iTulip is back?

[touchring]

Re: iTulip is back?

Anyways, my point is just that if stocks crashed today, it could take until next year for a lot of the employment and bankruptcy headlines to really crank up.

What if it is a major correction only? Like S&P falling to 2100.

[dcarrigg]

Re: iTulip is back?

I'm really trying to look past what I see as the obvious contradiction in your viewpoint. Help me understand: If a person has unquestioning faith in the efficient market hypothesis, what does that person think is the appropriate monetary policy?

The Fed has a dual mandate. It's not optional. It's the law. Dictated by Congress. That mandate is somewhat contradictory. But it's to both keep inflation low/stable (~2-3% range) and keep unemployment low/stable (~4-6% range). The appropriate monetary policy (for the job, not for one's ideology) is whatever accomplishes that mandate.

Unquestioning faith in the EMH doesn't allow people working the job to color outside the lines. The mandate is the mandate. Probably billions, but definitely millions of people have jobs in which they do work with which they philosophically disagree. But they can only express their philosophy in their work to the extent their bosses and the law allow.

However, in recommending monetary policy to accomplish that mandate, they must be able to assess the world as it is. True believers in the EMH don't believe in bubbles. So they will not even look for them when they're assessing the world as it is. So whatever monetary policy they recommend as appropriate to achieving the dual mandate, it will not take the possibility into account. A giant bubble could be staring them right in the face, and they will refuse to acknowledge its existence, never mind make any regulatory moves to prevent it getting bigger or shrink it.

Maybe what I'm saying is clearer now? The mandate is not flexible. The goals are fixed. As employees, even if they believe the goals are wrong, it's their job to meet them. But even when the goals themselves are not really up for debate, the worldview can actually effect people's basic interpretation of what their senses tell them. And that affects how they go about trying to meet the goals.

Anyways, this is the charitable interpretation. The cynical interpretation is that they're really just corporate sycophants greasing the revolving door and they don't actually believe in the EMH at all, but it provides a useful cover for helping the rich get richer and the fraudsters get away with it. Either way, the upshot is the same: Bubble denial.

[dcarrigg]

Re: iTulip is back?

What if it is a major correction only? Like S&P falling to 2100.

I think the effect that would have on politics is extremely small. More Americans own houses than stocks. And most Americans who do own stocks only do because their company enrolled them in a plan, and they don't even pay attention to it. Unemployment and oil price spikes get people scared of eviction and losing health insurance. Stock corrections are just background noise for most people, unless they lead to those sorts of things.

[DSpencer]

Re: iTulip is back?

The Fed has a dual mandate. It's not optional. It's the law. Dictated by Congress. That mandate is somewhat contradictory. But it's to both keep inflation low/stable (~2-3% range) and keep unemployment low/stable (~4-6% range). The appropriate monetary policy (for the job, not for one's ideology) is whatever accomplishes that mandate.

Unquestioning faith in the EMH doesn't allow people working the job to color outside the lines. The mandate is the mandate. Probably billions, but definitely millions of people have jobs in which they do work with which they philosophically disagree. But they can only express their philosophy in their work to the extent their bosses and the law allow.

However, in recommending monetary policy to accomplish that mandate, they must be able to assess the world as it is. True believers in the EMH don't believe in bubbles. So they will not even look for them when they're assessing the world as it is. So whatever monetary policy they recommend as appropriate to achieving the dual mandate, it will not take the possibility into account. A giant bubble could be staring them right in the face, and they will refuse to acknowledge its existence, never mind make any regulatory moves to prevent it getting bigger or shrink it.

Maybe what I'm saying is clearer now? The mandate is not flexible. The goals are fixed. As employees, even if they believe the goals are wrong, it's their job to meet them. But even when the goals themselves are not really up for debate, the worldview can actually effect people's basic interpretation of what their senses tell them. And that affects how they go about trying to meet the goals.

Anyways, this is the charitable interpretation. The cynical interpretation is that they're really just corporate sycophants greasing the revolving door and they don't actually believe in the EMH at all, but it provides a useful cover for helping the rich get richer and the fraudsters get away with it. Either way, the upshot is the same: Bubble denial.

Thanks, that makes it much more clear. Personally, I find it highly unlikely that anyone on the board of the Fed is oblivious to bubbles due to some deeply held belief about EMH or anything else. I think they intelligent people who realize the vast power they wield over the economy and asset prices.

