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  • Why Are Interest Rates So Low, Part 4: Term Premiums [View article]
    FCARONE wrote in relevant part "with typically the same management". In fact, the only head of a major US bank that kept his position through the 2008 crisis was James Dimon at Chase, which got through it best of the bunch. All the rest either got fired, or in a couple of cases were brand new when it hit. And no, the taxpayers did not bear the financial fallout - the US Treasury made half a trillion dollars on its support operations, including the higher profits at the Fed. The shareholders of Bear, Lehman, AIG, Fannie Mae, and Citigroup permanently lost hundreds of billions.
    Apr 16, 2015. 08:23 AM | 3 Likes Like |Link to Comment
  • Why Money Velocity Continues To Decline? [View article]
    David - nope use of money per unit time is not an income velocity. Money being used does not result in income. Income only occurs when the value of goods after a transaction or process is higher than their joint value before that transaction. Trading the same existng beanie baby a million times for $10 each time moves $10 million, but produces an income of exactly zero. The velocity concept is even more incoherent and nonsensical than you suppose.
    Apr 15, 2015. 09:27 PM | 1 Like Like |Link to Comment
  • Why Are Interest Rates So Low, Part 4: Term Premiums [View article]
    The perspective that the article needs to add is the role of longer term bond positions in international currency speculation and hedging. The new fact of the last year or so is that the US was ending QEs without any sign of inflation while Japan and Europe were going to continue or start their own QEs, because they had been behind the curve in that respect. As a result, markets expected the dollar to strengthen greatly against both, and it duly popped a huge 20-25% against major currencies. This greatly increased the return in their domestic currencies for foreign holders of US Treasuries.

    At the same time, markets now expect that the US will import deflationary pressure and GDP sluggishness from abroad, as a consequence of that materially higher exchange rate. As a result, the relatively strong GDP performance in the US last year was heavily discounted in market expectations. A slowdown is expected from the soaring dollar with a 6 to 12 month lag. There are already signs that such a slowdown has materialized in the 1st quarter of 2015.

    Personally I don't think the higher dollar on its own is sufficient to push the US into actual recession, though a single quarter of lower real GDP from it is certainly possible. If that threatened to happen, I would also expect the dollar to retrace part of its move since last summer - as well as Fed policy to go on near-permanent "hold", putting of any short term interest rate increases still further. Which in turn would lower forward rate expectations.

    Basically, the coupling of US rates to currency strength is what the article doesn't discuss (or put enough emphasis on, more accurately), that is driving the drop in term premiums recently.
    Apr 15, 2015. 02:02 PM | 4 Likes Like |Link to Comment
  • The Real State Of The Typical Consumer [View article]
    This is what the actual data for retail sales looks like, before the seasonal adjustment massage begins.

    Tell us again what epic conclusions we are supposed to draw from the most recent saw tooth.
    Apr 14, 2015. 02:58 PM | 3 Likes Like |Link to Comment
  • The Real State Of The Typical Consumer [View article]
    The household sector excludes (1) government, (2) non financial corporate business, (3) non corporate business including partnerships, S corps, professional offices (4) the whole corporate financial sector.
    Apr 14, 2015. 02:50 PM | 1 Like Like |Link to Comment
  • JPMorgan's 6% Preferred Stock Is Worth A Look [View article]
    "I cannot find the new 'W 6% dividend' anywhere."

    JPM-E is the symbol on my TD Ameritrade account for the 6.3% depository preferred series W, which is currently trading at 26.21 to yield 6%. I hope that helps. Disclosure - I am long this issue, and also like financial preferreds generally via the ETF PGF. I also own GS preferred.
    Apr 14, 2015. 01:50 PM | 1 Like Like |Link to Comment
  • The Real State Of The Typical Consumer [View article]
    Paul - actually the author doesn't seem to have any trouble deciding. Its bad news. The net worth of the American people can soar $20 trillion in 4 years and its still bad news. Stopped clock, hoping for that twice a day vindication to eventually come round, and all that.
    Apr 14, 2015. 12:49 PM | 1 Like Like |Link to Comment
  • The Real State Of The Typical Consumer [View article]
    PS - also please note that the top line assets figure is $20 trillion higher than the end of 2010 number. Rather a lot, really, in 4 years.
    Apr 13, 2015. 09:19 PM | 3 Likes Like |Link to Comment
  • The Real State Of The Typical Consumer [View article]
    20% of $83 trillion in net worth is still a lot of scratch.

