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Tesla Investor's General Macroeconomic / Market Discussion
- Thread starter FluxCap
- Start date
Federal Reserve Vice Chair Stanley Fischer speech at jackson Hole 8-29-2015
FRB: Speech with Slideshow--Fischer, U.S. Inflation Developments--August 29, 2015
A few early comments
http://www.ft.com/intl/cms/s/0/5bdab8c2-4e6e-11e5-b029-b9d50a74fd14.html#axzz3kE0NrqrY
http://www.zerohedge.com/news/2015-08-29/fischer-speaks-jackson-hole-fed-should-not-wait-until-2-inflation-begin-tightening
FRB: Speech with Slideshow--Fischer, U.S. Inflation Developments--August 29, 2015
A few early comments
http://www.ft.com/intl/cms/s/0/5bdab8c2-4e6e-11e5-b029-b9d50a74fd14.html#axzz3kE0NrqrY
http://www.zerohedge.com/news/2015-08-29/fischer-speaks-jackson-hole-fed-should-not-wait-until-2-inflation-begin-tightening
Thanks, Lump.
On a related note, while I don't usually link ZeroHedge paranoia, I think this article has merit and relevance to the bond market and relatedly, US equities:
Why QE4 Is Inevitable
this may be a dumb question, but as PBoC unloads US treasury notes, to prop their stock market following a sell-off, the money freed by those selling, one would think, should go somewhere? Shouldn't treasury notes, with higher yield, be an attractive place to park money available after the sell-off of Chinese equities?
If that is the case, there would be a manifestation of the law of preservation energy (I.e. money), and the net effect would be not quantative tightening, but neutral...
My understanding is that treasury notes are debt notes issued by US treasury. China is the largest US creditor through these notes. When PBOC winds these notes (sells them), someone must be buying them. It could be that Fed may be obliged to buy them, ie pay them out. In these transactions, money flows from US to China, hence negates QE effects in US as it pulls money out. That has the opposite effect of QE. That is my understanding and I welcome more informed posts.
There are some speculations on why China is liquidating these notes.
There is a large capital flight out of China - investors fleeing from the falling Chinese market and other Chinese assets move their capital off shore. Some people describe that capital flight as leaving the sinking ship, spurred by a loss of trust in the Chinese economy.
That capital flight leaves a huge hole in the local Chinese market. Chinese gov is trying to fill in that hole by liquidating their reserves (selling US treasuries) and using the proceeds to prop up the local market.
Some people argue that Chinese leadership is not happy with yuan not making it into the IMF basket of world reserve currencies earlier in the year. Consequently, Chinese gov might try and muscle their way in that basket by knee capping everyone else's currency. Emerging markets have been hit hard with China slowdown and yuan devaluation, as suddenly their pegged currencies seem overvalued and make them less competitive. Some emerging markets are removing dollar peg as that makes them more competitive. If that behaviour spreads and turns into 'peg run' then there might be further disturbances in the world financial markets.
It is worth reading links in Flux's post above, quite informative, thanks Flux.
There are some speculations on why China is liquidating these notes.
There is a large capital flight out of China - investors fleeing from the falling Chinese market and other Chinese assets move their capital off shore. Some people describe that capital flight as leaving the sinking ship, spurred by a loss of trust in the Chinese economy.
That capital flight leaves a huge hole in the local Chinese market. Chinese gov is trying to fill in that hole by liquidating their reserves (selling US treasuries) and using the proceeds to prop up the local market.
Some people argue that Chinese leadership is not happy with yuan not making it into the IMF basket of world reserve currencies earlier in the year. Consequently, Chinese gov might try and muscle their way in that basket by knee capping everyone else's currency. Emerging markets have been hit hard with China slowdown and yuan devaluation, as suddenly their pegged currencies seem overvalued and make them less competitive. Some emerging markets are removing dollar peg as that makes them more competitive. If that behaviour spreads and turns into 'peg run' then there might be further disturbances in the world financial markets.
It is worth reading links in Flux's post above, quite informative, thanks Flux.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
It's been pretty obvious for many years now that the Chinese policy of pegging the Yuan to the dollar and not having it trade freely has been motivated by trying to keep the Yuan weak to try to preserve the classic status quo of the Chinese economy being mainly an export driven economy: cheap labour, cheap manufacturing, "Made in China" stuff being exported all over the world. Only problem is that as the Chinese economy has grown very strong (for over two decades now their growth has been higher than the US and EU). Strong in absolute terms, but more importantly strong in relative terms. This means a steady increase in buying power and that the economy transforms in to one where imports soon may outweigh exports.
Now, if the Yuan had been trading freely it would have been much stronger already, but that's been prevented so far. This is like loading a spring: when the Chinese finally let the Yuan assume its market value I think we'll see some rapid changes in the global economic landscape. Sort of like opening the floodgates or flipping a switch. China will show how strong their economy actually is, and this might be the first step.
Now, if the Yuan had been trading freely it would have been much stronger already, but that's been prevented so far. This is like loading a spring: when the Chinese finally let the Yuan assume its market value I think we'll see some rapid changes in the global economic landscape. Sort of like opening the floodgates or flipping a switch. China will show how strong their economy actually is, and this might be the first step.