My sense from EJ's latest article is that the Fed is doing more to manage the economy than ever before. It seems like they not only see bubbles, but believe they can carefully manage them and use them to their advantage.

[dcarrigg]

Re: iTulip is back?

Thanks, that makes it much more clear. Personally, I find it highly unlikely that anyone on the board of the Fed is oblivious to bubbles due to some deeply held belief about EMH or anything else. I think they intelligent people who realize the vast power they wield over the economy and asset prices.

My sense from EJ's latest article is that the Fed is doing more to manage the economy than ever before. It seems like they not only see bubbles, but believe they can carefully manage them and use them to their advantage.

Sometimes I think it's worth looking at the actual folks. At the highest level, there are 7, or there should be. 2 vacancies exist. President Trump has appointed 4 of the 5 that are on there currently, last I checked. This is totally unprecedented. He'll get 2 more. And the FRB and its chairman will be 6 Republicans and Lael Brainard. Miki Bowman is a local Kansas bank hieress. Richard Clardia is a more standard DSGE guy, used to work for PIMCO. Randy Quarles is an old Bush loyalist, worked for Carlyle, been around and seen a lot. Speaking of which, Chairman Powell also comes out of Carlyle. It's the latter two I wonder about more; not so sure about Bowman. It's something of an enigma, as it's meant to be. Thing is, President has nominated 2 more. Marvin Goodfriend, who best I can tell is probably a true believer, and Nellie Liang, who's not.

But I'll throw this out there: these are 14 year terms, staggered, but they last a while. Once the President names the last two, the cast of characters will probably be set for the next few administrations. And it's going to be totally new. And I'm not totally clear on how it will break down or where the 4/3 vote split will lie. I mean, it may end up not really happening, they may end up closing partisan ranks, and Brainard may find herself the lone dissenting vote most of the time, for all I know. Doesn't usually matter when times aren't turbulent anyways, since unanimous votes are the rule, not the exception.

I've just got a foggier view of it all now than I've had in some time, and I suspect so does the rest of the world. And I'm just talking about the BoG, not the FOMC that includes them and several others. FOMC sets the target rate, but BoG sets the discount rate. But they historically strive for consensus and usually don't rock the boat. Then again, historically you don't often have 6 of 7 appointed by the same President within a year or two of each other. Anyways, it may be much ado about nothing, and we may not see any major changes. But I think the odds of something more unexpected/interesting happening, especially if we hit a bit of a correction/downturn, have gone up in my estimation.

[DSpencer]

Re: iTulip is back?

Sometimes I think it's worth looking at the actual folks. At the highest level, there are 7, or there should be. 2 vacancies exist. President Trump has appointed 4 of the 5 that are on there currently, last I checked. This is totally unprecedented. He'll get 2 more. And the FRB and its chairman will be 6 Republicans and Lael Brainard. Miki Bowman is a local Kansas bank hieress. Richard Clardia is a more standard DSGE guy, used to work for PIMCO. Randy Quarles is an old Bush loyalist, worked for Carlyle, been around and seen a lot. Speaking of which, Chairman Powell also comes out of Carlyle. It's the latter two I wonder about more; not so sure about Bowman. It's something of an enigma, as it's meant to be. Thing is, President has nominated 2 more. Marvin Goodfriend, who best I can tell is probably a true believer, and Nellie Liang, who's not.

But I'll throw this out there: these are 14 year terms, staggered, but they last a while. Once the President names the last two, the cast of characters will probably be set for the next few administrations. And it's going to be totally new. And I'm not totally clear on how it will break down or where the 4/3 vote split will lie. I mean, it may end up not really happening, they may end up closing partisan ranks, and Brainard may find herself the lone dissenting vote most of the time, for all I know. Doesn't usually matter when times aren't turbulent anyways, since unanimous votes are the rule, not the exception.

I've just got a foggier view of it all now than I've had in some time, and I suspect so does the rest of the world. And I'm just talking about the BoG, not the FOMC that includes them and several others. FOMC sets the target rate, but BoG sets the discount rate. But they historically strive for consensus and usually don't rock the boat. Then again, historically you don't often have 6 of 7 appointed by the same President within a year or two of each other. Anyways, it may be much ado about nothing, and we may not see any major changes. But I think the odds of something more unexpected/interesting happening, especially if we hit a bit of a correction/downturn, have gone up in my estimation.

What do you believe is the practical significance of being a true believer? Do you think they are more likely to favor easy money policies or the opposite? Or is there some other dynamic you think is important?

