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James A. Kostohryz  

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  • A New Way To Follow Your Favorite Seeking Alpha Authors [View article]
    1. Incentives for contributors to produce more and better free content.

    2. More options for contributors to produce higher quality content for a fee, and more options for individual investors to benefit from such content

    And it's all voluntary and market-driven.

    This is an excellent idea, and long-term, I think that this is going to really work. In fact, I think it could be a game-changer in the investment research industry -- very much to the benefit of individual investors.
    Apr 2, 2015. 07:49 PM | 8 Likes Like |Link to Comment
  • What Will The New Tesla Product Be And How Much Will It Cost? Here's My Best Guess [View article]
    Great article, Paulo!

    I am a bit less skeptical than you about the ability for this to become profitable. Once you create a market for this, it's pretty much a revolution, and Tesla will be well positioned for it. So even if they start out with "loss leaders", this is something that is potentially an enormous market that is worth developing.

    Of course, as the first mover, Tesla may have to bear costs that later entrants will not have to bear, and so this is a risk. There is no guarantee that once a market is established, that Tesla will lead it. Other big-time players can come in.

    But thinking of this in terms of options pricing, because of the potential huge size of the market, and because of the synergies that this has with Tesla's current core business, I think it can add significant value to Tesla's market value.

    Either way, the way you approach the problem gives us all much to think about.
    Apr 2, 2015. 07:34 PM | 1 Like Like |Link to Comment
  • Fed Funds Not So Easy: Major Implications For Stocks [View article]

    Bernanke is basically saying that fundamentals justify a low Fed funds rate. He is saying what I am saying in this article, although approaching it from a different angle.

    Now, people -- I am not saying you do this -- can say that Bernanke is lying and question his motives. They can say that this is all a conspiracy to help bankers and the rich. Or they can say, like Stockman, that the Fed are a bunch of idiot know-nothing central planners and that the market is going to crash despite the Fed's best efforts to blow bubbles.

    What do I say? I say, that people would actually do well to actually LISTEN to what Bernanke and Yellen actually say rather than what they would like to hear them say. After all, these folks, whether you like them or not, are calling the shots -- not the David Stockmans of the world. Furthermore, aside from listening to the people that run the Fed, folks would actually do well to actually LOOK at and UNDERSTAND the data that the Fed bases its decisions on -- focusing on what is actually there rather than what their ideology tells them it should be.
    There are so many people that blow off what the Fed says and blow off what the data say. "The Fed are idiots and/or criminals and the data is all rigged." Stockman, Dent and others make a big profitable business of pandering to this attitude. And, of course, they all lose their shirts!
    Apr 2, 2015. 02:06 AM | 1 Like Like |Link to Comment
  • Fed Funds Not So Easy: Major Implications For Stocks [View article]

    I find there is too much that is contradictory here:

    "This is exactly the problem. The market thinks he Fed is terrified that the stock market will crash if they start raising rates. The Fed , however, is talking like it wants to raise rates ( dot plots) - but the market thinks the Fed is bluffing. All this has nothing whatsoever to do with inflation. It has to do with the market second guessing the Fed and the Fed anxiously looking at the market for signs of neurotic twitches.

    So - it is the Fed that matters, not the markets independent assessment of inflation. Or , more precisely, it is the markets view of what the Fed will actually do as opposed to what the Fed is saying in public. Again , nothing at all to do with any independent assessment of economic fundamentals."

    The Fed has an inflation mandate. The market knows this and it's assesment of what the Fed will do has much to do with what it thinks inflation will ultimately be. But you are saying that the market is not paying any attention to fundamental forecasts of future inflation; it is merely speculating about whether the Fed is "bluffing" or not.

    Your argument amounts to a sort of reductio ad absurdum where both the Fed and the market are just speculating about what the other is going to do with no reference to the actual fundamentals.

    Not plausible.

