How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
David:
If you think the only choices for Americans is working in a car factory or being a greeter at Walmart, then it's silly to have this discussion. Perhaps, that is the view of some, so they limit their own choices.
Manufacturing isn't in decline because there's something wrong with America. It's just so much more easily accomplished by machines and computers that labor is no longer a primary necessity, so there's no shortage of supply and, therefore, no need to bid up the price for its service. Simple economics. It's the predictable outcome of our incredible efficiency.
There are myriad opportunities in newly-emerging industries, as there always are. Last report I read stated that there are presently three million listed job vacancies for which businesses can find no qualified applicants. It's either adapt or stagnate. If America has a problem, it's that too many people think somebody owes them something.
I notice you didn't further discuss your assertion that the U.S. economy is contracting. Probably a good idea to avoid that one.
The first requirement to be "set free" is to admit that one has been wrong and, equally importantly, that, ultimately, no one else is responsible for errors in investment judgment than the person who made them. For many, it's far easier to have an excuse ("fig leaf") or, even better, somebody to blame.
Nonetheless, read the link, just above. The banks are raising equity, where needed, but, that does nothing for the demand side of the equation. Principally, European banks aren't lending not because they have poor balance sheets There are banks with great balance sheets, and they're not lending, either. The reasons are two-fold: 1) little demand and 2) risk-averse lenders, absent signs of economic improvement and greater confidence in the future. As you suggest, nobody on any side of this equation wants to go first. That's what happens in serious recessions.
The Governments and ECB must become much more bold in breaking the logjam by both creating and spending more money, in absence of private credit formation. That's the vast difference in policies employed by the U.S and Europe, and the contrast in results is readily observable.
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
rc:
There's so much nonsense in that diatribe that I am compelled to respond:
"The US, Euro, and Japan 'welfare states' are no different in comparison to the German Weimar Republic of the early 1920s. All three currency units suffer from serious trade imbalances due to the high cost of imported crude oil and the 'low cost' of 'technology goods' produced via 'hydrocarbon technologies.' In particular, the USA has decided to go the 'social route' of democracy which implies that BIG BUSINESS (namely oil companies such as XOM ) and gov't are now directly linked together."
Yes, yes, we all know it's just one big conspiracy. Oh, by the way, did you realize (apparently not) the U.S. is soon to become a net energy exporter?
"And like the author mentioned ... SPY profits are up because the Fed has induced a 'very low artificial interest rate' environment ... which benefits those companies (namely the financial industry) which can take advantage of borrowing at 1% and lending at 10%."
What drivel. Yes, those evil confiscatory companies, yet again. Name somebody lending/borrowing money at 10%, except, perhaps, the local bookie or to a few distressed, high-risk clients. Millions of people are financing and/or refinancing mortgages at 4%, freeing up lots of extra capital.
"The author failed to mention that SPY profits are also up due to the weak dollar ( as compared to the year 2000 ) ... which allows companies such as MSFT, F, and INTC to sell many an item in a foreign land at a greatly enhanced profit in terms of a weak currency ( as compared to the year 2000) in the USA."
And, there's something wrong with this? More business and more profits, that's a problem, too?
"But the weak dollar also creates 'high gasoline prices' ... and the fact the end consumer is forced to take on debt at 10% ... IMPLIES THE END CONSUMER BALANCE SHEET IS A WRECK ... hence the Fed's ongoing purchase of mortgage backed debt in which the end consumer continues to default."
Hello. Gasoline prices are lower than the last few years, not higher, and increasing U.S. energy independence augers well for the future. Yes, that consumer balance sheet is a "wreck;" that's why consumer debt to GDP is at the lowest levels in 30 years and delinquencies on consumer revolving debt are at the lowest levels ever recorded! Home prices are rising nicely, restoring equity, and all those who invested in distressed mortgage debt have made a bundle. The outlook is for more.
"The end result ... What's happening in Japan at the moment ... will eventually hit European and American shores ... namely, the high cost of imported crude oil will eventually shut down the American and European consumer ... just like the Japanese consumer."
Apparently, there's that oil story, again, even if it bears no relationship to reality. And, Japan's economy, culture and demographics bear no correlation to the U.S., whatsoever. Those, who think the U.S. and Japan are in any manner similar or on parallel courses, are willfully devoid of economic understanding.
