Bernanke: Talks the Dove, Acts the Hawk

[bart]

Re: Bernanke: Talks the Dove, Acts the Hawk

but does that count the money that actually made it to the troubled end-user?

So far all we know is that the banks have that money - has anyone borrowed it from them (did they actually intermediate? or is the money just sitting there? )

I don't believe it was intended to arrive at the end user.

I view as more of a confidence building attempt than a real move. In other words, it doesn't matter if it has been loaned out or not.
One of my favorite definitions of money is "an idea backed by confidence", and one of the primary jobs of a central bank is to support its currency.

Note that I'm not disagreeing with EJ's OMOF concept either.

[zoog]

Re: Bernanke: Talks the Dove, Acts the Hawk

I don't believe it was intended to arrive at the end user.

I view as more of a confidence building attempt than a real move. In other words, it doesn't matter if it has been loaned out or not.
One of my favorite definitions of money is "an idea backed by confidence", and one of the primary jobs of a central bank is to support its currency.

Note that I'm not disagreeing with EJ's OMOF concept either.

So do you view this as more of a way to improve the dollar value vs other currencies?

(speculating now) It seems to me that at some point they will have to lower the federal funds rate, but obviously don't want to do that while the $USD index is hovering down near 80. I'm sure they are now and will continue doing anything they can to raise that level higher before making that rate cut, (if such a cut becomes necessary in the future).

[EJ]

Re: Bernanke: Talks the Dove, Acts the Hawk

does this throw ka-poom theory in doubt? or does it just mean it happens more slowly and less extremely?

It confirms the portion of Ka-Poom Theory that predicts that during the unwinding of the Greenspan credit bubble (debt deflation) we are not likely to see monetary deflation, that is, a negative inflation rate. The debt deflation will largely occur via the dollar depreciation, inflationary Poom part of the process. The Fed's recent action supports the idea that no run-for-the-hills, banking system failure driven run-away money supply collapse is in the offing, with commodity prices due to fall in price by half–I heard this from some commentators last week. Instead, we will experience disinflation, that is, a falling rate of inflation and a rising dollar along with falling demand UNTIL the Fed acts to stimulate domestic demand.

Despite the short term rise in the bonar, the negative long term prospects for the bonar remains. From today's WSJ:

How a Gulf Petro-State
Invests Its Oil Riches

Kuwait's Mr. Al-Sa'ad
Likes Asian Real Estate
But Is Cool to Treasurys
By HENNY SENDER
August 24, 2007; Page A1

KUWAIT CITY -- Kuwait is a world away from New Haven, Conn. But when a government investment fund here got a new chief in 2004, one of the first things he did was commission a study of the sophisticated ways Yale University invests its endowment.

It was a sign that Bader Al-Sa'ad intended to shake things up at the huge but sleepy Kuwait Investment Authority.

The investments he has since pursued put his fund at the forefront of far-reaching change in how the oil wealth of the Persian Gulf is deployed. Instead of mostly U.S. Treasury securities, Kuwait now invests in things like higher-yielding bonds, Chinese office buildings and Asian private-equity funds. And, in a move with implications for the strength of the U.S.'s currency and economy, the Kuwait fund is de-emphasizing holdings priced in dollars.

How a Gulf Petro-State Invests Its Oil Riches

As to your rate of change question, recent events in the credit markets remind me of why I first conceived of Poom as a sudden process. As we saw over the past few weeks, imbalances build for long periods of time and then change is very sudden when the basis of confidence in market forces supporting the imbalance suddenly evaporates. Prices that no one thought could change so rapidly, such as in the yields on short term treasury bonds and munis, moved in ways that not even the most creative out-side-the-box thinkers imagined. The guys on the Goldman call this Wed were clearly dumbfounded, and not in the manner of comments coming from managers of failed hedge funds whose "How could we have known?" statements are earning the derision of commentators now. They just couldn't believe what they were seeing.

Similarly, when the Poom part of the process does happen it will be sudden and create extreme market dislocations.

[bart]

Re: Bernanke: Talks the Dove, Acts the Hawk

So do you view this as more of a way to improve the dollar value vs other currencies?

