There is an aspect that gets lost in the sauce on occasion. The fed risk free rate specifically measures or capitalizes the risk of the US Government as an ongoing enterprise. More broadly, it capitalizes the expectation of risk tomorrow by discounting it to today. The zero interest rates policy held by central banks deliberately skews the capitalization of risk. There cannot be a day where the risk tomorrow (expressed as the e term) is less than the risk today. One is know. The other expectational. The entire enterprise of zero interest rates destroyed savers and bond holders in the economy and forced capital into the equity markets, vastly expanding them, sending indices up and giving the appearance of gains. I hold mixed feelings on the entire enterprise as duplicitous policy.
Thanks again for another great article. Instability is surely in the headwinds.
Your footnote regarding the definition of money reminded me of a great book, one of my favorites on money/finance, titled “The Natural Law of Money” by William Brough 1896. It’s incredibly insightful and evenly technical, like your articles. I believe you would enjoy this read. If you wish to check it out here is a link to a free pdf version: oll.libertyfund.org/title/brough-the-natural-law-of-money
As always, looking forward to next week’s piece. Have a good week.
In general, is there an advantage to having a small number of experts guiding the economy through their decisions (such as The Fed setting interest rates)?
Or is it normally better to have markets, in the sense of vast numbers of transactions by small economic entities, guiding the economy through the collective impact of the entities' decisions?
How will the Treasury in the short term is stuck with a more familiar and pressing obstacle - raising the debts of wanting a position the was never intended to hold. Expect the spotlight to focus on the Treasury is a joke the spotlight always shine down upon its surfaces anyway right. You see it’s bigger than just having the final chapters ripped apart rather than one accepting the truth of the Facts. Treasury was betraying to have it all under control, and yet the stiff neck disgruntled sickness has crept back in. No one has ever focused on Treasury. Treasury has never been a factor to even hold weight against anything/anyone. Treasury job is to deal with the losses and finish collecting data. Falling apart at the seams but it was all fun a games before are they sure they don’t need a Dr.for trauma. Get over it .
Well written, fact based article. I'll be looking for your bull running handle. I also think it's time to start looking at equities as reaching a buying opportunity. Perhaps when large economy, dollar indebted EM defaults start making headlines we will see a turning point with the supply of credit and hence the registration of US assets...
Thank you TLBS. You are right about my interest in your article" Has the Rally Peaked". I pay close attention to all your articles and in particular, topics about volatility. In my opinion, it is likely a volatility event should occur soon. The limited data available to me indicates the Fed has never raised rates this fast and by so much in the past. This should cause a significant amount of stress to corporate balance sheets in the present economic environment. However, it appears the Fed is controlling this risk by slowly winding down its balance sheet. Higher interest rates quickly affect the consumer but, a slow QT process appears to maintain stability in the bond market. As a result, I think stresses in the bond market have not translated to market volatility.
Thanks for taking of your time to share your thoughts about volatility and other economic topics. Happy holidays!
Hello TLBS, thanks for the interesting article. When you reference option costs for hedging tail risk, typically how many months are you looking forward?
Thanks as always Bear, another great piece. Thanks for touching on the Vol Squeeze too, been pondering that one for a while now. I wonder what effect, if any, all those extra Trillions sitting in household checkable accounts are having on the inflation regime (and vol too for that matter). Though I would presume vol is driven more institutionally anyway. In any case, I have a hard time seeing inflation rolling over easily with that type of personal and accessible liquidity. Business checkable though is another story, no extra there really. I wish they published that particular data more to than quarterly and without the lag. Maybe it lives somewhere else accessibly but I haven't found it yet other than the feds data sets.
I semi-recently listened to a Sam Harris podcast with Peter Zeihan and Ian Bremmer discussing Zeihan's latest book "The End of the World is Just the Beginning" and am just now getting around to reading it.
If you haven't heard of it (or him) Zeihan is using demography, geography and history to paint a bleak economic future. THE END OF GLOBALIZATION. I'm not totally sold on the severity yet ... but folding some of the concepts into my mental model of the challenges of the coming decades.
This chili is an excellent pairing with Zeihan's cornbread. **What does monetary policy look like in a world with flat-to-negative population growth?**
the main issue for the world is to adapt to a new interest rate environment that is not on steroid. Mortgages without the FED bid are now priced more correctly. the 10 year TSY is finding its equilibrium rate pricing in some term premium. Last comment, i hope the FED will not underestimate the QT impact that should be at least symmetrical to QE.
Behind the curtain it doesn't look like QT has started. Check out RRP stats, balance of MBS. Def fishtailing when you tell everyone you're putting on the brakes at the same time you're pumping the gas. Facades are the preferred policy. CBDC is coming, and then the Fed CAN control the money supply directly. Wonder what piece of the pie they'll throw the banks when they take over their role in money creation?
