President Obama: Don't Kill The Golden Goose [View article]
Other Street-
I agree with you about Bernanke, he has been (very!) good under fire. How good is often not known until after the dust has settled. But Volker was peerless. Maybe in 20 years the world will catch up to your view as we will all have hindsight.
I do not think Obama will keep him. Since he did not go to Jackson Hole last year it seemed already known he was not coming back.
I do not know how his leaving will be taken by the market. It really does depend who replaces him.
Busted Yen Carry Trade - Time For Stock Investors To Pay Attention [View article]
Author-
The breadth of your article is (pardon the pun) breathtaking.
"What is propping up the U.S. market right now is fear - fear that U.S. interest rates will rise."
"The trend in this data is very interesting. The prime method over the years by Japan and other Asian countries to weaken their currency relative to the USD is to purchase U.S. Treasury securities."
"The combination of lack of supply of U.S. Treasuries for investment and the increase in monetary supply through bond purchases by the Federal Reserve has created a scenario in the U.S. market from January to May in which too much money has been chasing too few investments, and stocks have increased dramatically over the first half of the year. From a chart standpoint the rise is exponential."
"On Wednesday, if the Fed Chairman announces a much slower pace of tapering in QE, he really is just promising to back-fill the increasing outflow of foreign investment in U.S. Treasury securities - some of which is Japanese based. Suppressing of U.S. interest rates at this point by continuing to make high levels of Treasury purchases as capital flows out of the U.S. will only work to strengthen the yen - and weaken the USD."
So, to put it simply, there are two Central banks with low rate problems. And each bank is suppressing interest rates to fund its' government debt. And since both cannot print the other's currency when each needs it, Neither can control how the other reacts when each prints more money to suppress rates. So, instead of trading US paper for Japanese cars (which is MUCH easier to track), NOW both Cbanks are trying to balance two printing presses each with an infinite ability to print (bonds) too. And nobody can see how to make (cook?) the books balance.
I am not sure a mathematician can answer the question: is my infinity bigger than yours?
So, you are right, if the BOJ cannot keep the 100 yen/$ peg, which seemed to goal, the Yen carry trade IS busted, and the BOJ has a smaller infinity. While Abe may be able to get it up, he cannot keep it (the yen/$ rising) up. More than volatility, this is instability. Its like trying to build (a measurable) something without having an independent standard. It (inevitably) crumbles of its own weight.
Market Measures Of Inflation And What They Are Saying [View article]
Robert-
What inflation expectations and risk premiums are delineated to identify (or maybe obfuscate) are the margins made for banks lending to the government. Risk-free should be zero reward. Its (obviously) not. Why don't you ask yourself why should a risk-free borrower (that can print their own money) pay any interest at all?
The interest rate is the banks' profit margins. Its free money.
The inflation (malarkey) hides what the banks are doing. It SHOULD be zero between banks and governments and banks get rewarded by lending to private citizens at above zero rates.
After that, bank margins are based on what the market will bear banks can get away with for lending to everybody else.
But the banks and governments (politicians) need each other so, this incest is ignored. This is the cost of being a regulated bank, free money from private tax-payers, but the government regulates them.
Because they over-extended themselves, however, mark-to market has been on hold and the FED is covering-up bank insolvency. When you think about it, Capitalism really is a survival of the fittest philosophy with the best get preference and the worst get punished. And the entire philosophy is underwritten by the banks getting free government money.
The only problem to this philosophy is that banks themselves were immune to the "natural order" of free-markets, so the entire discussion of (those judging) risk is severely lacking in objectivity for bankers/lenders right now.
The reason I have a great deal of respect for Bernanke right here is that while he is artificially suppressing rates (and apparently risk) it is because of bank over-lending FED largesse the last eight years. You could say he is righting a wrong, or balancing the system. But it is with a preference to helping the bank status quo. Whether I agree with it or not is less important as a man who is doing what he says, and believes in his job.
