Linus Wilson

Long/short equity, hedge fund manager, etf investing, banks
Linus Wilson
Long/short equity, hedge fund manager, ETF investing, banks
Contributor since: 2009
Company: Oxriver Capital
L Kramer, if you think a year with 14-19% unemployment is comparable to a year with 6.3% unemployment on average is the anecdotal evidence for non-stop money printing keep telling that to anyone who is listening.
The spendthrifts in Congress and the White House need to stop running budget deficits every year in good times and bad. Printing money to reduce budget deficits is a recipe for hyperinflation. The Fed would never say that they are keeping rates low to reduce the budget deficit.
@ Philip: The purpose of the Fed is not to subsidize the federal debt. That is what the Weimar Republic in inter-war German tried to do. It ended very badly.
Salmo, does the Fed have ONLY 300 econ Ph.D.'s on its payroll? I bet the full-time Ph.D. dependents is much higher. If you add in all the "visiting scholars" or potential "visiting scholars" that tends to stifle dissent from economists...
See http://bit.ly/1v65Tem
Inflation is a tax on savings. The cheaper government borrowing in the short run is financed at the expense of savers.
@ Philip M: I believe the private sector can better use the money than our disfunctional federal government. Stealing from savers to fund Uncle Sam is what people refer to as "economic repression." Plus, it fuels asset bubbles as savers must move into riskier assets to keep up with inflation. Even Keynesians don't advocate deficit spending when the economy is at full employment. As I said, 5.8% is better than average for the U.S. economy.
Yes, core inflation will pick up in the next twelve months even if rates are raised.
1937 is one (irrelevant) data point. See http://seekingalpha.co...
I use 4 quarters X 56 years = 200+ quarter-years of data on inflation, potential output, real output, and effective Fed funds rates in my study at http://bit.ly/1uZQT1q
Inflation is a bad. You are right, untrusting investor! Everybody not working for Janet Yellen knows that. Wall Street and Washington want to tax your wages and assets with their unjustified ZIRP.
So you are saying "this time its different." History does not apply. Those are pretty dangerous words for an investor. As for the bond market being always right, I recall subprime option-ARM paper was rated AAA in 2003-2007 and in 2008 it was junk in default. There was also time where Greek debt spreads over German bunds were measured in basis points not percent. The bond market blows up as much or more than the stock market.
P Frog, Taylor rule says Fed funds interest rates should be 1.9% right now. Yellen Fed has interest rates at 0.1%. Economists use data to make decisions. The data in my paper at http://bit.ly/1uZQT1q says Yellen Fed is way too dovish.
Salmo, you are right macro variables are backward looking. That is more reason to believe the Fed is behind the curve. Yellen would be more hawkish if she were a Keynesian. Keynesians believe there is a trade off between inflation and unemployment. The Yellen Fed sets interest rates as if there is no trade off. The Yellen Fed is trying to reduce unemployment with easy money as if there was no cost in terms of higher inflation.
The current rise in the value of the dollar is puny compared to the 1990s and 1980s rallies. The 1990s rise in the dollar coincided with a strong economy and a raging bull market. See http://seekingalpha.co...
My new paper below provides explanations of the statistics cited above.
http://bit.ly/11DGe1L
There is ample evidence that the failed Burns and Miller Feds of the 1970s were behind the curve on raising rates just like the Yellen Fed is. Yet, even the failed Feds of the 1970s set positive real Fed funds rates. Volker set funds rates at 4% higher than inflation on average. The Yellen Fed is setting negative 1.7% real Fed funds rates.
We learned from the early 2000s and 1970s a Fed which is behind the curve creates inflation of assets and or goods and services. It leads to severe recessions that throw the weakest in our society out of work. ZIRP spawns asset bubbles which burst or inflationary episodes that require very high interest rates to correct. That is why more normalized interest rates promote long term growth and employment.
PCE understates inflation relative to CPI. When people talked about inflation two decades ago they talked about CPI. When the Fed talks about inflation it talks about PCE. It's not a big deal, but you should understand that this Fed has a different idea, more dovish measure, of inflation than the historic norm.
Your statements are not factual. The Fed can break up the big banks. The Fed ZIRP policy is without precedent but economic conditions are typical. (There is nothing wrong with 1.5% inflation. It is actually 1.8% but the Fed uses a measure which understates inflation. We should not pine for higher inflation.) The Yellen Fed risks being compared to the Burns and Miller Feds which necessitated the austerity of Paul Volker.
A Fed that takes its regulatory duties over the TBTF banks seriously. A Fed that realizes ZIRP with 5% unemployment is destabilizing. The FOMC voters talk like 1.5% inflation is awful because it is 0.5% below their target. That is crazy. They need to drop "considerable time" and start quarter point hikes early in 2014. They are already way behind the curve.
Mr. Stockman hits the nail on the head again! We are reliving 2003 all over again http://seekingalpha.co...
The Fed is in danger of losing its independence because of its heterodox, dovish interest rate stance. If that vote was held after the election, "considerable time" would have been out and not just "neutered."
History is on Mr. Santelli's side. The Fed is behind the curve.
ZIRP is not justifiable in the current conditions. Yellen Fed has such backwards priorities. It says it is sad because inflation is not running over 2 percent. Of course, they choose a measure of inflation that understates inflation relative traditional measures. Stagflation 1970s here we come...
Yikes! TBTF is going to fail with a 1/400 in tame markets. What will the chances be when we see some market turmoil! Ugh.. I wish somebody was actually trying to prevent the last crisis, but the Fed just said no banks exceed the TBTF liability limits.
User 10318561,
I predicted that the short end of the curve would lose money by the end of 2015. Last I checked it is November 2014.
Pick up a basic undergraduate textbook. If it has a chapter on bonds it will discuss liquidity premium theory and the typically upward sloping term structure of interest rates. If there were not liquidity premiums for longer term bonds, then the market forecasts for interest rates would be biased upward. That is because the realized short rates are much lower than predicted by pure expectations theory.
TIPS are quoted as the extra coupon above (+) or below (-) inflation. 10-yr TIPS pay Inflation + 29bps and 5yrs pay inflation -4bps. That is a liquidity premium of 33bps per year on the 10yr vs. 5yr on 10/20/14. See http://1.usa.gov/yFD89A
Re: liquidity premiums, Look at the coupons for 5yr and 10yrs. The coupon is about 40bps higher for the 10yr v. 5yr TIPS http://bloom.bg/eMLJq8
The upward sloping yield curve through most of data series for bonds implies that there is a liquidity premium for 10 years vs. 2 years et cetra. Thus, a pure expectations model will tend to overstate the bond markets' expectations of short rates well out in the future.
I like your tip about the Barrons data.