    The actual balance sheet of US households -

    Assets top line - $97.1 trillion.
    Total debts - $14.2 trillion
    Net worth - $82.9 trillion

    The American people are not paupers. Richest society in human history, and richer than it has ever been. Grok please.
    Apr 13, 2015. 09:12 PM | 5 Likes Like |Link to Comment
  • The Real State Of The Typical Consumer [View article]
    Meanwhile, back on planet earth, delinquent loans are at levels only seen in the period 1994 to 2007. See -

    Only the residential real estate category remains elevated. Looking at the charge off rates that go with these, we see -

    - that even for those, the still relatively high delinquency rate is not reflected in a high charge off rate, because the collateral is now covering the loans that do fail.

    Meanwhile you need a microscope to see charge offs on consumer loans other than unsecured credit cards - 68 basis points a year. There were about 2 years that good in the 1990s and one or two in the 1980s. The figure is better than 90% of the loss rate in that category of loans over the last 30 years.

    Doom mongering looking for thunderclouds in a clear blue sky. That remains my verdict on this fact challenged article and the author's repeated attempts to find something, anything, to hang his doom mongering on. It's just hopeless. This isn't 2007 or 2008 and there is not massive loan loss anything happening or getting ready to happen.

    Elevated losses on business loans and junk bonds in the cratering energy sector would be a more sensible place to look (real, though limited in extent by the narrowness of that sector and the corresponding benefits to everyone who consumes more energy than they produce), but that doesn't have the populist cachet of pretending the rich-as-sin American people are paupers.

    The American people are not paupers. A purely hypothetical uptick to a 2-3% default rate on less than a trillion in auto loans is not going to be the next real estate crisis. The loss rate on auto loans would have to jump by about a factor of six before they fell to break even. And even if they did, it wouldn't move the needle on the soundness of the US banking system.

    Stop grasping at straws.
    Apr 13, 2015. 08:14 PM | 3 Likes Like |Link to Comment
  • The Real State Of The Typical Consumer [View article]
    10 years ago, motor vehicle loans out were $798 billion and as of the end of 4Q2014 they were $958 billion. Disposable personal income was $9.228 trillion 10 years ago and it is $13.164 trillion now (same quarter end figures). That means they were 8.65% of DPI 10 years ago and they are only 7.28% of DPI now.
    Apr 13, 2015. 02:46 PM | 6 Likes Like |Link to Comment
  • Why Money Velocity Continues To Decline? [View article]
    Velocity continues to decline because velocity does not exist, never has existed, and continues not to exist.

    Velocity is a fudge factor describing the empirical fact that GDP and the money supply do not move together in lockstep. Monetary theories that expected them to do so were clearly false from the moment they could be measured, and needed some way of describing their huge miss. So they invented "velocity", dividing one time series by another, rather like dividing a yearly SP500 index by the cumulative scores of all NFL games in a given season.

    Then they change their false original assumption that GDP and money supply would move together into the incoherent statement about a fantasy measure "velocity", that in the long run it "should" remain stable. But of course, it doesn't. If it did, there wouldn't have been any need to invent it in the first place - one would have just published a correlation coefficient or a linear model for the relationship between money and GDP and called it a day.

    A whole passel of fundamental confusions surround the notion. That it must be so because income is the movement of money. Um, no, a cash flow is not an income and income only measures value added not value moved. The actual transactions velocity has nothing to do with the GDP measure being divided by the money supply in the "income velocity" calculation. The electronic FedWire system alone clears $2.5 trillion in transactions every business day, dwarfing GDP by about a factor of 35. Most of it internal to the financial system, incidentally. "Velocity" thus has nothing to do with transactions, and transactions have practically nothing to do with income.

