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The Inflation Trader

 
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  • Summary Of My Post-CPI Thoughts [View article]
    yes, but the current plan is to not sell the bonds, since to do so would dramatically raise term rates. (They originally claimed they could sell 2 trillion in bonds without market impact. When Wall Street stopped laughing at that one, they started looking for other ways and now the plan is to let the balance sheet "run off" naturally - a process that will take around 15 years).
    Dec 19, 2014. 03:29 PM | 1 Like Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    Yes, I've written a bunch about this. It's a terrific error. Rates aren't what matters...they're a function of pressure on reserves. It's reserves that matter. You can change the rate by fiat if you like, but if you don't change reserves it will do nothing to restrain inflation. Indeed, if you raise rates it will tend to increase money velocity (and therefore inflation) but it won't restrain reserves. It's doing exactly the wrong thing - sort of like working hard to get the patient's temperature down when they have a fever. We know that healthy people have lower temperatures, so we used to try to lower body temperature in the hopes that will make someone healthy. But of course now know that stresses the body worse; the higher temperature isn't a cause of the disease but an effect.

    But it is the current thinking at the Fed. An influential paper by Gagnon and Sack laid it out, about a year ago I think. Terrible misunderstanding of how monetary policy works. Raise rates to slow the economy, don't worry about the amount of money out there. Crazy.
    Dec 18, 2014. 03:59 PM | Likes Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    We have UK Linkers fair to somewhat rich, actually.

    OZ is fair.

    Japan is essentially fair, which is fascinating because JGBi traded cheap for years as the central bank had no credibility in terms of being able to cause inflation. JGBi now trade as if investors believe the central bank will establish a baseline positive inflation rate.

    Canada, the US, Sweden, and EU are all very cheap, with the caveat for the EU that the bonds are behaving as JGBi used to, when the BOJ had no credibility. So I would be careful buying Euro linkers, cheap as they are, until the ECB take tangible steps towards ratcheting up QE and preventing deflation. It is easy to prevent inflation, as Japan has showed, if a central bank is willing to gas the money supply. If the EU shows a spine, those bonds will be very cheap...but not for long.
    Dec 18, 2014. 02:10 PM | Likes Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    We have 10-year TIPS about 78bps cheap for this level of nominal yields. You read that correctly. (Arguably, adjusting for seasonality and carry it might be as little as 50bps).

    Although our way of looking at it is more complex than shown in the picture linked to below, you can really see how TIPS have cheapened absurdly over the last couple of months.

    http://wp.me/aIy5M-UJ

    The absolute level of real yields isn't a great bargain, but compared to those expected real returns available in most other asset classes, they are the best house in a bad neighborhood (with the perpetual exception, these days, of commodity indices - indeed, we would structure a portfolio barbelled on TIPS for low-risk and commodities at the high-risk end).
    Dec 17, 2014. 05:10 PM | 1 Like Like |Link to Comment
  • Patience Is A Pain [View article]
    March CPI: 236.604 (the base figure)
    April CPI: 237.163
    May CPI: 237.776
    June CPI: 238.083
    July CPI: 238.311
    August CPI: 238.345
    September CPI: 238.677
    October CPI: 239.162
    November CPI: 239.332 (released today)


    We have had 1.153% core inflation so far (1.73% at an annual rate). With 4 months to go and 240.626 the push, Mr. de los Angeles needs aggregate core inflation to be 0.541% or less (1.622% at an annual rate). I need the over.

    Mr. de los Angeles continues to be in the game despite the fact that median inflation is running at 2.3%. Core inflation is now the most below median since 2008-9, and that's the only reason this is close. Mr. dlA needs another print just like today's, next month, and this will be a horse race. But it isn't, yet.
    Dec 17, 2014. 01:47 PM | Likes Like |Link to Comment
  • Growth-Sapping Effect Of The Minimum Wage [View article]
    No...this reasoning reflects the same flaw that made Das Kapital completely wrong. Actually, it appears to be the same argument. And it has already been refuted millions of times. I am finished with this debate - if this is your starting point, you will not be dissuaded!
    Dec 12, 2014. 01:08 PM | Likes Like |Link to Comment
  • Growth-Sapping Effect Of The Minimum Wage [View article]
    That is an interesting paper, but it seems to concentrate on the INSTANTANEOUS effect of a change in the minimum wage (for example, what did 81 fast-food restaurants do right away when the minimum wage changed?). It doesn't surprise me that the immediate effect is to pressure profits or to cause owners to make other adjustments. But the effect would be more likely to occur over time - do I need to hire another worker, or can I just make Gus work harder? I would like to offer this additional service, but at the new minimum wage I cannot afford to offer it without increasing prices. Etc.

