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Mark Bern, CFA

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  • QuickChat #275, November 3, 2014 [View instapost]
    Plus, I don't ever remember Spock siding with the enemy when his crew was vastly outnumbered; that would seem to refute his "always" choosing the good of the many over that of the few. Instead, he chose what was the right thing to do, just as DG points out. So, it's not quite a clear cut as suggested.
    Nov 20, 2014. 04:00 PM | 1 Like Like |Link to Comment
  • The Fed Between A Rock And A Hard Place [View article]
    I think we can agree that the Fed did not get the result from the economy that it had expected. I am not trying to defend the Fed or QE. The program was ineffective in terms of the Fed's expected results.

    It is my opinion that we are in or near a period of deflation and that the Fed has been pulling out the stops to prevent that end. Without QE money supply would probably have been reduced as consumers reduced debt.

    What we are arguing about is not the point of the article, though. The point of the article is that the Fed has painted itself into a corner, so to speak, and had a difficult and most likely precarious road ahead. Do you disagree with that? Do you think that the Fed was right and saved us?

    Our interpretations of history may not align, but what I am trying to get across is that the Fed has fewer tools at its disposal if another recession were to commence in the near future. With Japan now officially in recession again and Europe teetering on the edge of a similar path it just makes sense to me to be cautious in the current environment with ones investments. Do you disagree with that, too?
    Nov 18, 2014. 12:38 AM | Likes Like |Link to Comment
  • QuickChat #275, November 3, 2014 [View instapost]
    Maya - That is one of the main reasons I am not worried about inflation for a while. QE may have been intended to offset this phenomenon so far. I suspect the Fed thought V would rise with all the extra money supply being pumped into the banking system. But it didn't work. Notice that V has continued to fall in spite of QE stimulation attempts.
    Nov 17, 2014. 12:16 PM | 6 Likes Like |Link to Comment
  • The Fed Between A Rock And A Hard Place [View article]
    jhooper - Sorry, but as I look at those charts I do not see the relationship that you are suggesting. My point is simple: since the financial crisis interest rates have been at historically low levels. The Fed has held the discount rate near ZIRP which is only part of the reason. Through QE, the Fed has bought significant amounts of US Treasury securities thereby artificially increasing demand. Increased demand, generally speaking, results in lower prices. QE hasn't lowered prices but I believe it has contributed to keeping rates lower than rates would otherwise be.

    According to the charts you provided, QE 1 happened before the charts begin; QE 2 ends at about the beginning of the chart period; and QE 3 was still in effect for more than a year after the chart period ends. It is really hard to draw any conclusions with such incomplete data.

    The only two periods that provide support to your opinion are at the end of QE 2 when the rates fell beginning mid-2011. That period coincides with two other factors that helped to drive rates lower: European debt crisis coming to a head and a sizable correction in global equities, both of which I would argue resulted in investors moving money into the safe haven of US Treasuries driving up price and conversely driving down interest rates.

    The second period occurred in 2013 when the Fed first announced it was planning to end QE; rates rose in response. The Fed then adjusted its position to make the transition longer and more gentle and rates peaked about the end of 2013 but have been trending lower since. The Fed hasn't stopped buying, it has just stopped increasing its balance sheet. It continues to reinvest maturing securities maintaining the current balance sheet asset level. Check out this chart from the Fed:

    If the 10-year yield curve for the last year does not come up it can be adjusted by selecting a date range.

    We can surely disagree and we both have a right to express our opinions. I appreciate your assessments, but I suspect we are going to continue to disagree on the relationship of QE and interest rates.

    Thanks for commenting.
    Nov 17, 2014. 12:06 PM | Likes Like |Link to Comment
  • QuickChat #275, November 3, 2014 [View instapost]
    LT - Excellent (and sobering) point. There is a start up (still private) that could very well help drive down both the costs and timing for medical tests; starting with blood tests, they can run all the tests with a drop of blood that usually requires 2-3 vials. The turnaround is 48 hours or less (usually 24 hours or less) and the cost is much lower that current methods.

