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  • Excess Reserves: The Elephant In The Room The Fed Doesn't Want To Talk About [View article]
    To Asbytec

    << Once it buys a bond, that bond's price is fixed so long as it remains on the Fed's balance sheet. >>

    --> So, it sounds like you're disagreeing with me.
    Mar 11 01:55 AM | Likes Like |Link to Comment
  • Excess Reserves: The Elephant In The Room The Fed Doesn't Want To Talk About [View article]
    To Tack

    I'd say it with a different spin. There is always demand for loans at "any" interest rate, and when the interest rate is near zero, virtually everyone would love to have a loan. But, right now, the quality-standards are set very high, only the very best bank customers get loans. When banks only earn a couple basis points, there no margin for error - just one bad loan destroys the whole book for years. Banks must be picky. Banks cannot lend to the great masses who'd love a love. And that's a consequence of QE and ZIRP.

    The Fed can alter the fact that the banks aren't lending, yes they can. All they have to do is let rates rise. True, it may take awhile given that M2 has grown a bit faster than GDP, and velocity is rivaling thick molasses.


    << If you believe the economy is sick and on the verge of collapse, why would you worry about inflation or QE? Continued QE would only pose a potential problem in the reverse circumstances, i.e., an economy about to break out. >>
    --> You misread me. Never said that we're verging on collapse.
    --> I never advocated more QE, quite the opposite.
    Mar 11 01:43 AM | Likes Like |Link to Comment
  • Excess Reserves: The Elephant In The Room The Fed Doesn't Want To Talk About [View article]
    To Lawrence J. Kramer

    << the Fed can effectively turn all Treasury obligations into consuls - perpetual bonds - by buying as much as the Treasury has to sell at each maturity. >>

    --> Your assertion is wrong. The only time this assertion is right is when the Treasury happens to be raising the exact amount that the Fed's OMO happens to be buying in T-bonds, at the right time. OK, I'll "give you" the close misses on amounts and dates. Closeness counts.
    --> When the economy is healthy, this never works. It'd wreck the economy.
    --> Are you in love with QE? Sorry if the question sounds taunting, but some unrequited love for QE seems to be driving so many of your comments.

    << As always, the issue is inflation. If the Fed leaves too much in commercial bank reserves and doesn't act in some other way to curtail lending, and the banks' capital is sufficient to support too much lending, inflation can happen. >>
    --> It sounds like you're trying to address the problem, but you seem unwilling to say the obvious => "reduce the money supply" but you can't say it because you know it would negate your paradigm.
    --> It also sounds like you think you know how to manage BOTH the money supply and fiscal policy better than both the eggheads at the Fed and the swashbucklers at the Treasury.

    << The Treasury can always get cash from the Fed. The issue is whether that cash will wreck the currency, not whether it will exhaust the supply. >>
    --> No, the Treasury can only "get cash" from the Fed (1) indirectly and (2) when the Fed is "accommodating" ... but the Fed only seems like it's accommodating when the Fed desires sharply lower rates, like during QE, to foster economic recovery and development. No one can prove that the Fed's intent was to accommodate. Come on, the Fed's indepencdence is very important, and you're saying it's a well trained lapdog of the Treasury.
    --> Don't be so in love with QE, it's not good for the economy's health.
    --> What's wrong with borrowing? You know, the good ol' fashioned way of raising money? Your whole schtick is about how QE makes real money seem like monopoy money. Right now, that's OK, but you don't even seem able to distinguish a healthy economy from a recovering economy from a very sick economy on the edge of collapse. Your only prescription is more QE, more QE. That's the issue, by the way.

    Sorry to be so blunt.
    Mar 10 08:11 PM | Likes Like |Link to Comment
  • Excess Reserves: The Elephant In The Room The Fed Doesn't Want To Talk About [View article]
    To WMARKW

    << While the Fed is a separate entity with a separate balance sheet and income statement, they have already indicated what will happen if they suffer "operating losses". They will simply set up a deferred account that will report those losses in connection with future operating income anticipated. >>

    --> Thats a surprise. Have a link?
    --> Setting up a separate entity doesn't sound right to me since plain ole run of the mill accounting entries would suffice.
    --> Example: If a 5% coupon bond, with a $100 face, with 5 years remaining to maturity were purchased by the Fed when the 5-year rate is -0-%, the Fed would have to purchase the bond at $125. However, the Fed has every right and duty to report all the coupon-paymts received as amortization of premium, rather than interest earned. The Fed reports no interest earned on this bond ever. Similar consideration with discounts.


