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Evan Schnidman  

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  • What To Expect From Janet Yellen [View article]
    I generally agree with your sentiment. I expected the market to be a bit surprised by Yellen projecting herself as more hawkish than they anticipated, but this is a common practice for new Fed chairs. They want to demonstrate they are serious about controlling inflation. Historically it has been done by rate increases at the first few meetings under a new chair, Yellen just did it verbally. I don't see her comments changing the policy outlook much, especially because Kocherlakota highlighted the serious dovish concerns about raising rates too early by dissenting yesterday. This indicates that the nexus of dovish power still sees rate increases a year or more off, even if the hawks see them later this year. I doubt we will see any rate movement until 2015...unless inflation unexpectedly rises.
    Mar 20, 2014. 09:35 AM | Likes Like |Link to Comment
  • What To Expect From Janet Yellen [View article]
    As always, thank you for your thoughts.

    I completely agree that their is still value in an old fashioned reading of the minutes (and I still obsessively read every communication myself), but it is inherently imprecise and unscientific to think that I (or anyone else) is consistently interpreting these communications. We all bring our own biases to our analysis; these may be colored by other commentary, recent economic events or our political beliefs, but they are all biases. That bias bleeds into our commentary on the state of financial markets, the larger economy and especially our comments on monetary policy. So, Bill and I set out to create an unbiased metric as both a check on ourselves and as a means to create quantitative data based on central bank communications. The intent is not, nor will it ever be, to completely supplant traditional Fed watching, but to complement it and quantify it.

    As to your point about short term rates, I have a couple of thoughts. First is that this is likely not an imminent concern since we will have to see asset purchases completely wound down before even beginning to ask questions about a rate increase. By my count, that puts us well into 2015. Nevertheless, should we be concerned with this, I suppose my second thought is that we are conflating two things here, the money supply and the price of money. They are related, but they are distinctly separate. QE has caused a huge spike in the money supply that has not yielded high inflation partly because the velocity of that money has been so low. Should we reach a point where that velocity increases and inflation ticks up beyond desirable levels, I suspect you are right that the first move will be to signal a rate increase, thereby increasing the cost of money. While this won't solve the immediate problem of high inflation, it will combat inflation expectations thereby keeping long term interest rates in check. So, I agree that this could cause a distortion in market rates where short term rates bounce high while long term rates remain restrained. That said, since the Fed has the ability to raise rates as they please and long term rates will likely never bounce as dramatically as short term rates do, inflation expectations should remain in check and markets will eventually normalize. Basically, I think you point out an interesting fixed income investment opportunity on the horizon, but not a long term problem for monetary policy.
    Mar 19, 2014. 11:01 PM | Likes Like |Link to Comment
  • A Change Of Strategy At The Fed [View article]
    Thank you for the long and detailed comment. You definitely highlight the complex chronology of the bond market reaction to both the prospect of tapering and the Fed's forward guidance.

    I am not sure I agree that the U.S. market will be more attractive than emerging markets as a result of these policy steps, but I suppose that depends what emerging markets you are looking at. It also depends on a handful of central banking decisions that will happen over the next few months, namely how Rajan will shape Indian policy and what the People's Bank of China will do to continually manage their liquidity problems.

    Domestically it will also be interesting to see how the markets react to the next Fed chair; I have some thoughts about how bond yields might look different as a result of Summers versus Yellen, but I think I will put together short post on that in the next few days.
    Sep 14, 2013. 12:11 AM | Likes Like |Link to Comment
  • 112th Congress Averts Fiscal Cliff But Leaves A Mess For The 113th [View article]
    I doubt the President will invoke the 14th Amendment since he has already implied that he does not see that as a legal avenue. That said, I think he wants the Congress to hold a clean vote on it because he thinks that if they fail to pass it the American people will blame the Republicans and he will have more leverage in negotiations over spending. If they do pass it, he then has a string of compromises with Congress, which bodes well for further negotiations.
    Jan 6, 2013. 03:09 PM | Likes Like |Link to Comment
  • The Fed Should Stop Buying Bonds [View article]
    Interesting article and several good charts about the velocity of money, but I would take and have taken the argument one step further. We need to increase the velocity of money, so instead of simply pumping excess liquidity into the system, the Fed should be working to stimulate lending. I evaluated several possible ways for engaging in such lending stimulus in August:
    Dec 14, 2012. 12:49 PM | Likes Like |Link to Comment
  • Stagnant Bank Of England Policy Hints At Fed Inaction [View article]
    Winning Trader, you clearly failed to read the article since you base your counterargument on a point that was made in the second paragraph. That paragraph clearly explains that the Bank of England has engaged in more QE per capita than the Fed. I then go on to examine a political scenario where an outgoing central banker (Mervyn King) has halted continued monetary stimulus to counteract fiscal austerity. My point is simply that if the Fed wishes to make a similar point about the need for fiscal action in the face of the "fiscal cliff," then they will not expand asset purchases this week. Regardless of whether or not they do expand asset purchases, within the next few months the Fed is almost definitely going to change their forward guidance strategy.
    Dec 10, 2012. 09:53 PM | Likes Like |Link to Comment
  • New Blood At The Bank Of England: Good Show! [View article]
    It is a stretch to say that Bill Martin had significant experience in international finance, but your point is well taken. However, if international financial experience is a prerequisite for being a central banker, that suggests that the most qualified person for the job in the U.S. is Tim Geithner. He worked in the private sector for Kissinger and Associates before going to the Treasury Department and rising to rank of Assistant Secretary for International Affairs, a position designed to deal almost exclusively with international finance and exchange. Since then, he has served as President of the NY Fed and as Treasury Secretary, so his resume is even more robust than was Paul Volcker's when he was named Fed Chair. This is not to suggest that Mr. Geithner should be the next Chairman, just to point out that by zeroing in on the backgrounds of individuals negates the importance of the circumstances under which they served as Fed Chairman.
    Nov 28, 2012. 12:35 PM | Likes Like |Link to Comment
  • The Political Fed-Chairman Choice [View article]
    First, the FOMC only has 12 voting members, so your math is a bit off.

