tag:blogger.com,1999:blog-12201499086610015052024-03-05T00:09:30.201-05:00Uncommon Insight & WisdomMy Views On Business, Government, and Society: A Contrarian Perspective!Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.comBlogger252125tag:blogger.com,1999:blog-1220149908661001505.post-17833648691149377442023-05-13T10:57:00.003-04:002023-05-13T10:58:57.412-04:00FDIC Bank Failures: What the Numbers Look Like<p></p><p class="MsoNoSpacing">Here is a brief illustration of the number of bank
failures that I calculated per the <a href="https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/" target="_blank">FDIC public listing</a>.</p><p class="MsoNoSpacing"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhLFhBry5FPks-VMBHd7FfjmYP5dzUQj9urDHafiLIveeHyP02TBpftoIKeLYNofrGTJzm43iZbzhj4iaoijzqmsVF1bpojLgCu21ZDOrovE5oQ7hYnj1J-laZqtDpfH999oO0mfeU7ooZF3kOR9yceWCtJH1p5vRIOga0iDJ5IStulpxB3fnj-pw" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="633" data-original-width="1244" height="304" src="https://blogger.googleusercontent.com/img/a/AVvXsEhLFhBry5FPks-VMBHd7FfjmYP5dzUQj9urDHafiLIveeHyP02TBpftoIKeLYNofrGTJzm43iZbzhj4iaoijzqmsVF1bpojLgCu21ZDOrovE5oQ7hYnj1J-laZqtDpfH999oO0mfeU7ooZF3kOR9yceWCtJH1p5vRIOga0iDJ5IStulpxB3fnj-pw=w596-h304" width="596" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjeF6UhLq-GcZ3ODrFslbuuBf1s4mwtt1yMKploqtXLyQFXqZ5f4gpur_X2IwEk87oorhpHt2WmhiKB-tWet5-B5eJUthU-nyX9qog3rNzLNxQVZrM6d9E7jZfJMleTj8DbwTWnZsen89uI5LiTaPpXCAjQTdC5eW0mu_Fi0V5smAaftxGSM8z1BQ" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="501" data-original-width="181" height="640" src="https://blogger.googleusercontent.com/img/a/AVvXsEjeF6UhLq-GcZ3ODrFslbuuBf1s4mwtt1yMKploqtXLyQFXqZ5f4gpur_X2IwEk87oorhpHt2WmhiKB-tWet5-B5eJUthU-nyX9qog3rNzLNxQVZrM6d9E7jZfJMleTj8DbwTWnZsen89uI5LiTaPpXCAjQTdC5eW0mu_Fi0V5smAaftxGSM8z1BQ=w232-h640" width="232" /></a></div><p class="MsoNoSpacing">This metric is a lagging indicator of economic downturn,
as you can see from the years preceding the last Great Financial Crisis of 2008
– 2010. It’s also a lagging indicator when the economy has begun to improve.
Said another way, the years preceding an economic downturn is marked by a
relatively low number of bank failures; and the years after the economy has
begun to improve there is still relatively high number of bank failures. <o:p></o:p></p><br /><p></p><p></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-61879057347701461822023-04-29T09:09:00.002-04:002023-04-29T09:12:12.313-04:00Price Stability in a Fixed-Money System<p>This is a follow up topic discussed in a previous <a href="https://uncommoninsight.blogspot.com/2023/04/economic-framework-to-understand-boom.html" target="_blank">post about economic theory</a> with respect to monetary systems, particularly a fixed-money system. Here is the question that was asked:</p><p><b>How does a fixed-money system limit variability in prices of good, when price variability is inherent to commodity-based, fixed-exchange monetary systems and when the pre-Fed era saw more variability in price?</b></p><p>A fixed-money system (e.g. gold-standard) does not limit price variability of goods. Price stability is not necessarily linked with a fixed-money system (e.g. gold-standard); variability of prices is part of any economy. At a basic level, all prices depend on the law of supply and demand; and that depends on the productive capacity of a society. As output increases, assuming a stable supply of money, then you’d see prices of goods decline (less money chasing more goods). What does this mean? It means the standard of living is increasing.</p><p>Now, with respect to the prices of gold, don’t take my word for it, look at this table published by the National Mining Association listing the historical average price of gold (http://www.nma.org/pdf/gold/his_gold_prices.pdf):</p><p>Pre-Fed era, price of gold in 1833 = $18.93; and price of gold in 1913 = $18.92.</p><p>Post-Fed era, price of gold in 1914 = $18.99; and price of gold today (as of 4/28/23) = $1,999.</p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-17762527207108153292023-04-22T11:57:00.004-04:002023-04-22T12:03:57.097-04:00Treasury Bills Yields: Why Has the 4-Week Bill Rate Fallen <p><span style="font-family: inherit;">First, let’s take a glance at the current conditions
surrounding the Treasury yield curve. Here are two points in time – March 1,
2023 and April 21, 2023. We compare the spread of the various Treasury
maturities vs. the 10-year Treasury</span></p>
<div align="center">
<table border="1" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; border: none; margin-left: -39.1pt; mso-border-alt: solid windowtext .5pt; mso-border-insideh: .5pt solid windowtext; mso-border-insidev: .5pt solid windowtext; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 725px;">
<tbody><tr style="height: 15pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="background: rgb(0, 112, 192); border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 57.3pt;" valign="bottom" width="76">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">Date<o:p></o:p></span></p>
</td>
<td nowrap="" style="background: rgb(0, 112, 192); border-left: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 54.55pt;" valign="bottom" width="73">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">1
Mo<o:p></o:p></span></p>
</td>
<td nowrap="" style="background: rgb(0, 112, 192); border-left: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">2
Mo<o:p></o:p></span></p>
</td>
<td nowrap="" style="background: rgb(0, 112, 192); border-left: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">3
Mo<o:p></o:p></span></p>
</td>
<td nowrap="" style="background: rgb(0, 112, 192); border-left: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">4
Mo<o:p></o:p></span></p>
</td>
<td nowrap="" style="background: rgb(0, 112, 192); border-left: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">6
Mo<o:p></o:p></span></p>
</td>
<td nowrap="" style="background: rgb(0, 112, 192); border-left: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">1
Yr<o:p></o:p></span></p>
</td>
<td nowrap="" style="background: rgb(0, 112, 192); border-left: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">2
Yr<o:p></o:p></span></p>
</td>
<td nowrap="" style="background: rgb(0, 112, 192); border-left: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">3
Yr<o:p></o:p></span></p>
</td>
<td nowrap="" style="background: rgb(0, 112, 192); border-left: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">5
Yr<o:p></o:p></span></p>
</td>
<td nowrap="" style="background: rgb(0, 112, 192); border-left: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman"; mso-themecolor: background1;">7
Yr<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 57.3pt;" valign="bottom" width="76">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><b><span face="Arial, "sans-serif"" style="font-size: 9pt;">4/21/2023<o:p></o:p></span></b></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 54.55pt;" valign="bottom" width="73">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face="Arial, "sans-serif"" style="font-size: 9pt;">0.21
<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(1.41)</span><span face="Arial, "sans-serif"" style="font-size: 9pt;"><o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(1.57)</span><span face="Arial, "sans-serif"" style="font-size: 9pt;"><o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(1.62)</span><span face="Arial, "sans-serif"" style="font-size: 9pt;"><o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(1.50)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(1.21)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.60)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.32)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.09)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.05)<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15pt; mso-yfti-irow: 2; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: 1pt solid windowtext; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 57.3pt;" valign="bottom" width="76">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><b><span face="Arial, "sans-serif"" style="font-size: 9pt;">3/1/2023<o:p></o:p></span></b></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 54.55pt;" valign="bottom" width="73">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.66)</span><span face="Arial, "sans-serif"" style="font-size: 9pt;"><o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.81)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.89)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(1.01)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(1.19)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(1.05)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.88)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.60)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.26)<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 15pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 48pt;" valign="bottom" width="64">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Arial","sans-serif"" style="color: red; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">(0.16)<o:p></o:p></span></p>
</td>
</tr>
</tbody></table>
</div>
<p class="MsoNoSpacing"><span style="font-family: inherit; font-size: x-small;"><i>Source: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2023</i></span></p><p class="MsoNoSpacing"><span style="font-family: inherit;">On March 1</span><sup style="font-family: inherit;">st</sup><span style="font-family: inherit;">, the 4-week Treasury Bill rate
was 0.66% higher than the 10-year Treasury rate. As of April 21</span><sup style="font-family: inherit;">st</sup><span style="font-family: inherit;">,
the 4-week Treasury Bill rate was 0.21% lower than the 10-year Treasury rate.</span></p><p class="MsoNoSpacing"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNoSpacing"><span style="font-family: inherit;">Now, let’s take a look at the trend of the 4-week
Treasury Bill rate since March 1, 2023:</span></p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing"><o:p> </o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjrTYxHu-rBhgBoDSw8TVZhDMObmN4yF7KFIHV_OsHPqCxz_kn5iKOkEE-uOi0g8ZS-4fC9jlbg5_YWuE6OkOBZFF0ZjzdJuh42yC3ZUxgYa2uzxsHJdWZOGcQEcu9qP111-adClEP_nrX6u3EDvnvB_5C9pQTFxok9whsdBXmNAUkUB1JXCt7LCw" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="408" data-original-width="995" height="240" src="https://blogger.googleusercontent.com/img/a/AVvXsEjrTYxHu-rBhgBoDSw8TVZhDMObmN4yF7KFIHV_OsHPqCxz_kn5iKOkEE-uOi0g8ZS-4fC9jlbg5_YWuE6OkOBZFF0ZjzdJuh42yC3ZUxgYa2uzxsHJdWZOGcQEcu9qP111-adClEP_nrX6u3EDvnvB_5C9pQTFxok9whsdBXmNAUkUB1JXCt7LCw=w586-h240" width="586" /></a></div><br /><p></p>
<p class="MsoNoSpacing"><span style="font-family: inherit;">We can clearly see that after March 31, the trend has
been clearly on a downward path. </span></p><p class="MsoNoSpacing"><span style="font-family: inherit;">Fundamentally all prices follow the law of supply and demand
all things being equal, the higher the demand, the higher the price;
conversely, the lower the demand, the lower the price. Incorporating the supply
side of the analysis, the same demand outcome will occur if supply is either
held constant or increased at a slower pace than demand.</span></p><p class="MsoNoSpacing"><span style="font-family: inherit;">At a basic level, what we have seen for the 4-week
Treasury Bills is that the demand of loanable fund from the government has
declined, but the amount of money that the public has supplied hasn’t fallen at
an equal or higher rate. Put another way, while <b>the offering amount (supply) to
sell Treasury Bills has fallen, the demand to purchase hasn’t fallen as much.
