The Fed...I was not correct....

[NoRush993/951]

The balance sheet is another closet of IOU's. There isn't sufficient dollar liquidity to go around. The game is all about confidence. The dollar is in demand by Brits and Europeans especially. No worries about it in the near term.

[Tervuren]

Originally Posted by jyl

Rates so low that the yield curve inverts

The yield curve, as I understand it, inverts for a different reason.

It inverts because demand for long term Treasury bills goes up compared to short term treasury bills. The bidding process on bills mean that the long term ends up at a lower rate.

Inverting the yield curve is also a by product of rapid rate increase.

These were my understandings based on what was shared in a previous thread.

I'm curious why you differ?

[jyl]

Originally Posted by Tervuren

The yield curve, as I understand it, inverts for a different reason.

It inverts because demand for long term Treasury bills goes up compared to short term treasury bills. The bidding process on bills mean that the long term ends up at a lower rate.

Inverting the yield curve is also a by product of rapid rate increase.

These were my understandings based on what was shared in a previous thread.

I'm curious why you differ?

What I was thinking was, if the Fed is going to raise short rates (via Fed Funds rate), it doesn't want to hold long rates down (via QE) because that makes inversion more of a risk.

Long rates are low for various reasons: inflation expectations are low, growth expectations are low, perceived risk is substantial, there's more money than available places to invest, and I'm sure other reasons I don't understand.

The Fed wanted to raise short rates for various reasons but a big one is to get some room to drop them again in the next recession. But the difficult thing is even though some aspects of the US economy are saying it is time to raise rates, inflation and growth aren't high or even really accelerating. So the Fed was raising short rates (from something like 0.25% to over 2%) and long rates weren't rising as much (from 1.35% to just over 3%, and now below 3%).

The yield curve is thus flattening and is actually partly inverted already.

I don't fully understand why an inverted yield curve is a strong recession predictor. Maybe it is the crimp it puts on bank lending that helps cause a recession. Maybe whatever is starting a recession drives the inversion so the yield curve is just a signal not a cause. I dunno. But investors believe inversion -> recession so that's good enough for me.

[Sooner or later]

Fed doesn't set rates. The market does.

An inverted yield curve can be a warning of a coming recession. Investors that are concerned about a recession bid up the price of longer term bonds which lowers the rate. They think rates will decline in future long bonds so they lock in the current higher rate now. High demand causes rate to decrease. With fewer people bidding on the shorter yields the rate must be raised to sell the bonds due to lack of demand.

[Sooner or later]

The Fed sets Federal Funds rate and not T Bill or T Bond rates.

[Sooner or later]

You can make a killing on bonds if rates trend lower.

Say I spend 10,000 on 5 year bonds at 4%. If rates decline to 2% you win the the scratch off lottery,. You have 10k in 5 year 4% bonds. Everybody else has to buy the 5 years at 2%. If you elect to sell you will get significantly more than 10k for your 4% bond. So people go long if they expect lower rates are approaching.

You get killed on bonds in a rising rate innvironment. You paid 10k for a 4% 5 year bond. If rates go up to 6% you are holding a 4% bond when new issues are going for 6%. You can hold on to your low rate bonds or sell them to buy the 6%. Nobody will give you your full ten grand for your crappy 4% yield when they can buy 6% for the same 10 grand.

[KFC911]

^^^^ Me no like bond funds...also have to ride the inflow/outflow of the masses...individual bonds, short term, under or at par value works for me...but timing is everything .

Some bonds I purchased right before Tariff man spoke have returned almost 10% already with a 5% guaranteed evey year to come....that's what a dip does . I was burned in bond funds too years ago....so I do have other stories .

Which way is the Fed wind gonna blow...I dunno?

They threw me a nasty slider with their abrupt reversal (with some new voting members recently)...due to equity markets...but I can still hit the other pitches...sometimes .

2.5% is still too low for Fed overnight rates to banks imo...and has risen from the ashes much faster before...

Get yer cheap credit here...come one, come all...

Nuthin' wrong using credit wisely imo....most don't

[tabs]

Originally Posted by NoRush993/951

The balance sheet is another closet of IOU's. There isn't sufficient dollar liquidity to go around. The game is all about confidence. The dollar is in demand by Brits and Europeans especially. No worries about it in the near term.

Yep it is all about confidence..the world has confidence in the FED. The FED realizes it and acts accordingly...their reaction to December proves it.

[KFC911]

Originally Posted by tabs

Yep it is all about confidence..the world has confidence in the FED. The FED realizes it and acts accordingly...their reaction to December proves it.

As a fiscal conservative...100% behind their plan....until Dec. the reaction proves the opposite for me. You were right....I did not think the unanimous Fed voting board would change members/paths so abruptly..they did...due to equity markets.
I have lost a bit of confidence actually...

But the talk of not reducing their 4T balance sheet ANY more, ever...that's what this thread is supposed to be about...not low interest rates.

I still think overnight rates need to be at least neutral...2.5 isn't quite there imo...but ween the credit junkies like fint ...

This recent talk of keeping 4T forever is the topic of this off topic thread....thanks JYL...as usual, interesting perspective you have...

Is there a 10T Fed balance sheet in the future?

[tabs]

Originally Posted by KC911

^^^^ Me no like bond funds...also have to ride the inflow/outflow of the masses...individual bonds, short term, under or at par value works for me...but timing is everything .

Some bonds I purchased right before Tariff man spoke have returned almost 10% already with a 5% guaranteed evey year to come....that's what a dip does . I was burned in bond funds too years ago....so I do have other stories .

Which way is the Fed wind gonna blow...I dunno?