    Second, if all 19 participants in the meeting had a vote right now, at least 3 and probably 4 or 5 would be dissenting.

    Third, you clearly missed the point of the article; several commentators have recently begun acting as though John Taylor and Larry Summers are viable Fed Chairman options. All of these commentators have failed to acknowledge the constraint a President faces with nominees requiring a super-majority Senate conformation. This means that the viable choices need to be much less political and are therefore unlikely to stray very far from current policy. Essentially, this means that future policy constraints will continue to come from other voting members of the FOMC, not the Chairman.
    Oct 24, 2012. 08:38 PM | 1 Like Like |Link to Comment
  • This Is Not A Currency War, It Just Looks Like One [View article]
    Sorry for the delay, but I wanted to jump in here and point out that at every opportunity Fed policymakers have avoided saying that they are trying to influence equity markets. That said, veiled references to global markets indicate a very different thought process when they actually make decisions. The bulk of my research is on this very topic; I examine how different statements by Fed officials move equity markets. The link between communications and bond markets is established, but the equity market reactions are a lot more dubious. To some extent, all of the Fed chatter gets baked into the market so fast that it is hard to pinpoint how and when the Fed influences stocks or if they seek to do this more/less than other asset classes.
    Oct 19, 2012. 06:35 PM | Likes Like |Link to Comment
  • Understanding Chinese Monetary Stimulus [View article]
    Freddy, I get my data from the World Bank:

    That data is supported by hundreds of independent assessments and it supports my point that the Yuan is strengthening because the easing by the PBOC is less effective than easing by the Fed. So, absent a major new Chinese stimulus initiative or a sudden revival of consumerism in the U.S. and Europe, it is unlikely that the Chinese economy is going to rebound to double digit growth in the next couple years.
    Oct 19, 2012. 06:29 PM | Likes Like |Link to Comment
  • Did The Fed Just Announce Plans For QE4? [View article]
    Just a quick point of clarification, Evans did not pull $85 billion out of a hat, that is what the Fed is currently investing in MBS. QE3 invests $40 billion and the remaining $45 billion comes from rolling over investment income directly into MBS.

    When Twist ends at the end of 2012, this $85 billion number will be reduced, but indefinite QE plus whatever the Fed can still roll over into the MBS market will be a significant amount of continued "stimulus." That said, the Fed is unlikely to extend Twist because it would take extreme accounting tricks and redefining short, medium and long-term debt to continue extending the maturity of the Fed's portfolio. So, the issue is not whether the Fed will do QE4, but whether they will alter QE3 to invest more in MBS once Twist expires and they can't roll as much money into QE.
    Oct 4, 2012. 11:41 AM | 1 Like Like |Link to Comment
  • Evaluating QE3 In A Global Context [View article]
    You are absolutely right to point to the precision of the Yen and the fact that the Fed is not really able to target one sector of the economy (although they have tried with real estate). That said, the Fed's actions have had and will have a relatively larger effect on some sectors and little effect on others and policymakers definitely understand that ahead of time.
    Sep 25, 2012. 01:40 PM | Likes Like |Link to Comment
  • Has The United States Started A Currency War? [View article]
    I think it is unfair to say that the U.S. has "started" a currency war, but the point is well taken. As Europe, Japan, China, England etc have all taken steps to weaken their currencies this year, the Fed has had to do the same just to remain competitive in manufacturing and export oriented industries. That said, the U.S. economy is still much more stable than Europe or Japan, so I doubt that additional QE will imminently devalue the dollar since our trade partners are all engaging in comparable actions already. I hinted at this fact in my immediate reaction to the announcement of QE3:
    Sep 25, 2012. 12:33 PM | Likes Like |Link to Comment
  • Evaluating QE3 In A Global Context [View article]
    Asby, you highlight many of the complex issues that are going in to the Fed's policy decision, but you are under-weighting the international component. The Sept 13 FOMC press release actually referenced global pressures in a way that I have never seen before in a Fed press release. This indicates to me that the international division of the Fed is really concerned about both global liquidity and the dollar keeping up (down) with the falling value of other currencies. All of that said, the U.S. economy is systemically stronger than Europe or Japan right now, so I still think we will see a dollar rebound even with the QE.
    Sep 25, 2012. 12:24 PM | 1 Like Like |Link to Comment
  • Souring On Bernanke And The Fed: Could The Bashers Be Right? [View article]
    While I understand your sentiment, the question is not whether the Fed is insane, but how their objectives have shifted. If anything, the seemingly irrational step to QE3 demonstrates a shift in Fed policy that under the old paradigm of Fed policymaking might have seemed insane, but under a new paradigm makes a great deal of sense. Basically, the Fed has different goals than they used to; I go into detail about this change in objectives here:
    Sep 19, 2012. 12:50 PM | 1 Like Like |Link to Comment