Friday, October 17, 2008

Short Takes

I don’t normally do a Friday round-up of interesting articles from other blogs, mainly because mine is still one of the newer blogs, but I found a couple of articles from yesterday particularly interesting.

1. Canadian Capitalist observed that yields in real return bonds show that investors are worried about deflation. His observation makes sense to me, but why investors are worried about deflation doesn’t make sense to me. I’m no economist, but I would have thought that the prospect of the U.S. government printing trillions of new dollars to cover debts would make inflation more likely. Maybe deflation is more of a short-term worry. Maybe this is a difference between Canada and the U.S. Maybe I need someone to explain this one to me.

2. Preet explained that the usual measures of liquidity don’t apply very well to ETFs. Normally, if a stock has very few trades each day, a single trade can cause a large change in the stock’s price. So, if you place a market order to buy shares in a low-liquidity stock, you may end up paying much more than the quoted price at the time you placed your order. See Preet’s explanation of why this doesn’t apply as much to ETFs even if they have low liquidity.


  1. Hi Michael James,

    As long as you're sharing links, I thought this would be a great one for you:

  2. Gene: Thanks for the link. Buffett writes brilliantly. Should we take this as a sign that he has run out of spare money to invest, or does he want to save everyone? Probably some of each.

  3. Hi Michael James, thanks for the link. I've found that having a periodic "link share" has been good for readership because sometimes I tend to focus too much on what I think is interesting or want to write about and my guess is that readers like more than just what I focus on. That and it's a great way to take a bit of a break! :)

    Have a great weekend!

  4. Hi Preet,
    I thought posting some links would be a break as well, but I actually spent more time on this post than many of my others. You make good points about avoiding a narrow focus.

  5. Hi Michael. I'm far from expert here, but I believe the answer to your deflation question has to do with fractional reserve banking, whose effect is that only 10% of the money out there is created by the treasury/fed (I forget which). The other 90% is created by banks through lending. If the banks get skittish and lend only half as much as before, you'll have an overall decrease in the money supply, no matter what the govenment does, and that leads to deflation.

  6. Patrick: Interesting. So, I guess it comes down to whether banks stay skittish long enough to cause deflation. I hope not.