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Macro and Cheese

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  • The Great Japan Debate [View article]
    Netbluesky, that number seems about right, but don't forget Japan is running a high single digit deficit in addition to it sdebt servicing cost. Japan's low rates are truly a blessing, along with their low health care costs of about 9% of GDP, compared with our 17%. But even if their debt servicing costs were zero, they would still be in dire straights. There are some things they can do around the edges to slow the hole they're digging, but absent a baby boom they're headed for a train wreck.
    Jan 24 10:17 PM | Likes Like |Link to Comment
  • American Monetary Lessons From Japan's Last 2 Decades [View article]
    This is a very nice exposition, thank you for your work.

    Two comments:

    I would argue that it is precisely because Japan threw 200% of GDP at the problem that they have avoided a serious recession or depression. Now that they have done so, isn't it inevitable that growth will be hampered for many years to come?

    Second, though there seems to be some benefit of QE judging from the US's own QE2 (to my mind the 'cleanest' example of QE) is there not a point where QE will work only very little, if at all?

    Yes it is indeed encouraging to see Japan manage positive real growth, but I fear that their bullets are running out.
    Jan 23 10:38 PM | Likes Like |Link to Comment
  • The Great Japan Debate [View article]
    Yep, raise tax, kiss revenues goodbye.
    Jan 23 10:28 PM | Likes Like |Link to Comment
  • The Great Japan Debate [View article]
    But what if the government can't pay its debts, even if the bonds are all held within Japan? Seems like very bad news in any event.
    Jan 23 08:59 PM | Likes Like |Link to Comment
  • The Great Japan Debate [View article]
    Peter, yes I agree, I think the Toyotas of the world are hanging on to as much of domestic production as they can, hoping (against hope) that the yen will return to more reasonable levels. A weaker yen would be a huge plus to Japan but it's hard to see what would precipitate such a move, as long as the trade surplus endures. If it self corrects, as it should, that would put pressure on the yen but it would be a very slow process.
    Jan 23 08:58 PM | 1 Like Like |Link to Comment
  • The Great Japan Debate [View article]
    Yes I lived through the early years of the Japan crisis and was always nervous about holding yen bonds. Eventually I gave up and "learned to love the bomb." But I have to think that one day rates will rise dramatically at some sort of riot point, probably on default concerns rather than inflation worries.
    Jan 23 08:20 PM | Likes Like |Link to Comment
  • The Great Japan Debate [View article]
    Mark you are holding JGBs but with a short fuse? That's my FI stance as well, though I prefer to do it with Treasuries, better time zone...
    Jan 23 08:19 PM | Likes Like |Link to Comment
  • An Alternative Macro View [View article]
    HA well when I put together a list I will send it to you!

    Thank you again, I respect your opinion and god knows I can be wrong...
    Jan 23 08:02 PM | Likes Like |Link to Comment
  • An Alternative Macro View [View article]
    Agree it's a heck of a rally! You hint at what I think is the market's great strength: It's cheap. 13x earnings is about a 7% yield, with 10-year treasuries near 2%. But the headwinds are huge and that's what keeps my finger on the sell button. Just not quite yet.

    As a bear tho I like to keep the positives right up in front of me where I can worry about them, and appreciate the list.
    Jan 23 05:01 PM | Likes Like |Link to Comment
  • An Alternative Macro View [View article]
    You've listed some positives and I agree with many of them, though I'm bearish longer term. But I wouldn't bank on the fact that it's an election year to save the S&P's bacon. The only two things an election year could bring to the party would be fiscal and monetary stimulus. But this year out, there is no patience for fiscal stimulus, and rates are already near zero. Bernanke may dust off QE for another round but I'm not sure it would do much good.
    Jan 23 03:52 PM | Likes Like |Link to Comment
  • The Japanese Yen May Finally Be Peaking [View article]
    The problem is, with Japan's huge trade surplus they have accumulated $1 trillion in T-bonds. They cannot easily intervene in FX markets to sell the yen and buy the dollar. In other words, there is a fantastic overhang of dollars that will prevent the yen from declining much before the 80 level for now. It's a bit absurd but it may take years before the Japanese yen declines to more reasonable levels.
    Jan 23 01:03 AM | Likes Like |Link to Comment
  • U.S. Economy Facing Japan-Like Deflation: What Investors Need To Know [View article]
    Daniel I couldn't agree more, I think Japan's demographics is what sets it apart from other countries in terms of the severity of its debt problems. Japanese women have 1.3 children each, and their population has begun to shrink.

    Italian women also have 1.3 children...
    Jan 22 03:12 PM | Likes Like |Link to Comment
  • Why The ECB Bailout Is Unlikely To Be The 'Success' TARP Was [View article]
    The ECB is going all-in. They are allowing the banks to post collateral of dubvious value in exchange for funding for three years at 1%. This is a great bargain for the banks, since at the moment they are really struggling to find funding beyond one week. (I know, I work for one.)

    The ECB is killing two birds with one stone: It is engaging in massive amounts of QE while stabilizing the banking sector.

    As long as the sovereigns hold in there, this will work out well. The banks will have gotten through a very tough time, and the peripheral countries of the Eurozone will have found funding.

    So I would not rule out a successful outcome. The problem is, the ECB is clearly increasing its risk by leveraging its balance sheet and accepting inferior collateral (the Fed never did this). So if it does go wrong, it will go very, very wrong.
    Jan 21 02:56 PM | 2 Likes Like |Link to Comment
  • Baltic Dry Index Is The Most Alarming Chart Of The Week [View article]
    I agree with the commenters who have pointed to too many ships. Your chart shows that the Baltic Dry is now at the same level that it was at in early 2011. But the Eurostoxx index went up into late April, and didn't really head down until August--when your chart shows the Baltic Dry entering a "bull" phase.

    The Baltic Dry used to have some predictive power, but the fact that it has crashed now probably means "too many ships." Be bearish if you like, but not because of the price of shipping.
    Jan 21 10:12 AM | 3 Likes Like |Link to Comment
  • Could QE3 Fail? [View article]

    I agree the benefits are dubvious as the impact on money liquidity and credit creation has been limited at best. It seems like one more can kicked down the road, because when the Fed gets around to selling its treasuries the whole benefit, as it is, will be reversed. It's money printing with a bungee cord attached.
    Jan 19 01:40 PM | Likes Like |Link to Comment