ET Inflation Hawks . . .

Does anyone know anything about the nuts and bolts of that index? (I don't) I'm curious- does it actually trade as a physical contract or is it more or less a lagging indicator?

Because intuitively, you'd expect well heeled global Market players in various industry to have shipping contracts running 12-36 months down the line, not instantaneous fill or kill orders like the volatility this index is suggesting.
 
As an ET Perma-Hawk, I'll gladly step into the fray and go toe-to-toe with you chicken-neck Doves :)

First, inflation was red hot. Oil at 140$ Gas at 4 bucks. Bread, food, insurance, education, etc . All went up 50 - 200%+.

Prices are still many times where they should be, compared to 2000-levels. We've only now become accustomed to getting raped at the pumps and paying 10K more for a Mustang etc. So now its "deflation". How about a "return to mean"?

Second, if we had raised rates and let the market crash and clean during the run up 2004-2005, TRILLIONS in compounded debt and losses could have been avoided.

You Doves seem to forget the longer rates were kept low (2005 through current), future losses kept piling up -- all the derivatives written on CDO's, corporate debt, sub prime home loans, home equity - all that debt wouldn't have happened.

So now the economy has to eat 3 years of compounded derivative garbage, subprimers and Socialized Banks because the Doves wanted rates low to stave off what would have happened regardless.

It doesn't make sense.

But when you look at in the Austrian way = too much money = over-indebtnesses and mal-investment makes the ensuing crash especially more severe because all that debt forces that many more Companies (and banks) to fail once the mountains of defaulted bubble loans (that could only get paid back under the rosiest of conditions), gets booked as loss.

If rates were kept at reasonable levels and raised when inflation (yes, inflation) and over-investment (re: housing bubble) got hot, we could have saved ourselves a world of hurt.

Yes, that would have met a market crash.

But look where we are. Its crashing regardless.

And now instead of a quick 12-18 months of downturn, we're talking years. Maybe even 4-6 years. And its Global. Because a lot that paper written during the run up got exported overseas.

So who wins when interest rates are kept too low for too long??

Nobody. We lose.

And yes, had we raised in 2004-05 many trillions in losses could have been avoided. And the ensuing recession, much less severe.

So there ya go.

Hit me with your best shot,
 
achilles- excellent post- clearly the Market agrees with you and is following itself back to those price levels that correspond with the timing you mentioned- 04-05.

Any thoughts about paying the piper here?

Is the damage going to be done as inflation courtesy a massive fed pumping and corresponding decline in the value of bonds and the USD?

Or will deflation rear its head in a 1000 different ways?
 
Quote from Landis82:

We must raise interest rates NOW to curb inflation and the rise today in Crude Oil and Gold!!!

We must remain vigilant against INFLATION.

We must RAISE RATES NOW!!!

:D
More...

Lol, ummmm, if the US doesn't raise rates soon and get the dollar stablized, WE ARE HEADED DOWM THE WORST OF PATHS. And like the above poster said, something I post just the other day. NOONE WANTS A CRASH TO HAPPEN SO THEY KEEP PUTTING OFF THE INVITABLE WHICH WILL ONLY HAVE EVEN WORSE CONSEQUENCES.

GREEDY AMERICA, now paying the price. And I love this country, just not the people running it, and about 80% of the population. Dam people think we're entilted to everything, an easy way of life, simply because we're American! What happend to EARNING our lifestyles, homes, etc. ?
 
Quote from psytrade:

achilles- excellent post- clearly the Market agrees with you and is following itself back to those price levels that correspond with the timing you mentioned- 04-05.

Any thoughts about paying the piper here?

Is the damage going to be done as inflation courtesy a massive fed pumping and corresponding decline in the value of bonds and the USD?

Or will deflation rear its head in a 1000 different ways?
More...

I think we're on a long, hard recessionary road.

Recessions are almost always deflationary and this one will be no different.

Although, even Landis, who is well-versed in economics (more a Monetarist Keynesian), agrees this will be a consumer-led recession.

Basically, America - like Japan - took out staggering amounts of real estate debt based on bubble valuations. Now, the country has to pay back that bubble debt with pre-bubble wages.

That means savings goes up, consumption goes way down (to pay for all that RE-related debt), GDP falls off and price deflation follow (as demand falls off). Downward pressure on prices because nobody has money left after their mortgage payments go through...

Regarding how this plays into the bond market. I'm not the guy to talk too. Pabst or Cutten are more experienced.

The bond market always responds differently than I anticipate.

With inflation running hot up to 2005-07, bonds were bid high. I'd expect a drop. Some posters here chalk it up to the safety trade - investors saw the storm and bid up bonds. Makes sense.

Now, I'd expect to see buying as other markets (stocks and commodities) crash from deflationary/recession conditions. But now, bonds are selling off, anticipating inflation?!

Either way, this massive influx of liquidity in trillions (on top of the trillions in M3) does have severe inflationary repercussions once the US economy gets jump started again.

Since the US is 75~% consumption dependent, its up to the consumer to recapitalize their wallets and pay down debt before we can see a return in spending. And that will take years before we see considerable spending activity again.
 
