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  • The Yellen Bond Bubble [View article]
    "For example, it could eliminate interest on excess reserves and launch an open-ended QE. If such a policy proved successful, bond prices would fall substantially (and deflation risk would be banished)."

    But wasn't QE sold on the idea that it would LOWER interest rates? Wasn't the Fed buying bonds at HIGHER prices to LOWER their yields? Now somehow QE is supposed to LOWER bond prices to raise yields?

    Rates are falling faster WITHOUT QE than they ever did with QE. Interest rates are rock-bottom low now - any company or individual who wants to borrow money can do so easily. Mortgage rates are lower now than when QE3 was ongoing.

    Has the Fed been lying about their intentions all this time? Was QE never actually meant to lower rates, but instead to raise them (as you suggest would happen)? How much more money could borrowers have saved over the last five years if QE had NOT been occurring? Would the 30-year mortgage have dropped into the 2% range? Will the Fed ever be held accountable for misleading everyone about what it was doing with QE, or will the media just roll over and accept it all at face value?
    Jan 14, 2015. 01:48 PM | 2 Likes Like |Link to Comment
  • Boom Goes The Dynamite: Oil's Price Crash Is Going To Rip The Global Economy To Shreds [View article]
    Who would sell a call directly to a producer?

    The Saudis don't need to play games. They'll make hundreds of billions of dollars over the decades just playing smart long-ball.

    Think of it this way: In early 2007 if you had told SA they could expect to sell oil for an average price of $60 a barrel for the next decade they would have been extremely happy. That's what oil sold for at that point, and the average from the previous decade, 1997-2006 was about $27.

    Instead what happened is that oil climbed to $145, dropped to $35, then climbed back to $110. SA saw huge competitors come online and probably had constant headaches trying to plan with the price jumping up and down so much.

    So now, as oil eases back down into the low $30s or even $20s, SA sees this as the opportunity to watch the competition die off, and if oil drops to $30 and stays there for two years then the AVERAGE price of oil from 2007-2016 is just about $60. SA pretty much gets what they (would have) wanted and everyone else eats it. In early 2017 when the playing field is cleared out again the supply/demand curve will be exactly balanced and SA will be pumping at capacity and setting the price with their "last barrel".
    Jan 13, 2015. 01:17 PM | 2 Likes Like |Link to Comment
  • At Last, The 'Experts' Wake Up To Oil [View article]
    "This whole idea of Americans running rampant in malls with the cash they saved from lower prices at the pump was always just something somebody smoked."

    This makes me think of something my wife's friend (who manages a well-known clothing store at a major regional mall) said - that the dropoff in sales from December to January has been the worst she's ever seen. They've let 60% of the employees go because it now takes only 3 or 4 to "man" the whole store. During the Christmas rush they had as many as 40 people working at one time. Whatever people are spending the "gas savings" on it's not clothing at the mall.
    Jan 13, 2015. 01:04 PM | Likes Like |Link to Comment
  • The ECB Exploring QE Options [View article]
    If QE does work, why do they have to keep doing it over and over and over?

    If QE1 had been effective then QE2, Twist, QE3, and Bullard's QE4 fantasy teaser on October 15 wouldn't have been necessary.

    Ben Bernanke is a fool who thought "subprime is contained".
    Jan 13, 2015. 12:58 AM | 1 Like Like |Link to Comment
  • Over The Long-Term You Cannot Bet Against China Because The Chinese Are Too Smart [View article]
    If you're asking me, the answer is no, I've never been to China. I worked for a guy who was born in Hong Kong and he told us all about life there. And I've been alive for many decades and can read.

    Apparently you think my information is incorrect. So you are then stating that it is entirely possible to get the full story of the 2014 Hong Kong Democracy protests while browsing the internet in Beijing?

    Can you openly talk about the government massacre of students in 1989 on a crowded train in China? Can you post about it on the internet there?

    Here, let me show you how it works in the US:

    "In 1970 students at Kent State University were killed by Ohio National Guard troops"

    "In 1993 the Federal Government burned 76 men, women, and children to death when their FBI raid went horribly wrong"

    "The current President of the United States is being caught making blatantly false statements about his health care law".

    I've made three open statements on the internet that in China would likely earn me a visit from the secret police. The United States is a secure and fundamentally sound enough society to withstand any and all open criticism of the government.

