The Fed Is Between A Bubble And A Hard Place [View article]
Readers:
I think today's events surrounding the Fed statement, forecasts and guidance could prove to be quite portentous. See my exclusive analysis for subscribers of my free newsletter. Folow this link to subscribe: http://bit.ly/19aF8d5
Bill Gross's Misguided Diagnosis Of America's Economic Problems [View article]
This reader should actually READ my article as he/she clearly did not read it and/or understand it. This whole argument simply persists in regurgitating the same very clear conceptual and empirical errors that Gross makes.
The Fed Is Between A Bubble And A Hard Place [View article]
Readers:
If you enjoy my work, please note that you can now receive direct delivery of my publications from Seeking Alpha, The Street and other sources, as well as material that is exclusive to those on my distribution list of friends and followers. It is completely free. Just follow this link: http://bit.ly/19aF8d5
Please note that later this afternoon, I will provide analysis of the Fed's announcements, and of the market's reaction, in a report that I will send exclusively to subscribers.
Cash Hoards On The Sidelines And The Great Rotation: Old Myths Meet A New Reality [View article]
I am sorry to say so VOL FAN, but the thesis of this article is not even debatable. The thesis of this article is simply a mathematical fact. And anybody that thinks it has no merit clearly has no understanding of the subject matter.
In fact, it seems clear that VOL FAN did not even read or understand the article since he seems to think that his claim that there is no Great Rotation is somehow a refutation of my article.
Bill Gross's Dreadful Analysis Of The U.S. Economy's 'Wounded Heart' [View article]
Mike: Your REIT example runs totally counter to Gross's claim, actually. The REIT example illustrates what I say which is that Fed policy is encouraging excessive risk-taking in financial assets. This is the opposite of what Gross says.
Cash Hoards On The Sidelines And The Great Rotation: Old Myths Meet A New Reality [View article]
Roland:
Everything you say is true. But what is missing in your analysis is the fact that it also works THE OTHER WAY.
You are assuming here that this only works in a bullish manner -- i.e. that shares that are bought are "taken off the market." But what you are apparently not factoring in is that to the extent that what you are saying is true (and it is only true in a provisional sort of way) the money on the offer side is similarly "taken off the market" -- unless stocks fall by X%.
So, while your example is fine, it is only half the story. And so the same type of conceptual problem arises with your analysis.
Bill Gross's Misguided Diagnosis Of America's Economic Problems [View article]
turboelec:
You say the following:
"When you put money in a bank, you are doing your fellow citizen a big favor. The bank now has money to lend out to consumers and businesses. If the incentive to put money in a bank is removed, that money will go some place else."
As I said in the article, the problem is that banks are not finding good places to invest those deposits into the real economy. So they are either A) buying financial assets (including Treasuries) thereby helping to bid up their prices; B) depositing the funds (called excess reserves) at the Fed.
Unfortunately, if banks do not have enough places where they can invest money profitably, savers cannot expect to receive much interest. Profits in the real economy are the mother's milk of financial carry or interest on savings.
Someone might argue that if the Fed Funds rate were higher, banks might pay a higher rate for savings. Not necessarily, or not by much. Why? Because we come back to the problem of what banks are going to invest the money in. Imagine a bank that is currently borrowing at 0.25% from savers. That is the bank's cost of funds. Right now there aren't enough businesses that the bank can loan those funds out to profitably given the risks taken. Now, imagine the Fed Funds rate went up to 2.0%. Would interest rates paid to savers rise? Not necessarily, because unless the bank can find places to invest where yields rose by at least 2%, they cannot afford to raise the rates paid to savers. And CERTAINLY what will happen is that there will be FEWER businesses in the real economy that will get loans. If banks cannot currently afford to lend to businesses given the current spread between their cost of funds and what businesses are able to pay (given profitability for incremental investment in the real economy) they will lend even less to businesses if their cost of funds rises.