    The Fed has a mandate regarding inflation and employment. It cares about its mandates, with an emphasis in this Fed on the latter. The market tries to predict what the Fed will do primarily as a function of these mandates; and it makes these predictions as a function of what they think the economy will actually do -- i.e. what the economy will more or less force the Fed to do. In this context, to the extent that the economy is making progress towards these goals, the Fed can afford to raise rates without tanking the market. That is why the market can rise in the context of rising rates. So, the whole supposed fear of the Fed of tanking the market -- even if it were real -- becomes a mute point.

    The idea that the Fed mainly cares about the stock market or that the stock market is mostly focused on the Fed, is completely over-rated.

    Based on the same sort of rationales, vast numbers of pundits and commenters where hell-bent in their belief that the market would tank when the Fed ended QE. By contrast, I steadfastly said that the market would continue to make new highs. I turned out to be correct. And I turned out to be correct in large part because neither the economy nor the stock market needed QE at that point.

    In this case I predict the economy will accelerate in 2H 2015 and the Fed will raise rates -- partly because inflation will accelerate a bit, real rates will contract and the economy will no longer need short rates at 0%. And, in the end, if I am correct about the economy -- the market will boom to new highs (probably after a correction that I have been talking about).

    If you want to correctly predict what the Fed will do, then correctly predict what is going to happen with inflation and employment. The stock market is totally secondary in the Fed's thinking at this point. The Fed's focus on keeping monetary conditions accommodative until full employment is reached and inflation is well above 2% provides an excellent environment for asset prices, and stock prices in particular. That does not mean that the Fed is trying to create stock market bubbles. It means that the Fed really does not care enough about the danger of stock market bubbles that it will let that risk over-ride its primary mandates of inflation and employment.
    Apr 2, 2015. 01:34 AM | 1 Like Like |Link to Comment
  • Fed Funds Not So Easy: Major Implications For Stocks [View article]
    "Inflation does not even enter the thought process."

    Sure it does. Why would somebody buy 1 year paper at 0%, with inflation at 3%? There are other alternatives; the yield on paper will be bid up due to arbitrage with other assets that may provide a better real return.

    Finally, right now, how realistic is your assumption that the market is going to come to a consensus that inflation will rise to 3% and at the same time conclude the Fed cannot afford to raise rates due to imminent risk of going into recession? I would say: Not very. The postulate is largely contradictory.
    Apr 2, 2015. 01:00 AM | Likes Like |Link to Comment
  • Fed Funds Not So Easy: Major Implications For Stocks [View article]

    1. Thanks for your posts. They are substantive.

    2. I didn't say the Fed was tight. I said that they were not as loose as most people think. I also said that based on a Taylor Rule analysis, the Fed funds rate in the current context might be considered roughly middle of the road.

    3. I agree that headline CPI is being temporarily impacted by energy deflation. I also agree that future inflation could speed up under certain circumstances that I have described in other articles.

    4. Finally, what you are saying about arbitrage with Fed funds is valid, but not complete. Historically, private rates can run ahead of fed funds as a function of inflation expectations as well as many, many other factors. There are many reasons why this can happen. The easiest of these reasons to understand is that the market starts discounting an increase in fed funds due to an increase in inflation expectations. In other words, if inflation expectations rise, market expectations of fed funds will rise. Right now, market expectations of future inflation have been falling, so this factor is not coming into play. Indeed, the decline in inflation expectations has resulted in downwards revisions in fed funds futures (and the Fed's own dots). There are other issues, as well.

    Ironically, the market currently has lower projections of increases in Fed Funds than does the Fed. This makes it very difficult to argue that it is the Fed that is "artificially" repressing Fed Funds (i.e. being too loose) because MARKET estimates of what Fed Funds should be in the future based on fundamentals is lower than what current Fed personnel apparently think they should be.
    Apr 1, 2015. 09:08 PM | Likes Like |Link to Comment
  • Fed Funds Not So Easy: Major Implications For Stocks [View article]

    I have no argument with you regarding the core CPI or the Cleveland Fed, in terms of their usefulness as a measure of the current and/or forward tendency of prices.

