Discuss..
Gotta keep interest rates low, unless you want another huge group of people who stretched to buy junk at 3% to go broke now that its at 5%.
Did I guess right?
Pretty interesting, the market almost instantly dropped from +.32% to -.17% on the news that Yellen wasn’t going to raise rates.
In my mind, the market was serving up the most perfect situation in which to raise rates on a silver platter (big loses already out of the way and stabilizing before the news breaks). Raising them now while all stocks are probably undervalued would have been a great choice.
but who am I to know such things?
Looking at moving soon. Hopefully mortgage rates don't start moving until after I do.
And she started hinting at negative interest rates, like in Europe. That's where you put $100 in the bank and at the end of the year, you get $99 back, 'cause you're too stoopid to go spend your money.
my head hurts.
Yellen is in over her head and inherited a mess that there is no easy way out of. She can keep trying to avoid the necessary crash, but the longer it gets put off the worse it will be.
T.J. wrote: Yellen is in over her head and inherited a mess that there is no easy way out of. She can keep trying to avoid the necessary crash, but the longer it gets put off the worse it will be.
The Fed’s actions remind me of how the Forestry Service used to put out all the little fires that naturally occurred.
Inevitably, the practice resulted in fuel accumulating until it reached overwhelming levels that couldn’t be contained and the massive fires that ensued would reach temperatures that exceeded what the trees were capable of surviving.
Here’s a list of all the times an economist has apologized for being wrong:
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Here’s a list of all the economists that have pledged to be more careful going forward:
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I think a big penitence for our overconfidence is on the horizon.
Dr. Hess wrote: And she started hinting at negative interest rates, like in Europe. That's where you put $100 in the bank and at the end of the year, you get $99 back, 'cause you're too stoopid to go spend your money.
So...how exactly would that work? I presume that means if you took a loan, you wouldn't have to pay back the full amount? So what incentive is there for people to leave their cash in the bank, so the funds will be there for others to borrow against? Wouldn't banks cease to exist overnight???
In reply to petegossett:
Banks don't loan out other people's deposits. They create new money out of thin air when they make a loan. In today's paradigm, deposits are pretty much irrelevant.
Well, Pete, the way it exists in Europe in a couple of countries today, from what I've read, it is as I said. You put money in, they give you less back. If you borrow money from the bank, you owe them interest also. There is no incentive to leave your cash in the bank and every incentive to take it out in paper money and stuff it in your mattress. So, they are also tossing around the idea of paper money with a strip on it to ID it that is worth less and less every day. Because us dymb berkeleys aren't spending our cash and aren't borrowing more money.
Negative bond yields: You buy a 10K government bond at -0.25% interest for 10 years. You pay them 10.xK up front, they give you 10.0K back.
Yeah, it's all crazy. See, the problem MUST be that us dumb berkeleys just aren't borrowing enough and spending it to support this exponential growth model that they came up with 100 years ago. It worked for 100 years, right? Exponential equations will keep working forever, right? Them lines just go vertical.
There was an obviously planted question at Yellen's press conference about negative yeilds. http://www.zerohedge.com/news/2015-09-17/what-yellen-said-about-negative-rates-coming-us
Yellen said: But if the outlook were to change in a way that most of my colleagues and I do not expect, and we found ourselves with a weak economy that needed additional stimulus, we would look at all of our available tools.
Gives you that nice warm, fuzzy feeling, don't it? For a better feeling, try www.apmex.com .
I am Pissed off beyond belief.
I think I am taking all of my cash out of the back, converting to gold that I will then bury under a rock, borrowing to the max of my ability and converting the stuff to cash and then declaring bankruptcy.
By the way, the message that I heard from the Fed today was that the economy is not strong enough to handle a small rate increase. Is that a good message for the market? Tomorrow should be interesting one way or the other.
I suspect they'll do a bail-in and steal our retirement savings before they saddle us with negative interest rates.
Nearly every single action taken by the Fed and our government in response to thr 2008 crisis has been to punish savers, encourage debtors to get deeper underwater, create more debtors and further enrich the top 0.01%.
T.J. wrote: Yellen is in over her head and inherited a mess that there is no easy way out of. She can keep trying to avoid the necessary crash, but the longer it gets put off the worse it will be.
Its worse then that, she has to deal with china and their currency manipulations over the last few months, markets cashing out as expected as institutions cash out and just general instability. Housing construction is still down and rents are staying very high due to that. Not a job that I would want to have.