The Fed Is Between A Bubble And A Hard Place [View article]
I think today's events surrounding the Fed statement, forecasts and guidance could prove to be quite portentous. See my exclusive analysis for subscribers of my free newsletter. Folow this link to subscribe:
http://bit.ly/19aF8d5
Bill Gross's Misguided Diagnosis Of America's Economic Problems [View article]
The Fed Is Between A Bubble And A Hard Place [View article]
The Fed Is Between A Bubble And A Hard Place [View article]
Thanks for the input.
Cheers!
The Fed Is Between A Bubble And A Hard Place [View article]
I do actually expect a fairly strong taper signal.
I agree that the Fed needs to let the private sector take over.
However, I don't necessarily agree that tapering is in any way an additional incentive for business to invest hoarded cash.
The Fed Is Between A Bubble And A Hard Place [View article]
If you enjoy my work, please note that you can now receive direct delivery of my publications from Seeking Alpha, The Street and other sources, as well as material that is exclusive to those on my distribution list of friends and followers. It is completely free. Just follow this link: http://bit.ly/19aF8d5
Please note that later this afternoon, I will provide analysis of the Fed's announcements, and of the market's reaction, in a report that I will send exclusively to subscribers.
Cheers!
Cash Hoards On The Sidelines And The Great Rotation: Old Myths Meet A New Reality [View article]
Cash Hoards On The Sidelines And The Great Rotation: Old Myths Meet A New Reality [View article]
In fact, it seems clear that VOL FAN did not even read or understand the article since he seems to think that his claim that there is no Great Rotation is somehow a refutation of my article.
Bill Gross's Misguided Diagnosis Of America's Economic Problems [View article]
This is simply not true. Bubbles have historically occurred and will continue to occur without any central bank involvement.
Now, I agree that current policy is making bubbles more likely. However, central bank policy is not a necessary condition for bubbles to form.
Bill Gross's Dreadful Analysis Of The U.S. Economy's 'Wounded Heart' [View article]
Cash Hoards On The Sidelines And The Great Rotation: Old Myths Meet A New Reality [View article]
Everything you say is true. But what is missing in your analysis is the fact that it also works THE OTHER WAY.
You are assuming here that this only works in a bullish manner -- i.e. that shares that are bought are "taken off the market." But what you are apparently not factoring in is that to the extent that what you are saying is true (and it is only true in a provisional sort of way) the money on the offer side is similarly "taken off the market" -- unless stocks fall by X%.
So, while your example is fine, it is only half the story. And so the same type of conceptual problem arises with your analysis.
Bill Gross's Misguided Diagnosis Of America's Economic Problems [View article]
Bill Gross's Misguided Diagnosis Of America's Economic Problems [View article]
Just for the record, that is NOT my thesis.
Bill Gross's Misguided Diagnosis Of America's Economic Problems [View article]
Bill Gross's Misguided Diagnosis Of America's Economic Problems [View article]
You say the following:
"When you put money in a bank, you are doing your fellow citizen a big favor. The bank now has money to lend out to consumers and businesses. If the incentive to put money in a bank is removed, that money will go some place else."
As I said in the article, the problem is that banks are not finding good places to invest those deposits into the real economy. So they are either A) buying financial assets (including Treasuries) thereby helping to bid up their prices; B) depositing the funds (called excess reserves) at the Fed.
Unfortunately, if banks do not have enough places where they can invest money profitably, savers cannot expect to receive much interest. Profits in the real economy are the mother's milk of financial carry or interest on savings.
Someone might argue that if the Fed Funds rate were higher, banks might pay a higher rate for savings. Not necessarily, or not by much. Why? Because we come back to the problem of what banks are going to invest the money in. Imagine a bank that is currently borrowing at 0.25% from savers. That is the bank's cost of funds. Right now there aren't enough businesses that the bank can loan those funds out to profitably given the risks taken. Now, imagine the Fed Funds rate went up to 2.0%. Would interest rates paid to savers rise? Not necessarily, because unless the bank can find places to invest where yields rose by at least 2%, they cannot afford to raise the rates paid to savers. And CERTAINLY what will happen is that there will be FEWER businesses in the real economy that will get loans. If banks cannot currently afford to lend to businesses given the current spread between their cost of funds and what businesses are able to pay (given profitability for incremental investment in the real economy) they will lend even less to businesses if their cost of funds rises.