Question about the origin of a specific E.J. quote

[EJ]

Re: Question about the origin of a specific E.J. quote

Assuming that gold is a proxy for oil and not the other way around, wouldn't this suggest that we should see falling gold prices going forward?

Over the long run oil and gold have been correlated but not the short run.

Over the long run either gold has to fall or oil has to rise, if the old rules apply.

But they don't apply, at least not in the context of the economic data we're fed.

Something has gone seriously wrong in the engine room.
Oil is crashing as if the world economy was well into a severe recession.
Gold, too, has corrected but only modestly as it will in anticipation of reflation via currency depreciation
as occurs toward the end of recession when currency/fiscal/monetary stimulus reflation is starting to take hold.

I'm starting to think that the reason I am having such a hard time with this next article is that the data point to a conclusion that is too repugnant and nausea inducing for me to countenance. I keep going back to it and it keeps saying the same thing.

What if the central bankers have no idea what they have done when they started messing with the long end of the yield curve and we're totally screwed?

What if they have taken us all to the edge and leave us here because there's no plan?

Think about it. What if Ka-Poom "Theory" just got real?

[BK]

Re: Question about the origin of a specific E.J. quote

"What if the central bankers have no idea what they have done when they started messing with the long end of the yield curve and we're totally screwed?"

My golden nugget from your commentary.

Did Nixon know what he was doing when he closed the Gold Window, how many times did Greenspan do something that was politically expedient, and Mr Ben Bernanke's Asset Buying program scheme was arguably one of the boldest moves yet (you are in a better position to judge that than I am?).

Is it fair to say that Central Bankers always do what is financially expedient and they have no idea where they are taking things (and so far the damage has been contained or can be explained away as progress/economic evolution)?

[thriftyandboringinohio]

Re: Question about the origin of a specific E.J. quote

..What if the central bankers have no idea what they have done when they started messing with the long end of the yield curve and we're totally screwed?

What if they have taken us all to the edge and leave us here because there's no plan?

Think about it. What if Ka-Poom "Theory" just got real?

In aviation safety one sometimes sees a mishap report where a pilot committed the aircraft to a maneuver that, mathematically, must result in hitting the ground.
Like a loop with insufficient altitude, or a LAPES drop at too steep a descent angle.

At the moment of such a fatal decision, the gallows humor says "the aircraft has not yet arrived at the crash site".

Let' hope the Fed still has time to recover controlled fight.

[Chomsky]

Re: Question about the origin of a specific E.J. quote

Ominous words indeed.

What to make of Russia's sudden and massive rate hike?


Russia’s Central Bank Abruptly Raises Key Rate to 17%

By DAVID M. HERSZENHORNDEC. 15, 2014



MOSCOW — With Russia scrambling to contain a currency crisis, the country’s central bank, in a surprise middle-of-the-night move, increased its key interest rate to 17 percent, from 10.5 percent.
It was unclear if the move — announced in a 1 a.m. statement on the central bank’s website — would be viewed by the markets as a bold intervention in defense of the collapsing ruble, or as a sign of increasing disarray.
The rate increase came after the ruble plummeted yet again on Monday, by more than 10 percent, to around 64 per dollar. The ruble has lost nearly half its value this year.
“This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risk,” the central bank said in its statement.
Russian policy makers have been struggling to deal with the double blow of Western sanctions in response to the Kremlin’s policies in Ukraine and the deep, sustained drop in oil prices.

Continue reading the main story

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Low oil prices are especially hard on the Russian economy, which is heavily dependent on commodity exports. Analysts have predicted continuing low oil prices amid a rise in supply from North America and weaker-than-usual demand around the globe because of slow economic growth. On Monday, oil dropped 79 cents to around $61 a barrel.
Aleksei L. Kudrin, a former Russian finance minister who is widely credited with having steered Russia through the 2008 financial crisis by convincing President Vladimir V. Putin to build up sovereign reserves, said that uneven policy making was adding to the erosion of confidence.
“The fall of the ruble and the stock market is not only a reaction to lower oil prices and sanctions, but also distrust in the government’s economic measures,” Mr. Kudrin posted on Twitter.
The 6.5 percentage point jump was the one of the largest increases ever announced by the bank, and one of the most drastic measures since the 1998 crisis when Russia defaulted on its debt and devalued the ruble.
The dead-of-night action seemed to catch even seasoned market watchers by surprise. Russian news agencies close to the government described it in unusually breathless terms.
Noting the “rapid collapse of the ruble,” the Interfax news agency declared that the central bank had gone to “emergency measures, leaving far behind the most radical assumptions of analysts.”

