3 ms·

Would love to know more about your unpopular opinions. Too many people think the same way about money.

vmception 6y ago
Some of my currently unpopular opinions: The universe of investible assets available for the central banks are small, they need your help in providing a service to them in the primary market (credit markets, corporate bonds). Direct issuances were always going to happen, if it wasn't the pandemic it would have been something else. Anything that slowed down China's growth would have resulted in the same outcome. There is no transparency in direct issuances, you just need to appear or structure your offering as credit worthy. There are no consequences. Some people are ready for this specific outcome, if you think you can steward money better (or just want a lot of it for whatever reason), you should structure an offering for this. Central Bank direct and primary market operations are going to continue as their universe of investible assets is small, their monetary policy is not able to achieve the behaviors of market participants that they want as it requires associated fiscal policy changes from legislature and results. Central bank's stated goals for their monetary policy is disingenuous as they do not care about inflation targets or GDP numbers, but they do factor them in. They are just tools to alter and manage the yield curve as they just buy bonds from their friends at a profit. Yield curve based monetary policy doesn't work to its stated goals due to a fundamental misunderstanding of what people want. Dropping yield curves don't cause as much growth in the real economy because people just don't want to give random entrepreneurs their money. People are willing to pay to not do that. Negative interest rates are therefore not controversial and can go much steeper than any central bank has experimented with. People would be willing to pay to keep their money. Fed and Central Bank balance sheets should not be seen as a threat or overhang to the markets, as it doesn't need to sell credit assets, it just holds them to maturity. It and other sovereign wealth funds have an infinite time horizon. Conspiracies about central banks and their ownership structure are irrelevant. Orphaned entities like trusts are common structures. There is a lack of transparency in some areas either way. Don't just pay attention to the Fed, ECB and BOJ. There are plenty of Central Banks on the periphery of the EU who must react and expand their universe of investible assets before or after the ECB/Fed. In smaller markets you can have a lot of influence as an individual. As in, you can get the ear of a regulator or the upper echelon, or even the stewards of a central bank, just by having a good idea and understanding their needs, interests and psychology. Compared to attempting to earn a pedigree you weren't born into. The Swiss National Bank is amazing for Swiss people, but it should probably be considered a national security threat to the US markets. Since it is not, it is more likely that the SNB is part of a coordinated stock market growth arrangement with the US, as their stock purchases of individual companies with newly created CHF is not something the Fed is authorized to do, yet. I wish more central banks were publicly traded like the SNB. Liquidity of the currency shows the tolerance of distribution. Think of inflation like corporate stock dilution, if the market is liquid then you can create more without undermining confidence in that market. Think of government currency like shares of a country/economic union. People are uncomfortable with the idea of analogies that show the similarities between private organizations and states formed to serve the people. Hyperinflation is not as big of a threat when all major currencies are doing it at the same time. Coordinated inflation masks hyperinflation of any individual currency as their value relative to each other stays similar while the supply of all of them is increasing. The price of individual consumptive goods can still increase dramatically, but the price of the currency and confidence in the currency is not shaken, so the credit markets remain resilient. Countries outside of the economic union who have freely adopted the currency have much bigger issues to reconcile. Market signals are missing in the real estate market. A few hundred thousand playing with historically low interest debt (due to central bank activity) is a distraction, real estate agents and mortgage underwriters getting "so much business" should not be trusted, indeed this is all they see. Several million people defaulting is a bigger and looming issue.
- Dylan16807 6y ago
  > Negative interest rates are therefore not controversial and can go much steeper than any central bank has experimented with. People would be willing to pay to keep their money. A bank can store money in the central bank, but it can also put cash in a vault. If the central bank has steep negative rates, why would they use it for much?
  - pjc50 6y ago
    Cash vaulting is fairly expensive. And once everybody starts to do it, you see a different problem - it becomes hard to get hold of the physical cash in order to store it! This used to manifest as "hoarding specie", but economies have also hit deflationary problems of hoarding physical cash. Not sure what that would look like in a world of widespread electronic payments. You'd probably have to pay a premium to get cash from an ATM. Banks would start making it easier to deposit small business cash and harder to obtain rolls of change. Eventually at high enough negative rates people would be paying an (electronic) premium on the face value - you give me a $10 bill and I paypal you $10.50?
- pjc50 6y ago
  This is good stuff. I see negative rates as the "stability tax", which is why the leader is Switzerland. As you say, the real work has to be done in fiscal policy.
  - vmception 6y ago
    Denmark and Poland and Sweden also have a Central Bank and unique distortions in the credit markets. Very few people pay attention to them, getting information is tricky. The nordic credit market is its own animal centered in Norway, but all the countries want business. They are trapped because the Eurozone is a behemoth and the yield curve distortions there are like a gravity well, and the cultural sentiment of speculators or general people is the same or has the same inputs, so they must go steeper in negative yields faster or expand their universe of investible assets faster. Pay attention to the corporate credit market. The steeper the yield curve goes, the more it drags down the cost of credit for corporate issuers. Getting aggregate corporate credit information in these markets is hard but rewarding, you can predict what to expect - investment grade corporations bonds yielding 0% possibly issued at 0% - but it is hard to confirm the market appetite. This is where we are right now in market efficiency.

