POLL: Fed and interest rates

[JimBowerman]

The easing is always going to happen at the next meeting, it has been that way for a long time now.

 

Agree with you on that one.  Despite their words, ECB unlikely to ease (but no, they aren't out of bullets, they just refuse to use those bullets.)

 

I (half) jokingly say: You really want the market to believe ECB will ease?...then have Draghi come out on stage with a lie detector showing his heart rate on a big screen behind him.  Then have him read the following statement:

 

"we are doing unlimited open market operations (QE) until inflation is above 2%"

 

Inflation would go up in 5 minutes before any bonds need to be bought.  ECB balance sheet would likely SHRINK if he did that...with inflation rising

 

I'm only half kidding about the lie detector :-\

 

Market is sniffing out ECBs weak actions not their strong words

 

 

[RuleNumberOne]

Someone from Blackrock suggested the ECB should  buy stocks. Why not just buy entire companies Buffett-style?

 

That way we can complete the journey to Soviet collectivism. It would lead to even greater prosperity.

 

Companies do not need to generate a return on capital anymore since debt is free. Free-markets have a much diminished role in setting prices.

 

If we go even further and have the central bank buy everything, we would all be rich. 

 

[JimBowerman]

Someone from Blackrock suggested the ECB should  buy stocks. Why not just buy entire companies Buffett-style?

 

That way we can complete the journey to Soviet collectivism. It would lead to even greater prosperity.

 

Companies do not need to generate a return on capital anymore since debt is free. Free-markets have a much diminished role in setting prices.

 

If we go even further and have the central bank buy everything, we would all be rich.

 

Would inflation go up in such a scenario?

[TwoCitiesCapital]

Someone from Blackrock suggested the ECB should  buy stocks. Why not just buy entire companies Buffett-style?

 

That way we can complete the journey to Soviet collectivism. It would lead to even greater prosperity.

 

Companies do not need to generate a return on capital anymore since debt is free. Free-markets have a much diminished role in setting prices.

 

If we go even further and have the central bank buy everything, we would all be rich.

 

Would inflation go up in such a scenario?

 

Asset inflation. Which could lead to limited, but ultimately unsustainable, amounts of inflation elsewhere.

[RuleNumberOne]

I prefer free-markets with 1.5% inflation rather than a nationalized economy with 2% inflation.

 

Whether the ECB can buy all equity and get 2% inflation can probably be answered by the Soviet Union's records.

 

This FT journalist writes better than me, my thoughts are the same:

https://www.ft.com/content/9a6295f6-aefa-11e9-8030-530adfa879c2

 

"Our senses have been dulled by increasingly extreme monetary policy over the past decade, so we must try and look at it afresh. What is being suggested here is that the ECB, a publicly owned institution, prints money and uses it to buy equity stakes in private companies. In other words, the only way to save capitalism is to begin to nationalise it.

 

Global elites have a full-on meltdown every time the UK opposition leader Jeremy Corbyn suggests some kind of “people’s QE” or nationalising a couple of utility companies. Yet when BlackRock says this no one blinks.

 

It isn’t quite the same — utility nationalisation isn’t good for big asset managers for starters. But it isn’t all that different either. Public equity purchases distort pricing signals; they are anti-free markets; they will be almost impossible to unwind; and think of the governance issues. BlackRock likes to promote the idea that big shareholders should be active when it comes to corporate governance. What if one of those big shareholders is a central bank? Should they be active too?"

 

Finally, the ongoing shift towards increasingly bonkers monetary bazookas is surely more evidence that the whole thing just isn’t working. If the big financial firms could see beyond their own business models they wouldn’t be asking for more measures to stabilise the status quo."

 

[JimBowerman]

Asset inflation. Which could lead to limited, but ultimately unsustainable, amounts of inflation elsewhere.

 

So...so far we've seen asset price inflation which will eventually spill over into CPI but we haven't seen that spill over yet?  But its coming? Any eta on when you think it's coming?

 

What do you mean exactly by "elsewhere"? Billions prices project? CPI?

 

Are we all having skin in the game and holding massive short treasury positions for this "second coming" of inflation that is always just around the corner? 10 years and counting.....

 

(if its only stocks and other assets that ever go up, and the price of milk and bread don't ever go up....then haven't we found nirvana and a perpetual motion machine?)

 

In a society where a central bank does unlimited printing w/ only stocks going up and the price of milk and bread remaining flat - everyone would pay a 0% tax rate and see their net worth go sky high

 

Its either that or we need to all start admitting (after 10 years) that "asset price inflation"/"shadow stats inflation" /"pushing on a string", etc. etc. theories are exactly wrong

[RuleNumberOne]

According to Wikipedia, Russia had hyperinflation in the first 6 years after the Bolshevik Revolution until the gold standard was put in.

 

We could repeat the Bolshevik experience by making the ECB buy equities. They have already made debt free (i.e. nationalized it and removed free-market pricing.) The Bolshevik experience is promising. We could have the central bank own the equity of all companies and thereby generate prosperity.

 

 

[TwoCitiesCapital]

Asset inflation. Which could lead to limited, but ultimately unsustainable, amounts of inflation elsewhere.

 

So...so far we've seen asset price inflation which will eventually spill over into CPI but we haven't seen that spill over yet?  But its coming? Any eta on when you think it's coming?

 

What do you mean exactly by "elsewhere"? Billions prices project? CPI?