http://www.itulip.com/forums/newrepl...treply&t=27329

[EJ]

Re: Question about the origin of a specific E.J. quote

In aviation safety one sometimes sees a mishap report where a pilot committed the aircraft to a maneuver that, mathematically, must result in hitting the ground.
Like a loop with insufficient altitude, or a LAPES drop at too steep a descent angle.

At the moment of such a fatal decision, the gallows humor says "the aircraft has not yet arrived at the crash site".

Let' hope the Fed still has time to recover controlled fight.

Flight physics and the dynamics of an economy have so much in common as analogues that I spent a fair amount of time studying the former to help me understand the latter.

For example, unlike a car if you turn an airplane it stays turned, except that the turn impulse decays gradually over time. Same with an economy.

The Fed replies on models that tell it when to start to raise or lower rates in anticipation of future events propelled by inputs.

If the models are wrong, then the decisions are wrong.

Or if the determinism underlying the models is wrong, as was the case in late 2007: the Fed had to raise rates as inflation surged even in the face of a gigantic credit bubble that surely was going to crash if they did raise rates, right?

Today the Fed has to raise raise rates in 2015 as the output gap closes even though the Fed has via reflation policy created the most gigantic asset bubbles in the history of the world.

Right?

[thriftyandboringinohio]

Re: Question about the origin of a specific E.J. quote

...Today the Fed has to raise raise rates in 2015 as the output gap closes even though the Fed has via reflation policy created the most gigantic asset bubbles in the history of the world.

Right?

Sure, that sounds about right.
This central planning stuff isn't that hard.

How China’s Interest-Rate Cut Raised Borrowing Costs
By Bloomberg News Dec 14, 2014 11:00 AM ET Save

What if a central bank cut interest rates and borrowing costs rose?
Since the People’s Bank of China surprised markets with the first benchmark rate reduction in two years on Nov. 21, the five-year sovereign bond yield climbed 15 basis points, that for similar AAA corporate notes surged 37 and AA debt yields jumped 76. While finance companies did start charging less for mortgages, their funding costs rose as the one-week Shanghai interbank lending rate added 37 basis points.
The PBOC move misfired as it triggered an 18 percent surge in the Shanghai Composite Index (SHCOMP) of shares, prompting investors to raise cash by selling bonds and seeking loans, driving interest rates higher. Costs for riskier issuers of notes rose as regulators banned the use of riskier debt as collateral for financing. Investors dialed back expectations for further monetary easing as policy makers seek to cool the stock rally.
“Financing costs moved in the opposite way than the central bank wished,” said Deng Haiqing, Beijing-based chief fixed-income analyst at Citic Securities Co., China’s biggest brokerage. “We don’t think the call for aggressive interest rate or reserve-requirement ratio cuts are well-grounded under current circumstances, as it could fuel bubbles in stocks…..

full article here http://www.bloomberg.com/news/2014-1...ing-costs.html

[jk]

Re: Question about the origin of a specific E.J. quote

Ominous words indeed.

What to make of Russia's sudden and massive rate hike?

russia is defending the ruble. with oil revenue down, we have to question russian solvency.

russia defaulted on its bonds in 1998, right around the same time that ltcm failed. shortly thereafter yeltsin was forced from power. this was all preceded by the fall of the thai bhat, and the domino asian currencies that followed it. although u.s. financial markets, especially the stock market, appeared to do well over the following 2 years, the crisis of the periphery made its inexorable way to the center.

not to be too dramatic, but the following comes to mind:

Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Today the Fed has to raise raise rates in 2015 as the output gap closes even though the Fed has via reflation policy created the most gigantic asset bubbles in the history of the world.

Right?

the rise in rates will support the dollar.

russia is trying to contain the falling ruble. commodity-based economies are hurting all around the world.

the great wall of money is already springing leaks- and instead of plugging holes in the dyke, individuals are poking through, seeking ways to get assets out.

i think mark faber was right when he said the dollar will be the last fiat standing. all the other currencies will be crushed to the dollar's advantage, and t-bonds won't be sold too hard. until the dollar itself falls.

