Announcement

Collapse
No announcement yet.

The US Recovery

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • cyppok,

    The reason the Fed talked about tapering or slowly exiting QE is because yields moved.
    Fed's been talking about that for a long while, as a sop to the "omg inflation!" folks. the recent yield changes over a month is not significant; i think i posted 30 year rates over a decade/half-century earlier. this is the highest...since april 2012.
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

    Comment


    • Originally posted by astralis View Post
      cyppok,



      Fed's been talking about that for a long while, as a sop to the "omg inflation!" folks. the recent yield changes over a month is not significant; i think i posted 30 year rates over a decade/half-century earlier. this is the highest...since april 2012.
      You are ignoring certain aspects. 30y mtg going from 3.4 to 4.2 is over 20% jump in a month.

      The inflation that they are getting is from things like food and the deflation they get is from real estate. They want the reverse. Everything in life is marginal if you see rates going up and try to lock them in and a stampede of people like you do the same either you lock them in (and the person whom lent you) eats the adjustment as rates go higher and their net present value (purchasing power) goes down along with the cash flows they could have gotten or they aren't and you try to pass them through your chain of customers and either able or unable to do so.

      Two things I mentioned that are very acute.
      Foreign investors selling treasuries.
      Treasury Sales By Foreigners Hit Record High In April | Zero Hedge

      This is literraly demang going bye bye so someone somewhere has to eat it. Either rates go up, we print imaginary dollars and give it to foreigners now to expend into the global system creating unsterilized flows we do not want that eventually get here, or we continue on this path until we explode.

      Bid to cover in our imaginary auction process is showing lower and lower participation by actual buyers. This means passing through purchasing power to suppress it into the system is working less and less. Imagine what happens when you can no longer suppress it and it either gyrates one way or another. Ergo think of a vendor telling you, pay me now or get no product this is not inflation when you have no money or it becomes scarcer for you to be able to bid.

      Capital destruction through bailouts into mortgages and filtering it from bank to bank impacts actual capital all those people who earned 1% or nothing over 5 years have less capital. All those small businesses whom ate higher costs(due to equipement prices high) due to financing for equipment at record lows will eat it from their competitors whom may leverage less at higher rates and lower equipment prices.

      If you buy your candy making machine financed at 5k@6%(300 payment) and now the financing is 9% the machine has to come down in price or I have to be put up more capital than you. If its 3k (270 at 9%) and I buy it for cash I can cut my margins in half and you go out of business.
      Originally from Sochi, Russia.

      Comment


      • Originally posted by cyppok View Post
        You are ignoring certain aspects. 30y mtg going from 3.4 to 4.2 is over 20% jump in a month.
        .
        While I appreciate your reminder that rising interest rates have knock-on effects for business, the 20% rise is off the mark. 80 basis points, yes. 20%? Not useful.
        Trust me?
        I'm an economist!

        Comment


        • Originally posted by astralis View Post
          Fed's been talking about that for a long while, as a sop to the "omg inflation!" folks. the recent yield changes over a month is not significant; i think i posted 30 year rates over a decade/half-century earlier. this is the highest...since april 2012.
          I also posted a graph months ago and argued that we were living in a record low bond yield bubble. But let's say you're an investor in US bonds - Bernanke is the single largest - and say you have $100,000 there based on your previous advice that it was safe and 'every wants it' kind of idea. Within a month I've lost 10-15% of my investment. May not matter to an armchair economist but it damn well does to me! It's should matter to you too as it probably effects your pension. Fortunately nobody I know took your advice but some will have thought the same as yourself and now they face losses so the 'oh so needed liquidity' to revive the 'animal spirits' or whatever it was supposed to do is drying up. Likewise with the equity markets. Nor can you tell me that the man on the street is any 'wealthier' in real terms or can afford to spend more. You are in fact in a worse position than if Greenspan had done the right thing in 2001 and raised rates to encourage saving and a real recovery.

