Corner of Berkshire & Fairfax Message Board

General Category => General Discussion => Topic started by: shalab on December 22, 2018, 08:16:55 AM

Title: POLL: Fed and interest rates
Post by: shalab on December 22, 2018, 08:16:55 AM
The markets tanked after the Fed chair communicated about relying on models and pretty much guaranteeing rate hikes next year. The yield curve has flattened further - https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield

Let us use this poll to figure out what the group is thinking
Title: Re: POLL: Fed and interest rates
Post by: EliG on December 22, 2018, 08:48:29 AM
Yes, it had to be done, to assert Fed's independence after Trump's meddling on twitter.

Title: Re: POLL: Fed and interest rates
Post by: Cardboard on December 24, 2018, 10:17:35 AM
LOL!

If that is the true reason then you prove my claim that Powell is an idiot.

Data is what should count, not making some assertion. Too many people depend on proper decision making.

My assumption is that their model is way too static and fails to take into consideration global impact on the economy or things like a very strong USD.

Cardboard
Title: Re: POLL: Fed and interest rates
Post by: Nomad on December 24, 2018, 10:44:03 AM
I'm reminded here of the possibly apocryphal quotation from Zhou Enlai when asked about the impact of the French Revolution: It's too soon to tell.

That being said, I do think there has been too much focus on the interest rate normalization and less focus on the arguably more important process of balance sheet run-off. I think there now appears to be a general consensus among central bankers that quantitative easing tends to create significant distortions in asset prices. And they're probably right - unfortunately, much of the cash that has been pouring into the system since the financial crisis has not been used for productive investment. Just look at all of the companies buying back their stock instead of making capital expenditures and funding R&D. This spending does nothing to increase the size of the company's pie; it merely reshuffles who gets the forks. Meanwhile, on the ground, wage and productivity growth continue to be weak by historical standards.

I think the Powell et al would rather see short term pain in asset prices if it results in greater long-term stability for the system as a whole and have been tightening accordingly. In my personal opinion, that is probably the right calculation, but as with anything in markets, nobody knows.
Title: Re: POLL: Fed and interest rates
Post by: Liberty on December 24, 2018, 11:02:36 AM
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.
Title: Re: POLL: Fed and interest rates
Post by: LC on December 24, 2018, 11:09:02 AM
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.

I don't think you have to be an expert here. To use the WB quote about being approximately correct:

From a birds eye view the economy has been doing great under a low interest environment for what, 7 years? Therefore, time to start raising rates. That's my "approximately correct", 1000 ft view.

Regarding the minutiae as to "well they should've done XYZ 6 months ago or whatnot", well just seems like noise...trying to figure out if the guy on the scale is 200 lbs or 205 lbs.
Title: Re: POLL: Fed and interest rates
Post by: Liberty on December 24, 2018, 11:20:12 AM
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.

I don't think you have to be an expert here. To use the WB quote about being approximately correct:

From a birds eye view the economy has been doing great under a low interest environment for what, 7 years? Therefore, time to start raising rates. That's my "approximately correct", 1000 ft view.

Regarding the minutiae as to "well they should've done XYZ 6 months ago or whatnot", well just seems like noise...trying to figure out if the guy on the scale is 200 lbs or 205 lbs.

Oh, I think you can have a 5-sec opinion like that. But to have an informed opinion on macro-economics, it's something you have to actively study for a while, and I haven't, and I don't think many here have.
Title: Re: POLL: Fed and interest rates
Post by: shalab on December 29, 2018, 08:52:23 PM
I am surprised by how there are still more votes in support of the Fed. There are some that want even more rate hikes in 2019 - either the votes are politically motivated or people don't see what is going on. The 2018 economic gain in the US was because of the one time tax cut.

Canada has kept interest rates low (1.8%) eventhough there is a housing bubble.

https://www.theglobeandmail.com/real-estate/article-canadas-house-price-data-centre/

China has been cutting interest rates as well. Euro is at 0%.

Oil price futures 2019 - flat compared to 2018:

https://longforecast.com/oil-price-today-forecast-2017-2018-2019-2020-2021-brent-wti

Housing market cooling in 2019:

https://therealdeal.com/2018/12/26/us-housing-market-will-continue-to-cool-in-2019-redfin/

Car market under pressure:

https://www.bworldonline.com/mild-recovery-in-car-market-seen-in-2019-but-pressures-remain/
Title: Re: POLL: Fed and interest rates
Post by: John Hjorth on December 30, 2018, 12:42:15 AM
Well, the poll does not tie well with the activity level in the Druckenmiller and Trump were right (http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/druckenmiller-and-trump-were-right/) topic, right? [ : - ) ]

Getting back to "normal" interest territory in the US is not a bad thing at all. Yes, it creates volatility etc. [- perhaps even some pain some places -] in some markets right now, but then you avoid a multiplier effect on the pain now instead of it gets worse at a later point in time. [I think Viking has mentioned that earlier somewhere.]

It also - gradually - brings back the interest tool in the toolbox of the FED.
Title: Re: POLL: Fed and interest rates
Post by: shalab on December 30, 2018, 07:58:53 AM
John - you are right that all else being equal, it is good for the fed to have the tools at their disposal.

However, it is not clear to me that they understand the economic machine and the interaction between various components.

A fed chief once said Ray Dalio had better statistics than the federal reserve, so I will be watching Ray Dalio closely.