Some of my currently unpopular opinions: The universe of investible assets available for the central banks are small, they need your help in providing a service to them in the primary market (credit markets, corporate bonds). Direct issuances were always going to happen, if it wasn't the pandemic it would have been something else. Anything that slowed down China's growth would have resulted in the same outcome. There is no transparency in direct issuances, you just need to appear or structure your offering as credit worthy. There are no consequences. Some people are ready for this specific outcome, if you think you can steward money better (or just want a lot of it for whatever reason), you should structure an offering for this. Central Bank direct and primary market operations are going to continue as their universe of investible assets is small, their monetary policy is not able to achieve the behaviors of market participants that they want as it requires associated fiscal policy changes from legislature and results. Central bank's stated goals for their monetary policy is disingenuous as they do not care about inflation targets or GDP numbers, but they do factor them in. They are just tools to alter and manage the yield curve as they just buy bonds from their friends at a profit. Yield curve based monetary policy doesn't work to its stated goals due to a fundamental misunderstanding of what people want. Dropping yield curves don't cause as much growth in the real economy because people just don't want to give random entrepreneurs their money. People are willing to pay to not do that. Negative interest rates are therefore not controversial and can go much steeper than any central bank has experimented with. People would be willing to pay to keep their money. Fed and Central Bank balance sheets should not be seen as a threat or overhang to the markets, as it doesn't need to sell credit assets, it just holds them to maturity. It and other sovereign wealth funds have an infinite time horizon. Conspiracies about central banks and their ownership structure are irrelevant. Orphaned entities like trusts are common structures. There is a lack of transparency in some areas either way. Don't just pay attention to the Fed, ECB and BOJ. There are plenty of Central Banks on the periphery of the EU who must react and expand their universe of investible assets before or after the ECB/Fed. In smaller markets you can have a lot of influence as an individual. As in, you can get the ear of a regulator or the upper echelon, or even the stewards of a central bank, just by having a good idea and understanding their needs, interests and psychology. Compared to attempting to earn a pedigree you weren't born into. The Swiss National Bank is amazing for Swiss people, but it should probably be considered a national security threat to the US markets. Since it is not, it is more likely that the SNB is part of a coordinated stock market growth arrangement with the US, as their stock purchases of individual companies with newly created CHF is not something the Fed is authorized to do, yet. I wish more central banks were publicly traded like the SNB. Liquidity of the currency shows the tolerance of distribution. Think of inflation like corporate stock dilution, if the market is liquid then you can create more without undermining confidence in that market. Think of government currency like shares of a country/economic union. People are uncomfortable with the idea of analogies that show the similarities between private organizations and states formed to serve the people. Hyperinflation is not as big of a threat when all major currencies are doing it at the same time. Coordinated inflation masks hyperinflation of any individual currency as their value relative to each other stays similar while the supply of all of them is increasing. The price of individual consumptive goods can still increase dramatically, but the price of the currency and confidence in the currency is not shaken, so the credit markets remain resilient. Countries outside of the economic union who have freely adopted the currency have much bigger issues to reconcile. Market signals are missing in the real estate market. A few hundred thousand playing with historically low interest debt (due to central bank activity) is a distraction, real estate agents and mortgage underwriters getting "so much business" should not be trusted, indeed this is all they see. Several million people defaulting is a bigger and looming issue.

Dylan16807 6y ago
> Negative interest rates are therefore not controversial and can go much steeper than any central bank has experimented with. People would be willing to pay to keep their money. A bank can store money in the central bank, but it can also put cash in a vault. If the central bank has steep negative rates, why would they use it for much?
- pjc50 6y ago
  Cash vaulting is fairly expensive. And once everybody starts to do it, you see a different problem - it becomes hard to get hold of the physical cash in order to store it! This used to manifest as "hoarding specie", but economies have also hit deflationary problems of hoarding physical cash. Not sure what that would look like in a world of widespread electronic payments. You'd probably have to pay a premium to get cash from an ATM. Banks would start making it easier to deposit small business cash and harder to obtain rolls of change. Eventually at high enough negative rates people would be paying an (electronic) premium on the face value - you give me a $10 bill and I paypal you $10.50?
pjc50 6y ago
This is good stuff. I see negative rates as the "stability tax", which is why the leader is Switzerland. As you say, the real work has to be done in fiscal policy.
- vmception 6y ago
  Denmark and Poland and Sweden also have a Central Bank and unique distortions in the credit markets. Very few people pay attention to them, getting information is tricky. The nordic credit market is its own animal centered in Norway, but all the countries want business. They are trapped because the Eurozone is a behemoth and the yield curve distortions there are like a gravity well, and the cultural sentiment of speculators or general people is the same or has the same inputs, so they must go steeper in negative yields faster or expand their universe of investible assets faster. Pay attention to the corporate credit market. The steeper the yield curve goes, the more it drags down the cost of credit for corporate issuers. Getting aggregate corporate credit information in these markets is hard but rewarding, you can predict what to expect - investment grade corporations bonds yielding 0% possibly issued at 0% - but it is hard to confirm the market appetite. This is where we are right now in market efficiency.