    It is much harder to measure the long-term effects - who wasn't hired at the new wage who may have been hired at the old wage - but the study I point to above has figured out some clever ways to get at those effects. And it's those effects that are not seriously in dispute by economists or business owners.
    Dec 12, 2014. 01:06 PM | Likes Like |Link to Comment
  • A Busy Quarter - But Why? [View article]
    Interesting theory!

    Still, it's amazing how the entire planet follows trend-following strategies, effectively. Which is why value strategies seem to always outperform in the long run. The US market is probably among the most-overvalued globally!
    Dec 12, 2014. 10:21 AM | 1 Like Like |Link to Comment
  • Growth-Sapping Effect Of The Minimum Wage [View article]
    Well, that's not how a negative income tax works. That's how pure welfare works.

    But an employer will pay whatever the price is that will secure an employee, up to the wage where that employee's marginal product equals his marginal cost. The employer doesn't care whether the employee gets $10 in food stamps or $100 in food stamps... the employer only cares about the cost to the employer.

    And in a properly structured negative income tax, the employee has an incentive to seek a $10/hour job rather than a $5.85 job because they keep some of that benefit. You're right, if the government simply makes up the difference then there's no incentive for the worker to take the more-difficult and higher-paying job, and so you'll have a weird circumstance probably where there will be lots of applications for jobs that are just barely worth $5.85 and no applications for difficult jobs that pay $18.

    That's why a negative income tax is more efficient than straight welfare.
    Dec 11, 2014. 11:01 PM | Likes Like |Link to Comment
  • Growth-Sapping Effect Of The Minimum Wage [View article]
    Mr. de los Angeles -

    The point of the article referenced in my piece is that your statement that demand for labor is inelastic is false. There are, in fact, fewer people employed as a result of the increase in the minimum wage. That fact is not really in dispute among economists; only the magnitude has been.

    I will also note, as others have, that anyone who actually owns a business (as I do) will instantly scoff at the idea that the number of employees I have is irrespective of the cost of those employees.

    If that's true, we should just make the minimum wage ten thousand dollars per hour and everyone would be much better off.
    Dec 11, 2014. 10:56 PM | Likes Like |Link to Comment
  • Growth-Sapping Effect Of The Minimum Wage [View article]
    On your #5, you are again ignoring the people who LOSE their jobs because of the higher wage. Everyone agrees that someone who has a job subject to minimum wage and KEEPS his job is better off. But that's not the balancing question. The question is, does that person's improved circumstances balance the greatly worsened circumstances of the person who lost his job?

    The only way you can ignore that question is if you make the assumption that no one loses their job because the minimum wage rises. But that is the whole point of the academic piece we are discussing: there is more than just anecdotal evidence that this is true. There is hard data and indisputable evidence that in fact, jobs are lost when the minimum wage is increased. THAT balance is what needs to be discussed - and focusing just on the guy who gets a better wage because he keeps his job is a red herring.
    Dec 11, 2014. 10:51 PM | 1 Like Like |Link to Comment
  • Growth-Sapping Effect Of The Minimum Wage [View article]
    Maybe not, but surely the government could support such a worker through a negative income tax or through other programs...and it would cost less than supporting such a person who is earning $0 rather than $5.85.
    Dec 11, 2014. 05:13 PM | Likes Like |Link to Comment
  • Growth-Sapping Effect Of The Minimum Wage [View article]
    I would argue that the argument AGAINST a minimum wage is social. My heart bleeds for all of the people who would work for $5/hour, and whose skills aren't worth any more than that, but are not allowed to and so they earn $0/hour. And there's about 1.7 million more of them than there should be, according to this research.

    The gains from eliminating a minimum wage accrue largely to the currently unemployed.
    Dec 11, 2014. 05:11 PM | Likes Like |Link to Comment
  • Growth-Sapping Effect Of The Minimum Wage [View article]
    Those extra workers might clean the bathrooms, your customer's windshields, check the oil, or do any of the 50 other things that service stations used to do, back when labor was cheaper.
    Dec 11, 2014. 05:08 PM | Likes Like |Link to Comment
  • Growth-Sapping Effect Of The Minimum Wage [View article]
    Absolutely agree with you yoavbental - but it is a normative argument, not a positive one (that is, we should all agree on the economics, and then we can argue whether it is more important to lift up the people who hang onto their jobs, or preserve jobs for those who can't be employed at some minimum wage). The problem comes when one side claims (as is the current claim on the left) that minimum wage has no cost except to rich business owners, who must be objecting only because they want to hold down the poor. In fact the cost is clear. Whether it's worth it is a fair question and a necessary debate!

    So many of our problems as a nation would be rendered much easier if we agreed to debate using actual numbers and agreed on the basic principles, rather than claiming things with no empirical support.
    Dec 11, 2014. 05:03 PM | 1 Like Like |Link to Comment
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