The rules of American capitalism have not been even handed in their application, however, so risk quantification is skewed in the direction of nationally repairing bank insolvency. Everyone in power claims the chaos that would have ensued is worse than what we have now.
But bad (in some cases criminal) judgement evaluating past mistakes does not give one warm fuzzy feelings. Maybe better for them (TBTF getting bigger) has been worse for the rest of us.
Sorry for the rant, but risk quantification methodology has over the past few years, in my opinion, revealed itself to be a self-serving banking sham.
Expansionary Fiscalists Vs. Expansionary Monetarists And The Fed's Shift From A Time- To A State-Based Policy Rule: Will It End Our 'Lost Decade'? [View article]
Professor-
Irrationality here is borne of not understanding the difference between a time and a state based choice. Or not clearly understanding what the Evans rule really means. Or even more simply, fighting the FED and believing they will be forced to back away from the Evans rule.
But those in the last camp will not subscribe to the Washington Super Whale's holding period. And they believe the Whale must dump before maturity because the WHALE is being irrational.
Maybe the inflation imp is from (Missouri) the show me state?
If you don't know what to believe, its hard to know what being rational means. FWIW, I believe in the Super Whale's ability to go the distance. You have brilliantly, in my opinion, made your case.
COT Data Suggests Oil's Fall Is Coming [View article]
Author-
You may be right. Imminent is so imprecise, however. Are we talking next week, next month or six months? Or will you only define imminent after it (does or does not happen) is (or is not) a fact?
I am wondering is this trade able information or just a parlor game for you? The charts needed the red circles you drew to see what you meant. Which may be they don't mean what you see. Focusing on one thing, necessarily means less attention is paid to other factors.
So, FWIW I agree with you about oil being overpriced. And a pricing fall may occur soon (between now and the end of the summer). But for different reasons. And I do not know if a price drop will be swift or gradual. So I am interested in why you think imminent; and what you believe imminent means.
Rentech Nitrogen Partners: Investors With An Eye Only On The Sky Might Miss Something [View article]
Author-
Your article is very interesting (even if filled with LOTS of speculation) about possible competitors likely future plans to maybe locate nearby soonish.
While looking in the sky however, I am reminded of an old saying.....A bird in the hand, .......
Emerging Market Investments Unable To Find A Bottom [View article]
Author-
You have put some great links in this article. It has got to be tempting to play the currency arbitrage game. Its free money. Anyone except a central bank, however, playing a carry trade right now puts them at risk of a (ruinous) power series event. But of course hope (greed?) springs eternal.
Loved the Black swan of Cairo link. Suppressing volatility causes dangerous uncertainty. In layman's terms its like saying it's the force of desired certainty that causes (its own) uncertainty.
That is the clearest example of a mathematical paradox I have read on SA. Which is a slightly stronger force than quantifying asset correlations.
Good article and very informative. It does give one sympathy for the Ayn Rand zombies. On the other side, however, sex is rape unless both sides consent. Informed consent you ask?
Pre-nup's abound for two untrustworthy's. And one must inevitably ask, was it the pre-nup that ruined it, or was it not being able to be trusted? One knows if they couldn't survive the pre-nup they surely couldn't have survived matrimony. Unreasonable is a matter of perspective. If they do not have anything else, Ecuador probably wanted that tax revenue for the schools and hospitals. A different partner (for both)? Maybe.
Business isn't love and marriage, but financial uncertainty often sure seems to have similar risk. And we absolutely agree, withdrawal is cheaper than divorce.
Good article. QE matters. The FED is trapped between a rock and a hard place..remove rates go up and they kill housing which kills the recovery..don't remove and asset bubbles are created. And you are right (or at least we agree) it is not ending anytime soon. The jawboning, however, has worked to stop equities parabolic ascent.
