Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

[Finster]

Re: Bartus Maximus

Indeed... :mad: ... but TIOs have a *very* small effect on long term consumer prices. They're temporary, just like TOMOs.

Any given zig or zag in stock prices by itself likewise is a negligible predictor of future consumer price action. It’s the cumulative effect that matters. My point is that a quick recovery in the stock market would be tangible evidence that Bernanke & Co's efforts to paper over this credit crunch will have also short-circuited their quest to quell inflation.

True again... but my point about the FDI or CPI+lies not working as a short term aid to predict the stock market direction is also true.

Undisputed.

Shocked??? :eek:

Oy... does it hurt when you cover your eye teeth with your tongue like that? ;)
Are you conceding that the FDI can't be used to adjust stock indexes for inflation with reasonable, albeit imperfect, accuracy? :eek: :eek: ;)

No.

:cool:

Have you been taking eVangelism lessons without telling me? :eek: :rolleyes: ;)

The full cycle is around 35 years, the 1/2 cycle is around 17. :p

Yes.

Arrgghhhh … russin frussin … frustratious bartaceous …

;)

[bart]

Re: Bartus Maximus

Any given zig or zag in stock prices by itself likewise is a negligible predictor of future consumer price action. It’s the cumulative effect that matters. My point is that a quick recovery in the stock market would be tangible evidence that Bernanke & Co's efforts to paper over this credit crunch will have also short-circuited their quest to quell inflation.

Agreed... and that they'll be on a similar track as Arthur Burns in the '70s too... and they'll be trickier this time too. *sigh*

Undisputed.

Shocked??? :eek:

With the Fin Meister?!?! No way...

[Guest]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

You guys are taking over Flow5's thread here.

[flow5]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

Statement Regarding System Open Market Account Activity
On Thursday, August 23, 2007, the Federal Reserve’s System Open Market Account (“SOMA”) will redeem $5 billion of Treasury bill holdings. This action is designed to give the Federal Reserve Open Market Trading Desk (the “Desk”) greater flexibility in the day-to-day management of reserve levels to offset factors that may add reserves to the banking system, such as additional discount window borrowings.
To achieve the $5 billion redemption, SOMA will purchase $7,126,019,000 of the 2/21/08 26-week Treasury bill (912795C82), $5,239,824,000 of the 11/23/07 13-week Treasury bill (912795B34), and will not participate in the 9/20/07 4-week Treasury bill (912795A27) auction. As with all SOMA purchases in the Treasury auctions, the amounts purchased are “add-ons” to the amounts publicly announced and issued by Treasury.
The Desk will continue to evaluate the need for the use of other tools to add flexibility to its open market operations. These may include further Treasury bill redemptions, reverse repurchase agreements, and Treasury bill sales.

[flow5]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

August 16, H.41 release (factors affecting reserve balances in millions of dollars):

Reserve Bank Credit: +17,223

Repurchase agreements +17,715

Total factors supply reserve funds +17,237

Reserve balances with the federal reserve banks +18,458
================================================== ======

FOMC gave the banks a stay of execution.

[flow5]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

Fed's Next Move Another Discount Rate Cut, Credit Suisse Says

By Elizabeth Stanton
Aug. 22 (Bloomberg) -- The Federal Reserve is likely to cut the interest rate it charges banks again before it lowers its target for the overnight lending rate between banks, said Dominic Konstam, head of interest-rate strategy at Credit Suisse in New York.
Investor reluctance to buy any but the safest debt securities following losses in bonds backed by subprime mortgage loans has yet to become a threat to economic growth that would prompt the Fed to reduce its 5.25 percent interbank target rate, Konstam wrote in an Aug. 22 report.
``A cut in the federal funds rate would be for the whole economy,'' Konstam said in an interview. Another reduction of the so-called discount rate ``can address very specific problems such as lack of liquidity in the market.''
The central bank on Aug. 17 reduced the discount rate by 0.5 percentage point to 5.75 percent to help banks obtain financing that investors have become unwilling to provide.
Another discount rate cut is likely if Fed data to be released tomorrow show that banks aren't borrowing from the central bank and financing rates for debt securities other than Treasuries remain high, Konstam said. The Fed reports total discount loans outstanding every Thursday at 4:30 p.m. New York time. Last week the total was $264 million.
The rate may be too high to entice banks to use the discount window, Konstam said. Mortgage-backed securities can still be financed at rates lower than 5.5 percent, he said.