(speculating now) It seems to me that at some point they will have to lower the federal funds rate, but obviously don't want to do that while the $USD index is hovering down near 80. I'm sure they are now and will continue doing anything they can to raise that level higher before making that rate cut, (if such a cut becomes necessary in the future).

Assuming we're still talking about the discount rate cut, yes. It's both a way to shore up confidence in the dollar and in the "system" itself.

The down move today in the USDX is probably related to the large outflow from the Fed custodials account last week... which measures, among other things, international confidence in the dollar.

[bart]

Re: Bernanke: Talks the Dove, Acts the Hawk

The remaining mystery is how a market is to made for a glut of overpriced houses without a fed funds rate cut.

Here's one possible hint, but fairly esoteric. It's a record of the GSDS - Government Securities Dealer Stats - showing that there hasn't been much change in how the trading amongst the Fed's primary dealers for MBS instruments has been going.











They've been in the $300-500 billion weekly range for quite a while with only two exceptions - no liquidity issues to speak of.

[jk]

Re: Bernanke: Talks the Dove, Acts the Hawk

As to your rate of change question, recent events in the credit markets remind me of why I first conceived of Poom as a sudden process. As we saw over the past few weeks, imbalances build for long periods of time and then change is very sudden when the basis of confidence in market forces supporting the imbalance suddenly evaporates. Prices that no one thought could change so rapidly, such as in the yields on short term treasury bonds and munis, moved in ways that not even the most creative out-side-the-box thinkers imagined. The guys on the Goldman call this Wed were clearly dumbfounded, and not in the manner of comments coming from managers of failed hedge funds whose "How could we have known?" statements are earning the derision of commentators now. They just couldn't believe what they were seeing.

Similarly, when the Poom part of the process does happen it will be sudden and create extreme market dislocations.

that's interesting. i thought you were crediting the fed with more creativity and more power than heretofore, and thus thought they could moderate these processes.

also, i had conceived of poom as a re-run of the 70's, and in fact the 70's have been the model for many commentators who talk about inflation ahead. then gold had an irregular run with its spike, of course, but other real assets [like real estate] had extended moves over long periods of time. it's much more daunting to conceive of moves comparable to the recent movement in tbills.

[Charles Mackay]

Re: Bernanke: Talks the Dove, Acts the Hawk

How a Gulf Petro-State
Invests Its Oil Riches

Kuwait's Mr. Al-Sa'ad
Likes Asian Real Estate
But Is Cool to Treasurys
By HENNY SENDER
August 24, 2007; Page A1

KUWAIT CITY -- Kuwait is a world away from New Haven, Conn. But when a government investment fund here got a new chief in 2004, one of the first things he did was commission a study of the sophisticated ways Yale University invests its endowment.

It was a sign that Bader Al-Sa'ad intended to shake things up at the huge but sleepy Kuwait Investment Authority.

The investments he has since pursued put his fund at the forefront of far-reaching change in how the oil wealth of the Persian Gulf is deployed. Instead of mostly U.S. Treasury securities, Kuwait now invests in things like higher-yielding bonds, Chinese office buildings and Asian private-equity funds. And, in a move with implications for the strength of the U.S.'s currency and economy, the Kuwait fund is de-emphasizing holdings priced in dollars.

How a Gulf Petro-State Invests Its Oil Riches

EJ, Bob Prechter thinks the explosion in Sovereign Country Funds is a massive contrary bell ringing top signal..... i.e.. After a historical 27 year bull market the dumb money (governments) decide that stocks are the place to be instead of staying in safe Treasury instruments.

I'm not a Prechtarian but I think that is a very very interesting observation.

[jk]

Re: Bernanke: Talks the Dove, Acts the Hawk

The down move today in the USDX is probably related to the large outflow from the Fed custodials account last week... which measures, among other things, international confidence in the dollar.

the down move in usdx looks like we're back to business as usual. dollar down, yen down, other currencies up, stocks up, gold up, oil up.