Occupy Wall street failed. The Arab spring has Egypt contemplating invading Ethiopia to destroy the dam that will block the Nile; and Syria in a civil war where evil may very well win (pick either side). Turkey and the Euro periphery are unable to change the power structure in their own nation because power has become an elusive force that has trumped democracy. The old ideas of enemies and religion or even philosophy do not answer why country's are not growing. Its economics. Its taxation without representation. Its poor management. Its rebellious forces that cannot answer how things would be different to manifest a change.
What is truly frightening is it's the Marie Antoinette's of the world who will determine if and when the social fabric of nations are torn apart or able to be mended. Its the generosity of wealth (or lack thereof) that will change inequality. The reasons behind why what we see is not fairness (and unfairness) are not obvious. And nobody sees a clear scapegoat. The world has only a sea of problems of unfathomable depth.
Great analysis. Rates rise and the housing market collapses (again). Rates do not rise and the market is stuck with prices that cannot be sustained (job growth).
Banks are trapped.
But CORIMA (above) is right. Its great if you are buying (or building) your forever home!
After The Lost Decade: Scenarios For 'Normalization' [View article]
Author-
This article sings a song that puts wonks in scenario heaven. It seems, however the most honest and simple analysis would be to start with what happened in Japan. The impossible combination of declining interest rates, higher bond prices, lower domestic growth strengthening currency and increased debt to GDP. Failed stimulus after failed stimulus after failed stimulus. And not least a monsterous drop in the Neikki. Japan should not be where it is. But it is. Economist's model of the world, does not work in the real world. The real world is a special case.
Where we differ (with Japan) is sequestration and fracking. Sequestration has a 10 year shelf life. Fracking has confounded the energy "experts". And those two differences are not trivial. Money NOT spent for things we can do without, and money NOT spent (exported) for commodities (energy) we have ourselves.
The nation is betting the farm that we can both grow the economy and shrink the government at the same time. When you think about it, that is exactly what good managers (with an opportunity) should be able to do.
Nobody, I repeat nobody is saying this is the scenario for our future. But this is what (without economists chipping in) we are doing. ZIRP will last because (the FED will force it) our debt levels need it, and revenues will rise (and the deficit will fall) because we are (both) spending less overseas and domestically.
The percentage of the stock market now owned by hedge funds (5%) is the highest since Q2 2008, BofA Merrill Lynch finds in its Hedge Fund Quarterly Report. Hedge funds reduced cash holdings to the Q2 2007 trough of 4.3%, and raised net equity exposure to the Q2 2007 peak of 59%. Their largest exposure is to consumer discretionary stocks (XLY) followed by IT (XLK) and financials (XLF). [View news story]
I (think) I disagree, but it depends if you used the word fulcrum but meant inflection point.
I believe its an inflection point. The question is sustainability versus collapse or decay. Hedge funds are usually super focused (and often use leverage) and focus on quantifiable begin's and end's versus themes. To contrast, most investors focus on themes and the ability to continue organically.
If hedge funds believe a specific short (or long) represents an inevitability; then if correct, their interpretation is not a function of counter-party but external market risk. And that means staying power in a position. Think Tesla.
Hedge funds having liquidity (if the FED is also all in) means they profit as the market of investors give up (or in the hedge funds opinion...come to their senses) and price moves in their favor..
This inflection point means the shorts (and the longs) will not run out of money until the believers (or disbelievers) stop providing liquidity.
The market has always worked this way, and its usually liquidity that makes the winners...winners. And winners are usually a function of how committed the believers (or disbelievers), and who gives up first.
If the system is sustainable, but different individual parts in the system will: continue, collapse, or decay then Its not a fulcrum. Its proving (and betting on) who is right and who is wrong. And the FED being all in (to defend an over-extended government) is why its different (and an inflection point) this time.
But if the government collapses, (and you meant the word fulcrum) you are right. It's a fulcrum. And those betting on the government to collapse are right as the liquidity provided is insufficient (or worth-less) to achieve sustainable growth.
I do not believe, however, its a fulcrum, And that's my contrary opinion.