Political affiliation seems somewhat reliable for predicting someone's view on gun control, abortion, or gay marriage. It's never struck me as very useful for things like "fiscal conservatism". Bush appointed Bernanke, but Obama reappointed him.

Looking at the recent history, the 14 year term has not been very relevant with the vast majority serving far less.

[dcarrigg]

Re: iTulip is back?

What do you believe is the practical significance of being a true believer? Do you think they are more likely to favor easy money policies or the opposite? Or is there some other dynamic you think is important?

Political affiliation seems somewhat reliable for predicting someone's view on gun control, abortion, or gay marriage. It's never struck me as very useful for things like "fiscal conservatism". Bush appointed Bernanke, but Obama reappointed him.

Looking at the recent history, the 14 year term has not been very relevant with the vast majority serving far less.

The Fed's roles are complex and divergent. On the one hand, they set monetary policy. On the other, they regulate finance and lending. The two are not totally distinct. Relaxed reserve requirements might be imagined as having the same functional effect as monetary easing. So, here's an example of the lone Democrat on the board dissenting from a couple of weeks ago.

The thing about regulation is, it's bound by congress and legislation, but it's still a creative activity. One's worldview can shape the language, then the language can become the new rules. The answer might not be as simple as favoring or disfavoring easy money policies. They might, for example, favor somewhat higher target rates in tandem with deregulation, the net effect of which might be positive, negative, or zero upon the money supply, but the net effect may also be one that promotes either concentration or distribution of financial assets, that helps or hinders competition, that causes funds to shift into and out of alternative vehicles for institutional investors, that levels or tilts the playing field in a variety of ways.

If one's of the mindset that bubbles can and do exist, one's draft regulatory language reflects this. If one chooses not to see them, it will not. And more generally, it colors one's interpretation of call reports and FR Y9Cs and the like. There's a lot of science to risk assessment, but there's a lot of art too, and even the science is only as good as the theories are born out with empirical evidence. When true believers in the EMH write the rules, the possibility that assets are mispriced or misallocated doesn't enter into the equation. Sure, laws can change, fed policy can change, and these things can have effects.

But generally the MO of that mindset is to trust investors and banks and consumers to be well-intentioned, well-informed, and know what they're doing. The only problem is, anyone who has ever read a financial document knows that half the game is to obfuscate what's going on and make it unnecessarily complex, in part to coax consumers into making choices that are better for their lending institution or broker than for themselves. Of course, the best scams might benefit the borrower and the lender or the investor and the investee and hoist the risk off to some third party rube.

My problem with even the concept of Irrational Exuberance is the discounted role it gives to Rational Graft. There's a sucker born every minute, and someone has to end up holding the bag when the music stops. The fed has some say not only in who that someone will be, but also how big the bag is. But it's hard to even talk about that when there's real, serious people with authority who simply insist there is no bag. Even worse if they know there's a bag but lie and say they don't see it because they're in on the graft.

Forget about fiscal policy; it's a whole different story. Trump spent more than Obama, W. more than Clinton. For all the talk of Obama being so far left, he wasn't really, especially when it came to finance. No fraudsters went to jail, Geitner in Treasury, Bernanke in the Fed. Hell, Bernanke's whole operating theory was monetarist following Milton Friedman. He has repeatedly given talks where he advocates major cuts to Social Security and Medicare. But he also believed there was a savings glut, so he's not quite a strong EMH proponent. His views are complex and nuanced at that level. Some hold simpler views.

But we're already seeing some serious recent deregulation of finance. And somewhere out there is someone figuring out how to make a fast buck on it. Meanwhile it has the effect of turning on the spigot some, despite modest rate increases pushing the other direction.

[GRG55]

Re: iTulip is back?

...Would the Fed intentionally support and nourish an asset bubble to avoid the pop?

Was there ever any serious doubt?

[BK]

Re: iTulip is back?

Every iTulip reader should read the Bubble that broke the world. The Fed is well aware of the consequences of a bubble in asset prices being Popped to quickly and will not risk the chance of past outcomes.

[EJ]

Re: iTulip is back?

Was there ever any serious doubt?

I don't think the Fed intervened in asset markets to extend asset prices during the previous asset bubbles. I think they arrogantly believed that they had the tools to manage any macro-economic fallout that resulted from the collapse of these bubbles that grew as they stood by and watched, passively pursuing a philosophy that it's not the Fed's job to decide what is and what isn't a bubble. They were truly surprised by the severity of the global economic fallout 2008 - 2010. That was one of my questions to Yellen in 2012. She didn't go so far as to say it almost isn't work, but the body language suggested that.

