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  • Surprise... Strong Swiss Franc Fails To Sink Economy [View article]
    The Dutch had a similar experience in the late 1500s and early 1600s. They gained freedom from Spain, and became the freest economy in Europe (though not totally free). It just goes to show that the job of gov is to protect property. Nature's price mechanisms will then kick in and utilize people's natural inclination to innovate and become more productive. Peace and prosperity will follow.
    Jun 9, 2015. 08:24 AM | 3 Likes Like |Link to Comment
  • Surprise... Strong Swiss Franc Fails To Sink Economy [View article]
    "yet the country has no natural resources except water and natural beauty."

    Don't forget it's people, the most important natural resource of all. If they can take the natural resources from other countries and turn those resources into desirable things that the natural resources countries could not, then it doesn't matter where the resources come from. All that matters is where the Swiss are.
    May 21, 2015. 09:17 AM | 2 Likes Like |Link to Comment
  • That's Not How Any Of This Works [View article]
    "Consequently, the effect of allowing member CBs to “compete” with financial intermediaries (non-banks) has been, and will be, to reduce the size of the intermediaries/non-banks "

    It basically sounds like a shift from nonbanks to CBs. In other words, its actually a policy that favors banks, which of course the regulators would prefer. So, if it were reversed, banks would shrink, but lending mechanisms outside the regulated banking sphere would increase. That could lead to more lending and more spending and thus be inflationary, however, the big road block to lending regardless of who is doing it is still the regulatory and tax structure.

    You could end interest on all deposits tomorrow, then the money would shift to other mediums with better returns, but that would probably just lower their margins (or lower their cost of funds), but it is not necessarily be a forgone conclusion that more money would be lent out.
    Mar 23, 2015. 01:03 PM | 2 Likes Like |Link to Comment
  • The Fed Will Not Raise Rates... Here's Why [View article]
    "Against the Constitution to hold both Offices. "

    Haven't you heard? The Constitution is a living document and can be changed at will. Why in this new era, if Congress simply wanted to declare a new President, I don't see any reason why they couldn't.
    Mar 21, 2015. 08:10 PM | Likes Like |Link to Comment
  • That's Not How Any Of This Works [View article]
    "They are not a source of loan-funds. "

    That's the theory, but I can guarantee the regulators don't believe that.

    However, I do see what you are saying.
    Mar 21, 2015. 08:07 PM | 1 Like Like |Link to Comment
  • The Fed Will Not Raise Rates... Here's Why [View article]
    "That effectively amounts to a single rate hike and very low odds of a second for 2015. For 2016 they reduced expectations even further to 1.875% from 2.5%. "

    Maybe what we get is a single rate hike of 25bps, Yellen declares victory because she split the baby, and then it is a long time before we get another rate hike.
    Mar 20, 2015. 11:21 AM | Likes Like |Link to Comment
  • The Fed Will Not Raise Rates... Here's Why [View article]
    "It is true that the residential construction sector is a fairly small piece "

    I remember that. I think BB also said something similar back in 2008.

    I have to admit, Yellen has surprised me. Everything I read about her was that she believed printing money led to job growth. Then she takes over as Fed chair, and she has taken actions that indicate more hawkishness rather than dovishness. Her background suggested she was more akin to Lyman J Gage and Leslie Mortimer Shaw (both Sec of Treas from 1900 to 1907) that believed in an elastic money supply to solve poverty, aka unemployment. However, she has presided over Taper and now seems to be suggesting DR increases. Sort of the opposite of what I expected.

    Anyway speaking of the San Fran Fed, here is an interersting story I came across the other day.

    "The recapitalization was approved in September by the Federal Reserve Board of San Francisco, despite loud complaints from Hildene and other investors in collateralized-debt obligations backed by Albina's trust-preferred securities. "

    Look who else shows up in this...Tom Steyer.

    "Beneficial, like Albina, is a community development financial institution, owned by a nonprofit foundation created by hedge fund billionaire Tom Steyer, who founded Farallon Capital, and his wife, Kathryn Ann Taylor."

    Are you familiar with CDFIs? I guess Tom is just trying to buy some goodwill. Anyway the SF Fed reference, aka Janet Yellen, caught my eye, as I thought this was a fascinating story, which, again, doesn't quite fit with what Yellen is doing. The Albina story is about a Fed perhaps acting to give the shaft to TPS owners in order to save a "socially conscious" bank. If Yellen is part of that culture, I would think she would favor keeping rates low for a long time, in order to provide help for the "unemployed".

    Again, though, she may have gotten in over her head, and because she has poor leadership skills, she is getting pulled in different directions, which is why he performance so far seems to be so conflicted.
    Mar 19, 2015. 05:06 PM | Likes Like |Link to Comment
  • The Fed Will Not Raise Rates... Here's Why [View article]
    Here's a comment back from February 2015.

    "Global currency fluctuations are a zero-sum game, when one goes up another must come down, creating trade-offs for the economy. Importing cheaper goods will boost the purchasing power of US consumers, though at the same time hurting domestic exporters. Cheaper imports are also deflationary, as domestic producers must lower prices to compete with foreign rivals. Yesterday, Warren Buffet said it would be very difficult for the Fed to successfully normalize raise rates with a dollar this strong. He has a point. "
    Mar 19, 2015. 01:45 PM | Likes Like |Link to Comment
  • That's Not How Any Of This Works [View article]
    "raising Reg Q ceilings for just the CBs in December 1965. "

    That would seem inflationary, whereas interest on excess reserves would seem to be disinflationary. In other words, if a bank can pay interest on ddas then it can either attract or keep deposits, thus allowing it to grow its loan base, hence more inflation. Paying a bank to keep reserves rather than use those reserves to make loans would seem to suggest less inflation.