President Obama: Don't Kill The Golden Goose [View article]
I agree with you about Bernanke, he has been (very!) good under fire. How good is often not known until after the dust has settled. But Volker was peerless. Maybe in 20 years the world will catch up to your view as we will all have hindsight.
I do not think Obama will keep him. Since he did not go to Jackson Hole last year it seemed already known he was not coming back.
I do not know how his leaving will be taken by the market. It really does depend who replaces him.
Busted Yen Carry Trade - Time For Stock Investors To Pay Attention [View article]
The breadth of your article is (pardon the pun) breathtaking.
"What is propping up the U.S. market right now is fear - fear that U.S. interest rates will rise."
"The trend in this data is very interesting. The prime method over the years by Japan and other Asian countries to weaken their currency relative to the USD is to purchase U.S. Treasury securities."
"The combination of lack of supply of U.S. Treasuries for investment and the increase in monetary supply through bond purchases by the Federal Reserve has created a scenario in the U.S. market from January to May in which too much money has been chasing too few investments, and stocks have increased dramatically over the first half of the year. From a chart standpoint the rise is exponential."
"On Wednesday, if the Fed Chairman announces a much slower pace of tapering in QE, he really is just promising to back-fill the increasing outflow of foreign investment in U.S. Treasury securities - some of which is Japanese based. Suppressing of U.S. interest rates at this point by continuing to make high levels of Treasury purchases as capital flows out of the U.S. will only work to strengthen the yen - and weaken the USD."
So, to put it simply, there are two Central banks with low rate problems. And each bank is suppressing interest rates to fund its' government debt. And since both cannot print the other's currency when each needs it, Neither can control how the other reacts when each prints more money to suppress rates. So, instead of trading US paper for Japanese cars (which is MUCH easier to track), NOW both Cbanks are trying to balance two printing presses each with an infinite ability to print (bonds) too. And nobody can see how to make (cook?) the books balance.
I am not sure a mathematician can answer the question: is my infinity bigger than yours?
So, you are right, if the BOJ cannot keep the 100 yen/$ peg, which seemed to goal, the Yen carry trade IS busted, and the BOJ has a smaller infinity. While Abe may be able to get it up, he cannot keep it (the yen/$ rising) up. More than volatility, this is instability. Its like trying to build (a measurable) something without having an independent standard. It (inevitably) crumbles of its own weight.
Market Measures Of Inflation And What They Are Saying [View article]
What inflation expectations and risk premiums are delineated to identify (or maybe obfuscate) are the margins made for banks lending to the government. Risk-free should be zero reward. Its (obviously) not. Why don't you ask yourself why should a risk-free borrower (that can print their own money) pay any interest at all?
The interest rate is the banks' profit margins. Its free money.
The inflation (malarkey) hides what the banks are doing. It SHOULD be zero between banks and governments and banks get rewarded by lending to private citizens at above zero rates.
After that, bank margins are based on what the market will bear banks can get away with for lending to everybody else.
But the banks and governments (politicians) need each other so, this incest is ignored. This is the cost of being a regulated bank, free money from private tax-payers, but the government regulates them.
Because they over-extended themselves, however, mark-to market has been on hold and the FED is covering-up bank insolvency. When you think about it, Capitalism really is a survival of the fittest philosophy with the best get preference and the worst get punished. And the entire philosophy is underwritten by the banks getting free government money.
The only problem to this philosophy is that banks themselves were immune to the "natural order" of free-markets, so the entire discussion of (those judging) risk is severely lacking in objectivity for bankers/lenders right now.
The reason I have a great deal of respect for Bernanke right here is that while he is artificially suppressing rates (and apparently risk) it is because of bank over-lending FED largesse the last eight years.
You could say he is righting a wrong, or balancing the system. But it is with a preference to helping the bank status quo. Whether I agree with it or not is less important as a man who is doing what he says, and believes in his job.
The rules of American capitalism have not been even handed in their application, however, so risk quantification is skewed in the direction of nationally repairing bank insolvency. Everyone in power claims the chaos that would have ensued is worse than what we have now.