[flow5]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

BONDS ATTRACTIVE OPTION
After weeks of turmoil in the commercial paper market and rising interest rates on short-term debt, it has become attractive for companies to refinance commercial paper with bonds, according to a Bank of America report this week.
For example, second-tier dealer-placed overnight commercial paper rates closed on Monday at 6.05 percent, compared with corporate bond yields of about 5.93 percent for an issuer of comparable quality, Bank of America said.
Only two months ago, the commercial paper market held a yield advantage of 70 basis points, the bank said.
Commercial paper rates shot up earlier this month after a shortage of liquidity in global money markets prompted banks to pay up for short-term funds. Though some rates have eased from their recent highs, the state of the commercial paper market is still unsettled.
"Last week, we saw a period where it was very nerve-racking for anyone who's trying to finance short-term, and I think (companies) want to make sure they have control of their destiny," SCM Advisors' Bishop said.
In the first two weeks of August, companies reduced their outstanding commercial borrowings by $80.3 billion, according to data from the Federal Reserve.
DEBT SALES DOUBLE
Investors for their part are attracted to longer-term bonds by yield spreads that are substantially wider than just a month or two ago.
Proceeds will be used for general corporate purposes, which could include paying down commercial paper, Wal-Mart spokesman John Simley said.
So far this month, U.S. investment-grade companies have already sold $48 billion of debt, more than double the $22 billion sold in all of July, according to financial data provider Dealogic.
A healthy pipeline of deals could keep the market busy next week, ABN Amro's Murray said.
"As long as we're seeing stability in the equity market and the Treasury market, I think you're going to see this continue," he said.

[Finster]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

You guys are taking over Flow5's thread here.

:eek:

LOL!

[Finster]

Re: Bartus Maximus

Agreed... and that they'll be on a similar track as Arthur Burns in the '70s too... and they'll be trickier this time too. *sigh*

Wasn't it Burns that first pushed the idea of "core" inflation? If so, that's just one more parallel.

It's hard to draw any firm conclusions from just a few days' trading, but it's beginning to look like the Fed may have gone too far in patching up the recent credit fiasco. Not only have they reliquified the credit markets, but there is renewed talk about M&As, LBOs, etceteras all over Bloomberg this morning. About the last thing the Fed needs if it truly wants to tamp down inflation and speculation. Global stock averages up some 6% the past few days, with S&P futures up smartly again this morning.

[jk]

Re: Bartus Maximus

Wasn't it Burns that first pushed the idea of "core" inflation? If so, that's just one more parallel.

It's hard to draw any firm conclusions from just a few days' trading, but it's beginning to look like the Fed may have gone too far in patching up the recent credit fiasco. Not only have they reliquified the credit markets, but there is renewed talk about M&As, LBOs, etceteras all over Bloomberg this morning. About the last thing the Fed needs if it truly wants to tamp down inflation and speculation. Global stock averages up some 6% the past few days, with S&P futures up smartly again this morning.

people will tend to resume business-as-usual unless/until the market damage is truly severe. the real test will be whether the banks can offload the debt they guaranteed to fund equity buyouts. if they can move clo's, equities should take off again. question: who's going to buy those clo's? conduits which will fund them with cp? german banks? australian hedge funds? who are the new suckers?

[flow5]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

In past years there was a theory (the dow PE ratio theory). As the trend went: stocks (not stock prices) would have lower highs (PE ratio's) & lower lows (PE ratios) as the rate of inflation increases & conversely. The theory also assumed that there would be slower rates of growth in real gdp. But today, with the extraordinary level of foreign investment, it's lost its validity.