That is, demand exceeds supply. And in the context of Bills (or any fixed
income security for that matter), higher Bill prices means lower interest
rates.</b> You can see this by looking at the <a href="https://www.treasurydirect.gov/auctions/announcements-data-results/announcement-results-press-releases/">auction amounts</a> from 4/20 and 3/2:</span></p>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.65pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 637px;">
<tbody><tr style="height: 10.9pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="background: rgb(0, 176, 240); border: 1pt solid windowtext; height: 10.9pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 58.85pt;" valign="bottom" width="78">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><b><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">Auction Date<o:p></o:p></span></b></p>
</td>
<td nowrap="" style="background: rgb(0, 176, 240); border-left: none; border: 1pt solid windowtext; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 76.95pt;" valign="bottom" width="103">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><b><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">Offering Amount<o:p></o:p></span></b></p>
</td>
<td nowrap="" style="background: rgb(0, 176, 240); border-left: none; border: 1pt solid windowtext; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 132.2pt;" valign="bottom" width="176">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><b><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">% Change In Offering Amount<o:p></o:p></span></b></p>
</td>
<td nowrap="" style="background: rgb(0, 176, 240); border-left: none; border: 1pt solid windowtext; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 77.8pt;" valign="bottom" width="104">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><b><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">Total Tendered<o:p></o:p></span></b></p>
</td>
<td nowrap="" style="background: rgb(0, 176, 240); border-left: none; border: 1pt solid windowtext; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 132.2pt;" valign="bottom" width="176">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><b><span face=""Arial","sans-serif"" style="color: white; font-size: 9pt; mso-fareast-font-family: "Times New Roman";">% Change In Total Tendered<o:p></o:p></span></b></p>
</td>
</tr>
<tr style="height: 10.9pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: 1pt solid windowtext; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 58.85pt;" valign="bottom" width="78">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><b><span face="Arial, "sans-serif"" style="font-size: 9pt;">4/20/2023<o:p></o:p></span></b></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 76.95pt;" valign="bottom" width="103">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face="Arial, "sans-serif"" style="font-size: 9pt;">50,000,000,000<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 132.2pt;" valign="bottom" width="176">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face="Arial, "sans-serif"" style="font-size: 9pt;">-33.33%<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 77.8pt;" valign="bottom" width="104">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face="Arial, "sans-serif"" style="font-size: 9pt;">150,597,577,600<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 132.2pt;" valign="bottom" width="176">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face="Arial, "sans-serif"" style="font-size: 9pt;">-20.56%<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 10.9pt; mso-yfti-irow: 2; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: 1pt solid windowtext; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 58.85pt;" valign="bottom" width="78">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><b><span face="Arial, "sans-serif"" style="font-size: 9pt;">3/2/2023<o:p></o:p></span></b></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 76.95pt;" valign="bottom" width="103">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face="Arial, "sans-serif"" style="font-size: 9pt;">75,000,000,000<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 132.2pt;" valign="bottom" width="176">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face="Arial, "sans-serif"" style="font-size: 9pt;">-<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 77.8pt;" valign="bottom" width="104">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face="Arial, "sans-serif"" style="font-size: 9pt;">189,563,268,500<o:p></o:p></span></p>
</td>
<td nowrap="" style="border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; height: 10.9pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt; width: 132.2pt;" valign="bottom" width="176">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face="Arial, "sans-serif"" style="font-size: 9pt;">-<o:p></o:p></span></p>
</td>
</tr>
</tbody></table>
<p class="MsoNoSpacing"><span style="font-family: inherit;">In the broader context of <a href="https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny">total government debt</a>, the
total debt held by the public has declined by approximately $24 billion since
March 1, 2023; and the total government debt has increased only by
approximately $1 billion, which is low, say if you compare the Feb 1 to March 1
period when total debt held by the public and the total government debt
increased by approximately $23 billion and $4.5 billion respectively. Currently
(4/20) total government debt stands at $31.45 Trillion.</span></p><p class="MsoNoSpacing"></p><p class="MsoNoSpacing"><b>The question then becomes why the decline?</b> The answer
lies in the current “debt limit”. By law the government is only able to borrow
a maximum of approximately $31.4 Trillion. Currently (4/20) total government debt
stands at $31.45 Trillion. The way the government is getting around to continue
to borrow is to use what’s called “extraordinary measures”, which it can only
legally do for a certain period of time. Right now the government can only
borrow those funds that mature. For example, if only $50 billion of 4-Week
Treasury Bills are due to mature, that’s the maximum the government can offer
to purchase. That is ultimately the reason why the interest rate of Treasury
bills have declined (i.e., higher demand and lower supply of T-bills). <o:p></o:p></p><span style="font-family: inherit;"></span><p></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-25993873744041774752023-04-22T09:28:00.000-04:002023-04-22T09:28:18.080-04:00Economic Framework to Understand Boom-Bust cycle<p></p><p class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><b style="mso-bidi-font-weight: normal;"><span style="font-size: 12.0pt;">Introduction:<o:p></o:p></span></b></p>
<p class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-size: 12.0pt;">The following series of notes represent the outcome
from dialogue had with respect to the theoretical economic frameworks. This is
important to understand because how we think about economic systems – which all
are inherently complex – will help us forecast where it is heading. In other
words, having proper perspective of the way things should be and the way they
are now helps us frame the present circumstances in such a way that we can
understand (or at the very least try).</span></p>
<p class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-size: 12.0pt;">The following perspective is merely a point of view and
do not claim to be perfect. My goal is that it will be taken as a means to
stimulate dialogue and thought.<o:p></o:p></span></p><p class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-size: 12.0pt;"><br /></span></p><p class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><b style="mso-bidi-font-weight: normal;"><span style="font-size: 12.0pt;">Topic 1. If
a fixed-money system limits the boom-bust cycle, why did the more fixed-money
systems of the pre-Fed era have so many more booms, busts, panics, and
depressions?</span></b></p>
<p class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-size: 12.0pt;">Three points on this question:<o:p></o:p></span></p>
<p class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-size: 12.0pt;">- First, all man-made systems are imperfect, so no
man-made system will prevent “boom, busts, panics, and depressions” from
occurring.</span></p>
<p class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-size: 12.0pt;">- Second, without going into the rabbit hole of
precisely defining each term, yes, the pre-Fed era had “boom, bust, panics, and
depressions.” But to say that there were more or less, masks some important
distinctions: pre-FED, “booms, busts, panics, and depressions” were for the
most part parochial, both in location and/or markets (e.g. the railroad
investment mania of the 19<sup>th</sup> century had little impact on the
average person and impacted mostly the investor class). It is not the number of
“booms, busts, panics, and depressions” that is germane, what is important is
their magnitude. Read economic historian Charles Kindleberger’s Manias, Panics,
and Crashes. His classic book goes through the history of manias, panics, and
crashes, and then lists the top 10. If my memory serves me right, 8 out of the
10 crashes occurred post Fed era. At the time the book was written, the crash
of 2008 had not happen, and most certainly that one would have made the list.
Let’s put aside the 2020 crash due to the lockdown, as that was a very unique
event in human history, what becomes apparent is that each successive crisis
post-Fed era are more pronounced and impact is broader (aka contagion risk). <span style="mso-spacerun: yes;"> </span></span></p>
<p class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-size: 12.0pt;">- Third, as briefly mentioned in my second point, a fixed-money
system would limit the boom-bust cycle, but mainly in the context its broad
economic impact. I do not know the exact number of boom-busts in the pre-Fed
era, but what I am certain is that you will rarely see a boom-bust, say, in the
likes of the ‘Great Depression’ or ‘Great Recession’. What you will find in the
pre-Fed era are many localized issues (e.g., bank runs in the specific regions;
or investment crashes that would impact the money centers without much impact
to the broader population, etc.).</span></p><p></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-21067752304006322402022-07-04T11:32:00.001-04:002022-07-04T11:32:38.878-04:00What’s Up and Down with Japan’s Economy<p>This post is simply to provide a brief explanation of
what is currently happening with the Japanese economy. As recent <a href="https://www.yahoo.com/now/yen-hits-key-135-level-010546618.html">news</a>
have explained, there has been tremendous pressure in the Yen, which has caused
it to depreciate relative to the US Dollar. For example, on January 1, 2022,
you needed to pay about 115 Yen to purchase $1; and as of July 4, 2022, you now
need approximately 135 Yen to purchase the same $1. This means that so far this
year the Yen has lost about 17.4% in value relative to the Dollar. At a basic level, the loss in value has to do
with supply and demand issues: people are selling the Yen and buying US Dollars.</p>
<p class="MsoNoSpacing">Why are people selling the Yen? Because investors have
determined there are better returns in an alternative currency (i.e US Dollars).
And right now, in terms of investment returns, the US provides an appealing
opportunity. Japanese bonds (10-years) are currently paying somewhere in the neighborhood
of 23 basis points – about 2.5% less when compared with similar US bonds.