But bad (in some cases criminal) judgement evaluating past mistakes does not give one warm fuzzy feelings. Maybe better for them (TBTF getting bigger) has been worse for the rest of us.
Sorry for the rant, but risk quantification methodology has over the past few years, in my opinion, revealed itself to be a self-serving banking sham.
Expansionary Fiscalists Vs. Expansionary Monetarists And The Fed's Shift From A Time- To A State-Based Policy Rule: Will It End Our 'Lost Decade'? [View article]
Irrationality here is borne of not understanding the difference between a time and a state based choice. Or not clearly understanding what the Evans rule really means. Or even more simply, fighting the FED and believing they will be forced to back away from the Evans rule.
But those in the last camp will not subscribe to the Washington Super Whale's holding period. And they believe the Whale must dump before maturity because the WHALE is being irrational.
Maybe the inflation imp is from (Missouri) the show me state?
If you don't know what to believe, its hard to know what being rational means. FWIW, I believe in the Super Whale's ability to go the distance. You have brilliantly, in my opinion, made your case.
COT Data Suggests Oil's Fall Is Coming [View article]
You may be right. Imminent is so imprecise, however. Are we talking next week, next month or six months? Or will you only define imminent after it (does or does not happen) is (or is not) a fact?
I am wondering is this trade able information or just a parlor game for you? The charts needed the red circles you drew to see what you meant. Which may be they don't mean what you see. Focusing on one thing, necessarily means less attention is paid to other factors.
So, FWIW I agree with you about oil being overpriced. And a pricing fall may occur soon (between now and the end of the summer). But for different reasons. And I do not know if a price drop will be swift or gradual. So I am interested in why you think imminent; and what you believe imminent means.
Rentech Nitrogen Partners: Investors With An Eye Only On The Sky Might Miss Something [View article]
Your article is very interesting (even if filled with LOTS of speculation) about possible competitors likely future plans to maybe locate nearby soonish.
While looking in the sky however, I am reminded of an old saying.....A bird in the hand, .......
Protected Principal Retirement Strategy: Silver Threads And Golden Needles [View article]
This article was a pleasure to read. You sir, are a reasonable man. Thanks for your refinery picks too.
Emerging Market Investments Unable To Find A Bottom [View article]
You have put some great links in this article. It has got to be tempting to play the currency arbitrage game. Its free money. Anyone except a central bank, however, playing a carry trade right now puts them at risk of a (ruinous) power series event. But of course hope (greed?) springs eternal.
Loved the Black swan of Cairo link. Suppressing volatility causes dangerous uncertainty. In layman's terms its like saying it's the force of desired certainty that causes (its own) uncertainty.
That is the clearest example of a mathematical paradox I have read on SA. Which is a slightly stronger force than quantifying asset correlations.
Thanks for the read.
The Limits Of Resource Nationalism [View article]
Pre-nup's abound for two untrustworthy's. And one must inevitably ask, was it the pre-nup that ruined it, or was it not being able to be trusted? One knows if they couldn't survive the pre-nup they surely couldn't have survived matrimony. Unreasonable is a matter of perspective. If they do not have anything else, Ecuador probably wanted that tax revenue for the schools and hospitals. A different partner (for both)? Maybe.
Business isn't love and marriage, but financial uncertainty often sure seems to have similar risk. And we absolutely agree, withdrawal is cheaper than divorce.
Boone Pickens: The U.S. Is Subsidizing China's Iraqi Oil - Why? [View article]
Why The Fed Will Not Taper [View article]
Good article. QE matters. The FED is trapped between a rock and a hard place..remove rates go up and they kill housing which kills the recovery..don't remove and asset bubbles are created. And you are right (or at least we agree) it is not ending anytime soon. The jawboning, however, has worked to stop equities parabolic ascent.