    Company name is Theranos. A brilliant young woman heads it up with support from her Stanford professor. She dropped out to do something worthwhile and to radically change healthcare for the better. The company is just way better at leveraging tech than current processes used by the old guard. I think that this will be a huge disrupter in the testing industry.
    Nov 16, 2014. 11:25 PM | 4 Likes Like |Link to Comment
  • The Fed Between A Rock And A Hard Place [View article]
    QE involves the Fed buying both short and long duration Treasury securities. The Fed buying long-term T-bonds puts an upward pressure on bond prices, therefore also putting downward pressure on long-term interest rates. At least that is the theory. It always doesn't work that way in the short term.

    Since QE has ended the world economy has shown increasing weakness. Also, EU bonds are trading lower due to promises by the ECB for QE measures. Foreign investors are turning to US Treasuries as a safe haven and higher returns (even our depressed rates are better than those in European sovereign debt with any quality). This situation is not related to QE in the US or the lack of it.
    On the other side of the interest rate issue (before QE ended) there was a general fear that the Fed might start to raise interest rates (short-term discount, etc.) sooner than previously expected. I believe that had interest rates climbing, at least the longer duration bonds for much of the early month on 2014.
    The Fed has less control over interest rates than many believe, especially in the current environment.

    Thanks for your comment.
    Nov 16, 2014. 10:40 PM | Likes Like |Link to Comment
  • The Fed Between A Rock And A Hard Place [View article]
    If I understand the process correctly (and since the Fed hasn't ever been audited so we just accept what it tells us) the Fed can do two things with the money that comes to it from maturing securities: 1) If can remove the cash from its balance sheet and extinguish (not sure if that is the best term) or reverse the entry that created the money in the first place; or it can reduce its balance sheet and give the money to the U.S. Treasury.

    In the first case, it would appear to be a single entry since there is no real liability established when the money is created. When the Fed creates money with which to purchase securities such as bonds or MBS, as it did with QE, there does not appear to be a liability to offset the new cash or security. The other side of that entry seems to run through the section that would otherwise be shareholders' equity section for a private corporation. Of course, the shareholders in the case of the Fed are the member banks, not the government. How that works is totally in the foggy area as far as I can tell.

    In the second case, it is a dual entry to reduce cash while (probably) also reducing the aforementioned equity. That is how I understand it, but then again, the Fed isn't completely transparent so it is a little hard to tell.

    From this standpoint it seems to me that the Fed has the flexibility to what it wants. BTW, when the Fed receives interest payments on securities it holds it is required to give the excess that is not used for operations to the US Treasury. In the end, the extremely low rates paid by the US Treasury on bonds held by the Fed are actually even lower because of the "refunds."

    If interest rates rise the Fed may need to restart QE to keep borrowing cost low for the US government. But that is not a sustainable endeavor as other (especially foreign) investors will eventually balk at investing into a shell game when the game gets too big and it could topple in on itself. So, the Fed really needs to reduce its balance sheet before it needs to restart QE. And reducing the balance sheet would remove liquidity from the economy creating a drag on growth. Rock and a hard place.
    Nov 14, 2014. 07:57 PM | Likes Like |Link to Comment
  • QuickChat #275, November 3, 2014 [View instapost]
    In rubles the price is going up as the ruble plummets. Gold provides a hedge for Putin against his currency devaluing against the US$. The price of gold denominated in Yen is also going up as the Yen falls against the US$. But as the US$ rises against other currencies the price of gold denominated in US$ falls.

    Another way to look at it is that the value of gold is constant while currencies fluctuate. As a currency goes down in value, the price of gold goes up when priced in that currency. As the US$ goes up in value against other major currencies, the price of gold goes up when priced in those other currencies. Likewise, it goes down against the US$ as it rising.

    This relationship does not hold true during times of fear or crisis, of course. It is also a hedge against inflation, but currencies generally rise or fall in terms of relative value against each other and when inflation hits the currency that gets devalued the most is the one that has the highest rate of inflation relative to the others. Of course, there are other factors involved, but these are just some of the general relationships between currency and gold.
    Nov 14, 2014. 04:21 PM | 2 Likes Like |Link to Comment
  • QuickChat #275, November 3, 2014 [View instapost]
    Maya - My take on PMs is similar to DG's; PM = insurance. However, at this time I fear that the US$ will continue to strengthen as ECB and JCB try to devalue their respective currencies to make exports more affordable, especially vs US$. The US Fed is in a neutral position at the moment regarding QE while JCB just increased its money printing and ECB is just getting started. US still has low interest rates, but when Fed decides to begin to let those rate rise it will make the US$ even more desirable to foreign investors. Rates in the EZ on sovereign bonds are lower for the same duration in US bonds. Thus, foreign investors are willing to buy US bonds with a rising US$ anticipated over Yen or Euro where currencies are being devalued and rates are lower.

