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For those saying the Fed is running out of ammunition, study what the Bank of Japan has done. It owns close to 80% of the Japanese ETF market currently, with n
by aazaa 7y ago
For those saying the Fed is running out of ammunition, study what the Bank of Japan has done.
It owns close to 80% of the Japanese ETF market currently, with no end to the expansion of balance sheet in sight.
After buying long treasuries, it's not unreasonable to imagine the Fed buying stocks, either individual issues or ETFs. The President would be for it, and it would be hard to drum up any opposition to it in congress.
Not only that, but rates on long treasuries have stayed negative for long periods of time in other countries. It's an open question how negative long treasuries can go, but the evidence suggests we're not even close to the limit.
Recessions are politically unacceptable in today's world. Buy stocks. Buy treasuries. Do so with wild abandon, because the Fed has your back. Just watch out for the moment when the whole thing jumps into reverse and no amount of market manipulation will stop the bleeding.
- deleted 7y ago[deleted]
- rbinv 7y agoWhat would be the endgame here?
- scarmig 7y agoA long-lived Nikkei-style "bull run."
- aazaa 7y agoI suspect it will nurture a massive structural problem few today would understand or care much about. It will be allowed to grow unabated because, frankly, there will be bigger fish to fry. Maybe a little like subprime leading up to 2008. The problem was written off by just about everyone who bothered to look, until something snapped and it was the only thing that mattered. We may be seeing the start of this in the repo market, which once again had a convulsion today. I doubt many care about it or really understand it, and that goes double for policy makers.
- mullingitover 7y agoWhat's the term for when the government owns all the industries?
- lotsofpulp 7y agoAlso, what is it when everyone owns them (in varying ownership percentages of course) via index ETFs?
- indigo945 7y agoMarx was wrong not about if, but about how the workers would take control of the means of production!
- lotsofpulp 7y agoThat's the beauty of it, since the workers still don't control the means of production. But they do depend on the valuation of their "portfolios", so they're invested in the continued existence of the system, and they're pitted against each other as they are both labor and owners. But not enough owners to matter.
- tclover 7y agoFED is not the government
- znt 7y agoStock bubble -> Stock crash -> More QE -> QE fails -> Bond crash & Govt crisis -> Currency crash -> Commodities skyrocket -> Civil chaos
- Erlich_Bachman 7y agoJust default on the debt far far down the line. Seing as how USD is still the reserve currency and they can still print, very far down the line. Keep borrowing from the future like there is no tomorrow until then, hopelly making sure the music doesn't stop playing during your political mandate period so you can get blamed for it.
- resters 7y agoI think there are multiple useful lenses for thinking about this: - Signaling that the Fed is willing to get involved to stabilize market prices (by making capital cheaper) is meant to calm markets and give participants comfort about making decisions today that they could optionally wait to decide. If everyone goes into a holding pattern, liquidity is impacted, which can cause all sorts of unpredictable price movement. - it is a wealth transfer from one group to another. The beneficiaries are existing debtors (mostly firms) and firms who benefit most from cheaper capital. - it gives the Fed slightly more influence over the outcome of the 2020 election, since reversal of the Covid-19 rate decrease can be timed to create desirable optics as the election approaches. Much research has been done about the most critical time period prior to the election when "it's the economy, stupid" is most true.
- mbesto 7y ago> For those saying the Fed is running out of ammunition, study what the Bank of Japan has done. Oh you mean the economy that has been stagnate for 20 years?
- scarmig 7y agoIf I were a Japanese retail investor in 1990 in his 30s, what would have been the best strategy? Just stay out of domestic markets and focus on areas with potential for growth?
- lazyier 7y ago> what would have been the best strategy? Put your money into the USA.
- thedudeabides5 7y agoBuy as many levered Japanese Government Bonds (JGBS) as possible! 0.67 Sharpe Ratio from government bonds in local currency from 1990 to 2000.
- lazyier 7y agoBingo. We have a winner.