    The question is: Is the Fed Funds rate easy or tight right now? Fed funds is an ultra-ST interest rate. Thus, technically, we should be restricted to look at inflation at that time horizon. If we want to be more forward looking -- say 1 year forward -- we could look at things like TIPS and inflation swaps and compare that to 1 year borrowing rates in the bank funding market. But both those inflation expectations and rates in the funding market is set by the market; that has nothing to do with Fed Funds; that will affect longer-term rates.

    So, as much as you are making good points about the usefulness of Median CPI, this is really not directly relevant to the thesis of my article. If you think Cleveland Fed Median CPI is pointing to higher inflation 1 year from now (for example), then that should be reflected by 1-year borrowing rates that are set by the market. The Fed does not set the rate for 1-year rates. The Fed can lend at 0% for overnight funds and private actors can charge 3% for one year funds if they think inflation will be 2.5% on year from now.

    By the way: Cleveland Fed has a sophisticated model that measures implied inflation expectations in the market, and it is currently signalling 12 month forward expectations at around 0.79%. This is down from about 2.19% in December. So, if we really want to talk about forward-looking estimates/expectations of inflation, then -- once again -- we can see that the decline in inflation expectations at a 1-year time horizon has effectively caused a tightening of monetary policy. The real interest rate has risen; in particular, the overnight rate / 1 year spread-carry trade has become less attractive.

    So, pretty much anyway you skin this cat, as a result of the decline in inflation, monetary policy is currently much less "easy" than most people think. In terms of a current or forward-looking Taylor-Rule type analysis it's not particularly easy at all.
    Apr 1, 2015. 06:08 PM | Likes Like |Link to Comment
  • Fed Funds Not So Easy: Major Implications For Stocks [View article]
    Questions by RS055 and others:

    1. CPI -- All Items -- (This includes food and energy). Is at 0% on a YoY basis. You can find the info on BLS or FRED.

    2. The Taylor rule is calculated using current PCE (0.24% YoY as of the publication of this article), which is the Fed's preferred gauge of inflation, and for good reason as it is the broadest measure of prices, economy-wide. Core PCE was at 1.33% YoY. The difference between my estimate and Taylor's cited by one commenter is that Taylor is using stale and obsolete backwards-looking data (October was the last available quarterly value), while I am using current and forward-looking data. Taylor has had this problem before and has been called out on it in various academic and policy forums in the past. The procedure of using backward-looking data has been rightly discredited; both the Fed and financial markets look at current and future conditions for setting interest rates, not old data.

    Finally, I also think the Cleveland Fed gauge of inflation is quite useful. However, it is not appropriate for calculating the real interest rate or the Taylor Rule. The best gauges for these estimates will be the broadest possible measures of prices appropriately weighted for product share of GDP.
    Apr 1, 2015. 11:23 AM | Likes Like |Link to Comment
  • The Bottom's Not In----Why This Market Is Dumber Than A Mule [View article]

    "James Kostohyrz was one of my favorites to read, bc I agreed with his thoughts, that the stock market was highly priced and in a bubble!"

    I must correct you on this because I NEVER said that the stock market was in a bubble. In fact I have written no less than 5 articles in which I have explained why the market is NOT in a bubble. In fact, in 2011, I wrote several articles in which I stated that the market was attractive to neutral in terms of valuation, but that I believed it would fall due to problems in Europe.

    Unfortunately, people that are pre-disposed to believe that the stock market is in a bubble have looked for things in my articles that they believe validated their theory of a bubble. But the fact of the matter is that I have been very clear all along -- even when I was bearish on the market -- that the stock market was NOT in a bubble. And it's still not. I think it may very well inflate into a bubble, but it's not there yet.
    Mar 27, 2015. 09:48 AM | 3 Likes Like |Link to Comment
  • The Bottom's Not In----Why This Market Is Dumber Than A Mule [View article]

    You are partly correct that I should have addressed the substance, but there is little by way of facts to refute in this article.

