, they drove the prices of paper assets up and hard assets down, creating the biggest bull market in history and forcing a massive restructuring ofAmerican industry...
...Call, tot I -free...
...If the solid silver "America United" Silver Eagle Dollar is not everything we promised send back your order within 30 days by insured mail and we'll promptly refund your purchase price...
...My worry list today includes the risk that the Daschle gang succeeds in raising tax rates, the possibility that Argentina's default extends to other commodity-producing countries in Latin America and Asia, and the risk that the Fed and the Europeans will prematurely tighten this year at the first sign of growth, sending commodity prices down yet again...
...During the 1980s, a basket of stocks, as represented by the S&P 500 Index, was valued at two median-priced U.S...
...This is especially true for asset prices...
...The full-color image of the World Trade Center and the American flag appears across its obverse, with the never-to-be-forgoncn date of the attack...
Vol. 35 • January 2002 • No. 1