Europe looks like it will have a secular decline for a long period of time - here is a projection of Germany's population in 2050.

https://www.pop.org/germany-to-shrink-by-10-million-people-by-2050/


Well, the poll does not tie well with the activity level in the Druckenmiller and Trump were right (http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/druckenmiller-and-trump-were-right/) topic, right? [ : - ) ]

Getting back to "normal" interest territory in the US is not a bad thing at all. Yes, it creates volatility etc. [- perhaps even some pain some places -] in some markets right now, but then you avoid a multiplier effect on the pain now instead of it gets worse at a later point in time. [I think Viking has mentioned that earlier somewhere.]

It also - gradually - brings back the interest tool in the toolbox of the FED.
Title: Re: POLL: Fed and interest rates
Post by: shalab on December 30, 2018, 08:02:31 PM
Ray Dalio on the fed rate hikes

https://www.cnbc.com/2018/11/15/billionaire-ray-dalio-fed-raised-rates-to-a-point-where-theyre-hurting-asset-prices.html

    Hedge fund billionaire Ray Dalio argues the Fed has raised rates to a point where they’re hurting asset prices.
    The central bank needs to start looking at monetary policy’s impact on asset prices before economic conditions, Dalio says.
    Dalio also laughs off the notion that the Fed needs to raise rates so it would have room to make cuts if the economy were to take a major downturn.

John - you are right that all else being equal, it is good for the fed to have the tools at their disposal.

However, it is not clear to me that they understand the economic machine and the interaction between various components.

A fed chief once said Ray Dalio had better statistics than the federal reserve, so I will be watching Ray Dalio closely.

Europe looks like it will have a secular decline for a long period of time - here is a projection of Germany's population in 2050.

https://www.pop.org/germany-to-shrink-by-10-million-people-by-2050/


Well, the poll does not tie well with the activity level in the Druckenmiller and Trump were right (http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/druckenmiller-and-trump-were-right/) topic, right? [ : - ) ]

Getting back to "normal" interest territory in the US is not a bad thing at all. Yes, it creates volatility etc. [- perhaps even some pain some places -] in some markets right now, but then you avoid a multiplier effect on the pain now instead of it gets worse at a later point in time. [I think Viking has mentioned that earlier somewhere.]

It also - gradually - brings back the interest tool in the toolbox of the FED.
Title: Re: POLL: Fed and interest rates
Post by: Gregmal on December 30, 2018, 08:39:36 PM
https://www.cnbc.com/2018/12/28/el-erian-hold-the-fed-accountable-for-its-messaging-not-rate-hike.html

This sums it up. I don't disagree with the hike, but the communication sucks and is tone deaf. Which IMO is Powell's way of trying to play politics and stick it to Trump....Which is more or less a "way to go asshole, stick it to Trump at the expense of the rest of the country"...
Title: Re: POLL: Fed and interest rates
Post by: John Hjorth on December 31, 2018, 12:51:46 AM
Ray Dalio on the fed rate hikes

https://www.cnbc.com/2018/11/15/billionaire-ray-dalio-fed-raised-rates-to-a-point-where-theyre-hurting-asset-prices.html (https://www.cnbc.com/2018/11/15/billionaire-ray-dalio-fed-raised-rates-to-a-point-where-theyre-hurting-asset-prices.html)

    Hedge fund billionaire Ray Dalio argues the Fed has raised rates to a point where they’re hurting asset prices.
    The central bank needs to start looking at monetary policy’s impact on asset prices before economic conditions, Dalio says.
    Dalio also laughs off the notion that the Fed needs to raise rates so it would have room to make cuts if the economy were to take a major downturn. ...

shalab,

I actually had to read the quotation of Mr. Dalio three times and think a bit about it before posting this. Taking it verbatim [the second line], it could be understood as Mr. Dalio just wants the FED to divert from its mandate. [And I don't think that it should be understood that way, actually, but that was how I read it while reading it the first time.] After reading it the third time, I think it means, that asset prices effects from FED rate decisions are a logical and natural part of considering the total effects on the economy via the feedback loops to the real economy from the financial markets, and thus such effects should be taken into consideration under the FED's interest rate decisions. [And that is actually also what I get from reading Cardboard's last post in this topic.]

The reason for this is there exist feedback loops from asset prices to the activity level in the real economy [i.e.: think real estate].

If this is what Mr. Dalio meant, then I think every CoBF member agree on that.

With regard to Mr. Dalio's last sentence: I think that should be read exactly the same way as what I have phrased above about the first two lines. It is a fact [at least to me], that it must  easier for the FED to be downward flexible with interest rates, if you already are in an interest rate territory, where being downward flexible with interest rates don't bring in a territory, where interest rates doesn't bring you in a territory, where the FED start screwing up healthy incentives & things by creating a negative price on money. So, in short: Yes, it's "just" a side effect, but to me certainly not a laughable one.

- - - o 0 o - - -

Edit: And after reading it the fourth time, I just think : "Yes, naturally, Mr. Dalio is just yet another money manager with his personal incentives."
Title: Re: POLL: Fed and interest rates
Post by: John Hjorth on December 31, 2018, 02:29:26 AM
https://www.cnbc.com/2018/12/28/el-erian-hold-the-fed-accountable-for-its-messaging-not-rate-hike.html (https://www.cnbc.com/2018/12/28/el-erian-hold-the-fed-accountable-for-its-messaging-not-rate-hike.html)

This sums it up. I don't disagree with the hike, but the communication sucks and is tone deaf. Which IMO is Powell's way of trying to play politics and stick it to Trump....Which is more or less a "way to go asshole, stick it to Trump at the expense of the rest of the country"...