If the institutional memory of the Fed today is that we barely made it out of the last crisis even after the extraordinary measures were taken after the event that they were confident in before the event, what are they thinking today when a key tool of crisis management -- reduction of short term interest rates -- will almost certainly be ineffective, and given the fact that the Federal deficit and Fed's balance sheet have grown even larger since the end of the crisis, calling into question whether Congress can be convinced that even further fiscal expansion is required without causing other problems (e.g., USD depreciation). Here is Bernanke making his case to Congress in 2008 when both the House and Senate were controlled by the Democratic Party. Imagine he's making the same case today with the House and Senate split on every issue along party lines. Proposed future crisis response measures will be politicized like everything else is today, and action that will be urgent slowed by arguments along party lines.

International cooperation to react to a new global crisis emanating from the US will be similarly complicated by weaker political alignments resulting from antagonistic economic policies, in particular US-imposed tariffs.

The Fed is strongly motivation to keep it going if it can.

[Mega]

Re: iTulip is back?

hey.......was that........i mean.........a rare sight of "EJ".................is thi the 2nd coming?

[Mega]

Re: iTulip is back?

3 yes 3 post by Ej.............i think am going to "OD"

BTW where does one invest in Virzoom?
Mike

[jk]

Re: iTulip is back?

If the institutional memory of the Fed today is that we barely made it out of the last crisis even after the extraordinary measures were taken after the event that they were confident in before the event, what are they thinking today when a key tool of crisis management -- reduction of short term interest rates -- will almost certainly be ineffective, and given the fact that the Federal deficit and Fed's balance sheet have grown even larger since the end of the crisis, calling into question whether Congress can be convinced that even further fiscal expansion is required without causing other problems (e.g., USD depreciation).

i think usd depreciation would be a feature, not a bug. foreign cb's stopped buying treasuries [net] in '13 or '14 iirc. foreign private buyers have since pulled back. recent treasury auctions have been sloppier and sloppier. and the deficit is growing even with [supposedly] full employment and some growth, albeit not hardy growth.

housing is slowing. auto sales are slowing. with the stock market stalled there will be less tax money collected on capital gains and executive options conversions. the deficits are continuing to widen. add this coming decade's unfunded liabilities with social security, medicare and medicaid, and we can expect the deficits to not just grow, but to accelerate.

foreign cb's, even while they've pulled back from buying u.s. paper, in the last 3 years have been net accumulators of gold. also currency swaps and reciprocal trade agreements denominated in local currencies are proliferating. the saudi's will, with their new chinese oil deal, once again become china's biggest supplier as of january. prior to that russia had grabbed that role by agreeing to accept yuan instead of dollars. any bets as to whether the saudis have agreed to accept yuan for at least part, if not all, of their sales to the chinese?

the first cny denominated oil futures contract matures this month.

A recent article in the Wall Street Journal by Nathaniel Taplin indicates how fast the Shanghai oil futures contracts are being accepted by the market. Quoting Thomson Reuters as source, Taplin notes that by the end of July the Shanghai oil futures contract accounted for 14% of trades while the WTI contract traded in NY declined from 70% to 57% of trades over the same period.¹⁵ A more recent article published by Nikkei Asian Review reported that sales of Shanghai oil futures contracts by the end of September had reached 16% of all contracts issued globally, while sales of WTI standard futures fell to 52% from 60% and those of Brent crude fell from 38% to 32%.¹⁶

https://apjjf.org/2018/22/Mathews.html


[saudi arabia has expressed interest in the russian s-400 system. i wonder why. of course the turks already made that decision.]

a usd devaluation would markedly change the u.s. trade balance. it would serve to reduce imports without imposing any tariffs, and enhance u.s. export industries. u.s. shale oil would go from relatively expensive to relatively cheap. german automakers already have plants in the southeast u.s., and export e.g. suv's made there to the rest of the world. they would like to move more auto manufacturing there to take advantage of lower u.s. tax rates and to escape the eu regulatory environment. they must hesitate now because of the prospect of chinese tariff barriers if they try to export from the u.s. to china. a usd devaluation instead of tariffs would solve that problem very nicely.

the fed must soon stop raising rates. [one and done now?] but when will they stop qt? and when will they reinstitute qe?

as i said before, we are 10 years behind japan.