          The thing is that all this extra volatility has occurred on the back of a mere suggestion that the Fed may 'taper' QE. Nothing positive or promise to end QE even. So imagine if King Ben of all the Markets comes out and says "That's it people. No more"? Well yields will rise more presumably as the Fed would be looking to sell it's bonds and not act as buyer of last resort. The equities markets would sink also. Mortgages would rise more and the man on the street gets poorer - again. Government would have to cut or tax more (and we know I think which choice Obama will take there) and you're into a Greek scenario (who by the way the IMF say need another bail out or in). The alternative is 'moar printing' and as you admit this can go too far. So which is best?

          I shall try to watch the meerkats closely next week as it could be sink or swim time in my view. In the end though it all depends on King Ben who nobody elected yet who rules the value of most currencies at present. What a sorry pass this is from the 'land of the free'.

          Hi NSA :)

          Comment


          • snapper,

            But let's say you're an investor in US bonds - Bernanke is the single largest - and say you have $100,000 there based on your previous advice that it was safe and 'every wants it' kind of idea.
            i'm not sure you understood what i meant.

            bonds are NOT a short-term investment option; they are long-term hedges, meant to preserve capital over years and decades. they form the basis of dollar-cost averaging investment scenarios, not swing trades meant to make a quick buck.

            the reason why US interest rates are so low despite political instability, despite the US deficit, is because investors understand that US bonds are considerably safer than their counterparts elsewhere.

            Mortgages would rise more and the man on the street gets poorer - again. Government would have to cut or tax more (and we know I think which choice Obama will take there) and you're into a Greek scenario (who by the way the IMF say need another bail out or in).
            there is a huge difference between US interest payments going up and greek like bankruptcy. let's put it this way; if japan, with far worse demographics AND debt loads, can avoid becoming greece, what prevents the US from avoiding greece as well?

            I shall try to watch the meerkats closely next week as it could be sink or swim time in my view.
            i think you've been saying this for a while now...
            There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

            Comment


            • An interesting piece posted by Mark Thoma, here: [http://economistsview.typepad.com/economistsview/]

              Why Do Disability Filings Rise in Bad Times? [Friday, June 14, 2013]

              Jesse Rothstein finds that the rise in disability filings in recessions is not due to people "exaggerating real disabilities or through outright fraud":

              Are Long-Term Unemployed Taking Refuge in Disability?, by Ben Casselman, WSJ: The sharp rise in federal disability rolls in recent years ... is troubling to economists and policymakers because the program, administered by the Social Security Administration, is expensive, and because once workers go on disability, they rarely come off.

              Economists have long known that disability filings go up during recessions, but they aren’t sure why. Perhaps the most worrisome theory is that displaced workers are essentially using disability insurance as a form of extended unemployment benefits, either by exaggerating real disabilities or through outright fraud.

              University of California, Berkeley economist Jesse Rothstein set out to test that theory. He reasoned that if the increase is being driven by unemployed workers gaming the system, there ought to be a correlation between expiring jobless benefits rising disability claims. ... When Mr. Rothstein looked at the data, however, he found no such correlation. ... Mr. Rothstein’s findings ... are still preliminary...

              Then why do disability rolls rise in bad times?:

              A construction worker who hurts his back, for example, might be able to get a desk job during good economic times; when unemployment is high, however, making such a career switch could be much harder. Moreover, companies are much more likely to make accommodations for existing workers who become disabled than to hire a disabled worker — so a person with a disability who loses a job might well struggle to find a new one. ...

              Basically, people with disabilities face a choice, apply (and likely get) disability, or continue working in another occupation where the disability is less of (or not) an obstacle. In bad times, alternatives that will allow the disabled to continue working in another occupation dry up, and the first choice -- going on disability -- is more likely. As the article notes, once this (expensive) choice is made it is generally not reversed when the economy improves.
              Trust me?
              I'm an economist!