[Finster]

Re: Bartus Maximus

people will tend to resume business-as-usual unless/until the market damage is truly severe. the real test will be whether the banks can offload the debt they guaranteed to fund equity buyouts. if they can move clo's, equities should take off again. question: who's going to buy those clo's? conduits which will fund them with cp? german banks? australian hedge funds? who are the new suckers?

That's true, JK, but it's also true that the stock averages are giving us a real-time status read. You referenced the yen "carry trade" in another thread and speculated that we might see a dollar "carry trade" in the future. I would argue that we've already been seeing it. In the yen carry trade, speculators short yen and go long higher yielding currencies. In the dollar carry trade, they short dollars and go long higher yielding debt and equity. The LBO is a carry in which speculators short dollars and go long entire companies.

There's a broader point here with respect to equity price inflation and consumer price inflation. The global capital stock derives all its real value from its ability to produce goods and services for consumption. It cannot indefinitely rise in value more than the value of those goods and services. In other words, the long run ratio of the value of capital to the value of goods and services has a ceiling that cannot be raised by financial engineering, conspicuously including that undertaken by governments and central banks. We can therefore conclude that sustained increases in capital asset prices can only reflect devaluation of the currencies in which we measure them. Thus if capital asset prices continue to rise, it means the Fed has sacrified its quest to quell inflation on the altar of Wall Street and can expect consumer price inflation to follow in due course.

[bart]

Re: Bartus Maximus

Wasn't it Burns that first pushed the idea of "core" inflation? If so, that's just one more parallel.

It's hard to draw any firm conclusions from just a few days' trading, but it's beginning to look like the Fed may have gone too far in patching up the recent credit fiasco. Not only have they reliquified the credit markets, but there is renewed talk about M&As, LBOs, etceteras all over Bloomberg this morning. About the last thing the Fed needs if it truly wants to tamp down inflation and speculation. Global stock averages up some 6% the past few days, with S&P futures up smartly again this morning.

Yes, it was the Burn's Fed that originally created the concept of the core rate, apparently due to a request from the Nixon administration to find a way of making inflation appear lower.

My current favored scenario is for a somewhat choppy run back up to around 1500-1515 on the S&P to re-establish the right shoulder of a head & shoulders pattern and then down again to new lows... and today we're testing the down trend line from 1550+ high last month. A solid close above about 1470 will put my 1500-1515 estimated pivot point into play.

The hot money pumps of TIOs etc. will bear close watching as usual. Both the Fed & Treasury have been comparatively light for the last 6-8 weeks, contrary to the opinions of many.

[Jim Nickerson]

Re: Bartus Maximus

Yes, it was the Burn's Fed that originally created the concept of the core rate, apparently due to a request from the Nixon administration to find a way of making inflation appear lower.

My current favored scenario is for a somewhat choppy run back up to around 1500-1515 on the S&P to re-establish the right shoulder of a head & shoulders pattern and then down again to new lows... and today we're testing the down trend line from 1550+ high last month. A solid close above about 1470 will put my 1500-1515 estimated pivot point into play.

The hot money pumps of TIOs etc. will bear close watching as usual. Both the Fed & Treasury have been comparatively light for the last 6-8 weeks, contrary to the opinions of many.

Being someone who believes to make money, one must "trade" markets to so so, I love it when you talk that way, Bart. Of course, I think my notion of "trading" is wimpish compared to how I imagine your concept of trading. Richard Russell surmised a similar construction of an Head and Shoulders happening in the SPX.

[bart]

Re: Bartus Maximus

Being someone who believes to make money, one must "trade" markets to so so, I love it when you talk that way, Bart. Of course, I think my notion of "trading" is wimpish compared to how I imagine your concept of trading. Richard Russell surmised a similar construction of an Head and Shoulders happening in the SPX.

As you know I seldom post specifics like that, partially since I'm an active futures trader (average trade length is about 3-4 days) and I don't want to encourage anyone to go there, and also since I don't want to be any kind of guru.

I put this very rough chart together a while ago to shows how the H&S top developed in 2000 - it may be helpful for those who pay attention to technical analysis.