Tuesday, May 21, 2013

Thoughts on Inflation

I believe that true inflation is higher than reported inflation in the US. The federal gov't has several reasons to under-report inflation, chief among them the benefits from artificially restricting COLA (cost of living) increases in Social Security payments, which are ruinous to the deficit. We can see this in real life, as the gov't practices "substitution," which embraces the fallacy (this is just a hypothetical example) that if milk is expensive, consumers will switch to orange juice instead (so the gov't drops high milk prices from the CPI). 

However, if consumers aren't buying goods and services, that exerts a downward force on inflation. Also, any government dealing with a deficit wants inflation very badly, as outstanding debts become cheaper (easier to repay) as a result of inflation.

So presently there are competing forces acting on inflation: gov't wants it higher (but reported artificially lower); and low demand pulls it down.

Here is a fascinating article arguing another reason that inflation is low:  http://seekingalpha.com/article/1448811-why-inflation-never-came

M x V = P x Q, where M is amount of money, V is velocity of money, P is price (inflation or deflation), and Q is quantity of all transactions. You can see that if V and Q are fixed, then an increase in Money supply will cause inflation. That is the classic model, and it's what I've been expecting for years now.

The author argues that while M has been moving up significantly (this is the fed's Quantitative Easing, which, classically, suggests that inflation will follow), in fact there has been subdued inflation because the velocity of money has fallen so much. There are new proxies to money (GLD and SLV and bitcoin), which have zero velocity and thus displace currency and thus reduce its average velocity. (I'm not smart enough to be able to confirm that these new forms of money have zero velocity.) Also, the big banks have more competition now in the creation of money, and the new forms of pseudo-money are arising from different financial institutions, and the quantity of paper money is lower now, compared to the past; this also prompts velocity to fall.

I'm going to nibble from all these cakes. I conclude:
a. Inflation is higher than as reported by our government;
b. But money velocity is low, which is a drag on inflation; and
c. Demand for goods and services is relatively low, which is a further drag on inflation.

Another point worth making is that with interest rates stuck so low, holding cash is likely a losing proposition (actual inflation rate is most likely much higher than the 0.1% or whatever that your bank is paying you), so the present economy is impoverishing savers, even with a low inflation rate! Solid dividend-paying stocks to the rescue!

My final point is that indeed who knows when rates will finally rise, but heaven help the folks holding long-term bonds, when they do.

My FINAL final point is this: No one can predict the future accurately. Even if we can see the WHAT (which, the above analysis shows, is doubtful due to complexities that we do not yet understand), we cannot know the WHEN, as there are just too many variables. So, diversify!

Further thoughts on health risks associated with inorganic spraying of vineyards

A laboratory published a study on the health risks of inorganic pesticides/fungicides used in vineyards. Now, that lab says its results were misunderstood: Wine drinkers are not at risk from the chemicals, but vineyard workers are:

The lead author said that chemical residues in wine are too small to have an effect on drinkers, but he added that vineyard workers are being exposed to a significant health risk.

"You'll consume much more pesticide residue eating apples and strawberries than drinking wine," said Pascal Chatonnet, Ph.D., owner of Excell laboratory, which works with wine and food industries in several countries, and runs labs in France, Argentina, Spain and Chile. "Your liver will be completely destroyed long before you'll have toxicity from pesticide residue in wine."

According to his analysis of 325 French wines produced between 2008 and 2010, 90 percent of the wines showed traces of up to nine molecules related to pesticides and fungicides. None of the molecules are known carcinogens, and the vast majority of wines had levels significantly below legal limits. Only 0.3 percent of the wines did not meet current regulations. "There is no health problem in drinking wine in terms of pesticides," said Chatonnet. "We have no reason to believe there are high levels of pesticides in wines."

Kenton again: It is nevertheless important to minimize or avoid inorganic chemical sprays in vineyards. The cultivation of winegrapes which contain American grapes in their parentage ("hybrids" or "modern varieties" of grapes) is the obvious answer to this problem.

Read the article here.

2013: The grape year so far in the Pac Northwest

It is early and anything can happen (in fact, hail is forecast this week), but the year for grapes so far in the Portland area has been excellent:

1. Early budbreak
2. Warm, dry, sunny weather (several days in the mid-high 80s)
3. No late freezes
4. Fast start for the shoots; many of mine have grown more than a foot by mid-May

We're in a multi-day cool/wet spell now but no worries, at least for now. There is every reason to be optimistic for a good grape vintage.

photo credit: Google images

Wednesday, May 15, 2013

And while we are focusing on apple trees,

here is a shot of one of our MANY old apple trees at our Woodland WA place. Finnish immigrants planted these trees up to 100 years ago. They are standard trees (when did dwarfing rootstocks come into use?) so they are too tall, but wow just look at those flowers!

Friday, May 3, 2013

Wine Inflation

Wine's up in price by 8.4% in restaurants over the past six months.

And yet interest paid on savings is less than half a percent, and the published inflation rate is less than 1%.

The runup in the cost of a glass of wine is mostly due to the economic recovery and a growing shortage of wines. That is surprising, as there was a large glut of wine until recently.

Read the article here.

You can still save a lot by taking your own bottle to the restaurant and paying corkage. Even with corkage as high as $25, you will likely save money. And don't let the server fill your glasses--that is your job. You are the best person to know if and when you and your guests want more wine; if your server just pours the wine arbitrarily and repeatedly, it can waste some wine and prevent the opening in the glass that you may be waiting for.

Thursday, May 2, 2013

Wine as a living thing

Wine as a living thing? Well, yes, it is born and it dies and it can get sick and it has personality, but it can't pay taxes or make babies (on second thought, sometimes it can make babies ;)

I mean it's a living thing in the same sense that the Constitution is a living document: It is always changing over time.

And before we castigate only poor Mr. Pinot Noir for its ephemeralissitude, its changeability, let us realize that most wines change over time. Long-keepers will climb, slowly, into greater balance and harmony, their fresh fruit flavors subtly morphing into non-fruit flavors, and finally they begin the long, majestic march into decay. A sprightly white wine will settle down and come together in its first few months in bottle, and if it is a short-keeper (think Viognier, or Prosecco), its freshness will fade into blah within a year or two. And every wine with big tannins will get smoother as those tannins find each other and chain up into lengths so long that our tongues can no longer detect them (think about that! getting bigger, in order to become invisible!)

And some wines are like the screwballs uncorked from the pitcher's mound: they change in unexpected directions, and sometimes identical bottles will diverge from each other and then come back together, inexplicably.

This is why we must view wine scores as approximate snapshots in time. It is why a 92 point wine might seem unimpressive when we drink it, whereas an 82 point wine might blow us away before or after it's scored.

Is there volition in Evolution? Can we do anything but be amazed, and keep trying to learn?

Happy Spring!

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