- heartbeats 7y agoThat's just how it is with democracy. You can either be the politician who didn't really do anything for the economy, or you can be the politician who plunged the country into a recession. Nobody wants to rip off the band-aid, even if it's infected underneath.
- blackearl 7y agoBetter than the hyper growth and subsequent pop they went through in the 80s and 90s
- WhompingWindows 7y agoThat's probably much more to do with their population pyramid than their monetary policy...they are a rapidly aging, insular society. If your working age population is decreasing, it's going to be nearly impossible to grow your economic output, especially when you turn away all immigrants.
- chewz 7y agoBank of Japan had been achieving new heights of monetary policy year after year for the last 30 years with little impact on real economy.
- coliveira 7y agoBoJ is the biggest proof that the traditional notion that creating money generates inflation is incorrect. The issue is that inflation is narrowly defined, and will only happen when people buy daily commodities. Inflation in stocks is not considered to be inflation, although prices will go up the same way.
- opportune 7y agoOr proof that asset inflation doesn’t trickle down. I bet if they spent the same amount of money giving cash directly to everybody there would be inflation
- tachyonbeam 7y agoHousing costs in big cities keep increasing at very high rates though. Clearly this affects everyone. Food and services (ie: electricity, internet) are also rising in price much faster than the claimed 2-3% a year. Many people (myself included) believe that official inflation rate calculations are fudged (the metrics keep changing). It's in the government's interest to pretend that inflation is low. To quote this Forbes article[1] : "the way that inflation is measured over the decades has changed numerous times. If it was still measured the same way as it was in 1990, it would be closer to 6%. Which seems a lot more accurate. If inflation was calculated as it was in 1980, it would be closer to 10%." [1] https://forbeswealthblog.ca/2018/06/are-the-posted-inflation-rates-a-lie/ https://forbeswealthblog.ca/2018/06/are-the-posted-inflation...
- A4ET8a8uTh0 7y agoIt is weird for me to read this. On the surface, it is factually correct, but I am not absolutely certain the conclusions drawn are valid. Your initial paragraph seeks to address point raised by others that FED is running out of ammunition and you list of Japan as an example with other pointing out the price Japan paid for that pollicy. I suppose FED could buy all US equities on national credit card ( and if you think about it, something similar to it happened only few months ago ), but do you think it is a prudent move?
- heartbeats 7y agoPrudent move? It's the only move. If it's either that or a recession, then they will do it, consequences be damned.
- A4ET8a8uTh0 7y agoI disagree. You can maybe delay the inevitable correction, but it is going to come. And after the sugar rush of easy credit ends, the headache will be that much worse. Would it not be better to face some of that pain now?
- psadri 7y agoNot in an election year.
- coliveira 7y agoTrump will not let the recession occur, because he's so afraid of losing.
- A4ET8a8uTh0 7y agoMaybe that is part of the problem. We imbue our leaders with a belief that their will alone is sufficient to stem the tide forgetting that they are only human.
- 7y ago
- tc313 7y agoWhat would buying stocks do for the economy?
- paganel 7y agoArtificially propping up pension funds and the like, basically an indirect cash donation from the FED to the middle-class people who are over 40. We’ll see how it goes, because we didn’t really experience capitalism without creative destruction until now (which looks like the path we’re headed on).
