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How the Fed is supporting the bond market

July 18, 2016

This discussion with Doc was spurred on by a comment made by CFS. With central banks continuing to keep interest rates low and negative in some countries is this the main driver that is supporting the bond market? It helps but we also have to remember that the Fed is simply rolling over the bonds on its balance sheet.

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Discussion
23 Comments
    Jul 18, 2016 18:57 AM

    Doc, I was glad to hear Rick say that SSRI looks like it has topped for a while as I sold 1/2 of my SSRI last week@14.30 which I bought for 6.10 this year. Do you own SSRI?

    CFS
    Jul 18, 2016 18:04 PM

    Most of the banks are in total collusion, with the possible exceptions of China and Russia.
    That stops anyone currency getting too devalued.

    Asia is accumulating gold.

    Clearly any breakdown in international relations, e.g. South China Sea, or Ukraine, even if not starting a war could trigger the monetary collapse.
    Without we should make it past the election.

    If we make it that far, if Hillary is elected, that econo-moron is proposing a 70% income tax rate, which I can guarantee would collapse the US economy.
    Trump seems to want tariffs, which could cause problems.

      AJ
      Jul 18, 2016 18:29 PM
        CFS
        Jul 18, 2016 18:18 PM

        Fact checks are noted for static accounting techniques, as are most stupid lawyers and politicians.
        Based on 2014 IRS data for 2013 income.
        The income point occurs at the bottom of the top 5% occurs at $179K
        The top 5% receive 34.4 % of all income.
        The top 5% pay 58.6 % of all income tax.
        Instead of a top tax rate of 40%, what effect do you think raising it to 70% would have?

        Most stupid people would not care, because it would affect them. Heck, it would probably be guarantee to end all poverty, because the poor would be given better free phones, maybe free internet, perhaps more free food.

        But many of the top 5% are going to take away their toys and play elsewhere….in the Caymans or Bahamas, if they can work remotely. Or, perhaps, retire.
        I can guarantee the economy will tank, just as it did in the 1930s.

        If just 5% of the top 5% quit, how many of the bottom 95% will lose their jobs?
        How much extra tax will actually be obtained?
        I course the top 5% won’t quit immediately, they will retire or move over the next several years. The recession will develop into a depression, possibly until a war occurs.

        Nothing is new in history.
        Socialism has never worked for long without turning into oppression.

    cmc
    Jul 18, 2016 18:11 PM

    “Top Fed officials really want to hike rates, as they have no conventional easing ammo left for the next market crisis if they don’t. After the surprise victory of that successful British vote for independence from the domineering EU bureaucrats in late June, federal-funds-futures-implied odds of Fed rate hikes at its upcoming FOMC meetings collapsed to zero. Futures traders went so far as to actually expect a cut!

    This stock-market-obsessed Yellen Fed will never act unless rate-hike expectations leading into any particular FOMC meeting are well over 50%. The FOMC doesn’t want to surprise the stock markets and spark a major selloff. So Fed officials have herculean jawboning ahead of them to once again work to convince traders that more rate hikes are still coming. Hawkish talk will once again spark gold-futures selling.”

    http://www.321gold.com/editorials/hamilton/hamilton071516.html

      CFS
      Jul 18, 2016 18:31 PM

      The Feds may want to hike interest rates, but there is a problem….debt.

      If the Fed raises interest rates the deficit goes up.
      No problem, you say, the Fed can just print more money to cover the deficit.

      But everything is connected.
      If you raise, interest rates on bonds, interest rates will rise on corporate debt and personal debt. I.e. People and companies will have less to spend.
      Oops, what do you think that will do to the economy?
      So the Fed will hand out helicopter money to stimulate the economy.
      The problem is the wastage or inefficiency of governmental processes.

      Thinking cow drinking from its own udder. Milk is very nutritious, but the concept won’t work.
      Think slow death spiral. The real question is how fast!

    Jul 18, 2016 18:28 PM

    Say big Al,Doc,Cory.