Greg,

Personally, I think : "Is Mr. Powell really that bad at communication?" [But that's naturally just me. ...]

To me, in short, being FED chairman is a Uriah post (https://en.wikipedia.org/wiki/Uriah_the_Hittite). [Please don't take that too seriously about who screws who! [ : - ) ]]

Also, CNBC - Federal Reserve [June 13th 2018] : Fed’s Powell says he will begin news conferences following each meeting starting in January (https://www.cnbc.com/2018/06/13/feds-powell-says-he-will-begin-press-conferences-following-each-meeting-starting-in-january.html).
Title: Re: POLL: Fed and interest rates
Post by: shalab on December 31, 2018, 09:49:57 AM
John, appreciate your thoughts

Dalio could be wrong overall - but Dalio is right about asset price weakness.

Asset prices have contracted in the last quarter - in all major metros from LA, DC, Boston, Chicago and Seattle. As we know, the stock prices have also dropped.

https://www.redfin.com/blog/data-center

Overall, the projection for next year is for tepid rise of about 3%. One can compare against the asset prices in Canada as an example:

https://www.livingin-canada.com/house-prices-canada.html

Regarding rate hikes next year:

https://www.cnbc.com/video/2018/12/31/we-are-at-neutral-rate-fed-shouldnt-go-higher-strategist.html

Economy activity contracts in December:

https://www.bloomberg.com/news/articles/2018-12-31/humming-u-s-factories-end-2018-on-a-sour-note-amid-trade-war?srnd=premium

Ray Dalio on the fed rate hikes

https://www.cnbc.com/2018/11/15/billionaire-ray-dalio-fed-raised-rates-to-a-point-where-theyre-hurting-asset-prices.html (https://www.cnbc.com/2018/11/15/billionaire-ray-dalio-fed-raised-rates-to-a-point-where-theyre-hurting-asset-prices.html)

    Hedge fund billionaire Ray Dalio argues the Fed has raised rates to a point where they’re hurting asset prices.
    The central bank needs to start looking at monetary policy’s impact on asset prices before economic conditions, Dalio says.
    Dalio also laughs off the notion that the Fed needs to raise rates so it would have room to make cuts if the economy were to take a major downturn. ...

shalab,

I actually had to read the quotation of Mr. Dalio three times and think a bit about it before posting this. Taking it verbatim [the second line], it could be understood as Mr. Dalio just wants the FED to divert from its mandate. [And I don't think that it should be understood that way, actually, but that was how I read it while reading it the first time.] After reading it the third time, I think it means, that asset prices effects from FED rate decisions are a logical and natural part of considering the total effects on the economy via the feedback loops to the real economy from the financial markets, and thus such effects should be taken into consideration under the FED's interest rate decisions. [And that is actually also what I get from reading Cardboard's last post in this topic.]

The reason for this is there exist feedback loops from asset prices to the activity level in the real economy [i.e.: think real estate].

If this is what Mr. Dalio meant, then I think every CoBF member agree on that.

With regard to Mr. Dalio's last sentence: I think that should be read exactly the same way as what I have phrased above about the first two lines. It is a fact [at least to me], that it must  easier for the FED to be downward flexible with interest rates, if you already are in an interest rate territory, where being downward flexible with interest rates don't bring in a territory, where interest rates doesn't bring you in a territory, where the FED start screwing up healthy incentives & things by creating a negative price on money. So, in short: Yes, it's "just" a side effect, but to me certainly not a laughable one.

- - - o 0 o - - -

Edit: And after reading it the fourth time, I just think : "Yes, naturally, Mr. Dalio is just yet another money manager with his personal incentives."
Title: Re: POLL: Fed and interest rates
Post by: Spekulatius on December 31, 2018, 01:14:49 PM
The Redfin chart shows some seasonal cyclicity for real estate prices, but no proof of a downturn yet. It is normal for RE to rise in early in the year and and recede a bit in fall. It‘s clear that RE has slowed, but I don’t think this is visible from the charts yet. Besides that, the Fed supposedly doesn’t care about asset prices, also I think it should at least to take into account housing prices, because they translate into cost of living for the majority of people ( 2/3 of the people in the US own rather than rent). The only central bank that actively looks at RE prices (to my knowledge)  is the central bank of Hongkong, probably, because RE is such an important part of their economy.
Title: Re: POLL: Fed and interest rates
Post by: rkbabang on December 31, 2018, 08:59:41 PM
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.

It's outside the feds circle of competence too. Interests rates, the time value of money, are a market phenomenon. You might as well have a government board set the daily price of Avocados.
Title: Re: POLL: Fed and interest rates
Post by: LC on December 31, 2018, 10:03:54 PM
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.

It's outside the feds circle of competence too. Interests rates, the time value of money, are a market phenomenon. You might as well have a government board set the daily price of Avocados.

Can I ask your opinion on the Fed slashing interest rates in the 2009-2013 period. This was most certainly not a market phenomenon, as credit was drying up. The Fed's action essentially re-started the US economy and prevented a depression. Beautiful deleveraging and all that. Do you think they were wrong, or lucky, or something else?
Title: Re: POLL: Fed and interest rates
Post by: maybe4less on January 01, 2019, 12:33:51 PM
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.

It's outside the feds circle of competence too. Interests rates, the time value of money, are a market phenomenon. You might as well have a government board set the daily price of Avocados.

Can I ask your opinion on the Fed slashing interest rates in the 2009-2013 period. This was most certainly not a market phenomenon, as credit was drying up. The Fed's action essentially re-started the US economy and prevented a depression. Beautiful deleveraging and all that. Do you think they were wrong, or lucky, or something else?