Furthermore, with consumer price inflation running hot and as a result the US
Central Bank has begun to increase rates, this means that from an investment perspective
US bonds are increasing their appeal. As such, people sell bonds and buy US
treasuries – which essentially means selling Yen and buying Dollars.</p>
<p class="MsoNoSpacing">This puts additional downward pressure in Japan for the demand
of their bonds. This causes bond prices to fall, thereby increasing yields. On top
of this market phenomenon, as part of its monetary policy, the Central Bank of
Japan is committed to maintaining a maximum of 25 basis points for its 10-year
debt. But as the bond selling pressure increases, the BOJ is doing what they
can to assure that interest rates do not exceed the central bank policy target
rate of 25 basis points. This means that any excess supply of debt, the BOJ is
buying. And when the BOJ buys, it is increasing the money supply, which
devalues the currency. It is becoming a pernicious cycle.</p>
<p class="MsoNoSpacing">How long with the BOJ continue to do this? We don’t know
for sure. What we do know with fair certainty is that what the BOJ is doing is
not sustainable. Judging from prior history (see Asian Crisis of 1997-1998 to
get a sense of what could unfold), we know that this will not end well. <o:p></o:p></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-33257304452109226772022-02-14T18:42:00.003-05:002022-02-14T18:42:45.710-05:00What is the US Treasury Yield Curve saying?<div>Yield curve inversion occurs when short-term rates are higher than the long-term rates. Historically, this has been a predictor of recessions, which it is normally witnessed within a year after the inversion occurs.</div><div><br /></div><div>Banks typically make money when borrowing money at the short end of the yield-curve and lending at longer end of the curve. In other words, they borrow at a lower rate than what they lend, netting the difference. An inverted yield curve is generally not good news for banks. </div><div><br /></div><div>At the moment, based on the <a href="https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2022" target="_blank">yield curve rates reported </a>on February 14, 2022, I do not see evidence of an inverted yield curve when measuring the difference between the 30-year rate and the 3-month rate. </div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-48043918438512636862022-02-12T10:36:00.001-05:002022-02-12T10:36:38.929-05:00What are US Treasury interest rates telling us?<div>The short answer is a mixed one. </div><div><br /></div><div>Let’s <a href="https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202202" target="_blank">take a look</a> at the 2-year Treasury yield from February 11, 2021 and compare it to its yield noted for the latest available data as of February 11, 2022. Last February’s yield stood at 0.11% and it now stands at 1.50%. Based on those numbers, we can say that the upward pressure in rates could come from the inflation premium. </div><div><br /></div><div>However, when we look at the longer-end of the yield curve, namely the 30-year bond, we get a different picture. On February 11, 2021 the 30-year yield stood at 1.94%, and it now stands at 2.24%. In addition, the yield was essentially flat during this week – one in which inflation fear spiked after the printed CPI stood at 7.48%. This tells us that inflation risk has not yet gotten out of hand. It tells us that market participants still believe that the Federal Reserve will succeed in taming the increases in prices. </div><div><br /></div><div>Pay attention to the 30-year bond. It will give you a pulse of what the market really things about inflation risk. </div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-43554168891799128992022-02-10T18:54:00.002-05:002022-02-10T18:55:05.775-05:00Median CPI for January 2022: Worsening TrendToday’s headline CPI for the month of January 2022 was reported to be at 7.48%, the highest it’s been over the last decade. In fact, you would have to back to 1982 to find a similar figure. This is what the headline CPI looks like since 1980:<div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://fred.stlouisfed.org/graph/fredgraph.png?g=LXsp" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="322" data-original-width="800" height="262" src="https://fred.stlouisfed.org/graph/fredgraph.png?g=LXsp" width="651" /></a></div><br /><div>But in order to get a real sense of what is happening in the inflation front, we have to look under the hood. The <a href="https://www.clevelandfed.org/our-research/indicators-and-data/median-cpi.aspx" target="_blank">median CPI</a> gives us that measure. Aggregates measures are inherently imprecise, because it is trying to capture the average consumer, but in doing so it will by nature miss what is happening on a person-by-person basis. At any rate, we need something as a measurement tool. This is what the median CPI (orange line) looks like when compared with other cuts of the CPI:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjhHKAzSLGzIMpqs_VZ0qdsiY771VMcr3rh1sFN3_IQJCZN4Lig8noF1MXKrEjigp4qy8MlgcfvVSX8PN_m6xk4eqoQdY2d_4TgMYXJJu_iFKAnfFcmDQZyrhXeFJp00Kw4oRH7ZX_ChDrpsHC23UsDew37fq8pmTS4622ss5gsZ56jSXvehBKT0A=s1900" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1080" data-original-width="1900" height="356" src="https://blogger.googleusercontent.com/img/a/AVvXsEjhHKAzSLGzIMpqs_VZ0qdsiY771VMcr3rh1sFN3_IQJCZN4Lig8noF1MXKrEjigp4qy8MlgcfvVSX8PN_m6xk4eqoQdY2d_4TgMYXJJu_iFKAnfFcmDQZyrhXeFJp00Kw4oRH7ZX_ChDrpsHC23UsDew37fq8pmTS4622ss5gsZ56jSXvehBKT0A=w626-h356" width="626" /></a></div><br /><div><div>The trend is obvious. It is upward. It is not letting up. </div><div><br /></div><div>Are supply chains the main contributor to this rise? Is the loose monetary policy the culprit? I think both. It looks like the Federal Reserve Bank will be pressured to raise interest rates quicker and perhaps in greater amounts than initially forecast.</div></div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-3052689621006955902022-02-05T17:19:00.001-05:002022-02-05T17:19:36.191-05:00Money flowing out of risky investments: What does it mean?<div>Money flowing out of risky investments: What does it mean?</div><div><br /></div><div>Money continues to flow out of the riskier side of bonds. Take a look at this chart: </div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhg7dxQ8BiBfhIdoBka0oS2u_EQdXli7LM96ulk8YH4E7YEQbU8TOxGG6XRay-iv2mv2T3dn60i3oAgN4aXAMTr-AW4mVHOKDRM-aahLz4x2aWfw7TtNwpZQbYIXbDqSfitsNM-XQ5BQqMA3WrI_XanzRKrIvgCt8l6OBYFjMTJz7RF0mKSCqftwg=s700" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="500" data-original-width="700" height="384" src="https://blogger.googleusercontent.com/img/a/AVvXsEhg7dxQ8BiBfhIdoBka0oS2u_EQdXli7LM96ulk8YH4E7YEQbU8TOxGG6XRay-iv2mv2T3dn60i3oAgN4aXAMTr-AW4mVHOKDRM-aahLz4x2aWfw7TtNwpZQbYIXbDqSfitsNM-XQ5BQqMA3WrI_XanzRKrIvgCt8l6OBYFjMTJz7RF0mKSCqftwg=w537-h384" width="537" /></a></div><br /><div>As can be seen, the amount of money being pulled out from US high yield bonds has been on a downward trend for the last four months. This has not happened over the last year.</div><div><br /></div><div>What does this mean? For one, the dumping of riskier debt means that investors are growing risk-averse and putting money in safer investments. More broadly, the movement away from high yield bonds could mean that market expectations are shifting towards safety, as general market risk continues to increase. Will the trend reverse? Only time will tell.</div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-42323118694148611232022-01-29T12:12:00.000-05:002022-01-29T12:12:30.995-05:00Inflation has not reared its ugly head…yet!<div>This week the Federal Open Market Committee (FOMC), the arm of the Federal Reserve that conducts monetary policy, <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20220126a.htm" target="_blank">noted </a>that “[w]ith inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.”</div><div><br /></div><div>During the Press Conference, FOMC’s Chairmen Jerome Powell noted that their aim is not to allow inflation to be entrenched. What he meant by that was that the FOMC does not want higher inflation to be the expected norm. Why? Because once inflation gets unanchored, it is difficult to bring it back under control. </div><div><br /></div><div>Although certainly inflation risk is evident, it is not yet entrenched in market expectations. One measure we can look into is to see what has been the trajectory of the 30-year Treasury bond. Long-term fixed income securities are the most sensitive to higher inflation premiums. When the inflation premium increases, the bond yield increases. Conversely, when the premium is stable or low, the bond yield will be relatively flat or declining. The Treasury bond is supposed to the “risk-free” benchmark, therefore, inflation risk would show up in this market. </div><div><br /></div><div>This is the current chart of the 30-year Treasury bond since January 2021:</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEh9tYTlj4f_GVGQCE3x9y2LcS6GEJvVte4rZqcy4Oby1SWKdIyqUJ9TFVT4ausSzFTJmDo5CZlcm8RrGs2VLbbrY1wOYeE7buE08mi2ytCvKdo6GXL6qUT3-khLEJCf3dohqfST8J_xebMVYprNE5VLk4VlMuOcuT8nlSj_9c4FvUolML9FBS3xxw" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="673" data-original-width="1488" height="284" src="https://blogger.googleusercontent.com/img/a/AVvXsEh9tYTlj4f_GVGQCE3x9y2LcS6GEJvVte4rZqcy4Oby1SWKdIyqUJ9TFVT4ausSzFTJmDo5CZlcm8RrGs2VLbbrY1wOYeE7buE08mi2ytCvKdo6GXL6qUT3-khLEJCf3dohqfST8J_xebMVYprNE5VLk4VlMuOcuT8nlSj_9c4FvUolML9FBS3xxw=w628-h284" width="628" /></a></div><i><span style="font-size: xx-small;">Data source: https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/TextView.aspx?data=yieldYear&year=2022</span></i><br /><br /></div><div>As you can see, there is no entrenched expectation that higher inflation is on the horizon. In fact, based on the trajectory the market believes that any inflation we see now is contained and that there is no risk of it getting out hand. When yields are on a sustained increase, say above 3%, we should then seriously consider the risk of inflation rearing its ugly head. </div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-41347265334077424762022-01-22T18:38:00.001-05:002022-01-22T18:38:40.687-05:00Central Bankers’ concern that inflation will get out of hand<p>Catherine Mann, Bank of England policymaker, made the following <a href="https://www.ft.com/content/356b9570-f71e-40ff-b60a-f61b216a769c" target="_blank">statement </a>that is indicative of the dilemma Central Bankers from G5 nations are deliberating:</p><p>“Going into 2022, current price and wage expectations coming from the monthly decision maker panel [a monthly business survey] are inconsistent with the 2 per cent target, and if they are realised in 2022 are likely to keep inflation strong for longer…It should be a concern that the costs from 2021 are becoming reflected in price expectations for 2022,” she said, adding: “Changing expectations is the first defence against a reinforcing wage-price dynamic.”