To me, you seem fixated on the conversion of debt to equity, as if the mere movement of some numbers on a balance sheet will suddenly change things. And, if you're arguing that it won't because of other myriad systemic issues, what's the point? We both fully concur on recapitalizing banks; we seem to disagree on how to do that and what other actions must accompany.
I have no objection to converting some debt to equity, but that, in and of itself, won't accomplish anything. Europe needs a full-on dose of fiscal injection. If the private sector won't or can't generate loan demand and/or private banks won't lend money, whether they have nice balance sheets or not, then it's up to the governments/ECB to take other actions to stimulate demand.
Take a look at the U.S., as an example. The Government could have merely tried to force debt to be converted into equity. They didn't. They created massive amounts of new money, some of which was used to buy preferred shares and solve the equity issue you keep mentioning, but lots more was used to buy bad debts from the banks. The Government also got the economic pump primed by its own spending (despite claims that it didn't do enough) by issuing massive amounts of new Government bonds, the funds from which I am sure are not sitting in a vault somewhere. Also, the Fed's achievement of much lower rates has fostered the financing and re-financing of much private and public debt at lower costs, freeing up more capital.
I am arguing for a much more aggressive monetary and fiscal policy from Europe, by numerous mechanisms. They should welcome and strive for all of lower rates, weaker euro, more fiscal stimulus, better-financed banks, the works. It's not going to happen merely by austerity and waiting, like aging a fine wine. It's going to need bold action, far beyond merely altering some capital ratios.
Even Japanese stocks are subject to the law of gravity (who knew?) as a confluence of factors sends the Nikkei (EWJ, DXJ) plunging 7.3% on the session (the swing from intraday high to low was ~9%). Yields on JGB 10s (JGBL) spiked above 1% at one point as an already skittish and volatile market was further rattled by what have generally been perceived as hawkish comments out of Ben Bernanke and other Fed officials on Wednesday. Yields pulled back in late trading. Compounding the problem for Japanese stocks was the yen (FXY), which has strengthened some 2% against the dollar to 101.16 most recently. (See also: China HSBC flash PMI shows contraction) [View news story]
A 7+% decline in the Nikkei sounds like a calamity until one realizes that it's up almost 16% for the month and 50% YTD... and, that's AFTER the 7% drop.
Citi's Willem Buiter throws in the towel on a "Grexit" in 2014, notable not only because Buiter has repeatedly predicted Greece will eventually bid the eurozone adieu (putting the odds at 90% within 12-18 months late last summer) but because he is credited with coining the term "Grexit" in the first place. Bears needn't despair too much though: Buiter still says "there is a fairly high risk of Grexit at some stage in the coming years." [View news story]
"there is a fairly high risk of Grexit at some stage in the coming years."
There's a fairly high risk we'll all die in the coming years, too.
Market recap: It was quite a day for the tea-leaf readers. Stocks spiked early on release of Bernanke’s prepared testimony, then began to fade as he seemed to break with the dovish tone during his Q&A, and then turned red as the Fed meeting minutes indicated a bit of a dilemma over when to taper. Gold futures, up more than 1% early, finished negative. The dollar rallied; Treasurys fell, lifting 10-year yields to 2%. [View news story]
It's going to be pretty funny when the tapering of QE arrives, the market goes through its mandatory initial panic, then everyone discovers that the reduction or elimination of QE has no negative impact on the economy whatsoever. And, why should it? There are already oceans of excess reserves, and that's where QE is going, so why would its cessation mean anything?
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
David:
I provided links to Ychart data. The percentages cited are calculated directly from those graphs. If you think that's inaccurate, then you should provide alternate sources for your numbers.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
David & South:
The velocity of money (V) is the most intangible and impossible of
M x V = PT (where M is the money supply and PT is the aggregate value of all transactions; price x transaction numbers)
to measure. It's usually imputed from V = PT/M, where there's a better handle on P, T and M from other direct measurement sources.
Obviously, from the above equation if M is expanded at a greater rate than PT responds, then V falls. It doesn't really mean dollars are moving more slowly specifically; it may mean that much of M isn't moving at all, which, in fact, is what we see.
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
If you think the only choices for Americans is working in a car factory or being a greeter at Walmart, then it's silly to have this discussion. Perhaps, that is the view of some, so they limit their own choices.
Manufacturing isn't in decline because there's something wrong with America. It's just so much more easily accomplished by machines and computers that labor is no longer a primary necessity, so there's no shortage of supply and, therefore, no need to bid up the price for its service. Simple economics. It's the predictable outcome of our incredible efficiency.