It was a market phenomenon. The demand for risk-free assets soared, pushing down interest rates. The Fed was following/supporting that.
Title: Re: POLL: Fed and interest rates
Post by: rkbabang on January 02, 2019, 06:56:59 AM
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.

It's outside the feds circle of competence too. Interests rates, the time value of money, are a market phenomenon. You might as well have a government board set the daily price of Avocados.

Can I ask your opinion on the Fed slashing interest rates in the 2009-2013 period. This was most certainly not a market phenomenon, as credit was drying up. The Fed's action essentially re-started the US economy and prevented a depression. Beautiful deleveraging and all that. Do you think they were wrong, or lucky, or something else?

Nothing the fed does is a market phenomenon.  It is government setting rates. No different from the USSR setting prices in their economy either by their own opinions or sometimes by looking at ads in London Newspapers. If the rate is set by the fed then it isn't being set by the market. If the price of Avocados was set by a government board and you asked me "What do you think about the Federal Avocado Board reducing prices in 2009-2013?  Did they do the right thing?"   My answer would be the same.  I don't know. The market should be setting the rate not some board of bureaucrats/experts.
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 02, 2019, 09:10:06 PM
Market expecting the fed to stay pat on rates - with 80% probability

https://www.wsj.com/articles/investors-are-betting-that-the-fed-hits-pause-on-rate-hikes-11546449520?mod=hp_lead_pos2#comments_sector

Apple CEO also came out and said the dollar appreciation is impacting profits.
Title: Re: POLL: Fed and interest rates
Post by: LC on January 02, 2019, 11:11:56 PM
Nothing the fed does is a market phenomenon.  It is government setting rates. No different from the USSR setting prices in their economy either by their own opinions or sometimes by looking at ads in London Newspapers. If the rate is set by the fed then it isn't being set by the market. If the price of Avocados was set by a government board and you asked me "What do you think about the Federal Avocado Board reducing prices in 2009-2013?  Did they do the right thing?"   My answer would be the same.  I don't know. The market should be setting the rate not some board of bureaucrats/experts.
My point is that it was a period of time where market pricing would have made things worse.

Credit was incredibly tight. If the market had set rates, they would have risen or stayed at spiked levels:

https://voxeu.org/article/credit-conditions-and-great-trade-collapse

Interbank rates (here, the one-month rate) spiked in September 2008 in many economies, as banks became extremely averse to lending and the supply of financing tightened. There are nevertheless key differences in the severity and timing of the credit crunch. In countries such as Germany and Bulgaria, the interbank rate was on an upward trend until an abrupt reversal in November 2008. In contrast, these rates were declining from a much earlier date in Canada and Singapore, reflecting earlier interventions made by central bankers there to cope with the impending downturn.


Our results suggest that the impact of credit conditions was sizeable. The decline in trade volumes would have been about twice as large in percentage terms had interbank rates instead remained at the high levels of September 2008 throughout the rest of our sample period.




Central Banker's/Avocado's decision to cut rates has been universally acclaimed and is evidence of a Central Bank's positive contribution.
Title: Re: POLL: Fed and interest rates
Post by: JimBowerman on January 03, 2019, 12:29:44 PM


Nothing the fed does is a market phenomenon.  It is government setting rates. No different from the USSR setting prices in their economy either by their own opinions or sometimes by looking at ads in London Newspapers. If the rate is set by the fed then it isn't being set by the market. If the price of Avocados was set by a government board and you asked me "What do you think about the Federal Avocado Board reducing prices in 2009-2013?  Did they do the right thing?"   My answer would be the same.  I don't know. The market should be setting the rate not some board of bureaucrats/experts.

The fed controls the supply of base money, so how can the market ever truly be setting rates?  If you're going to have a national currency, someone has to decide how quickly to grow money supply, no?
Title: Re: POLL: Fed and interest rates
Post by: rkbabang on January 03, 2019, 02:08:27 PM


Nothing the fed does is a market phenomenon.  It is government setting rates. No different from the USSR setting prices in their economy either by their own opinions or sometimes by looking at ads in London Newspapers. If the rate is set by the fed then it isn't being set by the market. If the price of Avocados was set by a government board and you asked me "What do you think about the Federal Avocado Board reducing prices in 2009-2013?  Did they do the right thing?"   My answer would be the same.  I don't know. The market should be setting the rate not some board of bureaucrats/experts.

The fed controls the supply of base money, so how can the market ever truly be setting rates?  If you're going to have a national currency, someone has to decide how quickly to grow money supply, no?

Bingo.

Money should also be a market phenomenon.
 
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 03, 2019, 05:28:22 PM
Looks like sanity is prevailing with some folks - Dallas Fed thinks we shouldn't raise rates:

https://www.cnbc.com/2019/01/03/robert-kaplan-says-central-bank-should-pause-rate-hikes-amid-turmoil-in-markets.html

WSJ chimes in with the prospect for rate hikes -

A bond-market indicator also is sending a bad signal. The difference between the three-month Treasury bill and the 10-year note has narrowed considerably. With the former at 2.41% and the latter at 2.58% midday Thursday, an inversion in the yield curve is a real possibility.