</p><p>2% is the threshold that the most influential Central Banks in the world have adopted in order to manage their monetary policy in the context of maintaining a stable monetary system. When inflation is shoots above or below that threshold, it marks the point at which deliberations must take place to assure price remain stable. Unstable prices produce a lot of uncertainty, which hinders economic growth. When price are increasing at a faster pace than the expected 2% per annum, it means that the Central Bank must conduct monetary policy to the rate within the threshold range. </p><p>However, when expectations from people get entrenched, especially when they look at the past in order to forecast the future, it becomes exceedingly difficult for Central Bankers to re-anchor those expectations. At this time, the market expects that Central Banks will reduce the money supply and be successful in reining in inflation. Why does the market believe this? Because it has worked in the past. The trouble would be if Central Banks fail in execution, which would then possibly lead people to lose faith in their ability to curtail inflation.</p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-52040992372070601022022-01-19T19:18:00.000-05:002022-01-19T19:18:03.868-05:00Ballooning Fed’s Balance Sheet<p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: inherit; color: #303030; margin: 0px auto 32px; max-width: calc(750px); overflow-wrap: break-word; padding: 0px;"><span style="font-family: inherit;">When the Fed increases its balance sheet it means that money has been created and pumped into the banking system. The Fed does this when it believes the economy needs some jump-starting or support. When money is pumped into the economy, the Fed will buy securities from the banks (thereby increasing its securities holdings); conversely, when the Fed wants to reduce the amount of money in the market, they will sell securities to banks (thereby reducing its securities holdings).</span></p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: inherit; color: #303030; margin: 32px auto; max-width: calc(750px); overflow-wrap: break-word; padding: 0px;"><span style="font-family: inherit;">Since March 2020 the Fed has been increasing its balance in manner never seen before. Here is a quick snapshot of the Fed’s holdings of domestic securities. First let’s look at those holding as of January 8, 2020:</span></p><figure class="wp-block-image size-large" style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: inherit; color: #303030; font-family: "PT Sans", -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Oxygen, Ubuntu, Cantarell, "Fira Sans", "Droid Sans", "Helvetica Neue", sans-serif; font-size: 20px; margin: 32px auto; max-width: calc(750px); padding: 0px; text-align: center;"><img alt="" class="wp-image-349" data-attachment-id="349" data-comments-opened="1" data-image-caption="" data-image-description="" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="1-19-22_frb-soma-jan-2020-1" data-large-file="https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2020-1.png?w=750" data-medium-file="https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2020-1.png?w=300" data-orig-file="https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2020-1.png" data-orig-size="1197,674" data-permalink="https://uncommoninsight384054130.wordpress.com/1-19-22_frb-soma-jan-2020-1/" sizes="(max-width: 1024px) 100vw, 1024px" src="https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2020-1.png?w=1024" srcset="https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2020-1.png?w=1024 1024w, https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2020-1.png?w=150 150w, https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2020-1.png?w=300 300w, https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2020-1.png?w=768 768w, https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2020-1.png 1197w" style="border-radius: inherit; border-style: none; box-sizing: inherit; height: auto; max-width: 100%; vertical-align: bottom;" /><figcaption style="box-sizing: inherit; color: var(--wp--preset--color--foreground-low-contrast); font-size: 0.75614rem; margin-bottom: 16px; margin-top: calc(8px); max-width: unset;"><em style="box-sizing: inherit; max-width: unset;"><a href="https://www.newyorkfed.org/markets/soma-holdings" rel="nofollow" style="background-color: transparent; box-sizing: inherit; cursor: pointer; max-width: unset; text-decoration-line: none;">https://www.newyorkfed.org/markets/soma-holdings</a></em></figcaption></figure><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: inherit; color: #303030; margin: 32px auto; max-width: calc(750px); overflow-wrap: break-word; padding: 0px;"><span style="font-family: inherit;">Now look at the latest figures for the same holdings:</span></p><figure class="wp-block-image size-large" style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: inherit; color: #303030; font-family: "PT Sans", -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Oxygen, Ubuntu, Cantarell, "Fira Sans", "Droid Sans", "Helvetica Neue", sans-serif; font-size: 20px; margin: 32px auto; max-width: calc(750px); padding: 0px; text-align: center;"><img alt="" class="wp-image-351" data-attachment-id="351" data-comments-opened="1" data-image-caption="" data-image-description="" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="1-19-22_frb-soma-jan-2022" data-large-file="https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2022.png?w=750" data-medium-file="https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2022.png?w=300" data-orig-file="https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2022.png" data-orig-size="1207,711" data-permalink="https://uncommoninsight384054130.wordpress.com/1-19-22_frb-soma-jan-2022/" sizes="(max-width: 1024px) 100vw, 1024px" src="https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2022.png?w=1024" srcset="https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2022.png?w=1024 1024w, https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2022.png?w=150 150w, https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2022.png?w=300 300w, https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2022.png?w=768 768w, https://uncommoninsight384054130.files.wordpress.com/2022/01/1-19-22_frb-soma-jan-2022.png 1207w" style="border-radius: inherit; border-style: none; box-sizing: inherit; height: auto; max-width: 100%; vertical-align: bottom;" /><figcaption style="box-sizing: inherit; color: var(--wp--preset--color--foreground-low-contrast); font-size: 0.75614rem; margin-bottom: 16px; margin-top: calc(8px); max-width: unset;"><em style="box-sizing: inherit; max-width: unset;"><a href="https://www.newyorkfed.org/markets/soma-holdings" rel="nofollow" style="background-color: transparent; box-sizing: inherit; cursor: pointer; max-width: unset; text-decoration-line: none;">https://www.newyorkfed.org/markets/soma-holdings</a></em></figcaption></figure><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: inherit; color: #303030; margin: 32px auto 0px; max-width: calc(750px); overflow-wrap: break-word; padding: 0px;"><span style="font-family: inherit;">During this period, total holdings have increased from $3.7 Trillion to $8.2 Trillion. And to give you broader historical perspective, the current amount is about 11x greater than what was reported in January 9, 2008.</span></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-68606273352435326042022-01-18T18:13:00.001-05:002022-01-18T18:13:35.028-05:00US Treasuries sell off as markets price in Fed rate rises this year<p>The 10-year Treasury has been selling off. This is how the yield curve looks like as of January 18th:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiMHPyFseDAGByYNR9EugwzmMSUE-3Ygpqyo_78uj_OctiLgTev_j-7omQ8u7Ua2Bc0NVNsmb-MwHZNMTdxWIsAC4M1oYvWfVVD7fa5MJ_YSqd1NSG1DFeLb8Priol_0F_lTPcYrA4B9Nc5epvex3E7yY_5Yp1FatTYmIgL9eu9I1-ChZ3B27iiKg=s700" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="500" data-original-width="700" height="415" src="https://blogger.googleusercontent.com/img/a/AVvXsEiMHPyFseDAGByYNR9EugwzmMSUE-3Ygpqyo_78uj_OctiLgTev_j-7omQ8u7Ua2Bc0NVNsmb-MwHZNMTdxWIsAC4M1oYvWfVVD7fa5MJ_YSqd1NSG1DFeLb8Priol_0F_lTPcYrA4B9Nc5epvex3E7yY_5Yp1FatTYmIgL9eu9I1-ChZ3B27iiKg=w579-h415" width="579" /></a></div><p>An increase in yield means bond prices are falling – hence the term of sell-off when we are talking about fixed income markets.</p><p>When we look at the CME FedWatch tool to assess the probabilities of a rate hike this year we can see that this is a foregone conclusion. Take a look at the December 2022 probabilities, which are derived from the Fed Fund Futures contract prices:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjg2DCOzM-QBdRy8YEugW7xlnTWCMcOGk7e0N8Z5vDMUBUMe169hAR8qY__ZlyRsPoNlrUrSHXonKPGue5hx5xUH5A3FHNSASrKRMvd9iLwQgHsxzeUO1FmhLWda_G6IcYnrWw8PDTtTAHig7Zwl86DCj2EohtF-Cz_QSF-XFdVTVFtvkbqFssOaQ=s857" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="500" data-original-width="857" height="336" src="https://blogger.googleusercontent.com/img/a/AVvXsEjg2DCOzM-QBdRy8YEugW7xlnTWCMcOGk7e0N8Z5vDMUBUMe169hAR8qY__ZlyRsPoNlrUrSHXonKPGue5hx5xUH5A3FHNSASrKRMvd9iLwQgHsxzeUO1FmhLWda_G6IcYnrWw8PDTtTAHig7Zwl86DCj2EohtF-Cz_QSF-XFdVTVFtvkbqFssOaQ=w576-h336" width="576" /></a></div><p>We see that there is a 32.8% probability that rates will be within the 1 – 1.25% range; 26.9% within the 1.25 – 1.50% range; and 11.2% within 1.5 – 1.75% range. Adding these probabilities we see that there is approximately 70% chance we will see the Fed Fund rate above 1% by the end of this year (current rate is between 0 - .25%). This tells us that indeed investors are expecting multiple Fed rate rises this year.</p><div><br /></div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-10898404187722934702022-01-17T11:37:00.000-05:002022-01-17T11:37:05.526-05:00CPI vs. Treasury Bonds<p class="MsoNoSpacing">On 12/1/2021, the yield on the 30-year T-bond was 1.77%.
