On July 20, 2007, the much discussed slow-walk implementation of the Basel II framework was finally taking its form. The Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and the Federal Reserve Board of Governors, all government agencies dealing in bank supervisory powers, issued a joint statement that day announcing an [...]
You may or may not know much about forward guidance, but it has been of constant attention on the minds of policymakers. Further, policymakers themselves don’t seem to be able to define it, and because of it they can’t seem to solve the bond market puzzle. In orthodox economics, forward guidance is either “Delphic” or “Odyssean.” As usual, there is [...]
The idea that interest rates have nowhere to go but up is very much like saying the bond market has it all wrong. That is one reason why the rhetoric has been ratcheted that much higher of late, particularly since the Fed “raised rates” for a third time in March. Such “hawkishness” by convention should not go so unnoticed, and [...]
More than ten years after Alan Greenspan confessed to not understanding bonds and interest rates, the same assumptions that underpinned Greenspan’s “conundrum” remain as convention. If the Fed raises the federal funds rate by target or by corridor, then all rates should rise. It is believed to be just that simple, a fact (the belief) further established this week by [...]
The Federal Reserve under Ben Bernanke committed several unforgivable mistakes during his tumultuous tenure, but cumulatively they could be easily summarized as “they really don’t know what they are doing.” Time and again whoever followed monetary policy and the conventions built upon it were led either off a cliff or somewhere just less dramatic. Federal Reserve actions are at best [...]
When Apple introduced the first iPhone in January 2007, the 8 gig model retailed for $599. The company cut the price to $399 that September in an alliance with AT&T. The 8 gig iPhone 3G that debuted in July 2008, just eighteen months later, was set at $199, and less than a year after that was suggested to retail at [...]
It is simply the nature of modern Economics to get most things backward. Positive Economics particularly in the form of econometrics has been like a declaration of ignorance, where Economists have formally decided to try and understand as little as possible. If you know anything about statistics you know why, for the one thing that bogs down statistical equations and [...]
As the yield curve flattened out almost in a straight line from late 2013 until July 2016, it became common to suggest the historical relationship between inversion and recession. While that may still be a valid interpretation, as the yield curve ultimately did not invert and the US did avoid falling fully into recession, it misses the far more important [...]
If the mainstream is confused about exactly what rate hikes mean, then they are not alone. We know very well what they are supposed to, but the theoretical standards and assumptions of orthodox understanding haven’t worked out too well and for a very long time now. The benchmark 10-year US Treasury is today yielding less than it did when the [...]
With several parts of the “reflation” trade rolling over, it is worth noting that one of the last of them to join in what may be growing reconsideration or doubt is inflation breakevens. In the 5-year and 10-year maturities, breakevens were at their lowest point on February 9, 2016, and have been moving higher ever since. However, we have to [...]
Stay In Touch