Inversions have often preceded recessions, even as economists still debate whether they correlate with downturns, or cause them. A recent San Francisco Fed paper said a sustained three-month to 10-year inversion is the most reliable market indicator of recession.

https://www.wsj.com/articles/analysis-bad-news-barrage-dims-hopes-fed-can-deliver-2019-rate-hikes-11546545691
Title: Re: POLL: Fed and interest rates
Post by: Cardboard on January 04, 2019, 08:00:26 AM
Ah... the guy woke-up!

https://www.cnbc.com/2019/01/04/powell-says-fed-will-be-patient-with-monetary-policy-as-they-watch-how-economy-does.html

Cardboard
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 04, 2019, 08:33:15 PM
Hope so - but looking at comments from others - it looks like the Fed may still raise rates

Cleveland Fed:

https://www.cnbc.com/2019/01/04/feds-mester-says-if-inflation-doesnt-rise-fed-could-stop-hikes.html

"If we don't see inflation picking up and we see the labor market staying reasonably strong from where we are now, that may tell us we're not neutral."


Cramer thinks Fed has outdated models and I tend to agree:

https://www.cnbc.com/2019/01/04/cramer-fed-will-hike-rates-until-there-are-firing-and-layoffs.html

CNBC's Jim Cramer argued Friday that the Federal Reserve's policies are severely outdated, and said the central bank won't stop its rate-hike policy until Americans suffer from "firings and layoffs."

Ah... the guy woke-up!

https://www.cnbc.com/2019/01/04/powell-says-fed-will-be-patient-with-monetary-policy-as-they-watch-how-economy-does.html

Cardboard
Title: Re: POLL: Fed and interest rates
Post by: james22 on January 05, 2019, 12:09:57 AM
I like Uncle John's take:

1.  Greenspan, Bernanke, and, in particular, Yellen all gave the markets a “put” option—basically a third unofficial mandate to make sure that asset prices keep rising. Now, of course, that’s not the way they would express it, but that is, in fact, what they did. They created a series of bubbles, which spectacularly (and predictably) blew up, particularly screwing the little guys who didn’t know better and could least afford losses. We should not be where we are today, and we would not be here today, without their seriously screwing up Federal Reserve policy.

2. The Federal Reserve is running a two-variable experiment without the benefit of ever having run a one-variable experiment to determine what the results would be. It is decidedly the stupidest monetary policy mistake in a long line of Fed mistakes.

What are the two variables? They are raising interest rates (albeit slowly) and aggressively reducing their balance sheet. I think many of the problems we see in the market are results of this combination. They should do one or the other, not both.


3. Powell and the Federal Open Market Committee listen to extremely smart PhDs from all the best schools with their fabulous multi-algorithmic models, which prove that you could raise rates and reduce the balance sheet at the same time with no problems.

Bluntly, those smart people (many of whom are actually quite brilliant, and I’m sure they are nice people, and their kids and dogs love them) mistakenly trust models based on past performance, and even worse (much, unbelievably, really badly, worse, which I can’t emphasize enough!) on monetary theory that is clearly, evidently, badly, manifestly wrong.

They have been using these models to forecast future market actions and the economy for decades, and they are about 0 for 300 in being right. It is statistically impossible to be that bad unless your models/assumptions are fundamentally flawed, which they are. Their underlying economic theories manifestly don’t work.


https://www.mauldineconomics.com/frontlinethoughts/bear-markets-fed-mistakes-and-quick-shots-from-john%2Bmauldin+fed+uncle+john&client=safari&rls=en&hl=en&ct=clnk
Title: Re: POLL: Fed and interest rates
Post by: wachtwoord on January 05, 2019, 05:50:19 AM
I'm missing the option: "Interest rates should be set by the free market rather than a central bank."

Edit:
While reading all the posts saw rkbabang already made my point.
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 06, 2019, 09:49:35 PM
Yes, ideally it is how it should be but it isn't. It is unlikely to change anytime soon.

https://www.wsj.com/articles/fed-faces-a-fresh-test-engineering-a-soft-economic-landing-11546822609?mod=hp_lead_pos1

Here is another article on the motivation of the fed - they would like to push unemployment up without triggering a recession. Seems like a tough job when asset and commodity prices are dropping. As others have said, Fed seems to be having some outdated models.

I'm missing the option: "Interest rates should be set by the free market rather than a central bank."

Edit:
While reading all the posts saw rkbabang already made my point.
Title: Re: POLL: Fed and interest rates
Post by: JimBowerman on January 07, 2019, 08:46:56 AM
I'm missing the option: "Interest rates should be set by the free market rather than a central bank."

Edit:
While reading all the posts saw rkbabang already made my point.

I'm probably beating a dead horse at this point, but i'd just add that imo, the only way the market can truly set interest rates is if the money supply is also dictated by the market (i.e. private currencies).  I get confused when people start claiming that the fed only started manipulating interest rates post 2008.  The fed dictates the supply of base money, so they are always going to be setting (nominal) interest rates.  The market has never truly set interest rates, and the market certainly didn't dictate interest rates before 2008.  That said, on a personal level, I don't really care whether we have 0% inflation vs 2% inflation.  Real gdp per capita grew about the same in the 1800s (0% inflation) as it did in the 1900s (3% inflation). 
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 11, 2019, 06:38:29 AM
Looks like there won't be a hike immediately:

https://finance.yahoo.com/news/more-fed-officials-caution-needed-more-rate-hikes-153756790--business.html

Hope so - but looking at comments from others - it looks like the Fed may still raise rates

Cleveland Fed:

https://www.cnbc.com/2019/01/04/feds-mester-says-if-inflation-doesnt-rise-fed-could-stop-hikes.html

"If we don't see inflation picking up and we see the labor market staying reasonably strong from where we are now, that may tell us we're not neutral."