    Your opinion if the Feds go to a backed gold standard
    Down the road! Will they take or confiscate ours or take?
    Also any thoughts to what the price would be today if that were to happen?

    If you have time would enjoy your feedback

    Love you guy is a honor to have you out on OUR SIDE

    Thanks

    RL

    Jul 18, 2016 18:44 PM

    Are you all going to do a daily market wrap today? Not you two, I mean just this website?

    Jul 18, 2016 18:26 PM

    Hi Al,
    Listen every day and love the site.
    Didnt quite get the name of the movie. Can you repeat please.

    CFS
    Jul 18, 2016 18:52 PM

    The Infiltrator (2016) – IMDb
    Rating: 7.5/10 – ‎1,101 votes
    A U.S. Customs official uncovers a money laundering scheme involving Colombian drug lord Pablo Escobar. … Bryan Cranston, John Leguizamo, Diane Kruger. … Most Anticipated.
    The Infiltrator (2016 film)
    Jump to Cast – Cast. Bryan Cranston as Robert Mazur / Bob Musella. John Leguizamo as Emir Abreu. Benjamin Bratt as Roberto Alcaino. Diane Kruger as Kathy Ertz. Yul Vazquez as Javier Ospina. Rubén Ochandiano as Gonzalo Mora Jr. Juliet Aubrey as Evelyn Mazur. Amy Ryan as Bonni Tischler.

    Jul 18, 2016 18:30 PM

    Just sharing… I think he can http://www.cbsnews.com/videos/the-republican-ticket/
    Clinton’s are corrupt to the core along with the Bushes…
    Trumps getting cooler…Go Trump

    Jul 18, 2016 18:32 PM

    One of the big troubles with speculation now is that money only goes to the big cities like New York, money always goes where other money is and not to Muncie Indiana. That happened in a different time when The US had a balanced economy and the whole country benefitted. Now it is concentrated in Wall Street, the easing of American money rates has prevented the accumulation of gold in The United States but it also causes difficulty in foreign nations being able to stabilize their currencies. The Fed doesn’t care because these lower rates stimulate the stock market. Foreign trade is not a big issue for The US anymore as they don’t have the manufacturing. This is a recipe for a crash aka 1929. DT

    CFS
    Jul 18, 2016 18:56 PM

    You think foreign trade is not an issue!
    The US is not an isolated island.
    You think raising tariffs to protect what American jobs we want to protect won’t cause retaliation?
    This is more of an inter-connected world than ever was.
    The only resultant effect of raising tariffs, proven time and time again throughout history is increased cost, lower efficiencies, decreased growth.
    The US operates a trade deficit, but foreign trade IS a big issue.

      Jul 18, 2016 18:03 PM

      CFS,You are deluded, the globalist’s have your number and they like it! DT

      Jul 18, 2016 18:11 PM

      please resolve in your international trade concept…the following:
      How do US manufacturers compete with manufacturing in countries with:

      2 dollar a day labor
      lax environmental laws
      no OSHA
      no Social Security
      no Medicare

      I could go on and on,,,,,,,,,,,,,,

        Jul 19, 2016 19:30 AM

        Dennis, as a rule, countries with 2 dollar a day labour are technologically far behind the West, have poorly developed infrastructure and have a limited scope to enforce regulation even if their people desired it.

        In some cases, ALL they have to offer is access to resources and cheap labour pools which as you might guess are typically poorly educated and untrained. So they are not a threat in the broad scheme of things and certainly not when it comes to international trade as this same kind of country will usually be an importer of the majority of its manufactured needs plus food in a case like Egypt.

        One exception is China of course where they have become the worlds dominant manufacturer but very few of the developing nations have reached that level of technological and infrastructure build out.

        Naturally enough, most are not in a position to offer their citizens social security or safety net benefits as they usually suffer a large balance of trade deficit. Again, China is an exception.