              Comment


              • Originally posted by astralis View Post
                snapper,



                i'm not sure you understood what i meant.

                bonds are NOT a short-term investment option; they are long-term hedges, meant to preserve capital over years and decades. they form the basis of dollar-cost averaging investment scenarios, not swing trades meant to make a quick buck.

                the reason why US interest rates are so low despite political instability, despite the US deficit, is because investors understand that US bonds are considerably safer than their counterparts elsewhere.



                there is a huge difference between US interest payments going up and greek like bankruptcy. let's put it this way; if japan, with far worse demographics AND debt loads, can avoid becoming greece, what prevents the US from avoiding greece as well?



                i think you've been saying this for a while now...
                The reason US rates are low is because 70%+ of the long duration bonds are being bought by the fed capping interest rate growth out on the curve. What every investors that is exiting those long duration bonds is effectively saying that duration risk is not being compensated for.

                QE is precisely that intervention in the market to keep bond prices low through demand contraints and supply constraints via the FED.

                *Sigh* If capital is being eaten through literally by either being invested in things that are net present value negative, yet are portrayed as positive due to artificial means its' misallocation discrepancy needs to made up. Generally in the future.

                Remember my poor example of rates going from 6 to 9 for 5000 to 3000 machine that makes candy.
                What I forgot to mention is that output of that machine is say constant ergo you could make 500 worth of candy a year. At 6 and 5000 you need 300 for interest and you have 200 profit. At 3000 and cash you could cut your margins to 250 and still have close returns to the person who leveraged. Ergo you have lower risk and less leverage and flexibility to sacrifice margins or simply wait until that person exhausts their capital and they cannot afford to replace their machinery as the capital they deployed (2000 down payment for overpriced machinery) was destroyed in the point that they cannot get it paid back at the same rate and/or speed that the person who bought at 3000 can.

                Why do you there is so much fear in deploying capital by big firms, yet issuance of debt is at record levels on the corporate level. Yet plant investment is quiet low. The reason is simple you invest 1 billion today and someone does so in 2 years with 500 million yet the person with 500 million will get a higher return and flexibility on how they compete with you while you will be leveraged to the hilt.
                Originally from Sochi, Russia.

                Comment


                • cyppok,

                  The reason US rates are low is because 70%+ of the long duration bonds are being bought by the fed capping interest rate growth out on the curve. What every investors that is exiting those long duration bonds is effectively saying that duration risk is not being compensated for.

                  QE is precisely that intervention in the market to keep bond prices low through demand contraints and supply constraints via the FED.
                  the point of QE is that the Fed -buys- bonds so that bond prices go UP due to reduced supply. bond YIELDS go down, which reduce borrowing costs. moreover, it makes bonds less competitive vs stocks, so people start accepting more risk for a return.
                  There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

                  Comment


                  • Should Bernanke stick or twist? Continue QE or taper? Since you have agreed with what I regard as this mad policy so far a la Krugman almost it should surely be your advice to continue no? If you think he should 'taper' you need to explain what has changed to make it such lovely weather all of a sudden as it were.

                    Comment


                    • snapper,

                      given current economic situations, bernanke should stick to QE, with no talk of tapering. (even if we DO taper when unemployment hits 6.5%, bernanke shouldn't be advertising it; the whole point of "QE infinity" was to use future expectations, after all.)

                      and side argument here, but:

                      mad policy so far a la Krugman
                      at a minimum, please understand that while Krugman supports QE, he thinks it is of moderate value at best and harmless at worst. this tendency to blame everything as Krugman/Keynesian is a display of economic ignorance, something which i've tried to demonstrate to you.

                      Hard Money Men - NYTimes.com

                      I wrote yesterday about the remarkable way in which not just policies, not just policy ideas, but even the notion of who is a policy expert have been seemingly unaffected by the debacles of the past few years. Today John Taylor offers, unintentionally, a perfect example.

                      Actually, before I get there, a word about self-styled conservative “market monetarists”: guys, have you noticed who your real policy enemies are? People like me, Brad DeLong, etc. are skeptical about the Fed’s ability to offset the effects of fiscal austerity, but we do want it to try. The furious academic opposition to quantitative easing is instead coming from moderate conservative macroeconomists, notably Taylor and Feldstein. So your problem isn’t just that the GOP’s effective leader on economic issues gets his macro from Francisco D’Anconia; it’s that even the not-so-silly wing of the party is dead set against what you consider reform.
                      There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

                      Comment


                      • So is the supporter of 'alien invasion economics' now proposing more fiscal stimulus?