T.J. wrote: I suspect they'll do a bail-in and steal our retirement savings before they saddle us with negative interest rates. Nearly every single action taken by the Fed and our government in response to thr 2008 crisis has been to punish savers, encourage debtors to get deeper underwater, create more debtors and further enrich the top 0.01%.
This^^^^
What amazes me is that NOBODY can see this. The entire financial circus has been reduced to one game, and it is a game run by people who were proven to be crooks way back in 2008. Then again, people flock to Vegas and other gambling spots knowing full well that the game is rigged against them. Maybe its the same phenomena.
What just happened is that the Fed just showed that it had no role left to play in the economy. If they raise rates the world will go for a E36 M3, if they don't raise rates they are declaring the global economy to be a mess and the world goes for a E36 M3. That they have the communication skills or a one year old does not help their case.
As an aside; despite the dip in the mark this morning, I am forecasting a close on the positive side.
T.J. wrote: In reply to petegossett: Banks don't loan out other people's deposits. They create new money out of thin air when they make a loan. In today's paradigm, deposits are pretty much irrelevant.
Unless the process has recently changed, that is not it works. Banks loan out "fake" (fiat) money based on a multiplier of the deposits (reserves) they have. So, they don't have to have deposits equal to what they loan, but they do have to have deposits.
It is pretty crazy though, that a bank can legally just "create" money. There are some pretty crazy silly short term loans going on between the government and banks though, and some of those may be in the "free" range.
Fiat money BTW does have a very valuable function. It of course, like most things, can be abused.
The ridiculously low interest rate environment the Fed has imposed has caused a huge underweighting in bonds and a huge overweighting in stocks.
A classic rule of thumb is to index your portfolio’s ratio of bonds to stocks to your age so at forty, you should have 40% in bonds and 60% in stocks. I know how insane that sounds today but historically, that was the conventional wisdom.
I imagine that your average sixty year old today probably has something like 25% of their portfolio in bonds; can’t blame um’…bond yields are a draw against real inflation, inflation adjusted income is 7% lower than it was 15 years ago, and labor participation is way down around 63% so most people, even if they did everything right, have been forced to assume excessive risk in a desperate attempt to catch up.
If we raise interest rates, there’ll be a massive exodus from stocks as tens of millions of people rebalance their portfolio’s in an effort to take appropriate risk positions.
In reply to RX Reven':
I'm pretty ignorant here, but would that necessarily be a bad thing? From what I have seen the past few years, many stocks seem to be over-valued.
This is where I chime in to spout on about currency being a belief system in which people believe less and less every day. What happens to gods you no longer have any faith in? Anybody still pray to Santa for presents? Zeus?
Oh how we laughed at the barter system hippies of the 60s and 70s. At least they had milk and apples. I guess we will have lots and lots ornate toilet paper to wipe with during the E36 M3 storm.
In reply to aircooled:
Well, Bank of America for example has less than 10% of their assets as traditional customer deposits. My statement only applies to the too big to fail (jail?) banks. Your local credit union probably operates more like we think banks should operate. So, yes, they have to meet the Fed's reserve requirements, 90% of the requirement is being met by other than customer deposits. That's what I mean when I said that deposits are pretty much irrelevant.
sobe_death wrote: In reply to RX Reven': I'm pretty ignorant here, but would that necessarily be a bad thing? From what I have seen the past few years, many stocks seem to be over-valued.
I’m afraid it could be catastrophic.
Those that head for the door early will still get decent money for their stocks but the money will likely go into bonds which will be discounted heavily as interest rates continue to rise. Those that head for the door late won’t get squat for their stocks but at least their bonds won’t be discounted as much later.
The only way to get through this in one piece is to precisely time a three phase transition from stocks (before they crash) to cash (safe haven) to bonds (after interest rates peak) which is nearly impossible.
Besides, money outside of 401K’s and IRA’s will be subject to taxes so you’re guaranteed to fail in that regard.
Tom_Spangler wrote:
Do you know how I can get in on this? I think bunnies with pancakes on their heads sounds like a good investment.
You have to catch the bunny on the reversal, that is, the bunny comes down, then bounces up. That's when you want to get in on pancake head bunnies, and sell as they peak. An advanced technique is to sell 2x when they peak, effectively not only selling your pancake headed bunny, but shorting them for the ride down, then buy again when they bottom out.
Of course, Goldman Sachs is already in on the pancake headed bunny derivative market, which they have leveraged at 800 to 1.
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