There is an aspect that gets lost in the sauce on occasion. The fed risk free rate specifically measures or capitalizes the risk of the US Government as an ongoing enterprise. More broadly, it capitalizes the expectation of risk tomorrow by discounting it to today. The zero interest rates policy held by central banks deliberately skews the capitalization of risk. There cannot be a day where the risk tomorrow (expressed as the e term) is less than the risk today. One is know. The other expectational. The entire enterprise of zero interest rates destroyed savers and bond holders in the economy and forced capital into the equity markets, vastly expanding them, sending indices up and giving the appearance of gains. I hold mixed feelings on the entire enterprise as duplicitous policy.
Thanks again for another great article. Instability is surely in the headwinds.
Your footnote regarding the definition of money reminded me of a great book, one of my favorites on money/finance, titled “The Natural Law of Money” by William Brough 1896. It’s incredibly insightful and evenly technical, like your articles. I believe you would enjoy this read. If you wish to check it out here is a link to a free pdf version: oll.libertyfund.org/title/brough-the-natural-law-of-money
As always, looking forward to next week’s piece. Have a good week.
In general, is there an advantage to having a small number of experts guiding the economy through their decisions (such as The Fed setting interest rates)?
Or is it normally better to have markets, in the sense of vast numbers of transactions by small economic entities, guiding the economy through the collective impact of the entities' decisions?
Superb as always, thanks TLBS!
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How will the Treasury in the short term is stuck with a more familiar and pressing obstacle - raising the debts of wanting a position the was never intended to hold. Expect the spotlight to focus on the Treasury is a joke the spotlight always shine down upon its surfaces anyway right. You see it’s bigger than just having the final chapters ripped apart rather than one accepting the truth of the Facts. Treasury was betraying to have it all under control, and yet the stiff neck disgruntled sickness has crept back in. No one has ever focused on Treasury. Treasury has never been a factor to even hold weight against anything/anyone. Treasury job is to deal with the losses and finish collecting data. Falling apart at the seams but it was all fun a games before are they sure they don’t need a Dr.for trauma. Get over it .
Well written, fact based article. I'll be looking for your bull running handle. I also think it's time to start looking at equities as reaching a buying opportunity. Perhaps when large economy, dollar indebted EM defaults start making headlines we will see a turning point with the supply of credit and hence the registration of US assets...
Yes it posted to the wrong article but certainly applies to all of your articles
You are a guiding light. Thank you for sharing your insightful thoughts
Thank you TLBS. You are right about my interest in your article" Has the Rally Peaked". I pay close attention to all your articles and in particular, topics about volatility. In my opinion, it is likely a volatility event should occur soon. The limited data available to me indicates the Fed has never raised rates this fast and by so much in the past. This should cause a significant amount of stress to corporate balance sheets in the present economic environment. However, it appears the Fed is controlling this risk by slowly winding down its balance sheet. Higher interest rates quickly affect the consumer but, a slow QT process appears to maintain stability in the bond market. As a result, I think stresses in the bond market have not translated to market volatility.
Thanks for taking of your time to share your thoughts about volatility and other economic topics. Happy holidays!
Chris
Hello TLBS, thanks for the interesting article. When you reference option costs for hedging tail risk, typically how many months are you looking forward?
Thanks
Chris
Thanks as always Bear, another great piece. Thanks for touching on the Vol Squeeze too, been pondering that one for a while now. I wonder what effect, if any, all those extra Trillions sitting in household checkable accounts are having on the inflation regime (and vol too for that matter). Though I would presume vol is driven more institutionally anyway. In any case, I have a hard time seeing inflation rolling over easily with that type of personal and accessible liquidity. Business checkable though is another story, no extra there really. I wish they published that particular data more to than quarterly and without the lag. Maybe it lives somewhere else accessibly but I haven't found it yet other than the feds data sets.
Awesome article as always. The fed has no system of checks or balances and definitely needs one so that the benefits aren't one sided.
I semi-recently listened to a Sam Harris podcast with Peter Zeihan and Ian Bremmer discussing Zeihan's latest book "The End of the World is Just the Beginning" and am just now getting around to reading it.
If you haven't heard of it (or him) Zeihan is using demography, geography and history to paint a bleak economic future. THE END OF GLOBALIZATION. I'm not totally sold on the severity yet ... but folding some of the concepts into my mental model of the challenges of the coming decades.
This chili is an excellent pairing with Zeihan's cornbread. **What does monetary policy look like in a world with flat-to-negative population growth?**
the main issue for the world is to adapt to a new interest rate environment that is not on steroid. Mortgages without the FED bid are now priced more correctly. the 10 year TSY is finding its equilibrium rate pricing in some term premium. Last comment, i hope the FED will not underestimate the QT impact that should be at least symmetrical to QE.
Behind the curtain it doesn't look like QT has started. Check out RRP stats, balance of MBS. Def fishtailing when you tell everyone you're putting on the brakes at the same time you're pumping the gas. Facades are the preferred policy. CBDC is coming, and then the Fed CAN control the money supply directly. Wonder what piece of the pie they'll throw the banks when they take over their role in money creation?