271–280 of 698 posts
Are Americans this certain that the Fed will put an end to inflation? The economic incentives to let it rip are extraordinary… In Sweden there’s a lot of political debate around this, and many are arguing that it would be better to let inflation eat the debt burden.
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1. Zero Percent interest rates doesn't necessarily cause a bubble. It's the excess liquidity in the market that causes the bubble (too many financial assets chasing real assets).
Zero percent interest rates cause a bubble because valuations have to increase to the point where their forward-looking returns are a risk premium above bonds. When rates are zero for a long time, that means valuations go very very high. When rates come back up, valuations drop. Speculation can add further overshoot in both directions.
Have their been high interest rate countries with asset bubbles? E.g., dutch 1600s interest rates or 16% during Tulipmania.
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It's a recent phenomenon. During the covid crisis the fed became a buyer of last resort. It's not usual.
Maybe it's the new normal? Just like doubling the money supply every couple of years seems to be the new normal since it started in 2008?
I'm going to explain what has happened so far. What happens next entirely depends on how inflation continues and the feds reaction. 1. We had zero percent interest rates. This causes the value of assets with cash flows out into the future (think speculative tech, Tesla) to accelerate. 2. We had massive herding in megacap tech. These valuations are high in part because for a decade you would not have beat the index wi…
This sounds a bit like doom and gloom. While I don't disagree, it is important to look at AMZN after the dot com bubble burst. Traders fled, but people who believed in the company did very well.
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I motice that you left out real estate from your analysis. RE is interesting because it's both an asset as well as something you can use. So if there's general inflation, it's got both upward pressure (because it's an alternative to rent from a consumer standpoint) and downward pressure (because bonds are an alternative to RE from an investment standpoint).
Aside from the leverage issues other point out in RE, you have to consider the political risk. How safe do you feel that a piece of paper saying that plot of land is yours will hold up when there's a raging mob threatening politicians to do something about homelessness/housing prices/AirBnB/Asset managers holding all the properties? The political risk in the West is at Emerging Markets levels. We've seen G7 nations d…
Getting really annoying to have to keep track of macro events affecting my life year after year instead of just being able to live a normal peaceful life.
The reality is that, regardless of time and place, there is always some shit going on. It will be as true 50 (or 1,000) years from now as it was 50 (or 1,000) years ago. > live a normal peaceful life. Being able to blindly live a normal peaceful life, if it really has even ever been possible for anyone, is the exception, not the rule. Most time periods for most people are fraught with risk and conflict. It is the nat…
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We also had a previous US administration handing out cash like candy in the form of stimulus checks.
That was “only” a few hundred billion. It pales in comparison to the $9 trillion in QE over the past decade given to the largest banks.
Second of all, QE isn't money given to the banks. When we have a deficit, the government sells bonds to banks. "Naturally" this would drive up interest rates for businesses because unlike the government, they can't issue an infinite number of IOUs and have to compete for a limited amount of liquidity. If interest rates rise too much, businesses will be forced to shut down, especially when people spend less money during a pandemic. Quantitative easing is a tool that allows the Fed to lower interest rates purchasing by these bonds back from the banks. The more debt the government issues, the more debt the Federal Reserve needs to purchase in order to lower interest rates. Basically, the root of the problem is that Congress is incapable of balancing a budget.
I'm going to explain what has happened so far. What happens next entirely depends on how inflation continues and the feds reaction. 1. We had zero percent interest rates. This causes the value of assets with cash flows out into the future (think speculative tech, Tesla) to accelerate. 2. We had massive herding in megacap tech. These valuations are high in part because for a decade you would not have beat the index wi…
> that bond yields would never normalize. Now that they have, there is a risk free alternative to stocks. Treasury bond yields are 3%, inflation is 8.5%, so in real terms you are guaranteed to lose 5.5% annually if you hold bonds. Or basically instead of risk-free gain you are holding gain-free risk.
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I fear they have not learned this lesson. Already ramping up fears of monkeypox. https://www.barrons.com/news/biden-warns-of-potentially-cons...
Why wouldn’t they? Name a government or public sector institution that lost power during covid. It’s tough to do.
I honestly think: "Nearly all of them."
We've seen some significant exercise of power, but the underlying legitimacy that gives rise to power is severely eroded. So I am not at all sure that the various institutions have come out of this ahead.
Only in their unification against Russia have I seen an increase in organizational capacity.