    << The concept of a maturing asset is certainly one thing for the Fed but has as it's counterpart the "cash" consequences that are the "other" thing for the Treasury. When agency MBS and Treasuries mature, the Treasury will actually have to make a deposit into the Fed's account of "Cash". This is the issue I spoke of earlier (time wise). The run-off of these assets will simply compound the stress on the Treasury to refinance maturing instruments - specifically because of the tendency over the last years to shorten the maturity structure. So now there is a higher level of more rapidly maturing debt that has to be refinanced - as well as NEW issuance to support ongoing deficits. >>
    --> Not sure what your point is, but I believe you're right that the Treasury's obligations have been getting shorter maturities -- but I dont think that was the Treasury's desire, I think it was due to the public's aversion to buying LT bonds at a low rate of interest.
    --> When the Treasury redeems a bond, there's a good chance the redemption proceeds will go back into another bond at the current higher market rates.
    Mar 10 07:48 PM | Likes Like |Link to Comment
  • Excess Reserves: The Elephant In The Room The Fed Doesn't Want To Talk About [View article]
    To Bird-man
    To Asbytec

    <<"Alberto, the US government issues the currency. It is impossible for them to be bankrupt or go broke unless they choose to be broke". >>

    --> Does that mean there's some sort of "Fail Safe"? (Nope.)
    --> Why does anyone continue to repeat "Paul Krugman's" crow that in some awfully dire economic scenario, Uncle Sam could prop himself up on his elbow to issue "newly-printed" dollars to fund bond redemptions, which would otherwise have gone into default? It would arguably be Uncle Sam's last gasp, before succumbing to a long, painful and ignoble death. Such solution is certainly no "Fail Safe".
    --> In what dire scenario would Uncle Sam need to issue "newly-printed" dollars to make direct payment of redemptions? Well, that scenario requires 3 dire conditions: (1) Uncle Sam has run through all of his deposits held at the Fed and several hundred banks. (2) Attempts to raise taxes have fallen short, probably because previously raised taxes have slowed the economy to a crawl. And (3), there are too few investors willing to buy the required number of T-Bonds **at any rate of interest** offered at Auction by the US Treasury. In other words, Uncle Sam's credit rating must be something far, far, far below "junk bond" status and thus Uncle Sam has no normal means of raising the requisite dollars.
    --> When the US Bond Market is dying, you certainly don't have an environment conducive to a functioning economy, much less a functioning US Stock Market.
    --> Sure, after Uncle Sam is proven unable to borrow sufficient funds the "old fashioned way", and after the law which forbids the Fed from buying directly from the Treasury, and the law that forbids the Fed from buying anything but high quality assets have each been revoked, then indeed Uncle Sam could issue "backed" money directly to the Treasury to avoid default.
    --> The alternative is to revoke laws forbidding the Treasury from issuing unbacked money.
    --> In both cases the money supply is increased to redeem bonds, and that's not a good reason to increase the money supply. It just makes a very bad situation a lot worse. Just thinking about it ought to be enough.
    --> This is hardly a "Fail Safe" that any citizen, taxpayer, or bond-buyer should put any weight on. In fact, it is a meaningless mantra due to the fact that virtually no one survives the circumstances under which the "Fail Safe" would ever be activated. Krugman's "Fail Safe" is suboptimal, a better Fail Safe would be distributing cyanide capsules to all citizens, because it definitely avoids the lingering pain and agony of starving to death.
    Mar 10 06:16 PM | Likes Like |Link to Comment
  • Excess Reserves: The Elephant In The Room The Fed Doesn't Want To Talk About [View article]
    To Lawrence J. Kramer

    << These excess reserves are a non-event, a bg nothingburger. The Fed has the tools to suppress inflationary lending, which is all anyone is afraid of. >>