    Sorry, I'm not sure how you are equating them.
    Mar 19, 2015. 12:51 PM | Likes Like |Link to Comment
  • That's Not How Any Of This Works [View article]
    "History says rates could stay low and range bound for 10-15 years or more."

    Indeed. Its important to remember that rates don't go down because they are high, or that rates don't go up because they are low. Rates go up and down because of the economic reasons that dictate whether they go up or down. So, looking back in history to say the 1800s, the early 1900s, or even the 1950s or 1970s is only useful to understanding the economic forces that made rates what they were at those times. From that study, we can examine those same forces and their interplay in our time, and then decide based on that empirical reasoning instead of specious reasoning what the likely outcome for rates will be.

    Right now, the data point to low rates for a long time, with regards to the US that is. If these circumstances continued for the next 4 decades, then rates would stay low for the next 4 decades.
    Mar 19, 2015. 11:52 AM | 1 Like Like |Link to Comment
  • The Fed Will Not Raise Rates... Here's Why [View article]
    Oh, forgot to add that the 10 yr action suggests the market believes that DR rate hikes are on hold for a while. The 10 yr has dropped to the low 1.90s. Now, some of that might be more of the fear trade based on the Greek tragedy, but it appears to me to be the sort of front running you see when the markets think they know what the Fed is going to do. In this case, they think the Fed is going to keep the DR rate low and the balance sheet up, thus low rates. As such, everyone piles in when then 10 yr is at 2.05, thus driving down yields.

    We saw a similar thing in 2008 when QE1 was announced. The 10 yr was close to 4%. Then QE was announced, and the markets drove the 10 yr yield down to 2%. Everyone thought that QE would mean lower rates, so they piled on, thus driving down rates themselves. Then when QE started, rates went up. Ooops.
    Mar 19, 2015. 10:51 AM | Likes Like |Link to Comment
  • That's Not How Any Of This Works [View article]
    "which proved conducive for sustainable massive economic growths in the 50's and and 60's. The same happened in the 80's and 90's"

    Careful, that's specious. There were other factors in the fiscal realm that were occuring during those periods as well.

    "If history is a guide, interest rates are not going to stay depressed for long."

    Take a look at the 10yr rate since 1980, and see how history guides you.
    Mar 19, 2015. 10:42 AM | 1 Like Like |Link to Comment
  • The Fed Will Not Raise Rates... Here's Why [View article]
    Of course this is USA today, but it does represent the "Fed will raise rates" camp.

    And then there is this from Chris Low at FTN.

    "Today’s Fed statement dropped patient.

    “Patient,” of course, meant the Fed expected to wait at least two meetings before raising rates. It’s absence suggests the Fed will discuss a hike in June. "

    Chris Low usually does pretty good work.

    Then compare Low to FIG Partners.

    "Yesterday’s FOMC forecasts were downgraded more than expected pushing out the June liftoff. The removal of ‘patient’ signals the fed will be even more data dependent while the downgraded GDP expectations and lower Employment threshold more than offset the language change. The unemployment shift low-ered from sub 5.5% to a 5.0%- 5.2% employment threshold was the real sur¬prise. Comments on inflation remained consistent that they are ‘reasonably confident’ that we will return to 2% in the medium term. The market is current¬ly pricing odds for the first rate move at: September (41%), October (50.9%), and December (66%). Click here for the latest economic projections. "

    I think Yellen wants to print, but my worry is she has stuck her foot in her mouth by implying calendar dates. Its also important to remember that the Fed is very political (the independence talk, is just that, talk), and that there is political pressure to raise rates. So, her background tells her to print, but the political pressure is telling her not to print.

    Now look at this...

    "The statement of economic projections revealed slower growth expected in all three years from 2015-2016, but also a lower unemployment rate in all three years. The long-term unemployment rate range was revised from 5.2-5.5 to 5.0 to 5.2, suggesting a new, lower NAIRU estimate. The inflation estimate, both headline and core, was revised a lot lower this year and a little lower next year."

    To me, this would suggest that Yellen would avoid raising the DR, but then low says this...

    "New dot plot medians are lower, too, consistent with a slower tightening pace:"

    Which means his view is that Yellen is going to raise the DR, but the data means she will do it slowly.

    I tend to lean towards Yellen dragging her heels past June for as long as she can get away with it. Still, its a tough call. Fed officials often cling to ideologies that make them bunglers, and what's worse, is they exist in a system that turns normal people into bunglers.

    In general, an increase in the DR is typically "risk-off". Now a 25bps hike is not the end of the world for asset prices, but it doesn't help. Remember, the typical recession starter is the Fed, so we have to watch them closely in order to protect ourselves.
    Mar 19, 2015. 10:38 AM | Likes Like |Link to Comment
  • The Fed Will Not Raise Rates... Here's Why [View article]
    Here's what happened to stocks in Zimbabwe. I just think this is interesting.
    Mar 18, 2015. 09:02 PM | 1 Like Like |Link to Comment
  • Stability Of The European Union (23) January 1, 2015. [View instapost]
    "Adopts Anti-Poverty Law Despite EU Row."

    Greece could have done nothing else that would create more poverty than pass an "Anti-Poverty" law.

    In fact, in reading through the provisions, these guys are just pikers with regards to wiping out poverty. What they really should have done is to pass a law that "bans" poverty. All they need to do to accomplish this is pass a law that guarantees a net worth of 1 million Euros for every Greek citizen. For any citizen not having that net worth, the Greek gov will simply issue a check for the difference necessary to bring the individual up to a 1 million net worth.

    If you can pass an "anti" poverty law, then there is no reason you just can't "ban" poverty. All you have to do is ignore Bastiat. Problem solved.
    Mar 18, 2015. 08:46 PM | 5 Likes Like |Link to Comment