Shorter version on secular stagnation and Jackson Hole equivocation on QE's end: “We had to blow bubbles because that’s the only way to get the economy to grow, and now we have to start thinking about the inevitable consequences of that.” As does the bond market. There is nothing yet, however, to break the rationalization streak in stocks. **Shiller CAPE [...]
Janet Yellen has essentially confirmed QE’s demise; good riddance. Unfortunately, I don’t think that is the final end of QE in America, just as it hasn’t been the end time after time in Japan (and perhaps now Europe treading down the same ill-received road). What’s interesting is really watching these central bankers talk themselves in circles about why that is. [...]
There is so much about the repo market that gets lost in the minute details that are more often than not counterintuitive. It can sometimes be confusing as to why counterparties might be willing to pay you to borrow their cash, which is what a negative repo rate actually indicates. In that situation, which is what we are talking about [...]
The stock market and the traders who rule it seem to have had a change of heart last week. Stocks were down over 2% with most of that coming Thursday with a 300+ point drop in the Dow Jones Industrial Average. The Dow - and small caps - are now down for the year although the S&P and NASDAQ are [...]
With the introduction of the world’s first major negative interest rate, I believe it was fully expected that the euro would devalue. After all, it sounds very much like an act of debasement, intentional and heavy, that should move the currency “markets”, but that has not been the case. In fact, the euro appears as much captured by confused stasis [...]
The Committee recognizes that low interest rates may provide incentives for some investors to “reach for yield,” and those actions could increase vulnerabilities in the financial system to adverse events. While prices of real estate, equities, and corporate bonds have risen appreciably and valuation metrics have increased, they remain generally in line with historical norms. In some sectors, such as [...]
Henry Hazlitt once wrote that, “it is often sadly remarked that the bad economists present their errors to the public better than the good economists present their truths.” I have come to wonder how far that might have penetrated, disabling so many of the tools in which any “good” economists, or even investors, may use to act. Without the free [...]
Now that Janet Yellen is back in the spotlight trying to convince the world that everything is good and nearly normal, credit markets continue to persist in another frame of reference. The good Chairman might be herself convinced (though I have doubts about what she really thinks) of what she determines as a the “central tendency”, but past central tendency [...]
More of the same from Janet Yellen in her latest speech, but her focus on “resilience” caught my attention as it relates to very recent developments. The taper threat experience last year may have been a warning, but it doesn’t seem like it resonated with her or policymakers. The major bond selloff, which led to global ripples of crisis in [...]
Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject [...]
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