    --> Hopefully you are right. However, there are a number of people at the Fed and right here at SA who are concerned that as interest rates rise, unrealized losses will grow to a size which is problematic, and thus the Fed's "inflation fighting" tools have been rendered blunt, rusty and dull.
    --> The Fed's balance sheet reports the Fed's basis in their bonds (which includes the unamortized premium or discount), which is not the fair market value (FMV). As you know, the unrealized gain(loss) is always the difference between the FMV and the basis.
    --> The Fed has previously reported the recent tiny rise in interest rates has reduced the Fed's unrealized gain from $247.8 billion in early 2013 to $24.8 billion as of Sept 2013. The Dec 2013 report isn't out yet. I'd bet Dec 2013 to report a moderate unrealized loss caused by a small move in interest rates. Being worried about a paper loss of $223 billion over 9 months of 2013 may seem laughable now, but -
    --> A moderate increase interest rates, as the economy recovers, could lead to huge unrealized losses. If the Fed wanted to fight inflation, it would not want to sell bonds and turn an unrealized loss into a realized loss. It could avoid realizing any losses by selling gold at a gain to offset losses, but once the Fed announces gold will be used thusly, I imagine gold's price will drop and it will provide less "firepower" because roughly 97.6% of it's current price ($1500 /ounce, I guess) would be a gain (assuming it's still on the Fed's balance sheet at $35/ounce), thus it's possible that all the gold might be sold for that single purpose of providing a $470 billion realized gain. And once it's gone, then what does the Fed do for the next Crisis? Is there some other unrealized gains hiding in the Fed's balance sheet?
    --> What's so bad about realizing losses to fight inflation? (1) The Fed is subject to the same philosophy that started the Crisis in 2008 -- many of us were saying that the Banks' problems were just "paper problems" that would go away in a few months. (2) When the Fed has unrealized losses (or realized losses), then there will be dollars in circulation that can not be taken out of circulation the normal way. That could create a large number o "unbacked" dollars in circulation. The Fed's sale of a bond with an unrealized loss, simply turns the "unrealized loss" into a "realized loss" that probably has to be "earned-out" later somewhere else, much like a dent in your car is something you dont have to fix right away, but you might as well fix it soon because there's no reason to let dents accumulate. (3) Unrealized losses may never become a problem if allowed to just sit on the Fed's books for 10 years (because the unrealized losses simply disappear as the bonds mature, and the Fed's average maturity is now 10 years), but it is one more strange issue to add to the strange brew that our economy is stewing in. No one knows how it may affect our economy, and it certainly won't make it's affect known in a vacuum. There's always other issues steeped in the brew.
    --> But, so far, so good ... hopefully there's nothing to worry about.
    Mar 10 05:53 PM | Likes Like |Link to Comment
  • Tesla: An Investment Based On Optionality And The Genius Of Elon Musk [View article]
    To barvan
    To JPR3

    Barvan: << Exactly who is going to upgrade the power grid to accommodate this massive influx? >>

    JPR3 : << The grid needs no upgrade to charge massive numbers of EV's, since most charging will be done at night, when excess capacity is available. >>

    ---> That's right, we might not need any upgrades to the electric-grid at all to accommodate charging of EVs, in fact, it's quite possible that "cost per kWh" will FALL SIGNIFICANTLY as EVs penetrate the automobile market. You heard it first, right here.

    ---> If the average EV owner drives 1,000 miles per month, and the average cost-per-mile (based on 11 cents-per-kWh in your house) is 4 cents (which includes the cost of automatically heating or cooling the battery-pack as needed, day or night), then the average American EV owner should expect to see his electric bill increase roughly $40 per month, while his gasoline bill shrinks from $180/month to $0).

    ---> That 11 cents is a retail price to homeowners, but it's based on the Utility's current cost per kWh.

    ---> Night-time demand is less costly to the Utility because it's more predictable. If the Utility has more demand for the cheaper night-time variety of electricity, then it's logical to expect the average cost per KWh to fall, perhaps significantly. If most EV owners charge their EVs at home, the Utility will save a lot of money and can pass the savings on to the homeowners. I'd bet the marginal cost of electricity could easily be 50% of the average rate of 11 cents per kWh. That means the EV owner only spends 5.5 cents per kWh, or $20 per month, which is 2 cents per mile assuming so many ducks get properly lined up in a row.