Cramer thinks Fed has outdated models and I tend to agree:

https://www.cnbc.com/2019/01/04/cramer-fed-will-hike-rates-until-there-are-firing-and-layoffs.html

CNBC's Jim Cramer argued Friday that the Federal Reserve's policies are severely outdated, and said the central bank won't stop its rate-hike policy until Americans suffer from "firings and layoffs."

Ah... the guy woke-up!

https://www.cnbc.com/2019/01/04/powell-says-fed-will-be-patient-with-monetary-policy-as-they-watch-how-economy-does.html

Cardboard
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 21, 2019, 09:29:42 PM
Yellen chimes in:

https://www.cnbc.com/2019/01/14/yellen-says-very-possible-the-fed-has-enacted-its-last-rate-hike.html
Title: Re: POLL: Fed and interest rates
Post by: John Hjorth on January 22, 2019, 01:37:25 AM
Apparently it has not seeped into Ms. Yellen's head yet that she's retired, so she is still yelling.
Title: Re: POLL: Fed and interest rates
Post by: Spekulatius on January 22, 2019, 03:48:23 AM
Apparently it has not seeped into Ms. Yellen's head yet that she's retired, so she is still yelling.

She is now in the speech circus and needs air time to keep her brand intact.
Title: Re: POLL: Fed and interest rates
Post by: wachtwoord on January 22, 2019, 05:10:39 AM
Apparently it has not seeped into Ms. Yellen's head yet that she's retired, so she is still yelling.

She is now in the speech circus and needs air time to keep her brand intact.

Isn't being allowed to give these overpriced speeches repayment for services rendered in her time at the FED (so content is a secondary concern)? That's how it works for ex presidents anyway ;)
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 26, 2019, 07:47:19 PM
It looks like the fed chair goofed up big time - they are trying to undo the damage


https://www.wsj.com/articles/white-house-adviser-says-fed-board-nominees-should-support-easy-money-policies-11548375931
https://www.wsj.com/articles/fed-officials-weigh-earlier-than-expected-end-to-bond-portfolio-runoff-11548412201
https://www.wsj.com/articles/feds-patience-buys-breathing-room-for-asian-economies-11548393287
Title: Re: POLL: Fed and interest rates
Post by: Spekulatius on January 27, 2019, 07:37:45 AM
It looks like the fed chair goofed up big time - they are trying to undo the damage


https://www.wsj.com/articles/white-house-adviser-says-fed-board-nominees-should-support-easy-money-policies-11548375931
https://www.wsj.com/articles/fed-officials-weigh-earlier-than-expected-end-to-bond-portfolio-runoff-11548412201
https://www.wsj.com/articles/feds-patience-buys-breathing-room-for-asian-economies-11548393287

What damage?
Title: Re: POLL: Fed and interest rates
Post by: John Hjorth on January 27, 2019, 08:20:13 AM
What damage?

Since shalab posted, I have had exactly the same line of thinking as Spekulatius. Maybe I'm more or less blind, but - for sure - I can't see it. I may be in need of a cane of the blind, though. The number of yellow rings here locally goes from one to three, as I understand things. I think two rings is for the user where the spouse/partner is still beautiful, despite it was so ages ago, while three rings is when you're blind.

Right now, I'm spending time to counter my blindness by thinking about position sizing for the Big Four US banks.
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 27, 2019, 08:42:27 AM
May be not damage, they might have created an opportunity. I deployed a bunch of funds in December and got high quality names for low prices.

First Powell said the rates are a long way from neutral when he didnt even know what neutral is:

https://www.marketwatch.com/story/bond-markets-may-have-overreacted-to-powells-long-way-from-neutral-remark-economists-say-2018-10-04

Then he said a bunch of things that caused the market to nose dive
https://finance.yahoo.com/news/powell-said-seems-troubling-markets-181403220.html

Then in January he comes out and says he learned China is slowing down from Apple release. All along he has been saying that China is doing great and global economy is great. Then IMF comes out and lowers global growth forecasts.

This guy is Fed Chair for crying out loud - even a casual person looking at newspapers (unless it is all fake news)can see what is going on. He should have more data and insights than an orangutan reading newspapers.

What damage?

Since shalab posted, I have had exactly the same line of thinking as Spekulatius. Maybe I'm more or less blind, but - for sure - I can't see it. I may be in need of a cane of the blind, though. The number of yellow rings here locally goes from one to three, as I understand things. I think two rings is for the user where the spouse/partner is still beautiful, despite it was so ages ago, while three rings is when you're blind.

Right now, I'm spending time to counter my blindness by thinking about position sizing for the Big Four US banks.
Title: Re: POLL: Fed and interest rates
Post by: John Hjorth on January 27, 2019, 09:33:13 AM
Thank you, shalab,

Your last post puts more shades on your line of thinking. [Still : To me, nothing material changed here, so far.]

Wikipedia : Flexibility (personality) (https://en.wikipedia.org/wiki/Flexibility_(personality)).
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 27, 2019, 11:19:45 AM
Thank you John Hjorth

I went through the bank data you shared - thank you for sharing. The bank share prices were lower at the end of 2018 compared to 2017 - the main reason being people are concerned about 2019. That to me would be one material change. Then there is the housing prices, lack of inflation and emerging market impact and overall less business activity.

I am curious to know what would constitute material change from your perspective?

Thank you, shalab,

Your last post puts more shades on your line of thinking. [Still : To me, nothing material changed here, so far.]