                        Thank you for a straight answer. Let's wait and see what the Lord of Markets says...

                        Comment


                        • A bit of a preemptive strike here, in response to hysteria that the Fed “lost” $9 tri

                          CNBC, Dec 1, 2010 [:]Did Fed Really Lend $9 Trillion Under Its Primary Dealer Credit Facility? “Although the Federal Reserve made loans totaling $8.95 trillion to primary dealers in exchange for a wide range of collateral under its Primary Dealer Credit Facility, the size of the facility was likely never more than a fraction of that amount.” . . . “Although the numbers appear very large, the Fed never had anywhere near $8.95 trillion of loans outstanding under the program.”

                          CNN, Dec 1, 2010 [http://money.cnn.com/2010/12/01/news...se/index.htm]: "The Federal Reserve made $9 trillion in overnight loans to major banks and Wall Street firms during the financial crisis, according to newly revealed data released Wednesday.” . . . “Some Wall Street firms disputed the way the Fed reported the numbers. An executive from one of the firms said that many of the overnight loans were rolled over for days at a time, and that each day was counted as a new loan. ‘It’s being double, triple, quadruple counted in some cases,’ said the executive.”

                          Also reported by the Christian Science Monitor [http://www.csmonitor.com/USA/2010/12...nks-trillions] and even Fox, albeit several months later []Banks, Companies That Tapped Fed Reserve Rescue Programs | Fox Business.
                          Trust me?
                          I'm an economist!

                          Comment


                          • Originally posted by astralis View Post
                            cyppok,



                            the point of QE is that the Fed -buys- bonds so that bond prices go UP due to reduced supply. bond YIELDS go down, which reduce borrowing costs. moreover, it makes bonds less competitive vs stocks, so people start accepting more risk for a return.
                            Or exit the market altogether and simply wait. Notice the decline in money velocity. You could also take that cash and buy commodities or invest in processing/power facilities that are not very leverage-able. Ergo think Uranium processing or Nuclear power plants. {country level, billions of dollars}

                            If I had money coming in every month right now I would buy something cheap in PA, preferably a walnut orchard. I rather have that then bonds. Always liked walnuts, $1-2 bucks a pound wholesale and they don't go bad for a year.


                            If you have cash when someone is invested in equipment in my example your return is double the person whom bought equipment a year or two before you. You essentially take less risk to do less to gain more in the future.
                            Imagine if I knew ahead of time that the person whom buys equipment for 5k goes bankrupt when loan prices reprice from 6% to 9% and the equipment gets sold at bankruptcy for 2k why would I simply not wait and buy it then?
                            Originally from Sochi, Russia.

                            Comment


                            • Why would he go bankrupt? Just because of the price of the equipment?
                              No such thing as a good tax - Churchill

                              To make mistakes is human. To blame someone else for your mistake, is strategic.

                              Comment


                              • Originally posted by Doktor View Post
                                Why would he go bankrupt? Just because of the price of the equipment?
                                Because he bought it at the peak of the cycle with maximum leverage. Machine provides 500 output for both weather you bought at 5000 or 3000, if the price of machine falls as rates go higher ergo from 6 to 9, what happens is you could buy it without leverage and cut margins in half.

                                5000 financed at 6% is 300 so it would be 60% of your 500 profit
                                now rates go to 9% all you can afford if you refinance is 3000 (lets say the other 40% is your capital recovery and other things).

                                Second if I enter the industry or am already in it and my replacement costs are 3000 I have flexibility. I can cut my margins in half from 500 to 250 and still survive perhaps take your business if demand is fixed. While you cannot you are priced into the 500 profit because the rest is operating you need to pay your other costs besides interest.

                                You could actually see this in really big firms and small ones alike. There is this company that is already loosing money on meat (because feed went up and is eating up their profit margin) yet they have more plants coming online. They will actually loose more money faster when that happens but due to financing they have to go through with it. Their thoughts revolve around being so large that when the cycle turns they will make it back as margins on costs go down. Sometimes it happens most of the times you don't have capital access to finance yourself through it.
                                Originally from Sochi, Russia.

                                Comment

                                Working...
                                X