        The way US manufacturers compete is through automation, high skill levels, excellent medical care and well educated labour forces. Those four things alone are considerable hurdles for most poor countries to have to cross in order to catch up.

        So what I am saying in effect is that if you in the developed world want to keep the lions share of the benefits that accrue to the dominant nations it should be obvious that the trade-off is some labour and work plus the incomes those generate transfers to the developing world along with easier access for exporters there to tap into the markets of the strong economies.

        And in fact that is exactly what has been taking place for the past few decades. I don’t see any problem with it at all other than there still exists very considerable inequities between the poor and strong nations.

        African nations have been especially impacted over the past century by policy that was not conducive to their growth aspirations. I believe that is now finally changing and it is long overdue. So don’t cry for those t-shirt and factory jobs. The world needs to do a little more sharing yet and really…..did you want to sit in a sweatshop all day anyway?

          Jul 19, 2016 19:08 AM

          The day of cheap labor is over and if you could see how artificial Intelligence has taken over you might understand. Mercedes Benz just introduced a driverless bus which is already in use. Transportation accounts for more jobs than any other industry in the US. Not only are jobs in this sector disappearing fast but jobs in banking, all other white collar industry and the very elite professional occupations, including doctors, lawyers and skilled blue collar jobs. There goes your cheap African labor, those people don’t stand a chance in this already pervasive new economy.

            Jul 19, 2016 19:21 AM

            True enough DT. You are right that automation will make life very difficult for developing nations in the coming years. Even homes are now being built with huge printers that cast cement in place to perfection.

            I don’t think anybody has an answer for that. It might take longer for it all to materialize though than you think. Partly because African business is still immature and the companies are often not in a position to employ the expensive technology that is becoming common elsewhere.

            Also, the consumers here are not yet ready or able to afford the production that might come. Not on the scale of the West at least. And because they are so dependent on imports and so short of dollars it means they attempt to produce for themselves in local pricing which is often still cheaper than than mass produced goods.

            For the time being it seems to me that the only real protections they have are to erect tariff and trade barriers to protect their domestic economies while they attempt to catch up.

            In all fairness, nobody should object to that because they are at a genuine disadvantage on too many levels.

          Jul 19, 2016 19:12 AM

          China is a pretty big exception!
          What is our trade deficit with China?
          http://fortune.com/2015/05/05/trade-deficit-china/
          My above point is our trade deals need to take into account all manufacturing environments in competition.
          And Birdman I know I have a trade deficit with my grocer.

            Jul 19, 2016 19:31 AM

            Minimum wage laws exist in China however they are enforced on a provincial level. Only two provinces (Heilongjiang and Xinjiang) pay a minimum wage equivalent to maintain an average standard of living. The worst region is the Pearl River Delta where the minimum wage is enough to buy four bowls of noodles each day for one person. Even with that…the minimum wage laws are worked around by employers setting up the company town/store. The employer pays the “employee” but makes deductions for room and board.
            http://www.cnet.com/pictures/the-making-of-an-iphone-pictures/14/

    CFS
    Jul 18, 2016 18:37 PM

    They sell agricultural products.
    They built robots to build things more quickly and cheaply than Ill-educated $2 a day labor.
    They build things that others cannot, by staying at the forefront of technology.
    This can only be done by maintaining a highly educated work force, limiting the drag on the economy by social spending.
    If you fail to maintain a well educated work force or if you have too much social spending because of excessive I’ll-educated immigration, then the economy flips into a slow spiral down. The same happens (spiral down) if the drag is too great due to military spending, excessive regulations, loss of free enterprise into a controlled economy.
    Everything is a balance. History is replete with examples of where an economy can go into decline, and what the cause was. The exact degree of drag, that tips the balance from growth to decline, varies of course, depending on raw resources available to be exploited.

    CFS
    Jul 19, 2016 19:11 AM

    I now believe Fethallah Gulen was behind the Turkish coup attempt.
    He has made substantial donations to the Clinton foundation and potential US involvement is where the smell was coming from.