Quote from achilles28:

As an ET Perma-Hawk, I'll gladly step into the fray and go toe-to-toe with you chicken-neck Doves :)

First, inflation was red hot. Oil at 140$ Gas at 4 bucks. Bread, food, insurance, education, etc . All went up 50 - 200%+.

Prices are still many times where they should be, compared to 2000-levels. We've only now become accustomed to getting raped at the pumps and paying 10K more for a Mustang etc. So now its "deflation". How about a "return to mean"?

Second, if we had raised rates and let the market crash and clean during the run up 2004-2005, TRILLIONS in compounded debt and losses could have been avoided.

You Doves seem to forget the longer rates were kept low (2005 through current), future losses kept piling up -- all the derivatives written on CDO's, corporate debt, sub prime home loans, home equity - all that debt wouldn't have happened.

So now the economy has to eat 3 years of compounded derivative garbage, subprimers and Socialized Banks because the Doves wanted rates low to stave off what would have happened regardless.

It doesn't make sense.

But when you look at in the Austrian way = too much money = over-indebtnesses and mal-investment makes the ensuing crash especially more severe because all that debt forces that many more Companies (and banks) to fail once the mountains of defaulted bubble loans (that could only get paid back under the rosiest of conditions), gets booked as loss.

If rates were kept at reasonable levels and raised when inflation (yes, inflation) and over-investment (re: housing bubble) got hot, we could have saved ourselves a world of hurt.

Yes, that would have met a market crash.

But look where we are. Its crashing regardless.

And now instead of a quick 12-18 months of downturn, we're talking years. Maybe even 4-6 years. And its Global. Because a lot that paper written during the run up got exported overseas.

So who wins when interest rates are kept too low for too long??

Nobody. We lose.

And yes, had we raised in 2004-05 many trillions in losses could have been avoided. And the ensuing recession, much less severe.

So there ya go.

Hit me with your best shot,
More...

a really great post...thanks
 
Quote from achilles28:

Although, even Landis, who is well-versed in economics (more a Monetarist Keynesian), agrees this will be a consumer-led recession.

Basically, America - like Japan - took out staggering amounts of real estate debt based on bubble valuations. Now, the country has to pay back that bubble debt with pre-bubble wages.

That means savings goes up, consumption goes way down (to pay for all that RE-related debt), GDP falls off and price deflation follow (as demand falls off). Downward pressure on prices because nobody has money left after their mortgage payments go through...

Regarding how this plays into the bond market. I'm not the guy to talk too. Pabst or Cutten are more experienced.

The bond market always responds differently than I anticipate.

With inflation running hot up to 2005-07, bonds were bid high. I'd expect a drop. Some posters here chalk it up to the safety trade - investors saw the storm and bid up bonds. Makes sense.

Now, I'd expect to see buying as other markets (stocks and commodities) crash from deflationary/recession conditions. But now, bonds are selling off, anticipating inflation?!

Either way, this massive influx of liquidity in trillions (on top of the trillions in M3) does have severe inflationary repercussions once the US economy gets jump started again.

Since the US is 75~% consumption dependent, its up to the consumer to recapitalize their wallets and pay down debt before we can see a return in spending. And that will take years before we see considerable spending activity again.
More...

Agreed.

However, the magnitude of debt and use of leverage in derivative products like the CDS exposure was far too great for the likes of Bernanke and Paulson to grasp and get their hands around. That is why they are so FAR behind the curve . . . They could have gotten out "in-front" of the "freeze" in the banking system a full year ago with liquidity injections like "coupon-passes" instead of these silly little repos that they kept doing. Their "response" to this financial crisis speaks VOLUMES about how clueless and late to the "crime" scene they were.

This alone, tells me that they were totally clueless about the magnitude of the leverage in the system.

In 2004, the leverage ratios were no greater than 15:1

Since then, they easily doubled.
Even with the Mitsubishi investment in Morgan Stanley, the leverage ratio for MS still STILL around 22-24 times.

And the FED decided to take the "slow" behind-the-curve approach because of commodity inflation worries.

Out to lunch, as usual.
 
Quote from Landis82:

Agreed.

However, the magnitude of debt and use of leverage in derivative products like the CDS exposure was far too great for the likes of Bernanke and Paulson to grasp and get their hands around. That is why they are so FAR behind the curve . . . They could have gotten out "in-front" of the "freeze" in the banking system a full year ago with liquidity injections like "coupon-passes" instead of these silly little repos that they kept doing. Their "response" to this financial crisis speaks VOLUMES about how clueless and late to the "crime" scene they were.

This alone, tells me that they were totally clueless about the magnitude of the leverage in the system.

In 2004, the leverage ratios were no greater than 15:1

Since then, they easily doubled.
Even with the Mitsubishi investment in Morgan Stanley, the leverage ratio for MS still STILL around 22-24 times.

And the FED decided to take the "slow" behind-the-curve approach because of commodity inflation worries.

Out to lunch, as usual.
More...

Good points.

Its amazing Institutions could get leveraged that high 15 to 1. 30 to 1. Insane.

Portfolio drops 5% and they're technically insolvent....

Lehman, perfect example.
 
You must log in or register to reply here.
Back
Top