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Bear Markets and food for thought...


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#11 MikeyG

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Posted 02 January 2019 - 07:44 PM

With $1.85/gallon gasoline and the long bond under 3%, it's pretty obvious that either the Fed screwed up, or they are trying to accomplish something political or non-monetary.

 

 

Couldn't agree more.....they are causing deflation....



#12 gm_general

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Posted 03 January 2019 - 12:42 AM

... The funny part of all this is the notion that higher interest rates are destined to kill the market. Historically, we are not even close to prohibitively high interest rates. And the market has a history of RISING (regardless of exceptions) with rising interest rates because the demand for money increases as the economy strengthens. T

 

I am so tired of hearing in the press of "so what rates are historically low" like we are in an homogeneous environment economically over decades. Nothing could be further from the truth. What matters is the burden of debt service costs vs GDP. And this is more true for private debt than government debt which seems to be everyone's myopic focus. Note total debt now is $71T, on which $3T in interest is owed every year. Most of that burden is on private debt holders.

 

Note also the Fed rate chart below - note the trend line since the 1980s that is declining over time. This is the max rate at any given time the economy can take. When the Fed rate hits the line you get disaster months after this. We just went ABOVE the line which is now at 2% only. Note also at the rate we are going the Fed rate will have to be negative after 2024. I could make the analogy of a speeding car headed towards a brick wall. If I can notice this line surely Powell and his cohorts know about it.



#13 MikeyG

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Posted 03 January 2019 - 03:15 AM

We will never see normal rates again...inflation is simply more people chasing same or less goods....the birth rate is declining, people used to have 3,4, 5 kids....now people have 0, 1, 2....

Global deflation is by far the biggest risk....

#14 pdx5

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Posted 03 January 2019 - 03:36 PM

The FED didn't screw up anything. They did exactly what they had announced WELL in advance that they were going to do. People overreact to nearly everything and since people make the decisions that send the market where it ultimately goes, the market overreacts to everything. The market got TOO bullish because the people trading it got too bullish. The temptation to squeeze shorts was just too good to pass up once the market became overextended. The market had to pay the price for its excess. Then, like a bunch of crying babies, the participants started whining for the FED to extend it an olive branch. The FED's mandate is NOT to support the stock market. The FED did what it had announced it would do. A few years ago, the market started whining about FED surprises. The FED responded with a greater amount of transparency and started telegraphing its moves. The funny part of all this is the notion that higher interest rates are destined to kill the market. Historically, we are not even close to prohibitively high interest rates. And the market has a history of RISING (regardless of exceptions) with rising interest rates because the demand for money increases as the economy strengthens. The players got spoiled by rates at of near ZERO for so long they forgot what normal rates even look like. Once a lot of states and local governments start going belly up because the historically low interest rates killed their pension assumptions, you will figure out one of the reasons why the FED did this.

 

Best post of the week! Kudos for logical and rational thoughts!!


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