On 12/31/2021 the yield had risen to 1.90%, and as of 1/14/2022 it further
increased to 2.12%. While the trend is up, the yield is still below the peak
for 2021, which was about 2.45% back in March. Yield curve rates can be seen <a href="https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/TextView.aspx?data=yield">here</a>.
<o:p></o:p></p>
<p class="MsoNoSpacing">This tells me that while the CPI has been increasing,
bond investors still do not believe that there are significant risks when it
comes to runaway inflation. They likely believe that the Federal Reserve will
be able to execute monetary policy effectively to quell the recent CPI increases.
Is that a fair expectation? Maybe. It depends whether they believe that what
has worked in the past will work in the future. In other words, the past is a
good indication of the future.</p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing">In addition, what the behavior of the 30-year yield tells
me also is that investors are more concern about recession than inflation. In a
recession one would expect prices to decline, so the likelihood of mass
inflation happening in the immediate future is quite low. Of course, like what
happened in the 1970s, we can have a scenario where we have at the same time a
recession and rising prices; but again, bond investors are currently discounting
that possibility.</p><p class="MsoNoSpacing"><o:p></o:p></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-41218165767566604582022-01-15T15:14:00.000-05:002022-01-15T15:14:17.671-05:00Investors bet on loans as Fed readies to lift interest rates<p class="MsoNoSpacing">The Financial Times <a href="https://www.ft.com/content/47fd4027-e283-4212-8371-9dfac071aed8">recently
describe</a> some of the impact that an expected rise in interest rates by the
Federal Reserve in 2022 is having in the market for US loans. </p>
<p class="MsoNoSpacing">“I think we may have reached the inflection point. The
question is no longer ‘if’ rates will go higher, but ‘how soon and by how
much’,” said Jeff Bakalar, group head of leveraged credit at Voya Investment
Management. “Every time this has happened, the loan market has become a safe
harbour.”</p>
<p class="MsoNoSpacing">Also, as some Citigroup analysts commented, “Loans
provide two much-needed characteristics for investors in 2022 — rate protection
and relatively stable performance.”</p>
<p class="MsoNoSpacing">Here is a broad overview of the weekly flow of money chasing
US loan funds:</p><p class="MsoNoSpacing"><o:p></o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgqnYqgvMc5X3fwVF1VNzUjYxF-5xz_U4061H5hZO5Am2wdQ-61VSUZqWQnx5vCxdtiFvFRkR32z0xdvIsDINuUGT2oe2kdcVMyif59hZYJlQZaoNIlzCRAYikt5unNAWF-Iyd7Cb6HCOvBQNhfFTLlQQmnRFhiQrnuaGWjbsSmnOCnRDCnfUM2NQ=s700" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="500" data-original-width="700" height="420" src="https://blogger.googleusercontent.com/img/a/AVvXsEgqnYqgvMc5X3fwVF1VNzUjYxF-5xz_U4061H5hZO5Am2wdQ-61VSUZqWQnx5vCxdtiFvFRkR32z0xdvIsDINuUGT2oe2kdcVMyif59hZYJlQZaoNIlzCRAYikt5unNAWF-Iyd7Cb6HCOvBQNhfFTLlQQmnRFhiQrnuaGWjbsSmnOCnRDCnfUM2NQ=w586-h420" width="586" /></a></div><p></p><p class="MsoNoSpacing">The article, however, fails to mention both sides of the
equation in terms of determining overall profitability. Indeed, an investor in
a US loan fund would benefit from a rise in interest rates, presumably because
those loans would reprise higher and thus distribute higher cashflows. However,
a tight monetary policy would have an effect of cooling of the economy, which
increases the risk in some firms to go bankrupt or reduce economic profits,
which would ultimately reduce the value of certain funds. <o:p></o:p></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-2647239942990954622021-08-19T18:17:00.000-04:002021-08-19T18:17:53.569-04:00Government Debt: A Potential Hidden Grenade<p>A recent opinion piece from the Financial Times expressed concerns about the significant built-up of government indebtedness and the potential risks of ballooning costs to maintain it. The risk is characterized as follows:</p><p>“The trigger now may be a lethal combination of rising inflation and financial instability. The difficulty is that central banks cannot take away the punch bowl and raise rates without undermining weak balance sheets and taking a wrecking ball to the economy.”</p><p>The concern is legitimate, especially when you look at these two graphs that the IMF included in their April 2021 Fiscal Monitor:</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvaFtR-QDbEg1I3I2FLqEaRpfImVGM_FIgHlDoPgxJL42bEPXthwgGqAO5AoAX6OeqYUMMBEZS2IPV5tUGz6ks7Gn916FoHuOA2_rAALQZyZU0e5xgGHy6Jcqns-fxYKcvJisyO93qOw/" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="260" data-original-width="679" height="252" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvaFtR-QDbEg1I3I2FLqEaRpfImVGM_FIgHlDoPgxJL42bEPXthwgGqAO5AoAX6OeqYUMMBEZS2IPV5tUGz6ks7Gn916FoHuOA2_rAALQZyZU0e5xgGHy6Jcqns-fxYKcvJisyO93qOw/w655-h252/image.png" width="655" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkRKURx0LXtNBRHs4Sli9oSUwRNU9NeezyiMmhSeNXYKCO1OkWrXJcQWWcOwPTDCtNCH2UNz4z409IWrjAmhOZMuCtOiME1ycWtEedJwf0PkWAQ4P4cGFjjYZ531wUm4DFdz1TmZ4tfg/" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="589" data-original-width="503" height="486" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkRKURx0LXtNBRHs4Sli9oSUwRNU9NeezyiMmhSeNXYKCO1OkWrXJcQWWcOwPTDCtNCH2UNz4z409IWrjAmhOZMuCtOiME1ycWtEedJwf0PkWAQ4P4cGFjjYZ531wUm4DFdz1TmZ4tfg/w414-h486/image.png" width="414" /></a></div><br />Advanced economies are carrying debt comprising approximately 120% of GDP (Figure 1.1). Given historical low in general interest rates (Figure 1.3), the debt burden (expense) appears manageable at the moment holding roughly about 1.8% of GDP. But what will happen when rates go up? The obvious, of course, is debt expense will increase. <p></p><p>By any historical standard it is unreasonable to expect that at some point interest rates will not go up. In other words, it is unreasonable to expect the current trend to continue without running into significant problems. The effects of that reversal when compared to the current trend could be consequential, and one which may take a lot of economic pain if not dealt properly. </p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-64516523984846817342021-05-31T12:29:00.001-04:002021-05-31T12:30:06.496-04:00Money Multiplier – A Red Flag<div>Here in this post I give an <a href="https://uncommoninsight.blogspot.com/2021/04/money-multiplier-another-down-montha.html" target="_blank">update</a> to the money multiplier proxy, which helps us get an understanding where prices may go into the future. </div><div><br /></div><div>The more money moves, the more money is being multiplied – which means more of it is created. This ultimately puts pressure in inflation, which impacts all markets. The reverse is also true: a slowing down of the multiplier means money creation is slowing. In a debt-ridden market that we are currently witnessing – particularly in equity markets, a slowing down of the money multiplier is not particularly sanguine. </div><div><br /></div><div>You must remember that higher prices as measured by the popular CPI will put pressure on the FRB to hike interest rates. This would lead to higher interest costs, which would not be great for the housing market or government finances.</div><div><br /></div><div>As we see below, the money multiplier continues to slow down, the trend is obvious. This means that if this trend continues we should expect some meaningful correction (minimum 10-15% drop) in equity prices. When? I have no idea, but probably sometime before year-end 2021. </div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3McXv4yUL01bxouqJBA7Oa9gHY_KxXqKAkhqy6HZZFzM0_ZkwM-7VYh7VxBGv8b0IVU_A0MpRSAVn_-O3Qts8ZioPeetrLjSqjZhjFfw3eOdJny-8xXh25Md38u2bN7RTQqIl0lFTSw/" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="449" data-original-width="980" height="296" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3McXv4yUL01bxouqJBA7Oa9gHY_KxXqKAkhqy6HZZFzM0_ZkwM-7VYh7VxBGv8b0IVU_A0MpRSAVn_-O3Qts8ZioPeetrLjSqjZhjFfw3eOdJny-8xXh25Md38u2bN7RTQqIl0lFTSw/w648-h296/image.png" width="648" /></a></div><br /><i>Source: https://www.federalreserve.gov/releases/h6/current/default.htm</i></div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-37739812795807317042021-05-12T19:12:00.000-04:002021-05-12T19:12:32.016-04:00Pay No Mind to Consumer Price Inflation…Sort of<div>The FT <a href="https://www.ft.com/content/dfffa56a-6450-4a58-97a6-b3d12ea72d9c" target="_blank">reported</a> today that “US inflation rose 4.2 per cent in April over its level a year ago…[and] is the biggest rise since 2008 and a significant leap compared with the 2.6 per cent reading in March.”</div><div><br /></div><div>While the metric does look ominous – and I have no doubt that inflationary pressures are going to continue to mount up – this measure of headline inflation is misleading. The Consumer Price Index (CPI) has a lot of a<a href="https://www.bls.gov/cpi/questions-and-answers.htm" target="_blank">ssumptions</a> included in its calculation that make it subject to imprecision. Not that the metric is wrong, but rather it may misrepresent the spending habits of the average consumer. </div><div><br /></div><div>As such, a much better indicator of inflation is the Median Consumer Price Index. This index omits outliers and is therefore a more precise indicator of underlying inflation trends. </div><div><br /></div><div>As you can see from the graph and chart below, although there is a small tick upwards in the Median CPI, it is not yet at an alarming level. The data source of the graph and chart can be seen <a href="https://www.clevelandfed.org/en/our-research/indicators-and-data/median-cpi.aspx" target="_blank">here</a>. <span> </span></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivKiCZobIzAkeUEptro7Clpao_LAkV4rAC5kd85cmOobR4cJPC3Im_-agM54G6mlbNcEwGYkGjVup501jykyMccZ5H990D4Kuxb3e2Bhv8OqRspy8beh6NvGlMj5CHqz4CC5Hew0DpeQ/s1900/cleveland_fed_mediancpi.