    It's a crazy world we live in but bottom line: I think PMs have further to go on the downside unless there is, as Mercy said, a black swan event that causes global panic. Even then, there is likely to be a major run to safety in the US$ which could blunt any appreciable rise in PMs. PMs would go up, but not by as much as one would expect due to the counter weight of a rising US$. US$ goes up = PMs price in global market goes down.

    But maybe that's just me. A bargain and a good sock drawer with a long time horizon generally works eventually with quality investments.
    Nov 13, 2014. 03:44 PM | 4 Likes Like |Link to Comment
  • Swine Flu, MERS, Ebola And Medical News Concentrator September October 18, 2014 To ???.  [View instapost]
    This seems like good new: only 200 new deaths reported by WHO in the last 4 days brings daily average down to 50. Of course, that number used to be near the high so I have my fingers crossed that this is not just another trough before another surge higher as has been the case since I started following Ebola's progress in W Africa.

    On the down side: 833 new cases reported over those same 4 days. That translates into nearly 1,500 per week. But there has seemed to be a huge disconnect between new cases and deaths reported since a week or so before our election. Thus, I am worried that we are about to see another surge in deaths reported sometime in the next 2 weeks. Hopefully, one of the cures and/or vaccines will prove to work the needed miracle.
    Nov 13, 2014. 02:01 PM | 4 Likes Like |Link to Comment
  • QuickChat #275, November 3, 2014 [View instapost]
    Real estate prices in China have been falling fairly consistently over much of the past year in all but a handful of tier 1 cities. Developers are discounting new home/condo prices to sell excessive inventory, mostly to investors with no intention of moving in. Those vacant cities have been popping up for a few years now as China continues to migrate its people from rural areas to urban centers. It has the fastest urbanization rate in the world to my knowledge. Some of those cities will be inhabited by the folks moving in from the farms as has been much the case in the past. But, now it seems that the development has gotten much further ahead of the migration rate and pricing in real estate is taking a hit.

    This has happened before, but on much smaller scale, several times in the past couple of decades. I don't know with certainty, but my guess is that this time will be a little more painful, especially for the rich investors who bought at higher prices before the discounts started. Many of those investors are complaining to government officials, but to no avail thus far.

    Chinese developers will need to slow down the pace of building new residences/cities until the urbanization effort catches up. This will only intensify the current slow down in China's growth, imho.

    I have found it very difficult to convince other investors of this phenomenon so I thank you for providing a more personal insight from someone who has seen it with his own eyes. I don't predict a crash in China, just a slowdown well below 7.5%. But that could be enough to put further pressure on commodities as demand for raw materials used in construction falls significantly more in coming months.

    This, too, is only temporary and will give those paying attention another great entry opportunity!
    Nov 12, 2014. 12:10 PM | 4 Likes Like |Link to Comment
  • Swine Flu, MERS, Ebola And Medical News Concentrator September October 18, 2014 To ???.  [View instapost]
    I haven't been too active here but want you to know that I appreciate your posts. I read every day but don't add much to the conversation. Get whatever that thing is out and I wish you a speedy recovery. You'll be in my prayers, LT.
    Nov 10, 2014. 01:22 PM | 5 Likes Like |Link to Comment
  • QuickChat #274, October 9, 2014 [View instapost]
    Thanks SD - I guess there must be something else at work here, DG.
    Nov 9, 2014. 05:54 PM | Likes Like |Link to Comment
  • QuickChat #274, October 9, 2014 [View instapost]
    What part of Nevada does Harry claim a residence? We need to be more scientific about locating the epicenter.
    Nov 9, 2014. 12:14 PM | 2 Likes Like |Link to Comment
  • QuickChat #275, November 3, 2014 [View instapost]
    I tried taking the test several times. When truthful, I was rated a Libertarian. When I went the opposite, I was rated a Statist. I tried several combinations but I could not get the thing to rate me as either a Democrat or Republican.

    Sorry, but I think it is a bit rigged.
    Nov 7, 2014. 05:02 PM | 3 Likes Like |Link to Comment