    ---> Night-time electricity is cheaper because it's more predictable. Electric-Utilities pay high prices to ensure delivery of electricity on an "emergency" basis, because there's no storage of electricity, and the demand must be QUICKLY satisfied within a narrow error tolerance. Being more predictable results in the Utility not having to buy expensive kWh's on a so-called "emergency" basis.

    ---> In other words, during the day-time, the grid is constantly in danger of a "brown-outs" caused by under-supply, and "rolling black-outs" caused by "sudden over-supply" that trips breakers to protect transformers, effectively re-routing the over-supply to the remaining circuits which also trip-out, and so on, and so on.

    ---> By the way, this is what caused 40 million Americans, from Ohio to New York, to lose power on August 13, 2003. It all started with an untrimmed tree branch in Ohio that knocked-out a circuit, which created an oversupply for the remaining circuits, which likewise tripped, sending the "power over-supply" further and further out like a chain of dominoes in several directions. 5 minutes later, all of New York was in a black-out. So, where were you on Wednesday, August 13, 2003 ?

    ---> This type of failure is one of the biggest embarassments of our electric grid, and its why Utilities try keep vegetation as far from power lines as possible, creating swaths of clear-cuts for power lines.

    ---> PS - in some areas of West Texas, our Utilities are (or were?) required by law to pay for every kWh produced by Wind-farms, day or night. At night, there's more wind and less electrical demand, thus an oversupply frequently occurred, and the Utilities had to pay customers to take the power ... that's a negative price, you don't see that often, unless the blundering hand of government is involved. There could be truth to the rumor that a lot of such excess power was simply sent into the ground where it probably electrocuted all sorts of small organisms. So, some West Texas Utilities could actually reduce total expenses if EV owners plugged-in at night.
    Mar 7 06:49 PM | 1 Like Like |Link to Comment
  • Tesla Is Fully Priced, With More Risk Than Opportunity [View article]
    To lakhi

    I suggest you lug a 5 gallon can of gasoline in your SUV on your jungle excursions, as you wouldn't want to be forced on your way home to stop for gas in some strange place where your life might be in danger. That'd be ironic, to survive the jungle just to be done-in at the edge of civilization by some low-life preying on the "SUV-tourists" driving through the local 3rd-world shanty-town.

    No one is asking you to buy an EV, much less forcing you. It's your individual choice, just as it is our personal choice(s). Every car has strengths and weaknesses, sorry the Tesla is not suitable for you ... no one made you any such promise.

    SUVs have value, even if driven only on paved roads. If you can't figure it out, it's because you just don't understand life in the USA.
    Mar 6 10:40 PM | 1 Like Like |Link to Comment
  • Tesla Is Fully Priced, With More Risk Than Opportunity [View article]
    To lakhi

    << 1. Fuel Cells for power generation -( companies Ballard. PLUG, FUEL CELL, HYDROGENICS) 2. Zinc Bromide Cells for power storage -(ZBB) >>
    --> So what? Will these cars be superior because they are cheaper to build, maintain or operate? Will they have better infrastructure? What is your point?
    --> Do you think Musk failed to consider these alternatives?

    << I would like to see his Tesla SUV finish the Paris to Dakar race ( Now that would be telling! -- It would be hilarious to see a SUV stopped in the middle of a desert for one hour to pick up a charge-- in the middle of a race). >>
    --> Participants in this race drive specially outfitted cars and have a support staff to service the car in case something fixable blows up, like an engine or transmission, not to mention necessities like food, fuel and photos. My brother-in-law participated about 15 years ago but the team's "truck" was totaled after completing just 15% of the distance. His share of the repair cost was astronomical, but he saved a lot on fuel.
    Mar 6 06:59 AM | Likes Like |Link to Comment
  • Tesla Is Fully Priced, With More Risk Than Opportunity [View article]
    To Kimboslice

    << Perhaps another tidbit of information is that Tesla sells mostly in just two areas of California, San Francisco Bay Area and Southern California. >>
    --> Another tidbit: that's where the population of California mostly lives.
    --> Another tidbit: that's where Apple's products are mostly sold, in CA.