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1080" data-original-width="1900" height="376" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivKiCZobIzAkeUEptro7Clpao_LAkV4rAC5kd85cmOobR4cJPC3Im_-agM54G6mlbNcEwGYkGjVup501jykyMccZ5H990D4Kuxb3e2Bhv8OqRspy8beh6NvGlMj5CHqz4CC5Hew0DpeQ/w661-h376/cleveland_fed_mediancpi.png" width="661" /></a></div><br /><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><span style="background-color: white; color: #414b56; font-family: HelveticaNeueLTStd-Bd;"><br /></span></div><div><span style="background-color: white; color: #414b56; font-family: HelveticaNeueLTStd-Bd;"><br /></span></div><div><span style="background-color: white; color: #414b56; font-family: HelveticaNeueLTStd-Bd;"><br /></span></div><div><span style="background-color: white; color: #414b56; font-family: HelveticaNeueLTStd-Bd;"><br /></span></div><div><span style="background-color: white; color: #414b56; font-family: HelveticaNeueLTStd-Bd;">Percent change, past 12 months</span></div><div><figure class="table-responsive chart-listing__table" style="background-color: white; box-sizing: border-box; color: #201f1f; font-family: "Helvetica Neue", Helvetica, Arial, sans-serif; margin: 0px 1em; text-align: left;"><table class="table table-striped table-hover table-bordered" style="background-color: transparent; border-collapse: collapse; border-spacing: 0px; border: 1px solid rgb(221, 221, 221); margin-bottom: 17px; max-width: 100%; width: 782.4px;"><thead style="box-sizing: border-box;"><tr style="box-sizing: border-box;"><th scope="col" style="border-bottom-color: rgb(221, 221, 221); border-bottom-style: solid; border-image: initial; border-left-color: rgb(221, 221, 221); border-left-style: solid; border-right-color: rgb(221, 221, 221); border-right-style: solid; border-top-color: initial; border-top-style: initial; border-width: 0px 1px 2px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: bottom;"><span style="font-size: x-small;">Date</span></th><th scope="col" style="border-bottom-color: rgb(221, 221, 221); border-bottom-style: solid; border-image: initial; border-left-color: rgb(221, 221, 221); border-left-style: solid; border-right-color: rgb(221, 221, 221); border-right-style: solid; border-top-color: initial; border-top-style: initial; border-width: 0px 1px 2px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: bottom;"><span style="font-size: x-small;">Nov-2020</span></th><th scope="col" style="border-bottom-color: rgb(221, 221, 221); border-bottom-style: solid; border-image: initial; border-left-color: rgb(221, 221, 221); border-left-style: solid; border-right-color: rgb(221, 221, 221); border-right-style: solid; border-top-color: initial; border-top-style: initial; border-width: 0px 1px 2px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: bottom;"><span style="font-size: x-small;">Dec-2020</span></th><th scope="col" style="border-bottom-color: rgb(221, 221, 221); border-bottom-style: solid; border-image: initial; border-left-color: rgb(221, 221, 221); border-left-style: solid; border-right-color: rgb(221, 221, 221); border-right-style: solid; border-top-color: initial; border-top-style: initial; border-width: 0px 1px 2px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: bottom;"><span style="font-size: x-small;">Jan-2021</span></th><th scope="col" style="border-bottom-color: rgb(221, 221, 221); border-bottom-style: solid; border-image: initial; border-left-color: rgb(221, 221, 221); border-left-style: solid; border-right-color: rgb(221, 221, 221); border-right-style: solid; border-top-color: initial; border-top-style: initial; border-width: 0px 1px 2px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: bottom;"><span style="font-size: x-small;">Feb-2021</span></th><th scope="col" style="border-bottom-color: rgb(221, 221, 221); border-bottom-style: solid; border-image: initial; border-left-color: rgb(221, 221, 221); border-left-style: solid; border-right-color: rgb(221, 221, 221); border-right-style: solid; border-top-color: initial; border-top-style: initial; border-width: 0px 1px 2px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: bottom;"><span style="font-size: x-small;">Mar-2021</span></th><th scope="col" style="border-bottom: 2px solid rgb(221, 221, 221); border-image: initial; border-left: 1px solid rgb(221, 221, 221); border-right: none; border-top: 0px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: bottom;"><span style="font-size: x-small;">Apr-2021</span></th></tr></thead><tbody style="box-sizing: border-box;"><tr style="box-sizing: border-box;"><td scope="row" style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="font-size: x-small;">Median CPI</span></td><td style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2.2</span></td><td style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2.2</span></td><td style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2.1</span></td><td style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2.1</span></td><td style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2</span></td><td style="background-color: #f9f9f9; border-bottom: 1px solid rgb(221, 221, 221); border-image: initial; border-left: 1px solid rgb(221, 221, 221); border-right: none; border-top: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2.1</span></td></tr><tr style="box-sizing: border-box;"><td scope="row" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="font-size: x-small;">16% trimmed-mean CPI</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2.1</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2.1</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2.1</span></td><td style="border-bottom: 1px solid rgb(221, 221, 221); border-image: initial; border-left: 1px solid rgb(221, 221, 221); border-right: none; border-top: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2.4</span></td></tr><tr style="box-sizing: border-box;"><td scope="row" style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="font-size: x-small;">CPI</span></td><td style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">1.2</span></td><td style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">1.4</span></td><td style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">1.4</span></td><td style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">1.7</span></td><td style="background-color: #f9f9f9; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">2.6</span></td><td style="background-color: #f9f9f9; border-bottom: 1px solid rgb(221, 221, 221); border-image: initial; border-left: 1px solid rgb(221, 221, 221); border-right: none; border-top: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">4.2</span></td></tr><tr style="box-sizing: border-box;"><td scope="row" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="font-size: x-small;">CPI less food and energy</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">1.6</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">1.6</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">1.4</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">1.3</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">1.6</span></td><td style="border-bottom: 1px solid rgb(221, 221, 221); border-image: initial; border-left: 1px solid rgb(221, 221, 221); border-right: none; border-top: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: center; vertical-align: top;"><span style="font-size: x-small;">3</span></td></tr></tbody></table><br /></figure><footer class="chart-listing__chart-footer" style="background-color: white; box-sizing: border-box; color: #666666; font-family: Helvetica, sans-serif; font-size: 12px; line-height: 15px; margin: 0px 1em 2em;"></footer></div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-47627410082100231772021-05-06T18:39:00.000-04:002021-05-06T18:39:10.853-04:00After Massive Government Intervention, Here’s How It EndsAfter reading this article from Bill Bonner (original <a href="https://www.rogueeconomics.com/bill-bonner-diary/after-massive-government-intervention-heres-how-it-ends/" target="_blank">here</a>), I am reminded of one of Ronald Reagan's <a href="https://www.reaganfoundation.org/ronald-reagan/reagan-quotes-speeches/news-conference-1/" target="_blank">quote</a>, "The nine most terrifying words in the English language are: I'm from the Government, and I'm here to help."<div><br /></div><div>We must look back at history. It is replete with disaster after disaster at the hands of "the Government". At some point we must ask ourselves if whether what we have been taught to believe about "the Government" is true. We must start with our sources: where did we get that knowledge? what evidence is there that challenges that knowledge? </div><div><br /></div><div>It is the art of asking questions. Keep asking why, and you will get closer to the truth.</div><div><br /></div><div>******************************</div><div><br /></div><div><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">People make mistakes. The private world of win-win deals routinely corrects them. Death, divorce, default, destitution – many are the ways it sets things right.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">But the public world… the world backed by tanks and armed police… the world of wars and sanctions… regulations and money-printing… uses its considerable might to resist correction.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">No matter how stupid… no matter how wasteful or harmful to the public weal – <a href="https://www.rogueeconomics.com/bill-bonner-diary/u-s-economic-damage-from-fed-policies-is-beyond-repair/" rel="noopener noreferrer" style="-webkit-font-smoothing: antialiased; background-color: transparent; box-sizing: border-box; color: #337ab7; font-weight: 600; margin: 0px; padding: 0px; text-decoration-line: none; transition: color 0.3s ease 0s;" target="_blank">government programs are rarely and reluctantly discarded</a>.</p><h2 style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #3d7e96; font-family: Helvetica, Arial, sans-serif; font-size: 24px; line-height: 1.2; margin: 0px 0px 0.5rem; padding: 0px; text-align: center;">The Definition of Eternity</h2><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Dear readers who doubt this is true are invited to recall the real nature of government. It is an organization that has only one real goal – to protect and promote the people who control it.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">And as we’ve seen, illuminated by the great Italian economist Vilfredo Pareto, it is <a href="https://www.rogueeconomics.com/bill-bonner-diary/the-democrats-are-trying-to-buy-votes/" rel="noopener noreferrer" style="-webkit-font-smoothing: antialiased; background-color: transparent; box-sizing: border-box; color: #337ab7; font-weight: 600; margin: 0px; padding: 0px; text-decoration-line: none; transition: color 0.3s ease 0s;" target="_blank">always controlled by a small segment of the society</a> – the elite.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">We’ve seen also that the “investments” made on behalf of the public most often benefit only the elite. And, protected by their beneficiaries, errors persist and accumulate.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Even the most temporary and woebegone government agency becomes eternal. Crises – forgotten by the public for decades – still trouble the sleep of well-paid agents of the federal government.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Programs that should have been a source of shame and embarrassment continue indefinitely, while the people who put them in place – who should have been bankrupted… run out of town on a rail… or at least had the good grace to resign from office, or like German general Erwin Rommel, to accept the cyanide pill – stay proudly at their posts year after year.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Elections are supposed to “throw the bums out.” But apart from a few headliner acts, the show remains little changed… with the same clowns, misallocating the same resources, over and over.