- jrs235 7y ago“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” ~ Someone, supposedly Thomas Jefferson Edit: ~ "Thomas Jefferson" changed to "~ Someone, supposedly Thomas Jefferson"
- jvanderbot 7y ago"Spurious" * No documentation ties it to its putative originator. * Its earliest known reference did not appear until long after the death of its supposed originator. * Multiple sources are claimed for its origins. * Contextual information indicates the words are of more recent origin than claimed. (deflation/inflation) 1. https://www.monticello.org/site/research-and-collections/private-banks-spurious-quotation https://www.monticello.org/site/research-and-collections/pri... 2. https://www.snopes.com/fact-check/bank-shot-2/ https://www.snopes.com/fact-check/bank-shot-2/ One of the “Rules of Misquotation” outlined by Ralph Keyes in his 1992 book on that subject is that axiom that “Famous dead people make excellent commentators on current events.” Given the fear and uncertainty engendered by the current economic situation, and the disgruntlement expressed by many Americans at the thought of providing taxpayer-funded government bailouts to financial institutions and other large corporate entities (such as the auto industry), it was only a matter of time until someone trotted out a quotation (apocryphal or otherwise) from a respected, long-dead figure demonstrating that this whole economic mess was both predictable and inevitable. And one could hardly find a more hallowed figure in U.S. history than Thomas Jefferson to deliver this message, warning us from across the centuries that predatory banks and corporations would eventually impoverish us all. [snopes]
- derrick_jensen 7y agoTo be fair, within the Constitution there is a clause where the Gold standard is required for all debts and tender (https://en.m.wikipedia.org/wiki/Contract_Clause https://en.m.wikipedia.org/wiki/Contract_Clause), of which Thomas Jefferson wrote the majority. Even if he didn't say it himself, the sentiment was strong enough between all parties that it was included in the beginning.
- HSO 7y ago> Buy stocks. Buy treasuries. Do so with wild abandon, because the Fed has your back. Just watch out for the moment when the whole thing jumps into reverse and no amount of market manipulation will stop the bleeding. In other words, buy low sell high. Got it. ;)
- codelitt 7y agoGod help us all if our central bank starts taking cues from the Bank of Japan or the ECB and their zombie economies. Our inability to suffer short-term consequences for long-term prosperity is a real issue that we as a country need to figure out how to solve. (Can you solve for human nature?) The fed shouldn't have made cuts in 2019 at the height of the market, we should have let failing banks fail, we need to start spending responsibly if we want to remain a reserve currency, and we need to learn that forest fires clear out the undergrowth for new growth.
- Erlich_Bachman 7y agoYes, but God has been helping us all already and it has been going on for decades, through QE and interest rates and bailouts, and a lot of top economists seem to be set on milking this as long as they can and keeping the cow on life support and drugs for a very very long time. And why shouldn't they? Nobody knows how long we can keep the cow alive, there is no real precedent. It can go belly up tomorrow or in 50 years. It works really well right up until the point where it doesn't at all anymore.
- CerealFounder 7y agoMan, amen. This is the worst one yet because it was clearly political. If this wasnt an election year, theres no way we get a .5% cut
- harimau777 7y agoI think a good start would be if average people were confident that they would take part in the long-term prosperity. Right now, that doesn't seem like such a good bet.
- QuesnayJr 7y agoThe idea that we should bear short-term consequences for long-term prosperity is the human nature we need to solve for. The Fed has been much more aggressive than the ECB, and it's why the US recovered faster than Europe.
- dustingetz 7y agoYou can solve for human nature. 3200 years ago we were all in a Prisoners Dilemma stuck at backstab backstab (literally killing each other). And then Moses came down from Mt Sinai and said Thou Shalt Not Kill, and lo, the solution to the dilemma was coordinated by shared principles. I think the solution to today-era social problems will probably look something like that.
- thorwasdfasdf 7y agothis is a good point. there is something deeply disturbing when the Fed manipulates on a scale that controls the pricing of the entire stock market
- foogazi 7y agoPrint money to then outbid people on price - what could go wrong?
- thorwasdfasdf 7y agoAs he said, here's a chart that shows what's going on: https://seekingalpha.com/article/4253231-japans-stock-market-held-up-boj-buying-stocks https://seekingalpha.com/article/4253231-japans-stock-market... This is devastating.
- grandridge 7y agoBoj doesn't have the world's reserve currency. Japanese culture allows it as the citizens buy the debt along with large institutions. The whole world owns us debt and base their notion of wealth on it. The us is not a nation of savers The two are not the same
- ilaksh 7y agoI believe Ray Dalio when he says it's the end of the long term debt cycle and like 1937 again. I actually think the Fed is kind of happy to have a virus as cover for this move.