Joe, The difference holds up less between gold and silver than gold to almost any other commodity. The reason was the price of gold and silver were fixed back then. The ratio was government decreed. Today the free market determines the ration.
The Fed Is Not Pushing Stock Prices Higher [View article]
Blue...
We're back to my chart of Germany and Japan, both who pursued tight money policies yet their long rates are as low or lower than the US. The fact is that world long term interest rates have fallen to the lowest rate in history since 2000.
One cause is the huge amount of savings produced out of China and others available for lending. This savings pool lowered interest rates across the globe. And the other is the rush for safety. Cash is king, and that's why even today people are rushing into the bond market to protect their savings.
Those in the stock market are willing to risk their capital. Those in the bond market are content to get it back over time without making a dime. Truth be told both are at risk. See my article "The Full Faith and Credit" at paulnathan.biz.
The Fed Is Not Pushing Stock Prices Higher [View article]
Blue,
The long bond fell from 1982 to the present because the rate of inflation fell from 14% to 2%. It is one of the reasons for the longest period of growth in history.
The Fed Is Not Pushing Stock Prices Higher [View article]
Jump...
If you're in the Japanese shoes, you need to choose between the least bad option. They have devastated their economy with their past monetary and economic policies. We know those don't work. The new policy is the equivalent of an anti-deflationary, anti-recessionary policy. There are both risks and penalties, but it is a move away from a government imposed policy that has failed for 30 years.
The yen has been artificially high for years and is now returning to more normal levels; and the market is saying that they think growth may increase and earnings growth may follow. We will see if the market is correct in the fullness of time.
The Fed Is Not Pushing Stock Prices Higher [View article]
Jump...
A rational monetary policy is good for the market; an irrational monetary policy is bad for the market. That is the relationship that makes sense of the stagnation in the Japanese market over the last 30 years, and the rise due to abandoning that policy today -- finally.
The Fed Is Not Pushing Stock Prices Higher [View article]
TFL
Over the years earnings and stock prices have tracked well. But I agree with you and I think earnings will disappoint. And I think the market will fall because of it. And I doubt that there will anything the Fed an do about it!
The Fed Is Not Pushing Stock Prices Higher [View article]
To all:
The money created by QE1 and QE 2, about two trillion dollars is sitting in excess reserves within the banking system. The stock market during all of that period ROSE.
After QE2 ended interest rates fell and the money supply stagnated for a year. And the still the market climbed higher.
Then came QE3 and the Fed switched to buying mortgages and various treasuries. Interest rates are the same today as they were when the Fed was absent from the market. And still the market rose.
There is no correlation between interest rates, money supply and stock prices. Once again I site the 70's where there was negative interest rates, progressive inflation and we had a stagnant market for over a decade.
You give the Fed too much credit and free enterprise not enough.
The Fed Is Not Pushing Stock Prices Higher [View article]
Northrop,
Your points are well taken, and I think they support my thesis. When the Fed stopped intervening in the bond market for a year, we saw that those very reasons you site were enough to keep interest rates between 1.5 and 2%.
The Fed Is Not Pushing Stock Prices Higher [View article]
"So the Fed bought over half of the newly issued treasuries."
But they didn't. It was institutions, governments and individual investors that bought them -- and there were 3-4 times more demanded of treasuries than supplied. The Fed cannot bid for treasuries at auction.
Glad to meet you, I like your comments very much. And you are right. Gold is a method of preserving wealth not making it, although there are expeptions such as the last 12 years.
The Fed Is Not Pushing Stock Prices Higher [View article]
Randall,
85 billion in a 16 trillion dollar market is a drop in the bucket. The Fed is prohibited from buying at auction, so the supply they buy from is not the small amount the Government raises to pay it's bills. It is from the secondary market which trades in the trillions. As we have seen countries like Spain and Italy can't control the long end of their bond market. Interest rates spike at the first sign of financially trouble.
The Fed will have the same problem if they lose credibility. The markets will have there way with every government that gets in their way if and when they lose confidence. The Fed will never be able to control interest rates without the "consent" of the market.
The Fed Is Not Pushing Stock Prices Higher [View article]
Randall, you are right. New money is being created, and yes it does have a marginal effect on interest rates. But two trillion of the Feds new money is in excess reserves. The money is not circulating as it did in the 70's. Money supply as measured by M2 has declined from a rate of grow of 8% to 6% since the beginning of QE3. Hence very little effect on interest rates or inflation.
The Fed Is Not Pushing Stock Prices Higher [View article]
Jason,
Dealers buy on behalf of the Fed. At the end of the transaction, the Fed owns a bond and the seller of the bond gets the money. The dealers only get a commission, the same as stock brokers.
The Fed has no control over where the sellers of bonds will put there money. But those that follow money flows say that money is still going into the bond market (for no return) and money has been coming out of money market funds going into stocks.
The Fed Is Not Pushing Stock Prices Higher [View article]
Jeremy,
it's because of the fear of deflation. The Fed did step away from the market for a year between the end of QE2 and the beginning of QE3. The 10 year fell to 1.5% and we were headed into deflation and recession again.
In my opinion, we are headed there again now. Look at the momentum in falling commodity prices. Commodities are telling the Fed they are too tight!
