Date: Tue Feb 15 2005 11:51
trotsky (Bleuler, 10:19) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
the entire article is full of holes ( it sounds like a supply sider missive, whenever you see the word 'bubble' in quote marks, you know it's one of them ) , but briefly on a few excerpts:
"The impact is a lower set of long-term yields than is justified by the fundamentals."
this is thrown out as a given that requires no further explanation. however, it isn't true, not even theoretically. the author doesn't know what the market is discounting ( my guess is, one of those other 'non-bubbles', namely real estate, is about to go ker-splat ) , but even if one disregards the market's discounting function, one can easily see that real long term rates are well within the band that has prevailed for the past 200 years - in fact, they're pretty much in the middle of this range, and thus have room to fall even further.
"These low long-term bond yields signal to some at the Fed that there is no need to worry about inflation."
in fact, what they signal is that DEflation should be the major concern in the future, not INflation.
"The markets take the Fed's sanguine attitude as a sign that rate hikes will be minimal, which drives long-term rates down further. This feedback loop could lead to some very bad monetary policy decisions."
now here is something that CAN be taken as a given, namely that the 'policy decisions' will be 'bad'. or even 'very bad'. but it's not due to the 'signals' given by the markets, it's due to the fact that central economic planning simply doesn't work. it is irrelevant whether the policy is discretionary or follows an 'inflation targeting' system. the targeting system has the obvious drawback that it relies on government data that are not a true reflection of price inflation, plus it would ignore asset price inflation, in spite of the fact that for the past 25 years, monetary inflation on an unprecedented scale has primarily manifested itself in asset prices.
this confusion about inflation of the money supply and its EFFECTS ( which are either asset prices rising above trend, or CPI/PPI inflation ) pervades all of economic literature, and it would probably a good idea to clarify always beforehand what one actually means by the term 'inflation'. since the overall broad money supply has expanded more under Greenspan than under all previous Fed governors combined ( in fact, more than in the entire pre-Greenspan history of the US ) it has always been especially funny to hear the supply siders complain about the Fed's 'deflationary' policies smack-dab in the middle of the 1990's credit and asset boom.
"fter 17 years, Mr. Greenspan has accumulated incredible amounts of political capital and is reported to be in total control of monetary policy. It seems clear that the Fed operates on a Greenspan Standard: The chairman's assessment of the economy rules the day."
now, this is certainly true, but what difference does it make? who cares what or who the bureaucracy bases its decisions on - the decisions will always be arbitrary and in violation of free market principles. the call to 'reform' the Fed is totally misguided, regardless of the type of reform proposal. the only call that would make sense is 'how best to abolish it'.
"If the Fed were focused on a complete set of inflation measures, including the dollar, gold, commodity prices and broad inflation aggregates, it never would have tightened so much in 1999 and 2000. While the stock market may have fallen, the damage would have been less severe and the U.S. would have avoided recession and deflation. In addition, the Fed would never have had to cut rates to 1% in the years that followed."
the tightening in '99/'00 was too little too late - the damage of the boom had already been done. the rest are wild-assed assumptions that have no basis in observable fact. indeed, to AVOID a recession after an artificial credit induced boom has distorted the economy's production structure is a huge mistake, since one thereby avoids liquidation of malinvestments, and wealth-destroying activities consequently continue unabated. this is precisely the result of the Fed's post bubble rate cutting spree, which has created a bubble in housing and the related industries. the Fed did not 'have' to cut rates to 1% - it CHOSE to do so - in order to avert short term pain for the price of inflicting lasting long term damage on the economy.
"With only 11 months left before his retirement, a proper legacy for Alan Greenspan would be to institutionalize the low-inflation environment of the past decade. Inflation targets could do just that -- and at the same time bring true transparency and less volatility to monetary policy."
again, it's irrelevant which 'system' is employed in central economic planning. besides, what volatility? the Fed's policies have been extremely non-volatile for the better part of Greenspan's tenure. only after the artificial boom began to falter did volatility enter the building. the only system that can ensure a minimum of interest rate volatility as well as a minimum of wealth destroying activities in the economy is a free market based monetary system sans 'planners'.
In reply to:
kitcomm.com
Date: Tue Feb 15 2005 10:55
trotsky (frustrated, 9:34) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"An especially good sign in the data was a second month of solid foreign purchases of U.S. equities, totaling $7.1 billion in the month and comparing with a long prior series of contractions."
this is actually a bad sign, because it's a contary indicator. in fact, it's an ESPECIALLY bad sign. note that the contractions coincided with a big rally in the stock market ( counterintuitively ) . it follows that the throwing of the towels will have the opposite effect.
Date: Tue Feb 15 2005 10:51
trotsky (Bleuler, 9:21) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
relative currency valuations have little to do with reported economic 'growth' rates. in fact, as far as i'm aware there's no statistically relevant correlation whatsoever. a better case can be made for interest rate differentials and trade balances as the major drivers of currencies ( which one of them receives more weight in the market's assessment varies case by case ) .
Date: Tue Feb 15 2005 10:45
trotsky (frustrated@Hoye) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i don't agree with everything Hoye says, but here are a few brief comments on the snippets you posted:
1. "Following a bubble, this process can get so bad that it even pulls down the prices of long Treasuries. So once the mania ends, short rates will come down, long rates will go up."
this seems actually likely, and what he doesn't say, is that it will coincide with reversal of the Fed's rate hike campaign.
a liquidity crisis, which could result from general uncertainty ( with rising liquidity preference being a hallmark of such uncertainty ) may well undermine long term bond prices for a brief period, as has happened in 1931, in spite of a falling money stock and strong price deflation. essentially, in this scenario, the urge to hold cash or only the most liquid forms of money, trumps all other considerations.
2. ".....It was like pouring gasoline onto the fire. Those were some of the most insane moments in the history of policy making. "
absolutely. imo more insane than the pumping and easy monetary policies that enabled the 1920's boom.
3. "“This not-widely-followed index is an indicator of gold mining profitability. Someday participants in gold will get over their fantasies about dollar depreciation and the intellectual nonsense about using macro economic modeling to forecastgold prices and look to the real price.”"
while i'm also not sure how he models this, the point is a good one anyhow. as i've mentioned here before, the REAL price of gold relative to other asset classes and even an idealized aggregate general price level tends to perform best during deflationary eras, not inflationary ones as is commonly, and quite wrongly, believed. this is also why stocks in gold mining firms are a better investment than bullion during such a cycle - over the entire stretch of it, that is. there will always be phases in a long term cycle when such axioms don't apply for a brief period, during the cyclical correction iterations.
On: freemarketnews.com
Date: Tue Feb 15 2005 10:07
trotsky (Elliott) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
Stratfor is a sensationalist propaganda rag, and this is just about what you would expect to read from them. had you , instead of posting the forecast, asked 'guess what they're saying', i could have told you.
there are lots of 'think tanks' , 'geopolitical analysis services' and the like out there that are thinly disguised outposts of our Sovietized Orwellian propaganda machinery.
they mix just enough truth and conventional wisdom into their pronouncements as to avert making the uncritical reader wary of their actual purpose, but usually a little bit of exercising of the grey cells suffices to look through it.
the forecast you posted is a mixture of extrapolation of existing trends ( a very common failing, in both economic and sociological/political forecasting ) , plus an exaggeration of ideologically sourced prejudices, and as such basically worthless ( you don't learn anything that you couldn't possibly also learn at the worst weblog of the world, that of the 'National Review' ) .
this analysis of the 'analysis' is a free public service by trotsky, who demands anarchy NOW.
|
