Showing posts from January, 2017

Blackrock, Cap on Yields Because of Monumental Bond Demand

This article was first published by me on Talkmarkets: Business Insider, primarily because of Jonathan Garber, is actively engaged in bond tantrums from time to time. This is my opinion only, but  I think there are statements in Garber's interview with Blackrock's Global Fixed Income Investment Guru, Rick Rieder, that illustrate my view.  In the long titled article, The Bond Chief at 5 Trillion Investment Behemoth Blackrock Told Us the Most Dangerous Place to Put Your Money,  Rieder essentially makes two opposite predictions in the same interview. At the end of the article, the bond king makes a statement that runs along the traditional belief, that: In this environment, small moves in yields result in big price adjustments in long-dated fixed income, potentially resulting in significant losses in investors’ portfolios. For this r

Sane and Silly Economics from Sumner, Yellen and the BIS

This article was first published by me at Talkmarkets: Scott Sumner, well known market monetarist, discusses Janet Yellen's procyclical bias on a recent post at  The Money Illusion  blog. He believes that Yellen's experimental idea to let inflation run hot in an expansion, would be a mistake. 3% inflation, Sumner says, while unemployment is low, would ultimately destabilize the economy. You could argue about how low unemployment is. But lets say Prof is right for the purposes of this article. Before I talk about Sumner's comments that make sense,  I would like to speak to a comment he makes that I disagree with, that may prove to even be as silly as some Fed and BIS talk. Sumner said:  Yellen’s statement was not an indication of Fed policy, but merely the musings of one person.  It’s very unlikely to be put into action.  And yet bond prices p

Economic Theory Is Dead. New Normal Means No Recovery

This article was first published by me on Talkmarkets: Economic theory is dead. It is like an emperor who has been stripped of his clothing. It is nothing of consequence in the New Normal.  And that bodes ill for recovery. Before I get into John Mauldin's timely comments about this sorry state of affairs, we can look to see if monetary theory still applies. John Maynard Keynes was right about monetary theory in his time. But that was then and this is now. Somebody needs to prove me wrong but I don't think they can until the powers that be change the rules. Here is what Keynes said, paraphrased: When interest rates are low, the opportunity cost of holding money is low, and the expectation is that rates will rise, decreasing the price of bonds. So people hold larger money balances when rates are low. Overall, then, money demand and interest rates

Pros and Cons of Attacking the Federal Reserve Bank

This article was first published by me on Talkmarkets It would seem that the attacks on the Fed are increasing. Most people have lots of reasons, legitimate reasons, for attacking the Fed. Now, a presidential candidate, Donald Trump, has chimed in with his improper attacks on the Fed. Trump is partly right, as most people who are all things to all people appear to be right. But his attacks require multiple universes. We, unfortunately, live in only one universe, and are relegated to the earth, home of Hotel Structured Finance, where we have all checked in. But more about all that in the cons.  Here are the pros first. So, what are the pros of attacking the Fed? Well, I have attacked the Fed on five issues: First is the issue of mispricing risk. I think it is proven that the Fed mispriced risk in the housing bubble and in other markets

Anti-Zionism Is Deliberately conflated with Anti-Semitism to Suppress Legitimate Criticisms of Israeli Policies

Thank you Avi Shlaim, professor at Oxford University, for telling the truth about opposing Israel versus antiSemitism: What is striking, however, about contemporary Britain is the use of anti-Semitism as a political tool to silence legitimate criticism of the policies and practices of the Israeli government and the collusion of members of the political establishment in this process... An anti-Zionist, on the other hand, is someone who opposes Israel as an exclusively Jewish state or challenges the Zionist colonial project on the West Bank. Israeli propagandists deliberately, yes deliberately, conflate anti-Zionism with anti-Semitism in order to discredit, bully, and muzzle critics of Israel; in order to suppress free speech; and in order to divert attention from the real issues: Israeli colonialism, Israel's apartheid, its systematic violation of the human rights of Palestinians, and its denial of their right to independence and statehood. The propagandists persistently pre

Jamie Dimon Is Janet Yellen, Proving Will Rogers Right

This article was first published by me on Talkmarkets: Jamie Dimon wants it all. Before I quote him and try to read between the lines, people should realize that Dimon wants higher interest rates to benefit JP Morgan, but not too high. Rising rates help real estate lending. He doesn't want the shock of quickly rising rates so he knows lower rates help his counterparties. But I believe he thinks that the counterparties to his bank could supply more bonds if necessary as collateral in JP Morgan's big derivatives holdings if rates rise a bit, slowly over time. He doesn't want them to have to supply extra collateral all at once. Lehman, after all, went bust. It was a major counterparty to JP Morgan and significantly weakened the bank, whether Dimon would admit it or not. Jamie Dimon's statements seem confusing. He wants to have his cake and ea

US Treasury Bond Tantrum Boys Are Out in Full Force

This article was first published by me on Talkmarkets: After Larry Summers and Jamie Dimon stated that there is a shortage of long bonds (for use as collateral in derivatives and other markets), hedge fund managers and finance writers say you have to get rid of your bonds. The tantrum boys are back in force. The list includes the ever present king of tantrums, Alan Greenspan, as well as Paul Singer, Jonathan Garber from Business Insider, and a few others. Many of the bond tantrum boys, (BTB's), know not enough bonds are being generated, as there is not enough deficit spending being added, causing yields to decline over the past 30 years. You don't need to see the 10 year bond chart again. You know what it looks like. Clearly the BTB's want to buy treasury bonds, UST's, at the most favorable price, meaning when yields have spiked. Th