Wikipedia : Flexibility (personality) (https://en.wikipedia.org/wiki/Flexibility_(personality)).
Title: Re: POLL: Fed and interest rates
Post by: Gregmal on January 27, 2019, 11:43:32 AM
I think it’s important to remember that the high majority of the time, material changes in asset prices can be caused by things that in hindsite are rather immaterial. Multiples can expand and contract on nothing other than sentiment. So doing ones best to understand all the different puzzle pieces and how they fit into the bigger picture is just as important, if not more so, than simply waiting for a material change. More often than not, material changes, once obvious, are already priced in.

Real world examples would be obvious from looking at any number of story stocks. WPRT was one of the biggest examples I can think of. The company was a dud, but had a great story. For years the market ignored poor results and a management team that over promised and underdelivered, consistently. Returns were quite impressive. Then, out of nowhere really, market participants lost confidence in management, and then the company could do no right. It plummeted like 90% inside of a year without any real “material change”. Tesla IMO could be another one real soon.

My point, WPRT was a shit company. The US economy is quite healthy. Fluctuations can occur, that are quite material in terms of impacting the value of ones investment, and driven by nothing but sentiment. It’s easier to swim with the current, rather than against it. One just needs to find the current. Who cares how long Jerome Powell needs to chase his own tail...
Title: Re: POLL: Fed and interest rates
Post by: Spekulatius on January 27, 2019, 01:24:39 PM
Forget what they say, just see what they do.
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 27, 2019, 02:07:29 PM
While I agree with you that US economy is healthy, Fed definitely has the power to damage it. The press did its job in pressuring them and it resulted in them leaking a story to WSJ about quantitative tightening. Wall street liked the leaked message on Friday.

BTW - I believe Elon Musk/Tesla have added tremendous value to the US and also to the world. I have no opinion on Tesla as an investment but I met an investment manager that has met Musk and invested in Tesla. Their opinion - "don't bet against Elon Musk". 

...
My point, WPRT was a shit company. The US economy is quite healthy. Fluctuations can occur, that are quite material in terms of impacting the value of ones investment, and driven by nothing but sentiment. It’s easier to swim with the current, rather than against it. One just needs to find the current. Who cares how long Jerome Powell needs to chase his own tail...

Amen

Forget what they say, just see what they do.
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 28, 2019, 09:07:30 PM
CBO expects rate hikes this year and economic growth of 2.3%.

https://www.cnbc.com/2019/01/28/the-cbo-thinks-the-fed-is-going-to-raise-interest-rates-this-year-disagreeing-with-wall-street.html
Title: Re: POLL: Fed and interest rates
Post by: John Hjorth on January 30, 2019, 11:09:18 AM
FOMC Press Conference January 30th 2019 at 2:30 PM (https://www.federalreserve.gov/live-broadcast.htm).
Title: Re: POLL: Fed and interest rates
Post by: shalab on January 30, 2019, 09:22:05 PM
Thanks - looks like the Fed did the right thing finally.

https://www.cnbc.com/2019/01/30/fed-leaves-rates-unchanged.html

I expect the USA GDP to be close to or cross 22 trillion at the end of 2019. Let us see how it goes. It was 20.66 trillion at the end of Q3. I expect it to hit ~21 trillion at the end of 2018.

FOMC Press Conference January 30th 2019 at 2:30 PM (https://www.federalreserve.gov/live-broadcast.htm).
Title: Re: POLL: Fed and interest rates
Post by: John Hjorth on January 30, 2019, 09:27:12 PM
... Let us see how it goes. ...

Yes shalab,

A least one element of all the noise generation as of yet eliminated - at least for now.
Title: Re: POLL: Fed and interest rates
Post by: shalab on February 02, 2019, 06:01:50 PM
Why FED made a U turn - WSJ:

https://www.wsj.com/articles/why-the-fed-made-a-u-turn-perceived-risks-to-growth-shifted-11549108800?mod=hp_lista_pos2
Title: Re: POLL: Fed and interest rates
Post by: shalab on February 03, 2019, 10:13:49 AM
Impact of fed rate increase:

https://www.bloomberg.com/news/articles/2019-02-03/dollar-vortex-puts-chill-on-earnings-that-may-worsen-in-spring?srnd=premium
Title: Re: POLL: Fed and interest rates
Post by: John Hjorth on February 14, 2019, 11:45:54 PM
CNBC [February 14th 2019] : Watch CNBC's full interview with Federal Reserve Governor Lael Brainard (https://www.cnbc.com/video/2019/02/14/watch-cnbcs-full-interview-with-federal-reserve-governor-lael-brainard.html).
Title: Re: POLL: Fed and interest rates
Post by: shalab on March 22, 2019, 05:45:22 PM
We have inverted yield curve now - comparing 3 month treasury to the 10 year treasury

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

Fed still thinks they can have a rate hike in 2020
Title: Re: POLL: Fed and interest rates
Post by: thefatbaboon on March 23, 2019, 03:23:50 AM
Continue to be amazed at the recklessness of Powell.  Pushing through those eight sequential hikes...especially the december one.  And then within a few days  he's speechifying in January and again now dialing it all back in the face of data that was already rather obvious to even the most casual observer. Clown
Title: Re: POLL: Fed and interest rates
Post by: Cardboard on March 23, 2019, 04:48:07 AM
Yup! Went from 2 rate hikes in 2019, to data based driven, to none whatsoever in 3 months.

Then just before this latest decision goes on CBS 60 minutes to brag about himself and the rest of his academicians bunch.

This entire Fed is a joke. Really have no clue and as I said previously never orchestrated a soft landing in their entire history.

