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jhooper

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  • What Is Austrian Business Cycle Theory? [View article]
    Well, here is how I see it.

    By the Fed keeping the balance sheet at $4.5 trillion, that means there are an additional $4.5 trillion of Fed notes in the economy. I know the claim is that those notes aren't in the economy because they are held as reserves, but to me that is nonsense.

    The Fed, the reserves, the banks, they are all part of the economy. Just because the notes the Fed has created weren't printed and handed out to people to spend doesn't mean that they aren't part of the economy.

    QE does affect prices, but in this case it is affecting the prices of banks and bank deposits and equities. When a bank has the Fed buy bonds off its balance sheet, the bank looses an asset that was generating income, and thus contributing to capital. The bank's balance sheet changes. Securities become cash. The incentive for the bank, if it can't get more income, say if there is weak loan demand, is to cut expenses to make up for the hit to capital improvement.

    One place to do this is interest expense. So banks lower deposit rates, and people decide not to put any more money with banks and chase equities instead. Demand for equities increase, and so to does their price.

    Another thing banks could do, is buy more securities with their new Fed notes, and now those people have new cash, and since they think yields will be low, they too want a return, and chase equities.

    Either way, the big picture here is the Fed has created new Fed notes. Fed notes are used to buy things, whether those things are TVs or equities. The more Fed notes that exist, the more asset prices can be bid up, whether the assets are TVs or equities.

    By replacing Treas & MBS notes (which can't be used to buy things) with Fed notes (which can be used to buy things), Fed notes that are already in existence aren't needed by the banks. So those notes don't go into the banks, they go somewhere else, and in this environment, its my conclusion that they choose equities.

    Note, this isn't always true, its only true in our current subsidy mix (lots of fear elements out there today - risk-off stuff). So, as long as the Fed maintains the amount of Fed notes, then notes will exist to keep the bank's demand for deposits low. As such, other notes already in existence are free to keep bidding up equities, or at least keep equities from falling back down to where they were when the Fed balance sheet was only $800 billion.

    Anyway, that's how I see it.
    Aug 8 11:25 AM | Likes Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    One more quick comment. Add newly approved air strikes in Iraq to the list.
    Aug 7 10:00 PM | Likes Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    I will give it a try. Although this was a nice quiet place to think.
    Aug 7 09:41 PM | Likes Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    I would say that's a good plan. A big piece of the subsidy mix right now is geo-political turmoil. You've got Ukraine, Israel, Portugal banking, and Italian recession. Combine all that with Taper, and you've got a good bet for a continued flight to quality. I could see us dipping into the 1800s for the S&P and the 2.30s for the 10yr, but remember, taper should have only slowed the growth in equities and interest rates, so if any of the geo-political stuff resolves itself, we could get back up into the 2.50s - 2.60s for the 10yr and then back into the mid 1900s on the S&P. Then when taper is over and the Fed is only maintaining the size of the balance sheet, that's when I could see settling into the 1800s and the 2.20s to 2.30s, and staying there until the Fed either QEd again or shrunk the balance sheet.
    Aug 7 05:33 PM | Likes Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    OK. 1909 on the S&P and 2.41 on the 10 yr. The Fed updates its balance sheet every Thursday, so I am curious to see what it looks like tomorrow.
    Aug 7 04:33 PM | Likes Like |Link to Comment
  • Stability Of The European Union June 2, 2014 To ??? [View instapost]
    "Germany said moments ago that the Russian ban on imports of meat, fish, dairy products, fruits and vegetables from EU and U.S. will have “noticeable” impact, German agricultural exporters. "

    Wow, its really scary how history repeats itself. After Young collapsed the stock market in Oct of 1929 by raising the discount rate up to over 6% (just like BB did in 2006 and held it there until late 2007 - what happened to stocks in March of 2009?), Hoover (a Progressive interventionist - no laissez faire guy) brought on Smoot-Hawley to protect agriculture. Of course, what did our "trading partners do? Why, just like Putin, they retaliated.

    Now, think about this for a second. When you lower the cash flows for a particular asset, say ag land, what happens to the PV of that asset? Now, ask yourself, what happens when that ag land asset has been used for collateral at a bank? Now consider this, a bank has to write-down loans when a collateral dependent loan sees a decline in the value of the collateral. That flows to capital, and reduced capital reduces the bank's ability to lend, and if you get enough write-downs banks begin to fail.

    http://1.usa.gov/V176pA

    Now, think about this, where there bank runs in the US AFTER Smoot-Hawley?
    Aug 7 12:39 PM | 6 Likes Like |Link to Comment
  • Who Is John Galt And What Stocks Would He Buy? Part I [View article]
    When I see everyone that says these sorts of things equally distributing all their income, only living in a one room efficiency, and working 90 hours a week 7 days a week for all of their lives will I actually give any credit to the fact that these people really believe in sharing.