You know, this is entirely possible as well. I wasn't saying I necessarily believed the post I linked, just thought it had some well-reasoned arguments worth considering.
Personally, I am still net short this market. I do not think we have seen an end to China-derived volatility and downside in US equities. As much as I want to pile into the "FANGs" (Facebook Amazon Netflix Google) like every fund manager, I am too scared to do it right now. So I have a lot of cash, waiting.
Here is a great read from Seth Klarman in 2004 on holding cash as a position -- feel like it could have been written today:
http://www.uaic.co.nz/assets/docs/investor/seth-klarman-on-the-decision-to-hold-cash1.pdf
Today is the monthly employment situation report release day, and in the markets sometimes "good econ news is good," sometimes "good econ news is bad." Today, investors have decided they are not pleased by the report, and are worried any more good economic news may give the Fed fodder to justify raising rates this month. Recently, the market throws these tantrums whenever the Fed hints it will raise rates. Then, often, the Fed talks softer and backs off its rate-raising language, then everyone buys stocks again. But the thing is, most fund managers I follow do not seem to want to be holding equities when the rate increase actually happens because many in the market expect a huge selloff at that time, so it's a bit of a game of chicken.
Personally, I continue to position defensively out of US equities given how on edge the markets are right now with uncertainty over Fed rates and China. I will look for re-entry when I see signs that some of these risks are mitigated and/or certain stocks become oversold and look like bargains.
Personally, I continue to position defensively out of US equities given how on edge the markets are right now with uncertainty over Fed rates and China. I will look for re-entry when I see signs that some of these risks are mitigated and/or certain stocks become oversold and look like bargains.
ZachShahan
Active Member
The economy may look healthy to the more blinkered portions of the upper class, but judging by employment/population ratio and median wages, the US economy is *still* doing badly, and has been for 15 years. A problem with an unbalanced economy (with all the wealth at the top end) is that it's fragile: demand from a lot of people with solid incomes is solid, while demand from a few superrich people is unstable and has a tendency to evaporate.
There's not much the Fed can do about that, but Congress certainly should do something about it (New Deal type programs). Congress won't, of course, given the current composition of Congress.
Similar problems are affecting most of the 'advanced' countries, which has hurt demand both domestically and for Chinese goods. China's government has been trying to stimulate domestic demand, but they don't seem to be very good at it.
... of course, TSLA is specifically in the luxury goods market, so should be quite solid for a while if this is the risk.But we're witnessing serious shakeouts in firms which sell low-end goods.
Very well said. And I think something many of us forget or block out too easily. But do you see this risk more a risk of a steady decline or a risk of another sudden collapse and economic mayhem?
I think that this situation both continues the steady decline we have seen for the last few decades, and creates an environment where shocks are much more likely to be severe. But the markets are closed so if you would indulge me a bit, it's Friday night and I feel like waxing on about this interesting subject.
I tend to think that this is nothing less than the defining economic characteristic of this generation -- whether you call it rising "income inequality" or "wealth disparity" or a "disappearing middle class," it's due to the same underlying root cause as neroden hints at above. When you systematically remove purchasing power from the bottom and middle of the wealth and income spectrum by eliminating jobs, cutting social services, and making wages actually decrease when adjusted for inflation, resilience and economic health of a whole society will suffer. Conversely, when injections of purchasing power are pushed into the economy from the bottom through fiscal stimulus programs (The New Deal, The 2009 Recovery Act), those dollars tend to get deployed into an economy more quickly and efficiently, creating both immediate and more lasting economic prosperity. But this becomes a political argument where too many conflate personal household debt with government debt spending, which is precisely what is needed to leapfrog out of recessions.
Monetary policy like the Fed's "QE" is a blunt tool that is a top-down approach, based on "wishing and hoping" that businesses who get access to cheap capital costs will magically begin hiring more workers, paying higher wages, and producing more goods and services. It has not really worked as well as intended, and instead has once again enriched those (like us) who hold capital and invest it in things like real estate and the stock market, which have had one of the best bull runs in history in this QE era where returns are nonexistent in savings accounts or bonds. The vast majority of people on the planet do not get to participate in this bull market, and are still faced with the same bleak job market with low wages, long hours, no job security and frankly, no hope their leaders will do anything to help them because they cannot afford the time or money to pay lobbyists to buy votes and place candidates in office who would protect them (even if they understood why/how).
Speaking of "unemployment" I do wish that the BLS would change its ridiculously outdated formulae for calculating employment statistics (U-6 does not tell the whole story, and U-3 is practically useless), because the real picture looks more like this:
Now, Janet Yellen and her fellow Fed member economists understand at least some of this and have spoken about a "basket" of economic data points that they will consider independent of the main U-3 unemployment figure tossed about in the mainstream media when determining whether or not to raise or lower the Federal funds rate.