Cardboard
Title: Re: POLL: Fed and interest rates
Post by: Cigarbutt on March 23, 2019, 05:23:36 AM
Yup! Went from 2 rate hikes in 2019, to data based driven, to none whatsoever in 3 months.

Then just before this latest decision goes on CBS 60 minutes to brag about himself and the rest of his academicians bunch.

This entire Fed is a joke. Really have no clue and as I said previously never orchestrated a soft landing in their entire history.

Cardboard
Read lately here and elsewhere:
-The Fed hasn't been able to engineer a strong recovery after the 2007-9 episode.
-The Fed has had a hard time managing the economy due to unforeseen circumstances.
-The Fed hasn't been able to stage a credible exit process.

In the last 20 years, most of positive stock returns have occurred around FOMC meetings, the GFC happened more than 10 years ago and, on a relative basis, the Fed had only started to decrease its balance sheet.

Question:
How have we come to rely so much on central planners?
Title: Re: POLL: Fed and interest rates
Post by: Spekulatius on March 23, 2019, 05:58:42 AM
Recession would occur with and without the Fed. It looks like the yield curve inverses due to rates in the EU being inverses, not because the economy is too weak. I don’t see credit freezing up, nor do I see a recession. The only issue I see is that the Fed is talking about what they are going to do and it seems counterproductive. I suggest they do whatever they want to do and shut up about what they are intend to do in the future.

I personally like some volatility in the stock market. Another panik run this year would be great.
Title: Re: POLL: Fed and interest rates
Post by: Cardboard on March 23, 2019, 07:07:49 AM
"Recession would occur with and without the Fed. "

Sure but, no need to add fuel to the fire as they do each and every time! Never noticed that they never seem to think about the dollar strength, what copper says, what other currencies and interest rates are?

"I personally like some volatility in the stock market. Another panik run this year would be great."

Feels to me like the Fed is a tool for the ultra wealthy to actually accentuate these panics. Maybe to overthrow some administrations as well. Bilderberg comes to mind:

https://www.independent.co.uk/news/world/europe/bilderberg-group-conspiracy-theories-secret-societies-new-world-order-alex-jones-a8377171.html

Cardboard
Title: Re: POLL: Fed and interest rates
Post by: shalab on March 23, 2019, 07:40:08 AM
In addition, 70% on this board supported rate hikes. It shows how politics can turn ones head into cabbage, ala Munger.

Continue to be amazed at the recklessness of Powell.  Pushing through those eight sequential hikes...especially the december one.  And then within a few days  he's speechifying in January and again now dialing it all back in the face of data that was already rather obvious to even the most casual observer. Clown
Title: Re: POLL: Fed and interest rates
Post by: Spekulatius on March 23, 2019, 08:25:03 AM
In addition, 70% on this board supported rate hikes. It shows how politics can turn ones head into cabbage, ala Munger.

Continue to be amazed at the recklessness of Powell.  Pushing through those eight sequential hikes...especially the december one.  And then within a few days  he's speechifying in January and again now dialing it all back in the face of data that was already rather obvious to even the most casual observer. Clown

Huh? What have the Fed hikes to do with politics ? Powell was chosen by Trump, by the way.
Anyways, I can’t see how  a 2.5% interest rates (real interest rate is 0.5-1% after inflation) can cause a problem. It sure seems to be a preferable situation Europe, where interesting rates are virtually nil and the economic is crawling to a halt nevertheless. My guess is that the recent drop in LT interest rates in The EU is caused by Brexit uncertainty, which is an exogenous event for the US.

I also note think that every value investor should love volatility.
Title: Re: POLL: Fed and interest rates
Post by: shalab on March 23, 2019, 09:19:10 AM
Agreed with volatility being a friend of the investor. I am getting cash ready for the next event which could happen 3-6 months out.

However, USA interest rate hikes have implications beyond the immediate interest payment. E.g:, USDCAD is at 1.34. EURUSD is at 1.13. Given 50% of SP500 earnings are from abroad, this has implications on trade and investments.

In addition, 70% on this board supported rate hikes. It shows how politics can turn ones head into cabbage, ala Munger.

Continue to be amazed at the recklessness of Powell.  Pushing through those eight sequential hikes...especially the december one.  And then within a few days  he's speechifying in January and again now dialing it all back in the face of data that was already rather obvious to even the most casual observer. Clown

Huh? What have the Fed hikes to do with politics ? Powell was chosen by Trump, by the way.
Anyways, I can’t see how  a 2.5% interest rates (real interest rate is 0.5-1% after inflation) can cause a problem. It sure seems to be a preferable situation Europe, where interesting rates are virtually nil and the economic is crawling to a halt nevertheless. My guess is that the recent drop in LT interest rates in The EU is caused by Brexit uncertainty, which is an exogenous event for the US.

I also note think that every value investor should love volatility.
Title: Re: POLL: Fed and interest rates
Post by: Viking on March 23, 2019, 11:27:17 AM
It really is surprising how quickly the economic data is turning compared to 3, 6, 9 and 12 months ago. Europe is slowing. Exports from China are slowing. And now US GDP is slowing, with expectations for Q1 now around 1%.

GDP growth in Canada in Q4 was barely positive and expectations are Q1 GDP will be negative; on a blended (Q4+Q1) basis the expectation is we could see a negative number.

The million dollar question: does this global slowdown continue in 2019? Or do we bottom in Q1 and see growth pick up in Q2 and rise into year end?

As has been posted by Spekulatius, i am also hoping for some volatility to take advantage of panic selling.