    China needs to pull back the covers and "let themselves" be free. If the government will not "allow" the people to be free the people need to force the government to do so. If the government resists violently then the people of China have a pretty serious choice to make. Do the people of China really know how strange and Orwellian their country appears to the rest of the free world? Do they plan on doing anything about it?
    Jan 8, 2015. 01:40 AM | 3 Likes Like |Link to Comment
  • Janet Yellen's Failure As Fed Chair [View article]
    I'm not trying to explain inflation around the world. Only how the hoped-for "wealth effect" of QE has done nothing to increase the inflation expectations of those who derive very little income from inflated assets. 90% of people see the stock market go up and then look at their own paycheck and conclude that they will NOT be buying anything this month that they did not buy last month.
    Jan 7, 2015. 02:57 PM | Likes Like |Link to Comment
  • Janet Yellen's Failure As Fed Chair [View article]
    Marek: Without QE the impaired assets of 2009 would have sold at their true market value. For many of the MBS and CDOs of the time this might have been a few cents on the dollar at best. Holders of those assets like BofA and Citi may have gone bankrupt and faced liquidation. Stronger hands with capital would have acquired the assets at market prices. The stock market may have dropped even further than it did in 2009 but at some point all shares would have ended up in the hands of those that could afford them. GE was a great buy in March 2009 at $6 - it would have been an even better buy at $3. Even if the financial side of GE was declared worthless the rest of the company had value that would have been reflected in the share price.

    US Treasuries would have sold at a price that reflected their true value at the time. As we are seeing, in the ABSENCE of QE USTs are considered very valuable and it's likely that the Federal deficits of 2009-2014 could have been financed at an even LOWER rate than they currently are. 10-year bond auctions in early 2015 are raising more money for the government than they did a year ago. Did QE really lower rates the way it was supposed to?

    Would the bankruptcy and liquidation of BofA and Citi been disruptive and scary? Probably. Would the need for more and more QE seven years after the crisis has supposedly passed still be necessary if the impaired assets held by these bankrupt entities been sold at market value? Absolutely not. QE was about artificially levitating asset values in 2009, 2010, 11, 12, 13, 14, and according to the author is still needed to levitate them in 2015.
    Jan 7, 2015. 02:54 PM | 2 Likes Like |Link to Comment
  • Over The Long-Term You Cannot Bet Against China Because The Chinese Are Too Smart [View article]
    If all the effort the Chinese spend censoring information and crippling technology was instead spent improving the efficiency of information delivery I'd agree that China was destined to be a global leader.

    Instead, many of the people in China who could be writing software on Chinese-made I-phone competitors are actually employed writing software that prevents Chinese citizens from freely communicating on their I-phones.

    China society as a whole is living in an unsustainable self-delusion. The best and brightest Chinese will continue to leave that Orwellian society as they become aware of alternatives. I hope they all choose the US as their destination.
    Jan 7, 2015. 02:32 PM | 2 Likes Like |Link to Comment
  • Over The Long-Term You Cannot Bet Against China Because The Chinese Are Too Smart [View article]
    China has a lot more work to do before it even comes close to being in contention for leading the world economically and politically, which seems to be the inferred conclusion of this article.

    High IQ's aside, modern China is a place where the people tolerate a government that prohibits them from reading about, talking about, or even thinking about certain topics. Search "Tiananmen Square" on the internet inside China. Search "2014 Hong Kong Protests" on the Wifi at a Starbucks in Beijing.

    You can pretend that this is no big deal - but what we are talking about is a society that is uncomfortable trusting themselves with certain information. The illusion of peace and prosperity in China is apparently so tenuous that they've concluded that it's better to pretend certain realities don't exist than to allow themselves to confront them.

    I don't care how "smart" a person is - if they live in a self-created world of delusion they are no real "threat". It is hard to be impressed by such a person regardless of their "IQ" - they may be capable of great intellectual accomplishment, but most of their time is actually spent convincing themselves of things that are not true, which takes a tremendous amount of mental energy. At some point reality will intrude upon their comfortable dream world and then whatever intellect they actually possess will be mostly focused on adjusting to this reality.