2 Views Of Income Equality [View article]
Occupy Wall street failed. The Arab spring has Egypt contemplating invading Ethiopia to destroy the dam that will block the Nile; and Syria in a civil war where evil may very well win (pick either side). Turkey and the Euro periphery are unable to change the power structure in their own nation because power has become an elusive force that has trumped democracy. The old ideas of enemies and religion or even philosophy do not answer why country's are not growing. Its economics. Its taxation without representation. Its poor management. Its rebellious forces that cannot answer how things would be different to manifest a change.
What is truly frightening is it's the Marie Antoinette's of the world who will determine if and when the social fabric of nations are torn apart or able to be mended. Its the generosity of wealth (or lack thereof) that will change inequality. The reasons behind why what we see is not fairness (and unfairness) are not obvious. And nobody sees a clear scapegoat. The world has only a sea of problems of unfathomable depth.
The Perils Of Low Mortgage Rates [View article]
Great analysis. Rates rise and the housing market collapses (again). Rates do not rise and the market is stuck with prices that cannot be sustained (job growth).
Banks are trapped.
But CORIMA (above) is right. Its great if you are buying (or building) your forever home!
After The Lost Decade: Scenarios For 'Normalization' [View article]
This article sings a song that puts wonks in scenario heaven. It seems, however the most honest and simple analysis would be to start with what happened in Japan. The impossible combination of declining interest rates, higher bond prices, lower domestic growth strengthening currency and increased debt to GDP. Failed stimulus after failed stimulus after failed stimulus. And not least a monsterous drop in the Neikki. Japan should not be where it is. But it is. Economist's model of the world, does not work in the real world. The real world is a special case.
Where we differ (with Japan) is sequestration and fracking. Sequestration has a 10 year shelf life. Fracking has confounded the energy "experts". And those two differences are not trivial. Money NOT spent for things we can do without, and money NOT spent (exported) for commodities (energy) we have ourselves.
The nation is betting the farm that we can both grow the economy and shrink the government at the same time. When you think about it, that is exactly what good managers (with an opportunity) should be able to do.
Nobody, I repeat nobody is saying this is the scenario for our future. But this is what (without economists chipping in) we are doing. ZIRP will last because (the FED will force it) our debt levels need it, and revenues will rise (and the deficit will fall) because we are (both) spending less overseas and domestically.
Buy (US) stocks.
The percentage of the stock market now owned by hedge funds (5%) is the highest since Q2 2008, BofA Merrill Lynch finds in its Hedge Fund Quarterly Report. Hedge funds reduced cash holdings to the Q2 2007 trough of 4.3%, and raised net equity exposure to the Q2 2007 peak of 59%. Their largest exposure is to consumer discretionary stocks (XLY) followed by IT (XLK) and financials (XLF). [View news story]
I believe its an inflection point. The question is sustainability versus collapse or decay. Hedge funds are usually super focused (and often use leverage) and focus on quantifiable begin's and end's versus themes. To contrast, most investors focus on themes and the ability to continue organically.
If hedge funds believe a specific short (or long) represents an inevitability; then if correct, their interpretation is not a function of counter-party but external market risk. And that means staying power in a position. Think Tesla.
Hedge funds having liquidity (if the FED is also all in) means they profit as the market of investors give up (or in the hedge funds opinion...come to their senses) and price moves in their favor..
This inflection point means the shorts (and the longs) will not run out of money until the believers (or disbelievers) stop providing liquidity.
The market has always worked this way, and its usually liquidity that makes the winners...winners. And winners are usually a function of how committed the believers (or disbelievers), and who gives up first.
If the system is sustainable, but different individual parts in the system will: continue, collapse, or decay then Its not a fulcrum. Its proving (and betting on) who is right and who is wrong. And the FED being all in (to defend an over-extended government) is why its different (and an inflection point) this time.
But if the government collapses, (and you meant the word fulcrum) you are right. It's a fulcrum. And those betting on the government to collapse are right as the liquidity provided is insufficient (or worth-less) to achieve sustainable growth.
I do not believe, however, its a fulcrum, And that's my contrary opinion.