There are myriad opportunities in newly-emerging industries, as there always are. Last report I read stated that there are presently three million listed job vacancies for which businesses can find no qualified applicants. It's either adapt or stagnate. If America has a problem, it's that too many people think somebody owes them something.
I notice you didn't further discuss your assertion that the U.S. economy is contracting. Probably a good idea to avoid that one.
Using The Fed As A Fig Leaf [View article]
Wonderful article.
The first requirement to be "set free" is to admit that one has been wrong and, equally importantly, that, ultimately, no one else is responsible for errors in investment judgment than the person who made them. For many, it's far easier to have an excuse ("fig leaf") or, even better, somebody to blame.
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
Did I utter a single word?
I just offered the links to allow readers to judge for themselves whether manufacturing is in acute contraction.
As to your contention that the overall economy is contracting, I welcome you to cite statistics to support that claim.
Market recap: Buy-the-dip remains the overriding psychology of this momentum market, as stocks mostly overcame a morning swoon fed by fears the Fed would take away the punchbowl, plus the Nikkei's 7.3% plunge and weak manufacturing data from China. Once positive economic news came in (I, II) and the Fed's Williams and Bullard offered dovish remarks, investors decided to buy instead of run for cover. The dollar dropped as the yen soared, while gold jumped 1.8%. [View news story]
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
http://bit.ly/10rd6Eq
http://bit.ly/10Va0vu
http://bit.ly/10rd3IL
http://bit.ly/10Va0vy
http://bit.ly/10rd3IN;endDate=
Doomed Europe [View article]
Nonetheless, read the link, just above. The banks are raising equity, where needed, but, that does nothing for the demand side of the equation. Principally, European banks aren't lending not because they have poor balance sheets There are banks with great balance sheets, and they're not lending, either. The reasons are two-fold: 1) little demand and 2) risk-averse lenders, absent signs of economic improvement and greater confidence in the future. As you suggest, nobody on any side of this equation wants to go first. That's what happens in serious recessions.
The Governments and ECB must become much more bold in breaking the logjam by both creating and spending more money, in absence of private credit formation. That's the vast difference in policies employed by the U.S and Europe, and the contrast in results is readily observable.
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
There's so much nonsense in that diatribe that I am compelled to respond:
"The US, Euro, and Japan 'welfare states' are no different in comparison to the German Weimar Republic of the early 1920s. All three currency units suffer from serious trade imbalances due to the high cost of imported crude oil and the 'low cost' of 'technology goods' produced via 'hydrocarbon technologies.' In particular, the USA has decided to go the 'social route' of democracy which implies that BIG BUSINESS (namely oil companies such as XOM ) and gov't are now directly linked together."
Yes, yes, we all know it's just one big conspiracy. Oh, by the way, did you realize (apparently not) the U.S. is soon to become a net energy exporter?
"And like the author mentioned ... SPY profits are up because the Fed has induced a 'very low artificial interest rate' environment ... which benefits those companies (namely the financial industry) which can take advantage of borrowing at 1% and lending at 10%."
What drivel. Yes, those evil confiscatory companies, yet again. Name somebody lending/borrowing money at 10%, except, perhaps, the local bookie or to a few distressed, high-risk clients. Millions of people are financing and/or refinancing mortgages at 4%, freeing up lots of extra capital.
"The author failed to mention that SPY profits are also up due to the weak dollar ( as compared to the year 2000 ) ... which allows companies such as MSFT, F, and INTC to sell many an item in a foreign land at a greatly enhanced profit in terms of a weak currency ( as compared to the year 2000) in the USA."
And, there's something wrong with this? More business and more profits, that's a problem, too?
"But the weak dollar also creates 'high gasoline prices' ... and the fact the end consumer is forced to take on debt at 10% ... IMPLIES THE END CONSUMER BALANCE SHEET IS A WRECK ... hence the Fed's ongoing purchase of mortgage backed debt in which the end consumer continues to default."
Hello. Gasoline prices are lower than the last few years, not higher, and increasing U.S. energy independence augers well for the future. Yes, that consumer balance sheet is a "wreck;" that's why consumer debt to GDP is at the lowest levels in 30 years and delinquencies on consumer revolving debt are at the lowest levels ever recorded! Home prices are rising nicely, restoring equity, and all those who invested in distressed mortgage debt have made a bundle. The outlook is for more.