    China as a nation is going to someday have to actually talk and think about the past 80 or so years of its history and then we'll see if they move forward as a truly enlightened and intellectual society. Until then, expect the trend for the richest and most educated Chinese to emigrate from China to continue as they choose to live in far freer and more open societies.
    Jan 7, 2015. 01:39 PM | 5 Likes Like |Link to Comment
  • Janet Yellen's Failure As Fed Chair [View article]
    Thanks. But QE has always been sold as "lowering rates". Anyway, since QE hasn't worked yet, more QE is also unlikely to work. Inflation expectations have not increased for seven years because individual consumers mostly have no expectation that their personal spending power will increase. I know the two are different, but effectively someone who sees their income five years from now being equal or less than today's income in real terms is unlikely to also accept that prices will be 20 to 25% higher. They very well might be higher, but then our consumer is simply going to buy less - which is exactly what we see now.

    Producers have no pricing power because consumers have no "extra" money. Prices are generally falling because that's how market share is gained. All the money printing in the world is not going to get someone to buy a car priced 5% over last year's model when the competition is selling one for 2% less than last year's. Every consumer category is seeing the same thing, even food and entertainment. Raise prices = less sales.

    Of course the hope was that consumers would look past their stagnant incomes and borrow their way to consumption again, but that's not happening either. Purchasing "assets" at $100B per month to "increase liquidity" is going to do absolutely nothing to spur spending by the man on the street.
    Jan 7, 2015. 12:14 PM | 4 Likes Like |Link to Comment
  • Janet Yellen's Failure As Fed Chair [View article]
    Wait a minute - isn't the purpose of QE to "lower rates to stimulate borrowing"?

    Well then, the market is taking care of that itself - rates are nice and low so borrowers can load up as much as they need to. The free market might just drive the 10-year down to 1.0% - something QE was never able to do.
    Jan 7, 2015. 10:56 AM | 1 Like Like |Link to Comment
  • How The Oil Price Collapse Could Lead To A Bear Market And Recession [View article]
    The uncertainty of whether low oil prices are good or bad for the US economy can be extended to other areas as well - food, cars, housing. Of course if housing goes down in price (greatly benefiting the 90% of consumers who DON'T make a living in the housing business) that is considered a catastrophic disruption that MUST be countered with cheap Fed money or something as we've seen since 2007.

    I find the argument about "cheap oil - good or bad" to be rather amusing for this reason. The "Wall Street / Washington" urge to say it is good is clearly countered by the data as expressed in this article. But it's hard to imagine them calling for a "bailout" or such that effectively pushes the price of oil back up and then trying to sell it as "good for the economy". For this reason, oil is going to fall all the way to whatever bottom it needs to. Some say $20.
    Jan 7, 2015. 10:48 AM | 1 Like Like |Link to Comment
  • Oil Falls Below 50 As Global Financial Markets Begin To Unravel [View article]
    So the price of electricity that powers those servers has fallen by 55% since June too?
    Jan 6, 2015. 12:32 PM | Likes Like |Link to Comment
  • Oil takes out $50 [View news story]
    I've got a similar plan. I'm going to start accumulating at $40 and get to about a $25k position. If oil goes into the $20s I'll buy heavily there. Then wait. Oil is not going to $0 and will likely begin to climb from wherever the bottom is once production/consumption are balanced. Oil at $20 means $1 gas. If oil then gains 150% we're only back to $2 gas, like today. The macro economy will be fine with $2 gas.
    Jan 6, 2015. 01:45 AM | 2 Likes Like |Link to Comment
  • Hurts So Good: When Exactly Are Falling Prices Bad? [View article]
    I simplified the concept. At some point, every drop of oil pumped from the ground has to go to an end user, whether the drops are traded with futures contracts or not. You can't store liquid oil in a file cabinet next to contracts.

    When the world is consuming around 91 million barrels per day but pumping closer to 93 (when OPEC cheating is taken into account), at the end of the day 2 million barrels have to be put in storage. The next day, there is then THAT day's production of 93 million PLUS the 2 from the day before ready to be sold. After six months you have 180 million+ barrels of extra oil already pumped and ready to be sold (and costing a fortune in storage, insurance, etc costs). At some point reality hits that it's better to leave the oil in the ground for future use, but as of right now no producer has come to that conclusion. Hence the price just keeps on dropping.
    Jan 5, 2015. 07:04 PM | 1 Like Like |Link to Comment