    << This means the market as of today is not that large for this car. >>
    --> Good call, but considering that they've not yet even produced 25,000 cars, it is hard to expect them to have achieved even a "medium-sized" market.

    << Hybrids are more practical than an all battery powered car … >>
    --> Hybrids, by your reckoning, are more practical than every Mercedes, BMW and Lexus model.
    --> Owners of Mercedes, BMW and Lexus models may not agree that "hybrids" are more "practical" than their cars, because they may define "practical" in parameters that you would never consider. That's what happens when consumers have choices.

    << … and people living in very cold or hot places would be nuts to depend on a Tesla. I can't even imagine driving a Tesla on a night in January in New Hampshire. >>
    --> Surely, those that do, can afford to do so.
    --> And surely, they must be nuts because you say so.

    No one is asking you to buy a Tesla car, or a Tesla share, or even congratulate Musk for having gotten this far. If you have valid criticism about the car or the financial statements, it would be important to share such valid criticisms with the rest of us. Opining that Tesla cars are not suited for climates like New Hampshire isn't fair or valid unless you own a Tesla, and live in New Hampshire. This is supposed to be an investment site, not a gossip site.

    Tesla cars and Tesla's balance sheet have plenty of valid criticisms. Find one, latch on, and see what other investors think.
    Mar 6 06:30 AM | 1 Like Like |Link to Comment
  • Tesla Is Fully Priced, With More Risk Than Opportunity [View article]
    To Kimboslice

    << Tesla is a green corporate welfare scheme disguised as a car company. It cannot stand on its own two feet. >>

    --> Welfare scheme? Who's not on "corporate welfare"? Even Big Oil got $10 billion free from Uncle Sam in 2010. Would GM exist without Uncle Sam's largess? Would dairy farmers? Would dirt farmers? Would you?

    --> What you don't seem to realize is how extensive subsidies are throughout our economy. Elon Musk didn't make up these stupid rules and subsidies, Congress did. Don't blame Musk for Congress' stupidity. Instead of wasting your time doing that, think about the $7,500 subsidy this way:

    --> The upper 20% pay about 80% of all taxes. So, the rich-folk are paying for these toys purchased by other rich-folk. Is it your intent to defend the rich?

    --> Furthermore, the zero-emission car credit is paid by other car companies. And who owns other car companies? Well, isn't that primarily the rich folk? Yes sir, it sure is. Let's not worry about the rich. Let's worry about you and me.

    --> What about you and me? Think about this: If you take that $7500 and multiply it by Tesla's annual production volume and then divide by the number of people in the labor force (roughly 150 million workers), the subsidy per worker-force laborer is about $1, but 80% is paid by the rich folk. Your cost and my cost is about 20 cents per year. I have no complaint, do you? Come on, 20 cents? Look if it bother you that much, send me your address an I'll send you 2 dimes.

    --> Oh wait, I almost forgot. You may want to argue that Tesla's volume will grow and then our cost will rise substantially from 20 cents. No, even that doesn't ring true. The $7500 is temporary, as is that zero-emission credit.

    << I live in N. California, and see some around. They are 1. huge tanks 2. expensive 3. impractical in many climates. >>

    --> So what?
    1. Lots of cars are huge and expensive.
    2. And lots of cars are impractical in lots of climates.
    3. Lots of cars are just plain impractical.
    4. And lots of people exercise their freedom to drive what you hate.
    5. By the way, what do you drive that allows you to be so judgmental?

    << If I buy a Tesla, the energy to charge it is made by natural gas. >>

    --> Northern California's electrical rates are sky-high ... that means you and all your neighbors can easily justify setting-up solar power or wind power at the fraction of what you would pay per kWh from your local utility, and profit from it. So, the energy to charge a Tesla comes from "natural gas" only if you don't mind paying the needlessly high utility prices. In other words, your "natural gas" criticism is woefully invalid, and totally due to lazy inattentiveness.