"The end result ... What's happening in Japan at the moment ... will eventually hit European and American shores ... namely, the high cost of imported crude oil will eventually shut down the American and European consumer ... just like the Japanese consumer."
Apparently, there's that oil story, again, even if it bears no relationship to reality. And, Japan's economy, culture and demographics bear no correlation to the U.S., whatsoever. Those, who think the U.S. and Japan are in any manner similar or on parallel courses, are willfully devoid of economic understanding.
Doomed Europe [View article]
http://on.ft.com/197SsQc
But, the banks balance sheets are only half the equation. Somebody has to want to borrow money.
Doomed Europe [View article]
To me, you seem fixated on the conversion of debt to equity, as if the mere movement of some numbers on a balance sheet will suddenly change things. And, if you're arguing that it won't because of other myriad systemic issues, what's the point? We both fully concur on recapitalizing banks; we seem to disagree on how to do that and what other actions must accompany.
I have no objection to converting some debt to equity, but that, in and of itself, won't accomplish anything. Europe needs a full-on dose of fiscal injection. If the private sector won't or can't generate loan demand and/or private banks won't lend money, whether they have nice balance sheets or not, then it's up to the governments/ECB to take other actions to stimulate demand.
Take a look at the U.S., as an example. The Government could have merely tried to force debt to be converted into equity. They didn't. They created massive amounts of new money, some of which was used to buy preferred shares and solve the equity issue you keep mentioning, but lots more was used to buy bad debts from the banks. The Government also got the economic pump primed by its own spending (despite claims that it didn't do enough) by issuing massive amounts of new Government bonds, the funds from which I am sure are not sitting in a vault somewhere. Also, the Fed's achievement of much lower rates has fostered the financing and re-financing of much private and public debt at lower costs, freeing up more capital.
I am arguing for a much more aggressive monetary and fiscal policy from Europe, by numerous mechanisms. They should welcome and strive for all of lower rates, weaker euro, more fiscal stimulus, better-financed banks, the works. It's not going to happen merely by austerity and waiting, like aging a fine wine. It's going to need bold action, far beyond merely altering some capital ratios.
Even Japanese stocks are subject to the law of gravity (who knew?) as a confluence of factors sends the Nikkei (EWJ, DXJ) plunging 7.3% on the session (the swing from intraday high to low was ~9%). Yields on JGB 10s (JGBL) spiked above 1% at one point as an already skittish and volatile market was further rattled by what have generally been perceived as hawkish comments out of Ben Bernanke and other Fed officials on Wednesday. Yields pulled back in late trading. Compounding the problem for Japanese stocks was the yen (FXY), which has strengthened some 2% against the dollar to 101.16 most recently. (See also: China HSBC flash PMI shows contraction) [View news story]
Citi's Willem Buiter throws in the towel on a "Grexit" in 2014, notable not only because Buiter has repeatedly predicted Greece will eventually bid the eurozone adieu (putting the odds at 90% within 12-18 months late last summer) but because he is credited with coining the term "Grexit" in the first place. Bears needn't despair too much though: Buiter still says "there is a fairly high risk of Grexit at some stage in the coming years." [View news story]
There's a fairly high risk we'll all die in the coming years, too.
Northstar Realty Finance: A House Of Cards [View article]
Market recap: It was quite a day for the tea-leaf readers. Stocks spiked early on release of Bernanke’s prepared testimony, then began to fade as he seemed to break with the dovish tone during his Q&A, and then turned red as the Fed meeting minutes indicated a bit of a dilemma over when to taper. Gold futures, up more than 1% early, finished negative. The dollar rallied; Treasurys fell, lifting 10-year yields to 2%. [View news story]
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
I provided links to Ychart data. The percentages cited are calculated directly from those graphs. If you think that's inaccurate, then you should provide alternate sources for your numbers.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
The velocity of money (V) is the most intangible and impossible of
M x V = PT (where M is the money supply and PT is the aggregate value of all transactions; price x transaction numbers)
to measure. It's usually imputed from V = PT/M, where there's a better handle on P, T and M from other direct measurement sources.
Obviously, from the above equation if M is expanded at a greater rate than PT responds, then V falls. It doesn't really mean dollars are moving more slowly specifically; it may mean that much of M isn't moving at all, which, in fact, is what we see.