[Finster]

Re: Bernanke: Talks the Dove, Acts the Hawk

After a historical 27 year bull market the dumb money (governments) decide that stocks are the place to be instead of staying in safe Treasury instruments.

And we thought government ownership of the means of production died with communism ...

[Tet]

Re: Bernanke: Talks the Dove, Acts the Hawk

And we thought government ownership of the means of production died with communism ...

+2 under rated. We've become the Neobolsheviks some time ago.

[Finster]

Re: Bernanke: Talks the Dove, Acts the Hawk

+2 under rated. We've become the Neobolsheviks some time ago.

Still kinda funny how they never mention that when they report that an agency of the Chinese government is buying stakes in US companies. They're just "diversifying" from bonds into "stocks". Sounds like motherhood and apple pie that way, huh?

[DemonD]

Re: Bernanke: Talks the Dove, Acts the Hawk

In regards to the initial post - this is very bullish for the dollar then isn't it? After months and years of dollar depreciation, if the Fed is defending the dollar (for a change), wouldn't Fed actions in this manner lead to a rise of the dollar?

Especially if they hold steady on Fed Funds Rate in September?

And hasn't finster already shown that we have had an actual dollar deflation, so wouldn't that disinflation assertion have been proven wrong? Or was "disinflation not deflation" talking about a longer time period than what finster's chart showed?

Interesting times indeed.

[Finster]

Re: Bernanke: Talks the Dove, Acts the Hawk

... And hasn't finster already shown that we have had an actual dollar deflation, so wouldn't that disinflation assertion have been proven wrong? Or was "disinflation not deflation" talking about a longer time period than what finster's chart showed?...

Your latter suspicion is correct, Demon. When we encounter brief periods of deflation, most people merely see disinflation because they're looking at statistics that lag, smooth out and blur the details. Consumer prices, especially. In the last significant deflation that occured in 2000-2002, for example, the monthly CPI only briefly went negative at the tail end of the deflationary phase, and to my recollection never actually dipped below zero on an annual basis. By the time that would have happened we were back to rip-roaring inflation.

This latest deflationary jag is also unlikely to produce deflationary readings in conventional consumer price statistics unless it goes on for quite a spell. It's still out-and-out deflation, but it takes a lot of it to move the needle in such crude measures.

[Jim Nickerson]

Re: Bernanke: Talks the Dove, Acts the Hawk

Your latter suspicion is correct, Demon. When we encounter brief periods of deflation, most people merely see disinflation because they're looking at statistics that lag, smooth out and blur the details. Consumer prices, especially. In the last significant deflation that occured in 2000-2002, for example, the monthly CPI only briefly went negative at the tail end of the deflationary phase, and to my recollection never actually dipped below zero on an annual basis. By the time that would have happened we were back to rip-roaring inflation.

This latest deflationary jag is also unlikely to produce deflationary readings in conventional consumer price statistics unless it goes on for quite a spell. It's still out-and-out deflation, but it takes a lot of it to move the needle in such crude measures.

Mr. Chairman,

Is "this latest deflationary jag" that which we were privileged to see in your Comments a week back, http://www.itulip.com/forums/showthr...4794#post14794

or is there actually a picture of the "latest deflationary jag" through today?

Why not put that graph up on iTulip weekly? I sure would like it if the Chairman could work that into his schedule along with all the other chairmanly duties.

Oh, and congratulations on being made Chairman, you deserve it, Finster.

[DemonD]

Re: Bernanke: Talks the Dove, Acts the Hawk

This latest deflationary jag is also unlikely to produce deflationary readings in conventional consumer price statistics unless it goes on for quite a spell. It's still out-and-out deflation, but it takes a lot of it to move the needle in such crude measures.

You know what's interesting is that my on-the-ground observation bears out deflation. Gasoline in Los Angeles has gone down significantly in the past 6 weeks, and for what reason? Supply remains tight, demand by all accounts appears high, and price per barrel of oil is still up significantly, so I wonder if this is what has happened with gas prices. I've definitely been convinced that the price of oil and gas is almost 100% correlated to the value of the currency, and if it truly is then this would be a bellweather of that.