 

Are we all having skin in the game and holding massive short treasury positions for this "second coming" of inflation that is always just around the corner? 10 years and counting.....

 

(if its only stocks and other assets that ever go up, and the price of milk and bread don't ever go up....then haven't we found nirvana and a perpetual motion machine?)

 

In a society where a central bank does unlimited printing w/ only stocks going up and the price of milk and bread remaining flat - everyone would pay a 0% tax rate and see their net worth go sky high

 

Its either that or we need to all start admitting (after 10 years) that "asset price inflation"/"shadow stats inflation" /"pushing on a string", etc. etc. theories are exactly wrong

 

I think it's quite possible we've already seen it. It could be the only reason inflation has been 1-2% instead of -1 or 0%.

 

But again, I'm not supporting the idea. Just not hard for me to believe blowing a bubble that makes everyone temporary millionaires could lead to unsustainable inflation in areas outside of stocks as people liquidate and spend their newfound riches.

[John Hjorth]

... According to Wikipedia, Russia had hyperinflation in the first 6 years after the Bolshevik Revolution until the gold standard was put in. ...

 

Yeah, tell me about it - have you ever studied something more recent, - something like the doings of Elvira Nabiullina.

 

To me, naturally, you haven't, and thereby you don't have a clue about what you're talking about. Please prove me wrong here.

[RuleNumberOne]

The obstacle to studying more recent stuff is the news in Europe is not in the English language.

 

Unlike these hedge funds, I can't go to Europe to investigate when and why things are going to crash. I will open a relevant thread to attract more discussion. I have some urgent questions, I will also read up on Nabiullina.

[Spekulatius]

For the macro folks out there, anybody noticed that the inflation numbers are pointing up and pretty fast apparently. YoY change is ~2.7% now and the monthly annualized change ~3.6% and high 3 month in a row. Of course there is a signal and the noise issue, but this seems worrisome. The inflation target is 2% and we are way above that. I wonder what the Fed officials are thinking about this.

https://www.frbatlanta.org/research/inflationproject/stickyprice/

[TwoCitiesCapital]

For the macro folks out there, anybody noticed that the inflation numbers are pointing up and pretty fast apparently. YoY change is ~2?7% now and the monthly annualized change ~3.6% and high 3 month in a row. Of course there is a signal and the noise issue, but this seems worrisome. The inflation target is 2% and we are way above that. I wonder what the Fed officials are thinking about this.

https://www.frbatlanta.org/research/inflationproject/stickyprice/

 

More concerning for bond longs, but not so much for the Fed yet I don't think.

 

I imagine that much like employment, inflation is a trailing indicator that always appears at it's "best" prior to a downturn - we'd need to see a sustained rise before it becomes an issue. Not just a few months worth.

 

Also, I have to believe the tarriffs are a portion of that meaning it's transitory and potentially reversible and not emblematic of an elevated trend in inflation.

[TwoCitiesCapital]

For the macro folks out there, anybody noticed that the inflation numbers are pointing up and pretty fast apparently. YoY change is ~2?7% now and the monthly annualized change ~3.6% and high 3 month in a row. Of course there is a signal and the noise issue, but this seems worrisome. The inflation target is 2% and we are way above that. I wonder what the Fed officials are thinking about this.

https://www.frbatlanta.org/research/inflationproject/stickyprice/

 

More concerning for bond longs, but not so much for the Fed yet I don't think.

 

I imagine that much like employment, inflation is a trailing indicator that always appears at it's "best" prior to a downturn - we'd need to see a sustained rise before it becomes an issue. Not just a few months worth.

 

Also, I have to believe the tarriffs are a portion of that meaning it's transitory and potentially reversible and not emblematic of an elevated trend in inflation.

 

Obviously didn't foresee covid happening - but think this is important to note in an environment where everyone is expecting sustained inflation again. Inflation is a trailing indicator.

 

Rates can continue higher in the intermediate term, but ultimately they're capped by the debt burden on society and will likely peak below their prior peak in the last cycle.

 

Also attached is a piece from Doubleline's presentation today. Foreigners have been fleeing treasuries since mid-2016 and I don't quite see a reason for that to stop - even our higher nominal rates are still negative in real terms. More likely people continue to buy inflation hedges now that negative real rates are becoming a global phenomenon, but we don't need foreigners for rates to come back down like we didn't need them in 2019.

[Cigarbutt]

...

Also attached is a piece from Doubleline's presentation today. Foreigners have been fleeing treasuries since mid-2016 and I don't quite see a reason for that to stop - even our higher nominal rates are still negative in real terms. More likely people continue to buy inflation hedges now that negative real rates are becoming a global phenomenon, but we don't need foreigners for rates to come back down like we didn't need them in 2019.

i just want to mention that fleeing is too strong a word.

For a while now, US government debt held by foreigners has grown (at a rate slightly less than GDP).

https://fred.stlouisfed.org/series/FDHBFIN

https://ticdata.treasury.gov/Publish/mfh.txt

After the GFC, this ratio (US gvmnt debt over GDP) has grown and sort of peaked in early 2014 at 34.8%. At yr-end 2020, it's at 32.9%.

The most liquid market in the world has become very crowded(!?). For a contrarian, crowded trades are interesting because of potential reversals. In this case however, my bet, at least for a while, is with the momentum crowd who can control the yield curve. Don't fight the Fed, they say.