    --> Go ahead, buy a natural gas car, or a Volt or a Ford, if that's what you think everyone ought to drive to pacify your superior sense of equality. I'm sure they're fine cars you'll enjoy admiring in traffic as you sit smug in your car, happy that almost everyone is bent to your will. But I must advise you to be sure to enjoy these last few months of bliss to the fullest, because now I must inform you that more and more often, your day will be ruined by the sight of more Teslas beside you, behind you and taking your parking space. I see nothing but increasing frustration in your future. But the big question is this: Why do you complain about the choices made by your neighbors? Do they complain about your choices?

    --> Why not be content that we all live in a society where having the right to buy "what you want" is deemed an important feature of our economy and moral values?
    Mar 6 12:17 AM | 3 Likes Like |Link to Comment
  • 3 Questions About QE Answered; No One Is Ducking Anything [View article]
    To Absence

    Just to clarify -
    I'm not trying to correct you, I'm just pointing out the following:
    100% of US dollars is indeed a US Gov't liability, but -
    100% of US dollars is NOT a US Taxpayer asset

    When you start your rebuttal with the truthful and correct statement that "Money is a government liability regardless of who holds it …" you've put your whole foot & ankle deep into your mouth because you're focused on "liabilities", not "assets".

    I suspect that you're actually focused on "Net Federal Liabilities" and you don't really realize it. But I certainly could be wrong, I admit I really don't know what you're focusing on because you're vague, unclear and don't care.

    Neither do I.
    Adios.

    Mar 5 08:28 AM | Likes Like |Link to Comment
  • 3 Questions About QE Answered; No One Is Ducking Anything [View article]
    To Asbytec

    Thanks for the link; not quite what I expected, but still interesting.
    Thanks for the invitation to spend my time reading through your old missives. I got the message loud and clear ... and respectively decline.

    As a parting observation, I'd just like to say that it doesn't make much sense to use a statistic called net financial assets when a significant part of that statistic is owned by foreigners, that's why I suggested creating "Net US Financial Assets", you know, to clearly delineate what is being reported - just subtract out the foreigners ownership to clean it up, or alternatively go int the other direction and make other simliar adjustments for World net financial assets. Just an observation that bears witness to why I'm reluctant to waste my time trying to figure out your definitions -- it's rather difficult when you haven't done the job yet. For instance, you could also call it Net Federal Liabilities without too much adjustment. If you don't want to spend 15 minutes thinking about how to well-define what you're talking about, then neither would I be inclined to spend hours. I've spend a couple hours today answering one of your queries. Lord knows I'm not making that mistake again. Keep reading my posts if you're curious, may be you can figure out which one it is. Adios.

    -N
    Mar 5 12:17 AM | Likes Like |Link to Comment
  • Russia And Its Dollar Reserves: Going Nowhere Fast [View article]
    To rubber duck

    Russsia and China are united in some manner?
    Please explain.
    Mar 5 12:07 AM | Likes Like |Link to Comment
  • Russia And Its Dollar Reserves: Going Nowhere Fast [View article]
    To Marc Chandler

    I agree with Moon. It's quite possible that Putin could scare our allies and force us to spend "military" money in the areas near Ukraine, causing deficits. Haven't we already sent an aircraft carrier and made other adjustments in military deployments? Sure, a lot would be spent anyway had Putin sat on his hand in Moscow, but we may spend a lot more. Putin's expenses would not go up much at all, he's already there spending whatever he's spending.

    Defend east Europe from what? Don't ask me, Moon or Obama. Ask Putin.

    I'm not sure what Mr Moon Kil Woong means by the Fed's delegitimizing the Tsy market. He might mean the apparent loss of Fed independence, turning the Fed into Uncle Sam's lap dog. Who wants to buy Treasuries at near zero rates anymore?

    Ukraine is of strategic importance to Moscow, that is so obvious that this sort of thing should have been quite predictable. Moscow's only Black Sea port, where her big ships are anchored, is in Ukraine. What was Obama and his minions thinking when Unkraine started going anti-Russian.

    All this is pure speculation and uninformed opinion, no "proof" exists.
    Mar 5 12:02 AM | Likes Like |Link to Comment
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