    Until then, its just hypocrisy. They only say they believe in sharing and compassion, just so they can sound good.

    We will never see them put their money where there mouth is. They are quite content to let people starve and suffer, and keep talking about how much they care. All they can do is demagouge. They refuse to practice what they preach.
    Aug 7 07:20 AM | Likes Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    I don't know as much about Germany, so I can only guess. It could be that regulations in Germany and Europe force the purchase of European bonds before US bonds.

    For Japan, the Japanese have a concept called "Uchi-soto". Its the idea that anything not Japanese is bad, and anything Japanese is good. In other words, the Japanese will go to the mattresses for Japan.

    "However, in reality it is very difficult for non-Japanese to be accepted as an "uchi" member of Japanese society"

    http://bit.ly/FRA01n
    Aug 6 09:00 PM | Likes Like |Link to Comment
  • Who Is John Galt And What Stocks Would He Buy? Part I [View article]
    Rowling a libertarian? What are you smoking? Rowling herself would beg to differ:

    Not that she is, but that she stumbled into it. Logic creeps in, even into the low information mind. The same is true for the Hunger Games. The author said she was making the case for what would happen without gov control and global warming, but the case that she wound up making isntead is how a ruling aristocracy is created BY gov control of the economy. In fact, there was even a scene where the movie made the case for the right to bear arms. After a father saw his daughter killed in the arena, he and his fellow citizens revolted, but guess who was the only ones with the guns? That's right. The gov troops. That's why Coercives and the pro-tyranny crowd want to disarm the public, so only the gov troops have guns and the citizens have to use rocks and sticks.


    You also saw this with Death Wish. The author of the book was trying to make the case for gun bans, but what happened is the movie showed what happens when only the gov has guns. I'll never forget the scene where Charles Bronson is asking the cop if the thugs who raped and beat his wife and daughter would be found. The cop said probably not. They just don't have the man power to find just a couple of guys. Then later in the movie after Bronson had dispatched a couple of thugs in self defense, we get to see a room full of police all trying to find one guy.


    http://bit.ly/1kJgQkC


    Go to 52:06 to see the room full of cops that weren't supposed to exist.


    Movies are full of such scenarios. Another great scene is on the bonus features to Soylent Green. There's a scene with a violent mob with a voice over explaining how the future will be world where only an iron fist of gov can control the mob, but in a flash a director calls "cut" and the mob stops rioting in an instant. Here you have the principle of voluntary cooperation. All those people wanted to make the movie and get paid (even if the pay is just being in a movie), so they come together in a voluntary fashion, thus illustrating that force is not how people are really controlled, they are all controlled by self interest. When they can't use force, their self interest requires them to work together.


    Aug 6 08:54 PM | 1 Like Like |Link to Comment
  • Who Is John Galt And What Stocks Would He Buy? Part I [View article]
    Rowlings had a libertarian bent in this series. She makes fun of the plethora of "ministries" at the Ministry of Magic, she ridicules the Ministry for taking over the school under Umbridge, and implies that everyone is much happier when the Ministry is extremely limited.

    She also includes slavery for the elves, and points out that they can become brain washed to want to be slaves and have some one else be their master. Slavery after all is just gov regulation of wages. Its just a maximum wage law, which is another way of saying a 100% income tax rate made possible by the gov not protecting the freedom of association. Perhaps William Wilberforce was on her mind when she was including this facet into the books, if not, she should have.

    Rowlings was influenced by her time on welfare as a single mother. She saw first hand the ineptness of bureaucracy, and that translated into her writings whether she was aware of it or not.
    Aug 6 02:38 PM | Likes Like |Link to Comment
  • Who Is John Galt And What Stocks Would He Buy? Part I [View article]
    "Get this through your head: Real Man don't "share"

    When I see everyone that says these sorts of things equally distributing all their income, only living in a one room efficiency, and working 90 hours a week 7 days a week for all of their lives will I actually give any credit to the fact that these people really believe in sharing.

    Until then, its just hypocrisy. They only say they believe in sharing and compassion, just so they can sound good.
    Aug 6 01:36 PM | 1 Like Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    More from the daily email blurbs.

    http://bit.ly/XDTWAv
    Aug 6 10:27 AM | Likes Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    "The risk-off scenario escalated yesterday afternoon by Poland’s Foreign Minister comment’s on further pressure or invasion by Russia. Overnight, German rates went lower after European data, notably weaker Factory Orders and an Italian Recession, weighed on global markets. US Equities are showing –7 S&P this morning while the US 5yr is back to 1.63% and the 10yr is back to 2.44%. The recent bounce in curve will be under pressure today and technically im¬portant levels are being tested. The next major support for the 5yr is 1.42% and 2.40% for the 10yr. The probability to test these levels and a further capitulation in yields will increase with a further sell-off in equities. "
    Aug 6 10:27 AM | Likes Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    By mid July the 10 yr was at 2.55. Today its around 2.44.

