Timonomics

Why Is Administration More Amenable to Banks Paying Back TARP Funds?

Due to the "green shoots" out there, maybe the Fed is seeing the need for pulling back some of the easy money they have put out there, and allowing payback of TARP is an easier way of beginning to do that than raising the Fed funds rate which would hurt the recovery.

Bond Expert: Friday Wrap

I agree with Bill Gross of PIMCO, the Fed won't allow the long bond yield to get beyond the current 30-year mortgage rate of about 4.8%. That means the Fed will increase their treasury buy-back Ponzi scheme to well beyond the existing $300 billion either after or before the current deadline of August 31, 2009. If that is true, mortgage rates won't jump that much, but with a slow economic recovery, investors may jump at the fixed rate of close to 5% on long-term treasury bonds as opposed to the slippery, uncertain returns on equities.


On May 09 11:20 AM Macro_Man wrote:

> Do you think we have a head and shoulders formation on the long bond
> here?...and if so and rates on the long bond sell off...how high
> can they go? 4.60%? 4.80%?
>
> If that were the case, wonder what is likely to happen to housing,
> economy and stocks?

Don't Be Fooled, We've Been Here Before

Remember- the market values stocks according to where the economy will be 6-9 months ahead, not at the present. So, the current situation is close to irrelevant in pricing stocks. It is what investors see down the road that matters to them. So, give us your assessment of where the economy will be by the end of the year, not now. If you can show by trends and all that we'll be where we are now in 6-9 months, then your concern about the current market will make some sense.

What Long Term Bonds and Shanghai Indexes Are Telling Us

What the charts don't address is the massive amount of government debt that will be hitting the treasury markets this year and driving the treasury prices down because investors are going to expect a higher yield. As a few have pointed out, there is not enough available, investable capital here or in the broader world to fund the trillions of US government debt. We have $500 billion in savings and the rest of the world is buying their own government debt. Only a super strong dollar would save the day but that isn't likely to happen due to Obama's massive printing/spending of dollars.

On the Coming Bond Crisis

I bought a lot of TBT [which shorts long-term treasuries assuming higher longer-term interest rates] for the very reasons you spell out. It is amazing to me how many think that if deflation holds, the U.S. won't have an inflationary interest problem because investors will flee to treasuries as a safe haven which will keep the interest rate down. The problem with that is, as you point out, if everyone did flee to treasuries, there still would be unfunded national debt. It seems to me only much higher interest rates would motivate investors in real estate, gold, and the like to sell their investments and buy treasuries. That would be our only way out. The unintended consequences of that would be deflation in every sector that was sold off to buy treasuries. And that would create another whole set of problems.

Why I Prefer Obama's Economic Plan

Your economic understanding is too narrowly focused. The fact that the Bush stimulus checks were saved and used to pay off bills tells us a lot about the condition of the American consumer, who generates 70% of gdp by their spending. They simply don't think it is wise to continue spending using credit and also not saving. They have to deal with their debt/savings imbalances and improve their personal balance sheets. No amount of spending on such idiotic things as the National Endowment of the Arts at this time will solve anything. Tax reductions on the corporate and personal level will give more money to businesses who do the hiring and to the consumers who can work on their personal balance sheet issues until they are satisfied and then begin spending again. That may take some months, but it is necessary for longer term sustained economic growth fueled by balanced consumer spending.

Why I Prefer Obama's Economic Plan

You need to think more clearly about why the Bush stimulus package didn't work. It was a good thing that people saved and paid off bills with it. That is exactly what they needed to do after a decade of no savings and credit card and other debt buildup.

A big part of getting the consumers to buy again [realizing they make up 70% of gdp] is for them to pay off existing credit and put away some savings. Then it will be time to begin spending again. If Republican tax cuts reveal that people have to pay off more bills and save more for an additional period of time, so be it. Ten years of poor personal financial management can't be undone in a few months.

The Democratic solution is incapable of righting what has gone wrong with the debt/savings relationship. All it will do is make the government an ever-larger "consumer", whose "income" is not earned, but only taken from the American people in taxes. More taxes will only further delay the real consumers from getting their personal balance sheets in order. The recession will only be prolonged.


On Jan 29 09:39 AM wpdragon wrote:

> For Republikans, these elephants sure have short memories. Bush's
> tax refunds last spring went straight into the bank or to pay bills
> for the most part, and that was BEFORE the economy really fell off
> the cliff... does anyone REALLY think that money will go to stimulate
> buying this time around?
>
> No way in the world.
>
> Of course, when Republikans say tax breaks for all, you know they
> mean tax breaks for the rich and a pittance for the rest.
>
> Be very afraid when the words "tax break" and "Republikans" are put
> in the same sentence... be VERY afraid.

Steel Dynamics, U.S. Steel Should Jump on Morgan Stanley Note

Morgan Stanley must be thinking longer-term on US Steel, because currently it is up six days in a row and at a 100% stochastic. I agree that it should take a breather, making puts at this level profitable. Alcoa's results may be the catalyst for the pullback.