The Ignorant Investor

First quarter GDP was listless at an annual growth rate of just under one percent. Jobless claims are also up for the week.

A few months ago I said it didn't feel like a recession in my town, and it still doesn't. People are still in the shops, and I'm not constantly hearing tales of woe. What's missing these days is the glow of the boomtime. That cheerful, proud, slightly greedy tone that people get in their voices when talking about how their 401Ks are rising, their houses are more valuable, and they're getting bonus checks and overtime at work.

Sounds like the economy is still wheezing along, but I'm wondering if that .9% grow rate will get revised down in the next report.

Back in January, IYR was at $60 or so. About 30% off its high but not yet dirt cheap. Today it's at $67.75 a share but still trading at the same yield and at the same P/E. It ran up to $70 between March 10 and May 19. Is this part of a long term trend upward or is it making another dive?

IYR includes holdings in commercial office space, malls, hotels. Most commercial leases include escalation clauses to protect against the effects of inflation, but revenue still depends on the state of the economy as a whole. Companies going out of business don't pay rent. Malls without customers can't pass a share of their profits to the landlords. It would be useful to look at the financial reports to see if revenues have held up during the first quarter.

From the Telegraph.

Lehman's latest report - Is it a Bubble? - says commodity index funds have exploded from $70bn (£36bn) to $235bn since early 2006. This includes $90bn of fresh money. Energy takes the lion's share. Every $100m flow of investment money into oil lifts crude prices by 1.6pc, it said.

"We see many of the ingredients for a classic asset bubble," said Edward Morse, Lehman's oil expert.

The signal to look for before a crash, if this is a bubble, is Jim Cramer declaring that oil is the "must have big money winner."

I'm as ignorant about the oil market as I am about the capital markets, but when headlines like this start cropping up about any investment or commodity I start wondering if we haven't reached the point of turnaround: "No end in sight for oil price increases"

When everyone is talking about prices never going down is generally the time when prices start dropping. We saw this with stocks in 2001, houses in 2007. We're seeing massive investment by hedge funds and other speculators in oil now. I'm not adding this to the blog as any kind of prediction, but I figure it's worth recording as a data point in oil's climb upward.