The shocker will be that the next move by the Fed is likely to be to ease to prevent a recessionary/deflationary bias from taking hold.
The Real 'Price' Of Gold [View article]
The difference holds up less between gold and silver than gold to almost any other commodity. The reason was the price of gold and silver were fixed back then. The ratio was government decreed. Today the free market determines the ration.
Paul
The Fed Is Not Pushing Stock Prices Higher [View article]
Yes, and we all know that will not be the case forever. Just as in Greece, Italy, and Spain, the US will have its day unless it changes its ways.
The Fed Is Not Pushing Stock Prices Higher [View article]
We're back to my chart of Germany and Japan, both who pursued tight money policies yet their long rates are as low or lower than the US. The fact is that world long term interest rates have fallen to the lowest rate in history since 2000.
One cause is the huge amount of savings produced out of China and others available for lending. This savings pool lowered interest rates across the globe. And the other is the rush for safety. Cash is king, and that's why even today people are rushing into the bond market to protect their savings.
Those in the stock market are willing to risk their capital. Those in the bond market are content to get it back over time without making a dime. Truth be told both are at risk. See my article "The Full Faith and Credit" at paulnathan.biz.
Thanks for your interest.
The Fed Is Not Pushing Stock Prices Higher [View article]
The long bond fell from 1982 to the present because the rate of inflation fell from 14% to 2%. It is one of the reasons for the longest period of growth in history.
The Fed Is Not Pushing Stock Prices Higher [View article]
If you're in the Japanese shoes, you need to choose between the least bad option. They have devastated their economy with their past monetary and economic policies. We know those don't work. The new policy is the equivalent of an anti-deflationary, anti-recessionary policy. There are both risks and penalties, but it is a move away from a government imposed policy that has failed for 30 years.
The yen has been artificially high for years and is now returning to more normal levels; and the market is saying that they think growth may increase and earnings growth may follow. We will see if the market is correct in the fullness of time.
The Fed Is Not Pushing Stock Prices Higher [View article]
A rational monetary policy is good for the market; an irrational monetary policy is bad for the market. That is the relationship that makes sense of the stagnation in the Japanese market over the last 30 years, and the rise due to abandoning that policy today -- finally.
The Fed Is Not Pushing Stock Prices Higher [View article]
TFL
Over the years earnings and stock prices have tracked well. But I agree with you and I think earnings will disappoint. And I think the market will fall because of it. And I doubt that there will anything the Fed an do about it!
The Fed Is Not Pushing Stock Prices Higher [View article]
The money created by QE1 and QE 2, about two trillion dollars is sitting in excess reserves within the banking system. The stock market during all of that period ROSE.
After QE2 ended interest rates fell and the money supply stagnated for a year. And the still the market climbed higher.
Then came QE3 and the Fed switched to buying mortgages and various treasuries. Interest rates are the same today as they were when the Fed was absent from the market. And still the market rose.
There is no correlation between interest rates, money supply and stock prices. Once again I site the 70's where there was negative interest rates, progressive inflation and we had a stagnant market for over a decade.
You give the Fed too much credit and free enterprise not enough.
The Fed Is Not Pushing Stock Prices Higher [View article]
Your points are well taken, and I think they support my thesis. When the Fed stopped intervening in the bond market for a year, we saw that those very reasons you site were enough to keep interest rates between 1.5 and 2%.
The Fed Is Not Pushing Stock Prices Higher [View article]
But they didn't. It was institutions, governments and individual investors that bought them -- and there were 3-4 times more demanded of treasuries than supplied. The Fed cannot bid for treasuries at auction.
Why The Price Of Gold Is Falling [View article]
Glad to meet you, I like your comments very much. And you are right. Gold is a method of preserving wealth not making it, although there are expeptions such as the last 12 years.
The Fed Is Not Pushing Stock Prices Higher [View article]
85 billion in a 16 trillion dollar market is a drop in the bucket. The Fed is prohibited from buying at auction, so the supply they buy from is not the small amount the Government raises to pay it's bills. It is from the secondary market which trades in the trillions. As we have seen countries like Spain and Italy can't control the long end of their bond market. Interest rates spike at the first sign of financially trouble.
The Fed will have the same problem if they lose credibility. The markets will have there way with every government that gets in their way if and when they lose confidence. The Fed will never be able to control interest rates without the "consent" of the market.
The Fed Is Not Pushing Stock Prices Higher [View article]
The Fed Is Not Pushing Stock Prices Higher [View article]
Dealers buy on behalf of the Fed. At the end of the transaction, the Fed owns a bond and the seller of the bond gets the money. The dealers only get a commission, the same as stock brokers.
The Fed has no control over where the sellers of bonds will put there money. But those that follow money flows say that money is still going into the bond market (for no return) and money has been coming out of money market funds going into stocks.
The Fed Is Not Pushing Stock Prices Higher [View article]
it's because of the fear of deflation. The Fed did step away from the market for a year between the end of QE2 and the beginning of QE3. The 10 year fell to 1.5% and we were headed into deflation and recession again.
In my opinion, we are headed there again now. Look at the momentum in falling commodity prices. Commodities are telling the Fed they are too tight!
The shocker will be that the next move by the Fed is likely to be to ease to prevent a recessionary/deflationary bias from taking hold.