Here is Bernanke making his case to Congress in 2008 when both the House and Senate were controlled by the Democratic Party. Imagine he's making the same case today with the House and Senate split on every issue along party lines. Proposed future crisis response measures will be politicized like everything else is today, and action that will be urgent slowed by arguments along party lines.

International cooperation to react to a new global crisis emanating from the US will be similarly complicated by weaker political alignments resulting from antagonistic economic policies, in particular US-imposed tariffs.

The Fed is strongly motivation to keep it going if it can.

[Mega]

Re: iTulip is back?

So.....er what is our thoughts on the Geo-poltical way of things?
Is the $ going to lose its world reseve currancy?

Gold coming back?
Inflation?
Mike

[EJ]

Re: iTulip is back?

i think usd depreciation would be a feature, not a bug. foreign cb's stopped buying treasuries [net] in '13 or '14 iirc. foreign private buyers have since pulled back. recent treasury auctions have been sloppier and sloppier. and the deficit is growing even with [supposedly] full employment and some growth, albeit not hardy growth.

housing is slowing. auto sales are slowing. with the stock market stalled there will be less tax money collected on capital gains and executive options conversions. the deficits are continuing to widen. add this coming decade's unfunded liabilities with social security, medicare and medicaid, and we can expect the deficits to not just grow, but to accelerate.

foreign cb's, even while they've pulled back from buying u.s. paper, in the last 3 years have been net accumulators of gold. also currency swaps and reciprocal trade agreements denominated in local currencies are proliferating. the saudi's will, with their new chinese oil deal, once again become china's biggest supplier as of january. prior to that russia had grabbed that role by agreeing to accept yuan instead of dollars. any bets as to whether the saudis have agreed to accept yuan for at least part, if not all, of their sales to the chinese?

the first cny denominated oil futures contract matures this month.

https://apjjf.org/2018/22/Mathews.html

[saudi arabia has expressed interest in the russian s-400 system. i wonder why. of course the turks already made that decision.]

a usd devaluation would markedly change the u.s. trade balance. it would serve to reduce imports without imposing any tariffs, and enhance u.s. export industries. u.s. shale oil would go from relatively expensive to relatively cheap. german automakers already have plants in the southeast u.s., and export e.g. suv's made there to the rest of the world. they would like to move more auto manufacturing there to take advantage of lower u.s. tax rates and to escape the eu regulatory environment. they must hesitate now because of the prospect of chinese tariff barriers if they try to export from the u.s. to china. a usd devaluation instead of tariffs would solve that problem very nicely.

the fed must soon stop raising rates. [one and done now?] but when will they stop qt? and when will they reinstitute qe?

as i said before, we are 10 years behind japan.

The US can't follow Japan's path to Federal government debt at 253% of GDP without finding a way to encourage domestic government bond purchases that are built into Japan's economy since WW2, and if implemented in some fashion in the US will crowd out private investment in the economy -- a more or less zero sum game.

Science and technology Public-Private Partnerships have become a major growth area in federal stimulus since the recession, now at $570B a year up from $234B in 2007. It appears that PPPs are being shaped as a solution by the usual suspects.

Public-private partnerships in the US: The state of the market and the road ahead

The market for public-private partnerships (P3s, also known as PPPs) in the US is gaining ground. Investors are interested, capital is plentiful, and the federal government is increasingly involved.

Recent administrations – Republican and Democratic – have overseen legislation and programs that supported P3s. This support will likely continue given ongoing fiscal constraints and the increasing need to repair and expand the country’s infrastructure.

Already, more projects are entering the pipeline and reaching financial close. And it’s noteworthy that these projects are spreading to new sectors and states.

Public-Private Partnerships Give the United States an Edge in Manufacturing

Federal investment in scientific discovery and technology is vital to maintaining U.S. economic leadership in the world and in growing such key emerging sectors as clean energy

The rising advantage of public-private partnerships

The World Economic Forum ranks US infrastructure behind that of most other comparable advanced nations such as Singapore, Germany, and the United Kingdom.1 And it will get worse: from 2013 to 2020, cumulative US infrastructure needs are estimated to be nearly $3.5 trillion. Fiscal constraints limit how much governments can do on their own, and much has been written about how public-private partnerships (P3s) can be a viable option for filling this financing gap. But most overlook P3s’ ability to address many of the nonfinancing pain points in infrastructure development and delivery.