Anecdotally I can attest that my boomer relatives have been treating their "new" interest income as fun money. Powell will find himself pulling that money dollar for dollar out of the economy to "prop up the labor market".
And what I've heard less about of late is the windfall of silent Gen and oldest boomer inheritances to their later in life (and already financially secure children). Purchases with this money may be few, but I see them skewing LARGE.
I truly hope my response to your prior post did not come across as disrespectful; I was really just playing devil's advocate. Like many of the respondents, I might have been guilty of initially missing one of the core theses (I think...) that choosing to believe in the lesser evil is not a delusion making that lesser evil become comparatively virtuous. However, there seems an implicit axiom behind the post that voting for neither party isn't an option. Why so?
But then again, most of us don't live in swing states and even those that do, don't *really* matter in a close-call where gerrymandering makes the electoral votes be what matter over the popular anyway and where the counting/recounting mechanisms of the popular remain comically archaic. IDK man... I truly hope yours and RFKJ's choice to believe works out well for society, I just kinda think that realistically we're all gonna be dissapointed again no matter what.
The reversal is the condition that lead to $JEPI being created. I also can never understand why the 10 year par call protection with individual Municipal Bonds, given the taxable equivalent yield, are not more promoted.
"But the marxist-ish policies of Kamala's team I think scare me more at the moment."
As if, any "Marxist-ish" policies would have a chance of getting thru, say, the US senate. This is simply more fear-mongering. Toss in Marx, and you've got a boogeyman.
Happy Labor Day, Mike. Will you please try to help me understand something related to this Substack note?
From my understanding, most of financial benchmark rates correspond to nominal yields ranging from the 5- to 10-year UST notes. It is in these middle-term maturities where influence from Fed interest rate policy becomes less influential on nominal yields compared to those of shorter-term maturities.
Nominal yields for middle- and long-term UST securities have been quite low by historical standards for these many years since the Global Monetary Crisis (GMC) of 2007-2008; this is a reflection of flights to perceived safety and liquidity to holding those securities by market participants due to lower growth and inflation expectations.
So far, none of the above negates anything you have written in your Substack note.
The Fed is not meaningfully relevant to the real economy outside a few narrow sectors of the economy, and even then the Fed's impact can be exaggerated (e.g., mortgage interest rates). In your note, you are highlighting some of those sectors in the economy where the Fed has relevance (e.g., auto loans for young adults). Available and affordable independent means of transportation, though a narrow sector of the economy, enable a large demographic to participate in the economy.
But whatever hindrance for financing is exacerbated by the Fed's interest rate policy is not as meaningful as the obstacles created by the money dealers (e.g., global dealer banks) devoting so much of their balance sheet capacities to holding perceived safe and liquid assets, and who make credit available to only the safest potential borrowers, rather than small- and medium-sized firms (i.e., protracted bank non-neutrality harming economic potential, characteristic of depressionary economics). If there were greater nominal opportunities in the real economy such that financing costs could be overcome by perceived risk-adjusted returns, then that financing would be seen as an opportunity rather than a problem. For example, more young adults could be less at risk of being delinquent on their auto loans if they participated in an economy that enabled them to have sufficient price-adjusted incomes. Instead, we have this post-GMC economy (or as you pointed out before, this economic growth problem traces back to the beginning of the 2000s).
So why even talk about the Fed given these more systemic problems, where the Fed is irrelevant? (that's not to say that you haven't discussed these deeper problems before)
I agree with many of your observations. Given a choice, I would never talk about the Fed because it’s absurdly overblown in its perceived power and omniscience.
BUT there are times when it does indeed matter, although not for the reasons it believes. Powell has made a catastrophic error that echoes those of his “hero” Volcker. I write about it in the hope that we can avoid these mistakes in the future.
Thank you, Mike. That makes sense to me. I appreciate your ongoing efforts to both illuminate and teach, to help us listeners make better sense of the world with respect to the topics you engage. It's the main reason why I subscribe to you. 🙂
Before the aggressive rate hikes our country was politically divided. Afterwards, the political division remains, and we now find ourselves the most financially divided we have ever been. As you say, Powell does look to be in a double bind and all the while our government can’t (actually) afford the cost of their debt. Reminds me of the IOU scene in the movie dumb and dumber. I appreciated your post last week although I didn’t get around to saying it. The hardest (and important) thing to do is stand somewhere in the middle and make an assessment when many are compelled to pick a side.
"With US bonds near the lowest allocations versus equities in decades, my bias is “bonds higher, equities lower” "
............Mike, are you in the camp that believes US Treasury supply levels doesn't effect bond yields? Appears you believe inflation will be falling in the near future to Feds target or below, and then staying down longer term?
I’m targeting the next Fed meeting as the catalyst for the typical seasonal downturn, leading to a low between mid October and the election. Narrative will follow price of course, and I expect a sell-the-news event regardless of number of cuts.
I have one November SPY put now and will add one more in 2 weeks, with plans to sell both in mid October with a month duration left.