As for the old US of A as an engine of global prosperity and economic well-being, I think we are in a precarious position and ultimately we will either continue on the path towards being an oligopoly economy of plutocrats, thus literally becoming what our founders most feared and were trying to escape, or we will wake up, restart some New Deal programs with trillions of spending, get people on the margins and at the bottom and middle back to work, rebuild our crumbling infrastructure, and retake our world leadership position. Like many, I don't see that happening until/unless we face another crisis, but still I can hope.
I am inclined to think that the overall market mood is driven by the events outside of US. Some of these events far out shadow internal US developments simply due to the impact size they have on the world scene.
China's downturn is still unfolding and becoming more transparent, the full impact of it on emerging markets growing by the day. This development imo has the largest impact on the current market mood.
Eurozone Greece fiasco is somehow overshadowed with terrible optics of the river of migrants flooding into Europe. I don't want to start a discussion on social aspects of this development, but this migration and its handling has an effect on Europe's political and economic prospects. It highlights the lack of unity and leadership in Europe. On a positive note, it highlights where the good places are and what the masses of humanity vote for with their feet.
Such world stage background makes investors jittery and nervous. Vix, 'fear index', spiked up
I do not know what the Fed will do or what is the correct action, hold back or raise rates.
That is so often the situation with the leaders. They struggle to make difficult calls in situations that are quite bad and there are no good calls to be made, sometimes it might appear that they made the wrong call, and the masses have someone to blame
If Chinese leaders somehow regain the control of the situation, and European leaders at least start pretending that they might cooperate, that might calm the market tantrums.
My optimistic view is that these disturbances that we see are manageable as long as there are no wars.
Most European countries aspire to be/come a part of united European community and are willing to change some of their recalcitrant ways to get/stay there.
China has pulled huge masses out of poverty. That was quite a difficult task. If they could handle that they will handle the current situation.
Let's imagine a competition between the world governments. They compete on who contributed most towards increases in overall humanity happiness.
Let's say we have a happiness index that quantifies this contribution by multiplying the number of humans affected with the happiness change for each individual. Imo Chinese leadership wins by a long shot on this metric.
FOMC
, they are the champions so farPersonally, I think they're clueless.
Bernanke Was Wrong - YouTube
The Fed is the reason we are in this mess in the first place.
Most of the video was from the time before the housing crisis. In it, Bernanke shows how wrong he was about what was coming. How can we trust someone to steer the economy when he was so wrong before?
IMO, the Fed is the reason we have these serial bubbles and busts. It started in the late 90s when Greenspan tried to save the economy from the Asian contagion, the LTCM, and Y2K by lowering interest rates and flooding the market with cheap money. That caused the tech bubble. When that burst and we were hit with 9/11, he reduced rates again to save the economy and caused the housing bubble. We are repeating that same mistake again by lowering rates to zero for 7 years now along with QE.
The Federal Reserve Asset Bubble Machine - WSJ
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
Good discussion here right now. I very much agree with the views of neroden, FluxCap and others that the tools that the US government, through the Fed, has tried to use since the 90's to mitigate crisis and economic downturn has been mainly "top down" measures- injecting capital in to the markets (from the top) rather than in to society (from the bottom). This has in one sense worked - the worst recessions have been avoided and the global economy as a whole keeps growing (but likely the most important reason for sustained growth is not economic policy but rather the inherent drive of humankind to evolve, improve, discover and create). But in a more important sense these policies have had the downside of making the global economy much more fragile, less resilient and more prone to manipulation (all aspects of the same underlying problem). The political system in the US, a democracy in theory but in reality more a "democracy for the few" (the few being the ones that already have wealth, power and influence - must read:http://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf) has facilitated this.
Thomas Pickety (http://dowbor.org/blog/wp-content/uploads/2014/06/14Thomas-Piketty.pdf) makes a great case, from an empirical and theoretical standpoint, that increases in income and wealth inequality is bad for the economy as a whole. Not surprisingly this observation fits the gut feeling of most sane people that solidarity is superior to egocentricity as a basic attitude.
Thomas Pickety (http://dowbor.org/blog/wp-content/uploads/2014/06/14Thomas-Piketty.pdf) makes a great case, from an empirical and theoretical standpoint, that increases in income and wealth inequality is bad for the economy as a whole. Not surprisingly this observation fits the gut feeling of most sane people that solidarity is superior to egocentricity as a basic attitude.
Thanks for the link.
-Everyone makes mistakes and hopefully learns from them
-Bernanke is not in charge anymore, Yellen is.
I am inclined to see the market as a reflection of the aggregate of market participants. Bubbles and bursts perhaps reflect our collective insanity. Fed is having a difficult job of navigating the economy through that insanity.
Periods more than 10 years ago are too far in the past to have much relevance today.
I do not find WSJ to be a credible source on the economy or anything else.
The graph below shows the comparative GDP growth in the US vs Europe. The US pulled out of 2009 hole far better than Europe.
Here is comparative unemployment rate in US and Eurozone
I could pull out many more indicators from the same site and most indicators point to US Fed doing a fine job in pulling US from the doldrums of GFC. Europe and other parts of the world are not doing so well on many metrics.
I agree with other posters that more could be done on reducing income inequality all over the world. Egalitarian societies provide both economic and social benefits.
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