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Inflation, real interest rates revisited

Interest Rates Starting To Bite

Interest Rates Starting To Bite

We have long held that interest rates have been so low (especially real rates) that it will take some time to reach a level for them to really matter and impact markets. The 2-year yield crossing over the S&P500 divie yield this past week for the first time in the last ten years is unlikely to slow the momentum driving risk markets. Nevertheless, they are getting closer to the zip code — after two years since the tightening cycle began — where they will begin to impact fundamental valuations (what is the fundamental value of Bitcoin?) and the relative pricing of risk assets. Keep it on your radar.

Long-term rates are so utterly distorted by the central banks we are not sure if the markets even pay attention anymore. Pancaking of the yield curve? Not the signal it used to be.  Meh!

The above, of course, is somewhat offset by the massive stock of central bank money in the global financial system which has driven up asset values to a level that has finally kicked the real economy into third gear.  This has created the perception of a Goldilocks global enviornment and positive feedback loop between markets and the economy.  Now add fiscal stimulus.

The unprecedented reservoir of the mix of this type of money is still so full it will take some time to drawdown central bank balance sheets to parch the risk markets. A higher share of central bank money relative to credit based bank money reduces global systemic risk and thus asset price risk premia.  Thus, additional market distortions.

The party continues.  Momentum is a powerful thang!   Until it isn’t.

…click on the above link to read the rest of the article…

Ben Bernanke: “Helicopter Money May Be The Best Available Alternative”

Ben Bernanke: “Helicopter Money May Be The Best Available Alternatives

Now that the prospect of helicopter money by the ECB has so infuriated Germany, the ECB had to reach out to Schauble to “mollify” the Germans who are dreading the second coming of monetary paradrops in one century, it was only a matter of time before Citadel’s most prominent employer opined. In a blog post earlier today, Brookings’ blogger and the central banker who together with Alan Greenspan has been most responsible for the world’s unprecedented debt pile and sad economic state, Ben Bernanke, took the podium to share his views on “helicopter money” head on.

In “What tools does the Fed have left? Part 3: Helicopter money” the former Fed head who first infamously hinted at helicopter money in his November 2002 speech “Deflation: Making Sure “It” Doesn’t Happen Here” when he quoted Milton Friedman, once again started off with a Friedman quote:

“Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.” (Milton Friedman, “The Optimum Quantity of Money,” 1969)

He then pulls a quote from his own book “The Courage to Act”

The deflation speech saddled me with the nickname ‘Helicopter Ben.’ In a discussion of hypothetical possibilities for combating deflation I mentioned an extreme tactic—a broad-based tax cut combined with money creation by the central bank to finance the cut. Milton Friedman had dubbed the approach a ‘helicopter drop’ of money. Dave Skidmore, the media relations officer…had advised me to delete the helicopter-drop metaphor…

…click on the above link to read the rest of the article…

Russell Napier Explains How The Decline Of The Yuan Destroys Belief In Central Banking

Russell Napier Explains How The Decline Of The Yuan Destroys Belief In Central Banking 

It’s Not a Pet, It’s a Falcon: How the decline of the RMB destroys belief in central banking and a successful reflation
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;

      – The Second Coming- W.B. Yeats

First catch your falcon, as the formidable Mrs Beeton might have said if she was in need of a method of catching her main course (see Mrs Beeton’s Book of Household Management 1861- ‘Recipe for Jugged Hare’).

Having caught your wild falcon, you can now begin the training process. You are attempting to impose your will upon a creature that, in its wild state, catches, kills and devours other birds. This is creative destruction in its rawest form as those acts of savagery provide the fuel to keep our falcon flying. Taming such wild forces is not easy, whether they be birds of prey or the desires, wishes, greed and fear of millions of people determining prices through their supply and also their demand.

Let’s get some advice from the field of falconry for our central bankers, and the other handmaidens of state control, as they seek to impose their wishes on the will and acts of millions-

‘Falconry is a great sport, but there is a lot of time involved. You will want to have enough time to train your bird. If you don’t have the time, or the willingness, then you might as well not do it at all. If you are one of those people who is not patient, falconry may not be for you. You should not take up falconry if you want the falcon as a pet, or something to show off.

…click on the above link to read the rest of the article…

“Fed Policy Is Toxic,” Michael Burry Warns “The Little Guy Will Pay” For The Next Crisis

“Fed Policy Is Toxic,” Michael Burry Warns “The Little Guy Will Pay” For The Next Crisis

As NYMag.com reports, in an email, which readers of the book will recognize as his preferred method of communication, the real-life head of Scion Asset Management answered some of questions about the state of the financial system, his ominous-sounding water trade, and what, if anything, we can feel hopeful about…

The movie portrays all of you as kind of swashbuckling heroes in some ways, but McKay suggested to me that you were very troubled by what happened. Is that the case? 

I felt I was watching a plane crash. I actually had that dream again and again. I knew what was happening, but there was nothing I, or anyone else, could do to stop it. The last day of 2007, I couldn’t come home. I was in the office till late at night, I couldn’t calm down. I wrote my wife an email and just said, “I can’t come home; it’s just too upsetting what’s happening, and I didn’t want to come home to my kids like this.” As for punishment of those responsible, borrowers were punished for their overindulgences — they lost homes and lives. Let’s not forget that. But the executives at the lenders simply got rich.

Were you surprised no one went to jail?

I am shocked that executives at some of the worst lenders were not punished for what they did. But this is the nature of these things. The ones running the machine did not get punished after the dot-com bubble either — all those VCs and dot-com executives still live in their mansions lining the 280 corridor on the San Francisco peninsula.

…click on the above link to read the rest of the article…

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