I’m long as ever precious metals and Uranium mining stocks, and those puts will offset losses a bit in a major downturn and should make money in a typical seasonal move. I added a decent amount in the last big drops for gold miners and then for Uranium miners, so if the market strength resumes I figure my mining stocks are likely to follow and the short-term seasonal protection will have been cheap.
It’s fun to strategize this stuff. As a longtime retail investor, I can tell you it feels good to have an outlet where I can make my own decisions and be in the driver’s seat for a bit, especially when I’m firmly in the back seat at work. It also offers hope of breaking out in a way that seems impossible in a typical go-nowhere job.
Anyway, I appreciate your views on the markets and Fed and such. My 401k sits in bonds waiting for this Fed cut cycle to get going, and when it ultimately does I’m thinking of looking for something that’s long India to set it in. As their use of a 401k-style vehicle increases and their job market grows, their stocks are likely to get stupid expensive over the years just like US stocks did after the mid 1980’s.
I fear the same fed will be too slow to cut. But the language change from fed at Jh has been quite substantial. On your point of high income, it's still not late too pickup long dated IG us corp bonds .
But does it all matter? Are Green and Kao just good brain tickles and a nice diversion but really are not important to our investment process? After all the markets will accept the stats pretty much as is.
I’ve been following both for some time and can say they have both broadened my framework and through those framework adjustments I’ve made specific investment changes that have improved the overall quality of the portfolio.
Yes. Powell overdid it big time and most ppl missed it due to the same thing that fooled Powell - the lags (data and MP transmission). He should have stopped at or around 2% in 2022, but he decided to overdo it on purpose just to make sure for inflation expectations not to go up. With 2% rates expectations wouldn't had gone up anyway bc it's not about expectations (it wasn't about expectations in the 1970s either, but about M2 and the latter fell over the past 2 yrs and it would had fallen even with 2% rates and QT). By going too far he effectively eliminated any possibility for a soft landing, sth many ppl are still banking on (bc "look at the GDP and IJC!", never mind the fact that both of these indicators at current levels are not a no-recession guarantee, also never mind the MP lags, the ISMs, UR, retail sales... and so on and so forth). It's all about the general narrative (that is about as reliable as grandma's tooth). History repeats...
Anecdotally I can attest that my boomer relatives have been treating their "new" interest income as fun money. Powell will find himself pulling that money dollar for dollar out of the economy to "prop up the labor market".
And what I've heard less about of late is the windfall of silent Gen and oldest boomer inheritances to their later in life (and already financially secure children). Purchases with this money may be few, but I see them skewing LARGE.
I truly hope my response to your prior post did not come across as disrespectful; I was really just playing devil's advocate. Like many of the respondents, I might have been guilty of initially missing one of the core theses (I think...) that choosing to believe in the lesser evil is not a delusion making that lesser evil become comparatively virtuous. However, there seems an implicit axiom behind the post that voting for neither party isn't an option. Why so?
But then again, most of us don't live in swing states and even those that do, don't *really* matter in a close-call where gerrymandering makes the electoral votes be what matter over the popular anyway and where the counting/recounting mechanisms of the popular remain comically archaic. IDK man... I truly hope yours and RFKJ's choice to believe works out well for society, I just kinda think that realistically we're all gonna be dissapointed again no matter what.
The reversal is the condition that lead to $JEPI being created. I also can never understand why the 10 year par call protection with individual Municipal Bonds, given the taxable equivalent yield, are not more promoted.
"But the marxist-ish policies of Kamala's team I think scare me more at the moment."
As if, any "Marxist-ish" policies would have a chance of getting thru, say, the US senate. This is simply more fear-mongering. Toss in Marx, and you've got a boogeyman.
Speaking of turning world views, antiquated and ascending, you and readers will appreciate this link on Inelastic Market Hypothesis
https://open.substack.com/pub/bouchaud/p/fama-the-word-bubble-drives-me-nuts?r=1z5qli&utm_medium=ios
I tend to agree with Michael Kao but appreciate that you both lay out compelling cases. Maybe a debate?
Happy Labor Day, Mike. Will you please try to help me understand something related to this Substack note?
From my understanding, most of financial benchmark rates correspond to nominal yields ranging from the 5- to 10-year UST notes. It is in these middle-term maturities where influence from Fed interest rate policy becomes less influential on nominal yields compared to those of shorter-term maturities.
Nominal yields for middle- and long-term UST securities have been quite low by historical standards for these many years since the Global Monetary Crisis (GMC) of 2007-2008; this is a reflection of flights to perceived safety and liquidity to holding those securities by market participants due to lower growth and inflation expectations.
So far, none of the above negates anything you have written in your Substack note.
The Fed is not meaningfully relevant to the real economy outside a few narrow sectors of the economy, and even then the Fed's impact can be exaggerated (e.g., mortgage interest rates). In your note, you are highlighting some of those sectors in the economy where the Fed has relevance (e.g., auto loans for young adults). Available and affordable independent means of transportation, though a narrow sector of the economy, enable a large demographic to participate in the economy.
