2007 Redux Part 2

[CptTrips]

Grantham is another who the Bull's love to dump on. 

Just contemplate the fact that Japan, in the year 2022, has STILL not recovered fully the high-point in the later 80's. 

99% of the time buy and hold long term is the best course of action.  Except when it's not.

[Eagler]

https://youtu.be/YN1TWSIZccc

Raising rates are key .. and raising them significantly is required but ain't going happen for many reasons most which were self created over the years of the "booming economy" when the rates should have been raised and the fed withdrawal its free money but greed prevented it..

Eagler

[Eagler]

Today proves Wallstreet thinks its all bluffing...

A day of terrible numbers and the market rises...

As it has been manipulated for years I can understand their disbelief.

Eagler

[CptTrips]

I had to email a little ribbing to my Bull friend today after market close.  I told him on the bright side, he will look back on days like this fondly.  "Remember the good old days when the drops were no more than 3-4%?   Oh, we didn't know how good we had it."




He only replied with a counter link:




I can't tell if that is capitulation or he is nose-blind to self-irony:  (warning language)

[Eagler]

Rumor has it Putin ordered the invasion so market is dropping at this time

Eagler

[CptTrips]

And the Fed is still buying QE.
And the Fed hasn't touched rates yet.

Word is good chance at 0.5% in March when they announce they are also buying no further QE. (I'll believe that when I see it.) 

Originally everyone was saying two, maybe three rate hikes this year.  Goldman now thinks SEVEN rate hikes possible.  Lol. 

https://www.reuters.com/markets/europe/goldman-ups-fed-hike-forecast-7-rate-increases-2022-after-cpi-data-2022-02-11/

Wall Street is going to be a smoldering hole in the ground once the ETF kiddies finally wake up from their nappies.  And that's something to consider as well.  So much money is
is in ETF now where you can get near instant pullout if the panic starts.  In the old days, it could take a day to get an order fulfilled.  It will be interesting to see if that is an accelarant like pouring kerosene on a kitchen fire.

It might be a bloody spring.  I still say...

[Eagler]

So if inflation is over 7% they will have to raise rates to 8%? Yeah sure they will...lol

Saw where the EU is freaking out as they are going to raise their rates to negative .25...NEGATIVE!!!

And that is not criminal how?

Eagler

[CptTrips]

And that is not criminal how?

In the US I think neg rates are technically illegal, but QE accomplishes it by creating an "effective" neg rate without calling it that.

[Eagler]

It's all MMT based and it is all failing IMO

Eagler

[guncrasher]

In the US I think neg rates are technically illegal, but QE accomplishes it by creating an "effective" neg rate without calling it that.

checked about 20 websites, not illegal but not good policy.   think some other countries do have them.

semp

[CptTrips]

checked about 20 websites, not illegal but not good policy.

The question isn't that clear cut because it has never been tested in court and the Congressional mandate doesn't explicitly give them that power.  Other countries have neg rates, but other countries do lots of stuff that is illegal here.  Other countries don't have some of our constitutional constraints.

So essentially you money could be sitting tight in your savings account and on your monthly statement there would suddenly be a "5% debit Fed negative rate".  WTF.  They can't just reach into your account and take money.  In this country there is a good argument that would be seizure of property without due process.  And due process isn't just what a couple of bankers decide it is.  It would have to be a court order to seize your property.  Or it would be like them instituting a tax than no elected official has voted for.  That would infringe on  Congress' power of taxation which raises Constitutional concerns. 

Fed will "claim" they can do it, but they would claim the right of Prima Nocta if you let them.  That doesn't mean they really have that right.  They'd have to try it first and a precident would have to be set in court.

Until it has been tried and challenged and upheld in court, it's not clear it would stand Constitutional scrutiny.  It would certainly be challenged.  It would be like the Fed bankers showing up at your house and saying, we'd like to confiscate you house, mmmmm ok?  Oh and your car too.  You got a court order?  No, we're the Fed!  I'd give it less than 50% chance of surviving a court challenge which is why they've been scared to try it even though they keep hinting they could if they wanna.

But again, it doesn't matter.  They can create an "effective" negative rate with QE which dodges the legal issue.  They are hiding it by taking your future money and putting it on the national debt.  But since you don't see that on your current bank statement, they don't get taken to court.