    Another fact is that the week of July 30, was the first time since the week of May 28 that the Fed balance sheet actually shrunk. One other fact is that through this time last year, the Fed balance sheet had grown by $664 billion, and through this year, it has grown by $374 billion.

    Another interesting fact is that GDP was reported at 4%, and ADP and NFP were above 200k. We saw a slight jump to 2.60 for the 10yr, and now we are back at 2.44. Also note the S&P was at 1988 on Jul 24, and this morning I just saw it at 1914. Italy is now reported to be in recession, so what's interesting is that when we get capital flight from Europe, we often see a divergence. That is, equities go up and the 10yr rates go down. Now we are seeing both equities falling and yields falling. That's more indicative of a flight to quality.

    In general, what all this means is that economic conditions overall, really, still show a malaise. From here on we will see equities struggling and a tendency for yields to continue to fall. This is typical for what we have seen in all of the QE cycles. QE pumps up expectations, and lowers bank's demand for deposits. This pushes people into equities, which lures capital away from safety, and the result is equities up and yields up. Now that we are coming to the end of another QE cycle, the underlying realities of the malaise are returning, and we are seeing a drift back to safety, and a flattening of the yield curve, which a flat yield curve indicates malaise.

    So, if you want to market time, in theory, you would have moved from equities to bonds in the middle of July. In theory, you would also have wanted to do that now. The other play, is to steel up as you watch equities drop, and hope that sometime next year we get another QE. Another QE will reinflate equities and push yields back up. The problem is how long you would have to wait? Another option is to buy somewhere at that bottom when you get signs that the Fed will start another round of QE. The other thing to keep in mind is that as long as the Fed maintains the current size of the balance sheet, the tendency for equities to fall will be limited.

    If the Fed substantially cut its balance sheet to say $1 trillion, the S&P could plunge back down to say 1200, and we could see the 10 yr fall down to close to 1% and we would probably get another recession. However, if they hold at around $4 trillion plus, 1800 for the S&P could be the bottom or maybe somewhere in the mid 1700s.
    Aug 6 10:22 AM | Likes Like |Link to Comment
  • The Outlook For Interest Rates [View article]
    "it's unlikely that rates will fall further from here."

    At the date of this comment, the 10 yr was at 2.55. Today its around 2.44.

    Another fact is that the week of July 30, was the first time since the week of May 28 that the Fed balance sheet actually shrunk. One other fact is that through this time last year, the Fed balance sheet had grown by $664 billion, and through this year, it has grown by $374 billion.

    Another interesting fact is that GDP was reported at 4%, and ADP and NFP were above 200k. We saw a slight jump to 2.60 for the 10yr, and now we are back at 2.44. Also note the S&P was at 1988 on Jul 24, and this morning I just saw it at 1914. Italy is now reported to be in recession, so what's interesting is that when we get capital flight from Europe, we often see a divergence. That is, equities go up and the 10yr rates go down. Now we are seeing both equities falling and yields falling. That's more indicative of a flight to quality.

    In general, what all this means is that economic conditions overall, really, still show a malaise. From here on we will see equities struggling and a tendency for yields to continue to fall. This is typical for what we have seen in all of the QE cycles. QE pumps up expectations, and lowers bank's demand for deposits. This pushes people into equities, which lures capital away from safety, and the result is equities up and yields up. Now that we are coming to the end of another QE cycle, the underlying realities of the malaise are returning, and we are seeing a drift back to safety, and a flattening of the yield curve, which a flat yield curve indicates malaise.

    So, if you want to market time, in theory, you would have moved from equities to bonds in the middle of July. In theory, you would also have wanted to do that now. The other play, is to steel up as you watch equities drop, and hope that sometime next year we get another QE. Another QE will reinflate equities and push yields back up. The problem is how long you would have to wait? Another option is to buy somewhere at that bottom when you get signs that the Fed will start another round of QE. The other thing to keep in mind is that as long as the Fed maintains the current size of the balance sheet, the tendency for equities to fall will be limited.

    If the Fed substantially cut its balance sheet to say $1 trillion, the S&P could plunge back down to say 1200, and we could see the 10 yr fall down to close to 1% and we would probably get another recession. However, if they hold at around $4 trillion plus, 1800 for the S&P could be the bottom or maybe somewhere in the mid 1700s.
    Aug 6 10:20 AM | Likes Like |Link to Comment
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