    Velocity is not going to revert to any long run trend value - it doesn't have one. GDP is not going to move one to one with the money supply - it never has and there is no reason for it do so. The purchasing power of money, on the other hand, also doesn't move with its supply, since it also has a demand, and the demand for money is as jumpy and unpredictable as any stock chart.

    But the best single index to chart the demand for money is not a velocity, income or transactional. It is the real value of the money supply. Take your nominal money stock series and deflated it by the CPI or the PCE price deflator. That will show you a series that actually tracks a real, objective quantity that may be directly related to the demand for money - the real value of the whole money supply.
    Apr 13, 2015. 02:29 PM | 9 Likes Like |Link to Comment
  • The Real State Of The Typical Consumer [View article]
    The overall series is dominated by the mortgage series. Both the mortgage series and the revolving debt series show marked improvement in debt to income. The only rising series, up only 3%, covers cars and student loans. The car portion of that is pretty stable. The student loan portion is a government subsidized boondoggle that pads the pay of university professors and staff - but is tiny compared to the mortgage amounts and features low subsidized rates compared to the (smaller, and falling about as much as this one has risen) credit card / revolving stuff. 3% of income more in student loans in return for 2% less of income in credit card debt is rate-smart and isn't going to bust anyone.

    A lot of doom-ee talk looking for a dark lining in a blue sky, is all I see here.
    Apr 13, 2015. 02:18 PM | 3 Likes Like |Link to Comment
  • The Real Value Of The US Money Supply [View instapost]
    Because the natural rate of interest is positive, carrying purchasing power forward in time will always find a higher return offer for lending or investing present value, compared to leaving it idle or storing it purely in consumption goods. Thus a good store of value role will always be dominated by actual investment, whether in lower risk nominal claims, including those with short maturities, or in longer term and riskier claims, with higher expected returns.

    What you call frictional costs of uncertainty as to the value of money are simply the freedom of other men to name their own prices in future transactions. The value of everything is always changing. This is not a bug, it is a feature - it is how the price system adjusts the relative importance of different goods and directs economy measures to make more abundant whatever is in demand etc.

    You would prefer that you didn't have to take into account any change in your own plans. You don't need to - but you will leave realizable value on the table if you choose not to. That value is created by adaptation, and it is not available without the inconvenience of paying attention and actually adapting. The desire to have riskless wealth without adaption is a fundamental misunderstanding of the nature and origin of value. It is not a physical property of anything you might own. It is a property of the adaptation of the quantity of that good in existence to everyone else's demands, and real conditions of scarcity. That is why it endlessly fluctuates.

    In that whole system, the production of new quantities of whatever people might demand is an essential feature of its adaptability. If people are more willing to bid low interest rate requirements to hold short term corporate paper, corporations need to be free to make more of that demanded item and less of other claims. Similarly, they need to be able to "arb" the value of nominal claims and stock, or either and inventory or operating equipment, etc. All produced and changing in quantity. Money is just one of those items.

    There is no sharp distinction between e.g. a CD issued by a commercial bank, or a readily transferable savings account balance, and these other savings forms of the same or other issues - with one of them being counted as "money" and another not - is a purely conventional bit of accounting. They need to be free to issue more of those forms and less of others, when demand differences direct them to do so.
    Apr 13, 2015. 01:43 PM | 2 Likes Like |Link to Comment
  • The Real Value Of The US Money Supply [View instapost]
    "Because it is the thing we use to attempt to "store value""

    No, it just isn't. I use diversified portfolio investment to store value. I use money to clear current transactions, on a time scale of a month or less.

    Overall, people's cash balances including all forms of savings balances are less than a tenth of their wealth.

    Yes, the clearance function would be (has in the past been, in a few places and times) impaired if money can't hold most of its value for a week, and it has to remain liquid in the sense of plenty of people being willing to take it in transactions, even if they trade out of it again relatively quickly. But no, money is not primarily a store of value, and everything of any value besides goods for immediate consumption can be and in practice is used to store value.

    Stock is much better at storing value than money is. So it real estate, or land. Diversified portfolio investment with electronic transaction control is better still.
    Apr 12, 2015. 06:27 PM | 2 Likes Like |Link to Comment