tag:blogger.com,1999:blog-6616959642391988608.post1604193103888048736..comments2024-03-19T02:45:37.685-07:00Comments on Calafia Beach Pundit: Why the bond market is so complacentScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger22125tag:blogger.com,1999:blog-6616959642391988608.post-14271446877581712162009-09-21T16:39:19.441-07:002009-09-21T16:39:19.441-07:00Hi Scott -- helpful post. We linked to it in toda...Hi Scott -- helpful post. We linked to it in today's edition of the Taylor Frigon Advisor at <br />http://taylorfrigon.blogspot.com/2009/09/who-are-you-going-to-believe-gold.html<br /><br />Hope you approve of the sentiments there --<br /><br />best regards,<br /><br />TFCMTaylor Frigon Capital Managementhttps://www.blogger.com/profile/08098754629120002366noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-16399885928822901752009-09-21T16:36:36.484-07:002009-09-21T16:36:36.484-07:00Maybe you are right about Congress, but I am more ...Maybe you are right about Congress, but I am more fearful of the Fed than anything else...Public Libraryhttps://www.blogger.com/profile/00017383928897945054noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-73372183616985925252009-09-21T13:23:25.661-07:002009-09-21T13:23:25.661-07:00I won't argue with you about the extent of mis...I won't argue with you about the extent of misguided policies and policies that are downright harmful to the economy. We're likely to run into trouble as a result of all this, but it might not happen for many years. Meanwhile I think the natural recovery forces are dominant. Plus, I see important changes in the mood of the electorate which suggest that the destructive tendency in policy Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-58139162137489148822009-09-21T12:47:08.979-07:002009-09-21T12:47:08.979-07:00I really have no opinion about the current adminis...I really have no opinion about the current administration. It is too early to tell. <br /><br />My comments are in reference to broader government intervention which eventually results in asset bubbles and or dislocations in markets.<br /><br />The current confluence of activity from all government agencies leads me to believe another catastrophe is in the making.<br /><br />It needn't be Public Libraryhttps://www.blogger.com/profile/00017383928897945054noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-71381921479899520332009-09-21T11:21:23.786-07:002009-09-21T11:21:23.786-07:00Thank you! I'll check out the link.
Best,
Bl...Thank you! I'll check out the link.<br /><br />Best,<br />BlakeBlake Huberhttps://www.blogger.com/profile/00101865935208653815noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-70554140445473358682009-09-21T10:59:47.936-07:002009-09-21T10:59:47.936-07:00Public: I have never said that government policies...Public: I have never said that government policies are great. In fact I have said repeatedly that government policies are acting as a headwind to the economy's recovery. The economy is recovering in spite of all the mess that is coming out of Washington. This economy is so big and so inherently dynamic that it doesn't require hand-holding from the government. yes, better policies would Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-49795940023107740792009-09-21T10:56:14.018-07:002009-09-21T10:56:14.018-07:00Blake: Further on gold. The price of gold is deter...Blake: Further on gold. The price of gold is determined by the world's demand to hold that outstanding stock of gold, which is well over 100,000 tons. Annual production and demand for gold (for jewelry, etc.) are very small relative to the stock of gold, about 3%. There are lots of facts about gold at the World Gold Council website: gold.orgScott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-22512440406905011352009-09-21T10:41:48.690-07:002009-09-21T10:41:48.690-07:00Blake: you might want to check out the new edition...Blake: you might want to check out the new edition of one of the classic books on how gold holds its value over long periods. <br /><br />"The Golden Constant" by Roy Jastram. <br /><br />Info here:<br /><br />http://www.gold.org/assets/file/pr_archive/pdf/golden_constant_260809_pr.pdf<br /><br />Interesting factoid: I first learned of this book in the early 1980s, since Roy Jastram Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-18143481258695650892009-09-21T09:35:51.251-07:002009-09-21T09:35:51.251-07:00I really feel you are completely underestimating t...I really feel you are completely underestimating the differing types of government intervention implemented so far.<br /><br />This is not just about the quantity of TSY purchases. The entire US market has been subsidized or guaranteed in some way or another.<br /><br />Look at the new Edmunds.com prediction for Sept. light vehicle sales (8.8MM units). This is worse than when we were at the Public Libraryhttps://www.blogger.com/profile/00017383928897945054noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-74182023291976141032009-09-21T09:09:24.742-07:002009-09-21T09:09:24.742-07:00hi Scott -- thank you for another excellent post o...hi Scott -- thank you for another excellent post on the bond market. <br /><br />I have been hearing more and more often that since early 80's gold pricing is no longer mainly correlated with inflation, but actual supply and demand in the metals market. <br /><br />Would greatly appreciate your thoughts on this, as I'm (possibly naively) wondering if gold is simply rising bc other asset Blake Huberhttps://www.blogger.com/profile/00101865935208653815noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-89949252776983753802009-09-19T12:18:55.567-07:002009-09-19T12:18:55.567-07:00P.S. I liked your discussion of the current bond m...P.S. I liked your discussion of the current bond market situation. It was very clear and even handed. However I believe that bonds will be proven correct eventually.Mark A. Sadowskihttps://www.blogger.com/profile/13147923641894915172noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-91409092678200500172009-09-19T12:17:36.002-07:002009-09-19T12:17:36.002-07:00Scott,