</p><h2 style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #3d7e96; font-family: Helvetica, Arial, sans-serif; font-size: 24px; line-height: 1.2; margin: 0px 0px 0.5rem; padding: 0px; text-align: center;">How It Ends</h2><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">And yet, as American economist Herbert Stein remarked, things that can’t go on forever must come to an end.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">But how? When? Those are our questions for today.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">And we won’t beat around the bush. The answer is this: Deprived of regular hygiene, public life gets dirtier and dirtier… until finally, we all “take a bath” on the feds’ bad investments.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">We pause to back-fill…</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Errors – even in public life – are usually limited by money. The feds may want to spend $2 trillion on infrastructure… or on climate control… but they lack the means.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">This forces them to make trade-offs… hard choices – cutting here to spend there… raising taxes… or borrowing.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Raising taxes tends to upset those who pay them, imposing a barrier that politicians are reluctant to cross.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">And even when Congress passes a tax increase, it doesn’t mean that the feds will actually collect more tax revenue. People duck and dodge. Even without cheating, they change the way they do business and how they spend their money.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">In the end, tax revenue, as a percentage of GDP, tends to stay fairly constant, as tax rates rise or fall.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">And borrowing brings its own problems. First, a dollar must be earned before it can be saved. Then, it must be saved before it can be borrowed.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">This century, federal deficits have far outstripped GDP growth and savings rates, which is why the feds have had to resort to the printing press.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Besides, even when there is money available from private lenders, borrowing by the feds will “crowd out” private borrowers, driving up interest rates, depressing the economy, and putting voters in a sour mood.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">It is only because our fake-money system permits the feds to spend so much, without depleting savings or raising taxes, that they can make so many bad “investments.”</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">(An important note: As prices begin to rise, the Federal Reserve will come under pressure to “taper” off its money-printing ways. Most likely, next month, as higher inflation rates are reported, we will see some fireworks at the Fed… and in the markets… Stay tuned.)</p><h2 style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #3d7e96; font-family: Helvetica, Arial, sans-serif; font-size: 24px; line-height: 1.2; margin: 0px 0px 0.5rem; padding: 0px; text-align: center;">Extraordinary Scrubbing</h2><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">In addition to the bad investments on existing wars – against terrorists, poverty, recessions, bear markets, and drugs – the Biden Administration has proposed an additional $4 trillion to do battle against temperature changes and viruses… as well as <a href="https://www.rogueeconomics.com/bill-bonner-diary/you-get-what-you-pay-for/" rel="noopener noreferrer" style="-webkit-font-smoothing: antialiased; background-color: transparent; box-sizing: border-box; color: #337ab7; font-weight: 600; margin: 0px; padding: 0px; text-decoration-line: none; transition: color 0.3s ease 0s;" target="_blank">allegedly improving the nation’s families and its infrastructure</a>.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Some of these proposals will be adopted. Money will be misspent. Debt will increase. And the grime will grow thicker and greasier than ever.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">With no routine way of cleaning it off… an extraordinary scrubbing will be needed.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Wars, revolutions, economic collapse – the ways in which elites are finally punished… and their bamboozles eventually corrected… fill the history books. They’ve been explored by historians and catastrophists such as Edward Gibbon, Arnold Toynbee, Oswald Spengler, Joseph Tainter, Peter Turchin… and many others.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Each has his own theory… his own “spin”… on the issue. Some emphasize foreign competition. Others focus on the degeneration of the elite themselves. Some lay the blame on economic mismanagement or resource depletion. Others insist the real problem is a moral failure.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Joseph Tainter put forward the idea that governed societies are fundamentally problem-solving organizations. Each problem requires a solution. Each solution adds costs… and increases the complexity of the organization.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Eventually, the complexities and additional costs become unbearable; the society collapses.</p><h2 style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #3d7e96; font-family: Helvetica, Arial, sans-serif; font-size: 24px; line-height: 1.2; margin: 0px 0px 0.5rem; padding: 0px; text-align: center;">Parasitic Living</h2><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Another way to look at it is that the elite is fundamentally parasitic, living off the labor of others.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">As time goes by, more and more people naturally wish to join the elite. They learn to speak the language of business schools and <em style="-webkit-font-smoothing: antialiased; box-sizing: border-box; margin: 0px; padding: 0px;">The New York Times</em>. They send their children to college.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">And then… the college graduates feel entitled to an elite lifestyle, and take their places on Wall Street, in the government, a university, or a non-profit organization.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Thus are more and more people turned into quasi-rentiers, contributing little to the real wealth of the society, while relatively fewer remain to make the plumbing work.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Here at the <em style="-webkit-font-smoothing: antialiased; box-sizing: border-box; margin: 0px; padding: 0px;">Diary</em>, we pretend no precision. Our analysis is broad-brush… like a barn door painted by a blind man.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">During our own lifetimes, America’s elite has degenerated greatly. Funded with almost unlimited fake money, it has become arrogant, corrupt, and incompetent.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">And now… caught in an “<a href="https://www.rogueeconomics.com/bill-bonner-diary/is-it-covid-19-fearmongering/" rel="noopener noreferrer" style="-webkit-font-smoothing: antialiased; background-color: transparent; box-sizing: border-box; color: #337ab7; font-weight: 600; margin: 0px; padding: 0px; text-decoration-line: none; transition: color 0.3s ease 0s;" target="_blank">inflate or die</a>” trap… its “investments” become more desperate and less productive than ever…</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">And since the elite controls both soap and water… the dirt builds up.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">And then, we all get hosed.</p><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Regards,</p><table style="-webkit-font-smoothing: antialiased; background-color: white; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 14.08px; line-height: 26px; margin: 0px 0px 10px; padding: 0px;"><tbody style="-webkit-font-smoothing: antialiased; box-sizing: border-box; margin: 0px; padding: 0px;"><tr style="-webkit-font-smoothing: antialiased; box-sizing: border-box; margin: 0px; padding: 0px;"><td style="-webkit-font-smoothing: antialiased; box-sizing: border-box; margin: 0px; padding: 0px;"><img alt="signature" height="30" loading="lazy" src="https://cdn.bonnerandpartners.com/BBD/signatures/bill-bonner-signature.png" style="-webkit-font-smoothing: antialiased; border-style: none; box-sizing: border-box; margin: 0px; padding: 0px; vertical-align: middle;" width="135" /></td></tr></tbody></table><p style="-webkit-font-smoothing: antialiased; background-color: white; box-sizing: border-box; color: #212529; font-family: Roboto, arial, sans-serif; font-size: 17px; line-height: 2rem; margin: 0px 0px 1rem; padding: 0px;">Bill</p></div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-20712856561163726122021-05-03T20:01:00.003-04:002021-05-03T20:01:51.353-04:00Bubbles Everywhere in a Bubble Economy<p class="MsoNoSpacing">In a “bubble” market, all sorts of incongruities show up,
and of course, there is no shortage of pundits who will claim that “this time
is different” or some similar epithet to describe irrationality. <o:p></o:p></p>
<p class="MsoNoSpacing">But make no mistake, the markets can remain irrational longer
than most can remain solvent. It is on that basis that renowned investor Jim Rogers
once reminded me that the bubble economy can and will do things that defy
reason – and for a lot longer than anyone can think or imagine.</p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing">The bubble will continue until it cannot; and only then you
will witness the inevitable day of reckoning. Until that day comes, we will
point out the warning signs as they pop up. </p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing">Here today I present you risk premium, that extra buffer
to account for extra risk, for the worst kind of debt. Thanks to the FT, this
is <a href="https://www.ft.com/content/e35c8c4f-b931-4988-849a-e7ad88c21bf5">what
it says</a>:</p><p class="MsoNoSpacing"></p><blockquote>"The premium, or “spread”, above benchmark government bond
yields on triple C-rated US corporate bonds, which sit on the precipice of
defaulting, has fallen to just above 6.4 percentage points, according to data
from Ice Data Services. The spread has been lower on only two occasions: in
2014, just before a collapse in oil prices roiled the debt of energy companies,