    But there is no "ad hominem attack" in my comment. Stockman was the one that called the market "dumber than a mule." My intent in asking "so who's dumber than a mule?" was to highlight the rather blatant ironies in Stockman's own red herring about dumb mules.
    Mar 27, 2015. 03:35 AM | 4 Likes Like |Link to Comment
  • The Bottom's Not In----Why This Market Is Dumber Than A Mule [View article]

    Funny you mention it: Starting in August 2012 -- as you note - I have been positive on the market and most of the articles that you cite prove that. I was indeed wrong on the market for a short period between 2011 and August 2012, but never for any of the reasons that Stockman tends to harp on. I was bearish on global markets because of the situation in Europe, and I happened to be right about most of what happened there.
    Regarding, substance.

    You are correct in that I should have addressed it. I was mainly responding to his "dumb mule" comment. There is, in fact, little of substance worth noting in this article. For example, it shows a rising trend in durable goods orders -- which is utterly contrary to his point. It shows an utterly irrelevant graph on steel capacity utilization. This article mainly focuses attention on China, which is a subject that Stockman knows precious little about. Ironically, even if his predicted recession in China occurs (he has said nothing unique here about it) this would be a net positive to the US due to the depressing effect on global commodity prices. The US is a net commodity importer and benefits from lower commodity prices.

    Finally, Stockman calls the market as "dumb as a mule." That is not analysis, it's the complaint of a seemingly desperate man. He does not even know anything about the intelligence of mules.

    The bottom line is this: This is just another ideologically charged rant by David Stockman. There is little substance, and what little there is grasping as straws (like steel capacity utilization) to try to prove his entirely pre-concieved point. This is almost pure rant, starting with his headline about dumb mules.
    Mar 27, 2015. 03:27 AM | 3 Likes Like |Link to Comment
  • The Bottom's Not In----Why This Market Is Dumber Than A Mule [View article]
    The stock market has been rising for several years despite Mr. Stockman's predictions to the contrary.

    So who's dumber than a mule?

    Sounds like somebody that is desperate and resentful because the market has not gone they way he wanted it to.

    By the way, it appears that Mr. Stockman knows about as much about mules as he does about what moves the stock market. Mules are actually smarter than horses or donkeys. All farm-boys such as myself that have worked with horses and mules know that. And science has now proved it as well:
    Mar 26, 2015. 07:50 PM | 13 Likes Like |Link to Comment
  • The Future Of Seeking Alpha, From One Contributor's Perspective [View article]
    Reasonable people expect to have to pay a plumber for the service of going to their house and fixing their pipes.

    Reasonable people expect to have to pay for high quality investment analysis.

    Investment success - like success in many other fields -- takes much skill and a great deal of hard work. If you want skilled people to work hard for you to help you obtain things you want, you better to be willing to pay for it.

    That is the bottom line.

    There is a market for high quality investment analysis and services. SA is providing a market venue where the people that demand these services and those that can supply them are able to meet. This increases consumer choice and increases incentives for services to be provided that heretofore were not available to individual investors. This is a very good thing.

    It is important to keep in mind that nobody is going to be forced to purchase SA Premium products. It's a choice. If you think the product is valuable and can help you, you can buy it. If you don't think it's valuable or you simply don't want to pay for it, then you can choose not to pay for it. People have the choice.

    Objections to an initiative that increases the quality of services and choices available to individual investors are fundamentally strange, but predictable.
    Mar 25, 2015. 01:26 PM | 19 Likes Like |Link to Comment
  • Announcing Winners For Seeking Alpha's First-Ever Investment Pitch Contest [View article]
    Congratulations, Ian Bezek. I coincidentally read the article when it came out and thought that it was very good.
    Mar 23, 2015. 11:10 AM | 1 Like Like |Link to Comment
  • Fed Funds Not So Easy: Major Implications For Stocks [View article]

    Thanks for your comment. I understand what you are trying to do and I salute you for searching for the truth. But the main problem is that you are looking at nominal rates while one should be looking at real rates. As the article states, when you look at real rates, and particularly when you take into account different regimes, the current Fed funds rate is not as "easy" as it seems.

    Mar 22, 2015. 10:34 PM | Likes Like |Link to Comment