You wrote:
"It's quite controversi...Scott,<br />You wrote:<br />"It's quite controversial, since many economists, myself and Fed economists included, argue that there is no evidence to support the theory, yet it remains hugely popular."<br /><br />Among credentialed economists it's not at all as controversial as you imply. In fact with the exception of a few RBC/Neo-Classical economists it's the starting pointMark A. Sadowskihttps://www.blogger.com/profile/13147923641894915172noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-20113332905247224982009-09-19T08:44:48.764-07:002009-09-19T08:44:48.764-07:00People obviously believe that it will be easy to d...People obviously believe that it will be easy to dump bonds at the first hint of higher interest rates. If I believed the fed's stated intentions and if I believed that they could be carried out, then I would go long on everything except T-bills.Charleshttps://www.blogger.com/profile/00607057013050715435noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-73018085900576118052009-09-19T08:43:25.907-07:002009-09-19T08:43:25.907-07:00Got it. Thank you!Got it. Thank you!Brian Hhttps://www.blogger.com/profile/14869071526968957308noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-2962619872403611442009-09-18T20:05:10.107-07:002009-09-18T20:05:10.107-07:00You need to read my posts that explain the Phillip...You need to read my posts that explain the Phillips Curve theory of inflation. I should have referenced them in the text of this post. It's quite controversial, since many economists, myself and Fed economists included, argue that there is no evidence to support the theory, yet it remains hugely popular.<br /><br />As a supply-sider I believe that inflation has nothing to do with the strengthScott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-32537043215177075422009-09-18T19:39:17.349-07:002009-09-18T19:39:17.349-07:00I'm confused about the rise in gold vs. the sl...I'm confused about the rise in gold vs. the slow economy making inflation nearly impossible. Is it a result of different schools of thought making their separate bets, or is the inflation just dialed in and a long way off?Brian Hhttps://www.blogger.com/profile/14869071526968957308noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-9578367138785863972009-09-18T16:21:07.785-07:002009-09-18T16:21:07.785-07:00I think what you are missing here is that bonds ar...I think what you are missing here is that bonds are fungible. Adding a new 10-year bond to outstanding supply of bonds cannot affect the price of all bonds. For if the new bond is to have a higher interest rate, then the yield on all bonds must have a higher yield as well, and the price of all bonds must fall. So even if the new bonds are only a fraction of the value of the existing bonds, to Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-58404096891957542072009-09-18T14:42:27.941-07:002009-09-18T14:42:27.941-07:00"Consider too, that the Fed gobbled up its $8..."Consider too, that the Fed gobbled up its $866 billion or so in just 8 months, consuming more than half the new supply of GSE securities. When prepayments are taken into account (outstanding security balances shrink as new securities are made), at many points over the last year the Fed has inhaled over 100% of net supply. This is in effect a massive market technical that squeezed mortgage Kyle Fhttps://www.blogger.com/profile/13053986491552183727noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-71774792120493210802009-09-18T13:18:12.253-07:002009-09-18T13:18:12.253-07:00Jake: "all the liquidity sloshing around"...Jake: "all the liquidity sloshing around" is part of the "easy money" and "oversupply of dollars" that is pushing up the prices of risky assets and commodities and gold. It's just another way of talking about the impact of Fed policy.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-33423616751675911202009-09-18T13:12:44.748-07:002009-09-18T13:12:44.748-07:00On the contrary, I think the carry trade explains ...On the contrary, I think the carry trade explains a lot of things. To begin with, you wouldn't want to put on a huge carry trade if you didn't believe the Fed would keep rates low for a long time. The Fed's promise to keep rates low is what keeps the yield curve from steepening further. People, HFs, whatever, all have an incentive to buy risky assets. <br /><br />But should the Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-83923885526313033092009-09-18T12:22:37.762-07:002009-09-18T12:22:37.762-07:00I think you under estimate the effect of the carry...I think you under estimate the effect of the carry trade. With a little leverage say 10:1 buying 3.4% 10Yr Treasury using 0.1% funding cost gives the HFs a very nice return of over 30%. This expanation works for rising gold, oil, copper, EmgMkts, SP500 and 10yr Bonds when the Treasury has issued some $2Tril+ in securities. Oh yes. The Fed has been buying as well, but only to about $1Trilseekingtraceevidencehttps://www.blogger.com/profile/02479493983076211876noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-26585821530835210532009-09-18T12:11:06.866-07:002009-09-18T12:11:06.866-07:00thoughts on the possibility that treasuries (like ...thoughts on the possibility that treasuries (like all assets) are being bid up by the liquidity sloshing around (i.e. demand).<br /><br />that would explain why there are bids for equities, commodities, credit (corporates, muni's, abs, mbs), and treasuries all at the same time.<br /><br />as long as there is a buyer that will take the treasuries off of you at a higher price, there is no fear Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.com