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Click to enlarge.
As I look at the chart, I can't help but ask myself three questions.
1. Has the Fed permanently put an end to recessions?
2. What are the odds that the economy will soon accelerate to the upside from here?
3. Is this really the best time in all of recorded history to put new money to work in the stock market?
If you've been reading my blog, then you can probably guess my answers.
For those just tuning in, this is actually an update to a chart that I created back in March of 2012. Unfortunately, we're pretty much right on schedule. Check out the link.
I do not believe that retail sales will hit 72% of wages during this business cycle. That's just a guess though. I suppose it could happen. What is more important to me is how low this percentage goes once the peak is in.
Retail sales for June will be released a few short hours from now. I'm hardly sitting on pins and needles anxiously awaiting the report though. Regardless of what the numbers show, one month does not make a trend. One data point will not dramatically impact what the chart in this post is trying to say.
Source Data:
St. Louis Fed: Custom Chart
12 comments:
Bernanke issuing every household a Fedit® card would get this place humming again.
$40B/mo to 100M households would be $400/mo each.
Damn, a person with housing and transportation sorted could live on $400/mo. . .
Fed Undertakes QE3 With $40 Billion Monthly MBS Purchases
Troy,
Fedit® card
Nice! ;)
From your link:
Bernanke repeated in his press conference that monetary policy is “not a panacea.”
For what it is worth, I agree with him.
QE is a shell game designed to distract and fool the masses.
“not a panacea.”
Panacea? They're a Placebo!
mab,
Panacea? They're a Placebo!
I just can't get over the common belief that the Fed has forced down long-term interest rates.
I once again ask, if the Fed had done absolutely nothing since the housing market crashed, then what would long-term interest rates be right now?
I say even lower!
Placebos, they aren't just for breakfast any more. ;)
I just can't get over the common belief that the Fed has forced down long-term interest rates.
Belief? Hey, they call it common "knowledge" for a reason!
Did they have QE during the Grrrrreat Depression? Nope, but they had low, low interest rates. What gives?
I'm thinking the bond market vigilantes occasionally provide markets with low interest rates just because they're nice guys.
mab,
I'm thinking the bond market vigilantes occasionally provide markets with low interest rates just because they're nice guys.
I can't speak for all of us of course, but I try to be. ;)
It has become harder to do so now that I'm pretty much fully invested in TIPS bonds with intent to hold to maturity though. It's a tragedy! I can't buy many more bonds without selling the ones I already own.
Perhaps I should start up a charity with the purpose of lowering interest rates even further. You know, for the children.
Here's a promise. If anyone, perhaps someone like Ben Bernanke even, wants to send me free money then I'll use it to buy additional TIPS bonds with a yield 1% over inflation. The more you send me the better off the children will be. Only lower interest rates can restore prosperity for all!
Damn. Is this a trick? Am I taking a test? Are you interviewing me for a job at Goldman Sachs?
Gallows humor.
I think the Fed has had an effect on long term rates, by undercutting other buyers. I think the 100 basis point jump since May shows that a Fed exit will lead to higher long-term rates. Did they do all of the work? No, I think the economic conditions did more than the Fed. But "not the largest effect" is a far cry from "no effect".
Who Struck John,
Had the Fed done nothing, I would continue to argue that long-term interest rates would be even lower now. The Fed has convinced nearly everyone that the opposite is true.
I am very content holding recently purchased long-term 1% TIPS bonds to maturity (and even more content holding the 2% TIPS bonds purchased previously). I'm not looking for a greater fool to take them from me at some point.
I just don't think our permanently weakened economy can ever support higher real interest rates again. There are just too many headwinds.
I could be wrong of course. It is a long-term opinion though (going back to 2004).
There have been periods in American history where real interest rates were much, much lower. World War II and the 1970s come to mind.
As for nominal interest rates, I'm more of an agnostic on that. I don't think we'll see the inflation of the 1970s any time soon, but I would not bet all I own that we won't.
I'm relatively comfortable owning EE Savings Bonds in moderation. They are guaranteed to double in price if held 20 years. That's 3.53% per year on average, which is much better than the yield today's 20-year treasury could provide.
I've been buying EE bonds for 3 years. I figured I could cash them out if yields rose. They haven't. I continue to hold and if I had to guess, I'll be holding all the way to maturity.
Who Struck John,
The Fed has indeed had an effect on long term interest rates. But QE is sleight of hand.
QE is completely misrepresented/misunderstood by the "experts" in the MSM.
The CONfusion surrounding the FED and how our monetary system works is not an accident.
Who Struck John,
I think the Fed has had an effect on long term rates, by undercutting other buyers.
Undercutting? Perhaps. Here's a word that I think could be more appropriate though.
Replacing
The Fed replaced other buyers by scaring them into riskier assets instead.
I wonder if each dollar the Fed spent scared more than one dollar elsewhere? If so, the Fed's plan worked exactly as intended.
That's all fine and dandy if the "elsewhere" has sustainable legs. If not, well, we may find ourselves in nearly permanent ZIRP (as Japan has done).
Just opinions of course!
Are you interviewing me for a job at Goldman Sachs?
We can't answer that directly. You've stated that you're willing to do charitable work for the children. That's nice. More importantly, we're wondering if you'd be willing to do "god's work" for us.
mab,
More importantly, we're wondering if you'd be willing to do "god's work" for us.
Ah, yes. God's work. Can I safely assume that the company has one simple question as its mission statement?
"What would Jesus do?"
November 1, 2009
How Goldman secretly bet on the U.S. housing crash
WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
I never expected that of Jesus. Then again, we should have seen the signs.
What are some good Bible puns?
Who was the greatest financier in the Bible?
Noah: he floated his stock while everyone else was in liquidation.
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