and in the run-up to the 2008 financial crisis."</blockquote><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiO2nviQHP93Fe1Au-21r17F8pGA-xs6pDhr6RzP_40EswXGcFehcpbuxS1B-ISoxC19M_pkprVSMYfKFQXuqjBn9L1VbAtred4hxa1FdAKeIHlPa4EedMbmdaxoFejaaVWdbjGXxadLg/s700/5-3-21_CCC+Risk+Premium.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="500" data-original-width="700" height="429" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiO2nviQHP93Fe1Au-21r17F8pGA-xs6pDhr6RzP_40EswXGcFehcpbuxS1B-ISoxC19M_pkprVSMYfKFQXuqjBn9L1VbAtred4hxa1FdAKeIHlPa4EedMbmdaxoFejaaVWdbjGXxadLg/w599-h429/5-3-21_CCC+Risk+Premium.png" width="599" /></a></div><br /><p class="MsoNoSpacing"><br /></p><p class="MsoNoSpacing"><o:p></o:p></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-86188060480407879112021-05-01T13:25:00.000-04:002021-05-01T13:25:23.702-04:00European vs. US Economic Growth RatesWhat do you expect to happen to an economy where the Government shuts it on and off, and then compare that to an economy where the Government broadly speaking allows it to flourish? This is what happens:<div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUSgjwraRFCAeT-FHxmaYJ9LQbvs7djy5nMKxcxkYbEE_XAj_VsSGiLxUbiiBQFVjnbk5Hlpii9VWEQDk0_u9jtxiVeexWLvQqyZW5Lo7AKkaVEtWfvohuAP4SagHYQxXWKVLbDojjFQ/s700/EU+GDP+vs+US.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="500" data-original-width="700" height="436" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUSgjwraRFCAeT-FHxmaYJ9LQbvs7djy5nMKxcxkYbEE_XAj_VsSGiLxUbiiBQFVjnbk5Hlpii9VWEQDk0_u9jtxiVeexWLvQqyZW5Lo7AKkaVEtWfvohuAP4SagHYQxXWKVLbDojjFQ/w610-h436/EU+GDP+vs+US.png" width="610" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4-8Oux_FRXajwwXJRBoiKAfcmet1YLnRL177Dht7HnR8MdmYaXbNqljVvzsVrtKF851RdgbgLy5uGuE-sqED2ssWNqLSIONhIdtdOmZHJ2Gu77F9CAT9fRa8IGeoDhw_Rig1JzlZiww/s700/Core+EU+Countries+GDP+vs+US.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="500" data-original-width="700" height="444" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4-8Oux_FRXajwwXJRBoiKAfcmet1YLnRL177Dht7HnR8MdmYaXbNqljVvzsVrtKF851RdgbgLy5uGuE-sqED2ssWNqLSIONhIdtdOmZHJ2Gu77F9CAT9fRa8IGeoDhw_Rig1JzlZiww/w620-h444/Core+EU+Countries+GDP+vs+US.png" width="620" /></a></div><br /><div><br /><div><br /></div><div><br /></div></div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-40121085653354527932021-05-01T11:55:00.001-04:002021-05-01T12:14:17.505-04:00How Much Government Handouts Are We Getting?<div>This week the US Bureau of Economic Analysis (BEA) released the Gross Domestic Product results for the first quarter of 2021. The release is here. There we see that the US economy grew at an annualized rate of 6.4% in the first quarter of 2021. </div><div>Also included in that BEA release were estimates of Personal Income. When we dig deeper we see that the share of government handouts to the personal income of all people comprised a record-high rate of 34%. This rate is nowhere near what we have seen over the last 20 years, particularly prior to the government lockdowns policies enacted in March 2020.</div><div>Even when compared to the last financial crisis of 2008 – 2009, we see that share oscillating between 15% and 20%. Take a look at this graph for yourself:</div><div><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKaHFlTgXspT0UejzYb41a6KvJ1IoyuzC-Gzt_KnVafKu27Sn9y14rmeiaUrRpcKcX8oFEAyTq7sQVcLDUj3rM4ceNft0PsYFgGypk3I3JDWs780jGztHsbB6ZDdqUeHe_OCTfIywu7Q/" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="510" data-original-width="989" height="334" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKaHFlTgXspT0UejzYb41a6KvJ1IoyuzC-Gzt_KnVafKu27Sn9y14rmeiaUrRpcKcX8oFEAyTq7sQVcLDUj3rM4ceNft0PsYFgGypk3I3JDWs780jGztHsbB6ZDdqUeHe_OCTfIywu7Q/w644-h334/image.png" width="644" /></a></div></div><div><span style="font-size: xx-small;"><span> </span><span> </span><span> </span><span> </span><span> </span>Source: Bureau of Ecomomic Analysis. Calculated as the percentage of monthly 'Personal current transfer receipts' to 'Personal Income'.</span></div><div><br /></div><div>The problem here is two-fold: </div></div><div>• One is that the government is giving out money it does not have. We are all too aware of the debt problems the government has. </div><div>• The other is that dependence on government is a breeding ground for all sorts of distortions – which among many include subsidizing behavior that is not conducive to increasing productivity and therefore economic growth, or getting people used to the idea that there is such a thing a free lunch (something for nothing), etc. </div><div><br /></div><div>Yet, the longer this policy of the government giving out money it does not have goes on, the closer it leads to an ultimate disaster. Imagine a drug junkie who realizes that his drug dealer is no longer around. That’s an appropriate image of what awaits for those who believe the current path we are on is sustainable. Reality is harsh to those who believe in fairy tales. </div>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-34212317312447037402021-04-29T18:50:00.001-04:002021-04-29T18:50:41.984-04:00More Debt, No Problem…For Now!<p></p><p class="MsoNoSpacing">Adding perspective to the sustainability of the market
upswing we’ve seen over the last year, it is a sobering reminder provided by a
Financial Times report on margin debt. They <a href="https://www.ft.com/content/ac7cfe19-54a5-4e9a-b059-bbce3e78e354">report</a>
the following:<o:p></o:p></p>
<p class="MsoNoSpacing"></p><blockquote><p class="MsoNoSpacing">Data collected by the Financial Industry Regulatory
Authority shows that total margin debt across Wall Street hit $822bn by the end
of March — after Archegos had failed. That was almost double the $479bn
level of this time last year and far more than the around $400bn peak that
margin debt reached in 2007, just before the financial crisis.</p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing">To put these numbers in context, ABP Invest, a
London-based fund, calculates that during the 2000 dotcom and 2007 credit
booms, US margin debt topped out at roughly 3 per cent of gross domestic
product. Now it is nearly 4 per cent.</p></blockquote><p class="MsoNoSpacing"></p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing"><o:p> </o:p>For the medium term (1 – 3 months) we are going to
continue to witness a relative upward move in financial markets thanks to the
continuing loosening of restrictive government policy (lockdowns). Let us not
forget that the economic issue we experienced since March 2020 had nothing to
with the virus, but rather all of it the result of government policy. The virus
did not shut down economies, governments did.</p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing">Yet, the upswing we’ve seen in equity markets has been
the result of massive liquidity injections by the government institutions – a purely
Keynesian policy. This is not sustainable. To believe this is sustainable is to
believe that the Brooklyn Bridge is for sale. Leverage cuts both ways. Be
careful to catch a knife as it is falling off your table.</p><p></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-85531858288096752552021-04-28T18:23:00.000-04:002021-04-28T18:23:41.371-04:00Money Multiplier: Another Down Month...A Warning?<p></p><p class="MsoNoSpacing">I have <a href="https://uncommoninsight.blogspot.com/2021/03/money-multiplier-updated-look.html">previously
noted</a> about the recent changes to the M1 metric published by the FRB. Although
this change caused the M1 to balloon, it did not materially impact how it is
use in our proxy assessment for the money multiplier. The money multiplier, as
you may remember, is an estimate in relation as to how fast the money is moving
and being created in an economy. <o:p></o:p></p>
<p class="MsoNoSpacing">The more money moves, the more money is being multiplied –
which means more of it is created. This ultimately puts pressure in inflation,
which impacts all markets. The reverse is also true: a slowing down of the
multiplier means money creation is slowing. In a debt-ridden market that we are
currently witnessing, a slowing down of the money multiplier is not
particularly sanguine.</p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing">Based on the M1 <a href="https://www.federalreserve.gov/releases/h6/current/default.htm">reported</a>
by the FRB yesterday, the overall money multiplier declined month-over-month, and
the trend appears to be solidifying. That said, the Biden Administration
continues its spending spree, as there is <a href="https://www.usatoday.com/story/money/2021/04/28/stimulus-check-update-2021-fourth-covid-relief-payment-biden-speech/7340086002/">talk</a>
that more “stimy” money may make its way into the market. This should be read somewhat
bullish by those who believe that the economy is improving.</p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing">But make no mistake, this economy is being propped up by government
money. Any growth seen is fictions. The money multiplier, while slowing and
giving an ominous warning sign, will not be received by the market in the
manner that it should. As it is common to bubbles, they do crazy things that
extend beyond reason or logic.</p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing">As you can see for yourself, the money multiplier trend
is down. </p><p class="MsoNoSpacing"><o:p></o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhtOUHXa23CWDpo52MuBdEs0TtdvMsWUT5aXRP-CQsZgBwwVl9GICrHsPC5IoFjjuyPIgPA6OtB2sDKQPrSYEGPKNWz-pflIiKZ8ZrPRgnuQyEfvyH5o241t3dv1HiCpK9KrhvxDloSow/" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="" data-original-height="449" data-original-width="980" height="302" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhtOUHXa23CWDpo52MuBdEs0TtdvMsWUT5aXRP-CQsZgBwwVl9GICrHsPC5IoFjjuyPIgPA6OtB2sDKQPrSYEGPKNWz-pflIiKZ8ZrPRgnuQyEfvyH5o241t3dv1HiCpK9KrhvxDloSow/w658-h302/image.png" width="658" /></a></div><br /><br /><p></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0tag:blogger.com,1999:blog-1220149908661001505.post-62418386542398387052021-04-27T17:52:00.000-04:002021-04-27T17:52:26.007-04:00How to Lie with Statistics - Part 6: The One-Dimensional Picture<p class="MsoNoSpacing">Continuing with my previous <a href="https://uncommoninsight.blogspot.com/2021/04/how-to-lie-with-statistics-part-5-gee.html" target="_blank">post</a>, here I summarize
Chapter 5 of the book How to Lie with Statistics. This chapter is titled, The
One-Dimensional Picture.<o:p></o:p></p>
<p class="MsoNoSpacing">The deceptive practice described in this chapter can be
succinctly summarized as follows: The danger of “varying the size of the
objects in a chart.” What this means in practice is that – depending on what
the aspirant is aiming to accomplish – he is trying to show a disproportionate
picture to give an impression that may not necessarily be accurate.</p><p class="MsoNoSpacing"><o:p></o:p></p>
<p class="MsoNoSpacing">For example, take a graph that may represent yearly car
sale, put on that graph a large car to represent a high car sales and a small
car for low car sales. Simply eye-balling the large and small car picture will
leave you thinking exactly what the author intends – the author will simply
point to the picture to show you how right he is. In other words, size
proportions of picture charts matter as much as the metric being reported (e.g.
average, etc.)</p><p class="MsoNoSpacing"><o:p></o:p></p>Cesar Garciahttp://www.blogger.com/profile/09081487214783677239noreply@blogger.com0