They threw me a nasty slider with their abrupt reversal (with some new voting members recently)...due to equity markets...but I can still hit the other pitches...sometimes .

2.5% is still too low for Fed overnight rates to banks imo...and has risen from the ashes much faster before...

Get yer cheap credit here...come one, come all...

Nuthin' wrong using credit wisely imo....most don't

Stop whining like a little B and take it like a..a ..everybody has got to pay their fair share.

[tabs]

Originally Posted by KC911

As a fiscal conservative...100% behind their plan....until Dec. the reaction proves the opposite for me. You were right....I did not think the unanimous Fed voting board would change members/paths so abruptly..they did...due to equity markets.
I have lost a bit of confidence actually...

But the talk of not reducing their 4T balance sheet ANY more, ever...that's what this thread is supposed to be about...not low interest rates.

I still think overnight rates need to be at least neutral...2.5 isn't quite there imo...but ween the credit junkies like fint ...

This recent talk of keeping 4T forever is the topic of this off topic thread....thanks JYL...as usual, interesting perspective you have...

Is there a 10T Fed balance sheet in the future?

Bullard said 7T no problem...beyond that is no man's land.

[KFC911]

Originally Posted by tabs

Bullard said 7T no problem...beyond that is no man's land.

I seem to recall that he always seems to be quoted...the extreme fiscal credit liberal of all the Fed board members....now he gets to vote . I just disagree with him....he's whined since '15, as the other members were voting....unanimously...every single one, every .25/qtr increase...for two years as I recall.

Now? Gonna be interesting....

Where are the conservatives? My kind...

[KFC911]

Hey Tabby...I just read some of your earlier posts...I stand corrected on the details....

I seriously was NOT paying close attention during those years....I made $ fishin'....I used plastic worms juiced with sumthin' though...

That's yer job

[fintstone]

Originally Posted by KC911

...I still think overnight rates need to be at least neutral...2.5 isn't quite there imo...but ween the credit junkies like fint …

The only credit fint uses is to buy a house (mortgage). Most folks just don't pay cash.

[sammyg2]

The rates should have never been played with in the first place. Two wrongs don't make, remember?

Take away their knob to fiddle with things they shouldn't fiddle with because of POLICICAL MOTIVATION, and we won't have to discuss how to undo the damage.

In the mean time, I'm going to play the selfish miser card and say leave the market alone! Let me wrack up another (you know what) before retirement and once I've put it all in money-market and T-bills for safe-keeping and security, they can raise rates all they want.

flame away.

[Sooner or later]

Sam, without fed intervention in 2008 the money supply would have dried up. There would have been little money to lend. With less money to lend rates would have climbed significantly. Fewer auto loans. Fewer home loans. Fewer business loans. An even deeper recession if not worldwide depression.

[Sooner or later]

The problem started decades ago. LTCM went bust and we ignored the problem and let it build.

Watch The Warning on PBS Frontline. Read up on Brooksley Borrn and how she was railroaded out by Greenspan and his cronies when she had the gall to suggest we needed regulation in the derivitive markets

[Sooner or later]

A quick clip on the show. The full episode is available online


https://m.youtube.com/watch?v=ACkiKVtF3nU

[KFC911]

I'm just messin' with ya fint....

SOL is spot on too ....

Wah .....

[tabs]

Originally Posted by sammyg2

The rates should have never been played with in the first place. Two wrongs don't make, remember?

Take away their knob to fiddle with things they shouldn't fiddle with because of POLICICAL MOTIVATION, and we won't have to discuss how to undo the damage.

In the mean time, I'm going to play the selfish miser card and say leave the market alone! Let me wrack up another (you know what) before retirement and once I've put it all in money-market and T-bills for safe-keeping and security, they can raise rates all they want.

flame away.

Your Conservativism really leaves you out to lunch. Unfking believable...

What don't yo get about the term "MELTDOWN" If the powers that be had let it all go to he11 you would be living on the streets and eating out of a garbage pail...if you were not already dead. The Banking system was Tot in 2008, 72 hours away from a COMPLETE COLLAPSE. Without a Banking system the economy collapses as there is no means to pump money through the system.

That just does not seem to have scared you? Which either make you a gdm fool or nutz?

So the powers that be did what they thought would work, as it had fixed it in past crisis's. Since I like having a roof over my head and eating 3 square aday I have no complaints. What they didn't realize is that the problem was SYSTEMIC and not generic..You REALLY DON"T GET THAT EITHER. The Germans on the eve of WW2 had no idea of what would befall them in 1945. If they did would they have been so happy to follow Adolf? A life changing event took place in 2008. After 2008 the powers that be continued to tinker with the system to restore it to it's former luster, aka as trying to fix Humpty Dumpty.. YOU CAN NOT FIX HUMPTY DUMPTY and slowly as one thing after another has failed to remedy the situation they are slowly coming to see that it can not be fixed. The best that they have been able to do is stabilize the system with all their efforts. Now you may not wnat them to do that and they tried to wean you off the juicing and you saw what happened in December..Equities were headed for the abyss..probably giving back everything since 2012...how would you have liked that...more than likely your job would have been gone as the mainstream economy would have taken a hit. Your financial assets would also have evaporated as well...leaving you with your dick in your hand..

So the sytem as it stands is broken...the news for you and the FED is that it was broken LONG BEFORE 2008..the system was being juiced for decades to keep the illusion of prosperity alive..to make dum guys like you think you are Prosperously Fat Bergers.. The chickens just came home to roost in 08 that's all..So before 08 home wasn't what it seemed to be...

You have been living a fking LIE since the 1980's..as all of us have been. Now our day of reckoning is upon us...

I saw all this shyte happening right before my eyes and have not been fooled by it..and have been vociferously saying it since 08....