But whatever hindrance for financing is exacerbated by the Fed's interest rate policy is not as meaningful as the obstacles created by the money dealers (e.g., global dealer banks) devoting so much of their balance sheet capacities to holding perceived safe and liquid assets, and who make credit available to only the safest potential borrowers, rather than small- and medium-sized firms (i.e., protracted bank non-neutrality harming economic potential, characteristic of depressionary economics). If there were greater nominal opportunities in the real economy such that financing costs could be overcome by perceived risk-adjusted returns, then that financing would be seen as an opportunity rather than a problem. For example, more young adults could be less at risk of being delinquent on their auto loans if they participated in an economy that enabled them to have sufficient price-adjusted incomes. Instead, we have this post-GMC economy (or as you pointed out before, this economic growth problem traces back to the beginning of the 2000s).
So why even talk about the Fed given these more systemic problems, where the Fed is irrelevant? (that's not to say that you haven't discussed these deeper problems before)
Am I not understanding something?
Thanks in advance.
I agree with many of your observations. Given a choice, I would never talk about the Fed because it’s absurdly overblown in its perceived power and omniscience.
BUT there are times when it does indeed matter, although not for the reasons it believes. Powell has made a catastrophic error that echoes those of his “hero” Volcker. I write about it in the hope that we can avoid these mistakes in the future.
Thank you, Mike. That makes sense to me. I appreciate your ongoing efforts to both illuminate and teach, to help us listeners make better sense of the world with respect to the topics you engage. It's the main reason why I subscribe to you. 🙂
Before the aggressive rate hikes our country was politically divided. Afterwards, the political division remains, and we now find ourselves the most financially divided we have ever been. As you say, Powell does look to be in a double bind and all the while our government can’t (actually) afford the cost of their debt. Reminds me of the IOU scene in the movie dumb and dumber. I appreciated your post last week although I didn’t get around to saying it. The hardest (and important) thing to do is stand somewhere in the middle and make an assessment when many are compelled to pick a side.
"With US bonds near the lowest allocations versus equities in decades, my bias is “bonds higher, equities lower” "
............Mike, are you in the camp that believes US Treasury supply levels doesn't effect bond yields? Appears you believe inflation will be falling in the near future to Feds target or below, and then staying down longer term?
I’m targeting the next Fed meeting as the catalyst for the typical seasonal downturn, leading to a low between mid October and the election. Narrative will follow price of course, and I expect a sell-the-news event regardless of number of cuts.
I have one November SPY put now and will add one more in 2 weeks, with plans to sell both in mid October with a month duration left.
I’m long as ever precious metals and Uranium mining stocks, and those puts will offset losses a bit in a major downturn and should make money in a typical seasonal move. I added a decent amount in the last big drops for gold miners and then for Uranium miners, so if the market strength resumes I figure my mining stocks are likely to follow and the short-term seasonal protection will have been cheap.
It’s fun to strategize this stuff. As a longtime retail investor, I can tell you it feels good to have an outlet where I can make my own decisions and be in the driver’s seat for a bit, especially when I’m firmly in the back seat at work. It also offers hope of breaking out in a way that seems impossible in a typical go-nowhere job.
Anyway, I appreciate your views on the markets and Fed and such. My 401k sits in bonds waiting for this Fed cut cycle to get going, and when it ultimately does I’m thinking of looking for something that’s long India to set it in. As their use of a 401k-style vehicle increases and their job market grows, their stocks are likely to get stupid expensive over the years just like US stocks did after the mid 1980’s.
I fear the same fed will be too slow to cut. But the language change from fed at Jh has been quite substantial. On your point of high income, it's still not late too pickup long dated IG us corp bonds .
But does it all matter? Are Green and Kao just good brain tickles and a nice diversion but really are not important to our investment process? After all the markets will accept the stats pretty much as is.
I’ve been following both for some time and can say they have both broadened my framework and through those framework adjustments I’ve made specific investment changes that have improved the overall quality of the portfolio.
Yes. Powell overdid it big time and most ppl missed it due to the same thing that fooled Powell - the lags (data and MP transmission). He should have stopped at or around 2% in 2022, but he decided to overdo it on purpose just to make sure for inflation expectations not to go up. With 2% rates expectations wouldn't had gone up anyway bc it's not about expectations (it wasn't about expectations in the 1970s either, but about M2 and the latter fell over the past 2 yrs and it would had fallen even with 2% rates and QT). By going too far he effectively eliminated any possibility for a soft landing, sth many ppl are still banking on (bc "look at the GDP and IJC!", never mind the fact that both of these indicators at current levels are not a no-recession guarantee, also never mind the MP lags, the ISMs, UR, retail sales... and so on and so forth). It's all about the general narrative (that is about as reliable as grandma's tooth). History repeats...