[EJ]

Re: Question about the origin of a specific E.J. quote

i think mark faber was right when he said the dollar will be the last fiat standing. all the other currencies will be crushed to the dollar's advantage, and t-bonds won't be sold too hard. until the dollar itself falls.

He's got the first part of Ka-Poom Theory right.

Like a tsunami, first all the capital rushes in.

Then something happens and all the capital rushes out.

[jk]

Re: Question about the origin of a specific E.J. quote

He's got the first part of Ka-Poom Theory right.

Like a tsunami, first all the capital rushes in.

Then something happens and all the capital rushes out.

i think he has got the same idea for the follow-up. his idea was that the dollar would strengthen as every other currency was sold. but he also said then the dollar would be crushed, too. of course, he's a bit of gold bug.

[EJ]

Re: Question about the origin of a specific E.J. quote

i think he has got the same idea for the follow-up. his idea was that the dollar would strengthen as every other currency was sold. but he also said then the dollar would be crushed, too. of course, he's a bit of gold bug.

The person who gets this trade right will be the most respected and hated person ever.

[jk]

Re: Question about the origin of a specific E.J. quote

The person who gets this trade right will be the most respected and hated person ever.

but within a few years everyone will say they saw it coming.

[lektrode]

Re: Question about the origin of a specific E.J. quote

but within a few years everyone will say they saw it coming.

"..somewhat unexpectedly..."

[vinoveri]

Re: Question about the origin of a specific E.J. quote

Or if the determinism underlying the models is wrong, as was the case in late 2007: the Fed had to raise rates as inflation surged even in the face of a gigantic credit bubble that surely was going to crash if they did raise rates, right?

Today the Fed has to raise raise rates in 2015 as the output gap closes even though the Fed has via reflation policy created the most gigantic asset bubbles in the history of the world.

Right?

The fed began cutting rates in Aug 2007 iirc. no rate increase in 2015, right?

[vt]

Re: Question about the origin of a specific E.J. quote

So the dollar goes to 100 next year, then Poom hits? How would other assets classes act? What else could be bought, and what shorted?

[shiny!]

Re: Question about the origin of a specific E.J. quote

Something has gone seriously wrong in the engine room.

Oil is crashing as if the world economy was well into a severe recession.
Gold, too, has corrected but only modestly as it will in anticipation of reflation via currency depreciation
as occurs toward the end of recession when currency/fiscal/monetary stimulus reflation is starting to take hold.

I'm starting to think that the reason I am having such a hard time with this next article is that the data point to a conclusion that is too repugnant and nausea inducing for me to countenance. I keep going back to it and it keeps saying the same thing.

What if the central bankers have no idea what they have done when they started messing with the long end of the yield curve and we're totally screwed?

What if they have taken us all to the edge and leave us here because there's no plan?Think about it. What if Ka-Poom "Theory" just got real?

James Garfield said, "The truth will set you free, but first it will make you miserable."

EJ, I've spent a lot of my life staring at truths too awful to contemplate, trying to convince myself it wasn't so. I know nothing about economics but I've learned to trust your take on these things. I don't expect you to be right all the time. I trust that you always do your best and your best is, well, I don't have the words for how good it is.

If the data point to something so repugnant that you feel you can't face it... but no matter how you try you can't draw any different conclusion, may I humbly suggest that you're probably looking at something real, just really upsetting. If you still have doubts about your conclusions, perhaps you should just go with what you have and share it with the caveat that it's but one possible scenario among many. A worst-case scenario.

As someone with lifelong PTSD who spends too much time in the freeze mode of fight, flight or freeze, I've learned that voicing my fears out loud is the fastest way to get unstuck. Why not share what you've got, use the community of geniuses here as a sounding board and see where it goes? You have quite a few brilliant minds here who would love to figure this all out with you.

If your conclusions are correct and we are in the beginning of the Ka-POOM scenario, I think you would be doing us a service by telling us now, even if it's still a work in progress. If you're wrong, that will probably come out in the discussion and you'll feel relieved.

Just my "view from the bottom" ;-)