 

[guncrasher]

well think about it logically, would you keep your money in the bank? you would take it all out,  I know I would. on the other hand i imagine you taking out a loan and they pay you for it.

that's why the so called experts are saying that's its possible but a bad idea. now the feds have indicated that the rest is gonna go up next meeting.

but right now it's just hypothesis. I come from a country that by Friday your money was worth a lot less, just caught the beginning of it.  I couldn't have money to go to the movies, went back 5 years later and popcorn, sandwiches, sodas and entry for 4 people was a couple of dollars.


semp

[CptTrips]

well think about it logically, would you keep your money in the bank? you would take it all out,  I know I would. on the other hand i imagine you taking out a loan and they pay you for it.

What do you do once all money is digital?  When there is no "money" to take out?  They just remove some digits from your records.  There is just less there the next time you use Apple Pay or Bitcoin.

And which bank will give you that loan they will pay you to take out?  Pro tip:  no one will pay you to take out a loan.  As a consumer, you will always pay positive rate on a bank loan.
 The banks will simply make higher profit for giving it.  You will still pay the bank interest on the loan as well as the neg rate taking money out of your savings account.

All I'm saying is, it is not affirmed as legal.  It has not been tried here and not been upheld in our courts.  They know that.  They will claim they "can" do it for future flexibility, but it is doubtful it would survive a Constitutional challenge.  If it does, then our constitution no longer means anything. 

If they can take your property without due process, they can imprison you without a trial. 


 

[guncrasher]

What do you do once all money is digital?  When there is no "money" to take out?  They just remove some digits from your records.  There is just less there the next time you use Apple Pay or Bitcoin.

And which bank will give you that loan they will pay you to take out?  Pro tip:  no one will pay you to take out a loan.  As a consumer, you will always pay positive rate on a bank loan.
 The banks will simply make higher profit for giving it.  You will still pay the bank interest on the loan as well as the neg rate taking money out of your savings account.

All I'm saying is, it is not affirmed as legal.  It has not been tried here and not been upheld in our courts.  They know that.  They will claim they "can" do it for future flexibility, but it is doubtful it would survive a Constitutional challenge.  If it does, then our constitution no longer means anything. 

If they can take your property without due process, they can imprison you without a trial.

think you are getting a bit paranoid.  the what if always assumes something, but you know what assume means.  on average when you go to the grocery store at least 1 item has a different price than what is on the shelf.  so they take your money, does that mean they will imprison you without a trial?

by the way, all my money is digital, i keep something like 20 dollars in cash.  everything I pay is digital, havent written a check in years.  it saves time.


semp

[Brooke]

There are two forms of interest rates:  nominal and real.

Nominal is what the number says, as in "this account yields 2% interest" or whatever.

Real is what that number is minus inflation.  So, if your account yields 2% interest per year, but inflation is 8% per year, your real rate of return is -6% per year (i.e., you are losing 6% of your purchasing power per year).

Today, some countries' bonds have negative nominal yield.  You can buy a bond for $100, say, and get $80 back at the end of 30 years.

And we have negative real rates in most countries currently, including the US.  (Official inflation is 7.5%.  But the official measure understates real inflation by substituting hamburger for steak if steak gets expensive (hedonics).  Using 1990 basket of goods, inflation is currently 11%.  See
http://www.shadowstats.com/alternate_data/inflation-charts )

In both cases, people are paying the borrower for the privilege of loaning it money.  A great gig while it lasts. 

Why would anyone buy bonds in that situation?  Three reasons.  First is that some places (pension funds, for example) have to put their money in government bonds according to to their own internal regulations.  Second is that large amounts of money are cumbersome to turn into paper currency and vault it -- takes time and reduces fluidity of using the funds.  And if it's not in paper currency, it's in a debt instrument of some sort (bond, CD, money-market account, etc.), not paper dollars in a vault.  Third is that, even though a negative-yielding bond is a rip off, if interest rates go even more negative, the bonds you have go up in value, and then you can sell them (i.e., speculation in bond prices).

Countries with paper currency can't go too negative on rates, or people withdraw their money as paper and vault it.  But, if you have only electronic funds and EBT-type cards, the government can go to whatever rates it wants, negative or not.  There is no paper money to take out and vault.  Also, you can give out stimulus and have conditions on it, like "this money goes away if you don't spend it by this date" or "this money can be used to buy only these things, but not those things".  And the government can track every purchase.  That is why many governments want to go cashless.  They will tell you the reason is to combat money laundering and illegal activity.