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Cullen Roche  

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  • Banking Is Complex Because The World Has Become More Complex [View article]
    Frances and I are two of the only people who have correctly understood and predicted the dynamics of the deleveraging and QE over the last 5 years. You can claim that we don't "understand" the financial system, but that conclusion is totally inconsistent with the accuracy of our predictions over the last 5 years....
    May 22, 2015. 03:15 PM | 2 Likes Like |Link to Comment
  • Thoughts On The Bond Debacle [View article]
    Thanks guys. Didn't intend to sound hyperbolic and yes, I probably cherry picked an extreme. Thanks for keeping me honest.
    May 19, 2015. 05:46 AM | Likes Like |Link to Comment
  • Thoughts On The Bond Debacle [View article]
    It's a 9% loss YTD. It's a 20%+ loss from the peak in January. That's a fairly disastrous result for anyone who bought in near the January highs, no?
    May 17, 2015. 10:14 PM | Likes Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    I think you and many other readers here are far too defensive about the point being made here. No one said Buffett was an idiot. No one said Buffett should have consulted me. No one implied that I am smarter than BUffett.

    I thought this was a learning moment and one in which I could explain and emphasize the operational aspects of QE. So, all I did was point out that Buffett's concerns over QE have been baseless and very likely the result of misunderstanding. My work is almost entirely operational in nature. I look at the monetary system and its operational nature, construct models of probable outcomes and allocate assets based on those probabilities. I got one right on QE when I said it wouldn't cause high inflation, rising rates or a crashing dollar. And no, this was not a "common sense" prediction. And no, it doesn't make me smarter than Warren Buffett....

    Anyhow, I thought that commenting on SA might help readers better understand my views and provide for an educational commentary, but I can see that it only makes people even more emotional so maybe I should go back to not commenting.

    Take care everyone.
    May 5, 2015. 03:37 PM | Likes Like |Link to Comment
  • No, The Inflation From QE Is Not Inevitable [View article]
    The banking system does not get rid of reserves in the aggregate. It can trade them to other banks, but it does not determine the aggregate quantity of outstanding reserves. That is determined by Fed policy.

    Likewise, banks do not get rid of deposits in the aggregate. They can be shuffled from bank to bank (or withdrawn in the form of cash, where they usually show up somewhere else as deposits), but banks don't lend out their deposits. A bank that makes a new loan expands its balance sheet endogenously. It does not *USE* its reserves or deposits to make new loans....That is money multiplier thinking and it's not correct.
    May 5, 2015. 01:04 PM | 1 Like Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    My parents were smarter than to give me the initials KIA.

    I kept a record of my macro calls over the last 5 years:

    http://bit.ly/1AB4n4L

    You'll notice a consistency in my work. When I make a prediction I generally apply some operational explanation to back it up. I've gotten things wrong over the years as should be expected, but I've also made a number of correct macro calls that very few people got right....

    In fact, I am perfectly happy getting some stuff wrong as it generally turns into a nice learning experience. I'm just trying to view the monetary world for what it is, explain probable outcomes based on operational understandings and allocate assets accordingly....
    May 4, 2015. 11:26 PM | 2 Likes Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    I agree. He'd be a great client. Do you have his phone # so we can make this happen?
    May 4, 2015. 11:19 PM | 1 Like Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    As I stated above, Buffett's cash position has grown since 2008. We know cash hasn't generated any return since then so if he'd left the extra 3.5B in the bonds then he'd have roughly $4B more in capital today than he does. Of course he generated high returns on investments like Goldman and GE, but that doesn't mean it was smart to reduce the bond holdings and maintain such a large cash position.
    May 4, 2015. 05:20 PM | Likes Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    I don't think I explained my point very well. QE increases the quantity of deposits in the pvt sector by REDUCING the quantity of bonds. This results in no change in the QUANTITY of the pvt sector's financial assets. Why would this be inflationary? Because you want to call deposits "money" and bonds "bonds"??? Do you spend more when you swap a savings account for a checking account because you have more "money"??? Of course not. Same goes for QE.
    May 4, 2015. 03:38 PM | 1 Like Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    No, I am simply pointing out that stock prices don't necessarily rise because the quantity of deposits rises. Do you think a company with declining earnings can boost its stock price just because they reduce their share account? QE is the same thing at the economic level. If the economy doesn't improve then there's no reason to expect that QE can boost the stock market. But there's been real fundamental improvement in the economy which is precisely why stock prices have risen.
    May 4, 2015. 03:23 PM | 1 Like Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    Bonds have actually generated better risk adjusted returns than stocks have since 2008....See my comment below.
    May 4, 2015. 03:21 PM | Likes Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    Asset price inflation is not consumer price inflation. Equities have been rising because corporate profits are at all-time highs. Saying a rising money supply necessarily causes stocks to rise is like saying that a stock buyback can always make a stock go up. Yes, it's true that, all else being equal, a reduction in the supply of stocks should make stock prices rise. But all else is not equal. Had corporate profits continued to collapse in 2009, 2010, etc then no amount of QE could have halted the decline. Just like no amount of stock buybacks can halt a stock price collapse when the company's operating earnings are falling. People don't want to admit that the state of corporate America has gotten substantially better, but that's precisely what's caused the stock market to rally.
    May 4, 2015. 02:56 PM | 2 Likes Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    The way I describe QE is that a deposit is printed into the pvt sector and a T-Bond is unprinted from the pvt sector. Do you expect there to be higher inflation just because you swap the composition of your financial assets? Do you spend more when you swap your savings account into a checking account?

    Of course not. But the implication behind the idea of "money printing" is that the Fed is dropping money from helicopters just as Buffett incorrectly says. That's not at all what's going on here....
    May 4, 2015. 02:52 PM | 1 Like Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    I don't think there's any denying that Buffett made some wise moves during the crisis and around it. But clearly, reducing his exposure to T-Bonds and increasing cash on a relative basis was a mistake. That's the point I was trying to express....
    May 4, 2015. 02:07 PM | 2 Likes Like |Link to Comment
  • How Warren Buffett's Misunderstanding Of QE Left Billions On The Table [View article]
    I'd be curious to see if there is a correlation between the ability to grow a beard and intelligence. Considering that most of the smart people I know are women I would venture to guess that this is false. But I do respect a good beard when I see one!
    May 4, 2015. 01:55 PM | 7 Likes Like |Link to Comment
COMMENTS STATS
302 Comments
672 Likes