The simple narrative about QE is drawn from what is believed a simple process. The central bank buys bonds and by doing so it is simply assumed to be an “extra” bid on bond prices; therefore interest rates fall in whatever issue is being targeted by QE. Even in the US, QE has had trouble with that simple relationship. Instead [...]
Yesterday I looked at funding markets and currency proxies for detecting the end to the “dollar” pause that began on March 18. Broader credit markets agree with that assessment so far, as nominal yields and the UST curve shape have started, at least, to be redrawn back into the tightening format. Nominal yields and inflation breakevens turned right at May [...]
No inflection is ever expected in the real economy since everything is always extrapolated in straight lines by orthodox economists using econometrics. Similar interpretations are being used in stocks, and not just in the “earnings recession” that is already declared “unexpected.” In terms of share prices, there is little doubt about what is holding up the S&P 500 and larger [...]
co·nun·drum - noun: A confusing or difficult problem; a question or problem having only a conjectural answer Merriam-Webster Back in the last Fed tightening cycle, Alan Greenspan described the refusal of long term rates to follow short rates higher a conundrum, something he couldn't really explain. Unlike past periods of tightening, long term rates refused to budge higher as the [...]
It is said that Joe Kennedy got out of the stock market in 1929 because he started to hear stock tips from his shoeshine boy. Bernard Baruch had similar feelings: When beggars and shoeshine boys, barbers and beauticians can tell you how to get rich it is time to remind yourself that there is no more dangerous illusion than the [...]
The FOMC policy statement confirms without much doubt that there has been a major shift in conditions and outlook. To reiterate in what cannot be overstated, the purpose of implementing QE was to create economic conditions that conformed to the historical understanding of economic growth. If not so much 1995, Bernanke’s FOMC wanted to return to at least 2005 and [...]
The Wizard: I AM OZ...the Great and Powerful! Who are you? The Wizard: Pay no attention to that man behind the curtain! The Great Oz has spoken! Dorothy: How can you talk if you haven't got a brain? Scarecrow: I don't know. But some people without brains do an awful lot of talking, don't they? All lines from Frank Baum's [...]
Since monetary policy depends on credit to realize any kind of “wealth effect”, debt issuance and levels are thus secondary indications of non-organic consumer or household funds availability. Rising mortgage levels are not only consistent with rising home prices, but also the tendency of mortgages in that situation to allow home owners to capture and then use excess home equity [...]
I have been pounding the table for months about QE and its inverse relationship with vital banking liquidity. In engaging in Large Scale Asset Purchases (LSAP) central banks, particularly in the US and Japan, are playing a very dangerous game. Despite conventional “wisdom” that when a central bank engages in such a monetary easing program it must lead to an [...]
Stocks lost ground last week to the tune of about 1% but the route to that loss involved more volatility than we've seen in some time. The volatility index has moved higher by a third since that key reversal day a week ago Wednesday. And the volatility hasn't been confined to stocks. The bond market has tacked on about 50 [...]
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