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The Financial Crisis ended in late 2011 (October)
Topic Started: 27 Dec 2013, 09:29 AM (3,441 Views)
HardTruths
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peter fraser
27 Dec 2013, 10:22 AM
Interest rates are always set by the fed, so they are not artificially low, they are at the fed setting.

I will pay the margin loan point though. Margin loans worry me, they put the market at risk from a margin call en masse if there was a price correction.
It is irrelevant if the central bank sets rates. There are assumptions baked into the financial system that break when interest rates spend long periods below 4%. You might argue that those are stupid assumptions to have made, but they were based on a two century reverting mean, and if interest rates do not return to their historic long term mean, other parts of the financial system will begin to break, requiring a structural change, which historically have been rather messy and chaotic.

As long as rates stay low, margin debt will increase and stock prices will continue to rise. However, those with access to ever increasing margin debt will decrease, making the stock market more and more shallow/illiquid. If rates rise, margin debt will decrease, and stocks will be sold to cover. So in essence, rates cannot rise, so institutions who have underwritten capital and income guarantee products will come under stress as their hedging and transaction costs increasingly swallow their profit margins.

The good news in this article for people whose living depend on ever increasing indebtedness is that the market's perception of the financial crisis changed, not that the financial crisis is over.
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goldbug
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peter fraser
27 Dec 2013, 10:22 AM
Interest rates are always set by the fed, so they are not artificially low, they are at the fed setting.
And if they "high" you would be screaming like a stuck pig that they were artificially high and that they would soon correct to normal levels.

You're a debt peddler peter, you have a vested interest in rates going ever lower. You will have your wish for a short time, then you will wish the Australian property market had never seen modern financial innovation.

Lots of homes have sold in the US this past year but the majority were cash sales. No loans = No loan brokers.

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USA: 60 percent of homes sold in 2013 went to all cash buyers
August 16, 2013

There was an odd sort of myth floating around the market that the cash buyer crowd was somehow a tiny portion of the market, like a drop of water in the vast ocean of home buying. This delusional dream played into the fantasy that this housing market was naturally rising because of overall household demand when in reality, it is being driven by investors leveraging the artificial low rates created by the Fed. The flood of money from Wall Street has been large. Even anecdotally, it was apparent that cash buyers were driving the market given that housing is a margin driven market. That is, at any given time only a small portion of all homes are on the market for sale. However, an analysis by non-other than Goldman Sachs shows that 60 percent of all 2013 home sales are being driven by cash buyers. That is, the middle class is largely being pushed out of this game and has become the minority in this real estate market.
http://www.maxkeiser.com/2013/08/60-percent-of-homes-cash-buyers/
Shadow was hopelessly wrong about the Gold Bull Market.
What else is he wrong about?
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peter fraser
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goldbug
27 Dec 2013, 12:50 PM
Interest rates are always set by the fed, so they are not artificially low, they are at the fed setting.
And if they "high" you would be screaming like a stuck pig that they were artificially high and that they would soon correct to normal levels.

You're a debt peddler peter, you have a vested interest in rates going ever lower. You will have your wish for a short time, then you will wish the Australian property market had never seen modern financial innovation.

Lots of homes have sold in the US this past year but the majority were cash sales. No loans = No loan brokers.

goldbug that's just a massive strawman - I assume because you don't have anything constructive to say.
HardTruths
27 Dec 2013, 12:10 PM
peter fraser
27 Dec 2013, 10:22 AM
Interest rates are always set by the fed, so they are not artificially low, they are at the fed setting.

I will pay the margin loan point though. Margin loans worry me, they put the market at risk from a margin call en masse if there was a price correction.
It is irrelevant if the central bank sets rates. There are assumptions baked into the financial system that break when interest rates spend long periods below 4%. You might argue that those are stupid assumptions to have made, but they were based on a two century reverting mean, and if interest rates do not return to their historic long term mean, other parts of the financial system will begin to break, requiring a structural change, which historically have been rather messy and chaotic.

As long as rates stay low, margin debt will increase and stock prices will continue to rise. However, those with access to ever increasing margin debt will decrease, making the stock market more and more shallow/illiquid. If rates rise, margin debt will decrease, and stocks will be sold to cover. So in essence, rates cannot rise, so institutions who have underwritten capital and income guarantee products will come under stress as their hedging and transaction costs increasingly swallow their profit margins.

The good news in this article for people whose living depend on ever increasing indebtedness is that the market's perception of the financial crisis changed, not that the financial crisis is over.
You seem to think that the market sets the rates that the government will pay on their bonds - it doesn't - the central banks do that.

Perhaps you are thinking of non-currency issuers like Spain and Greece.

Edited by peter fraser, 27 Dec 2013, 01:25 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
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HardTruths
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peter fraser
27 Dec 2013, 01:21 PM
You seem to think that the market sets the rates that the government will pay on their bonds - it doesn't - the central banks do that.
You seem to think that the market will always buy the government's bonds. It doesn't, and when it doesn't the central bank is then forced to purchase all of the governments bonds, giving the government an unlimited license to print money, which starts a sell off in all assets denominated in the issued currency, which causes the exchange rate to collapse (or visa versa). For a country like the US, which runs a trade deficit of almost 4% of GDP, that would be highly inflationary, and disastrous for it's mercantile trading partners.

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Perhaps you are thinking of non-currency issuers like Spain and Greece.

Perhaps you don't really know what you are talking about.
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peter fraser
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HardTruths
27 Dec 2013, 11:44 PM
You seem to think that the market will always buy the government's bonds. It doesn't, and when it doesn't the central bank is then forced to purchase all of the governments bonds, giving the government an unlimited license to print money, which starts a sell off in all assets denominated in the issued currency, which causes the exchange rate to collapse (or visa versa). For a country like the US, which runs a trade deficit of almost 4% of GDP, that would be highly inflationary, and disastrous for it's mercantile trading partners.
That's what all the gold bugs said, and they were all wrong. A logical assumption though, it's what I expected initially as well. The USA is different to Australia as the USD is the dominant reserve currency. OTOH we are different to counties in the Eurozone who use the Euro as their common currency.

The different scenarios produce different results. And then of course there is Zimbabwe, which I'm sure you will bring up next, so lets get it done with.

Quote:
 
Perhaps you don't really know what you are talking about.


Perhaps.
Edited by peter fraser, 27 Dec 2013, 11:58 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
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HardTruths
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peter fraser
27 Dec 2013, 11:57 PM
That's what all the gold bugs said, and they were all wrong. A logical assumption though, it's what I expected initially as well.
So it's all over now is it? QE has come to an end already? Sorry, I must have missed that news.
Quote:
 
The USA is different to Australia as the USD is the dominant reserve currency.
Being the dominant reserve currency won't change the outcome, only who it effects. Countries with large dollar reserves have been experiencing high inflation as the dollar's purchasing power in agricultural commodities has declined.
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OTOH we are different to counties in the Eurozone who use the Euro as their common currency.
Because issuing currency and issuing currency denominated government bonds is completely different right?
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Poontang
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peter fraser
27 Dec 2013, 11:57 PM
That's what all the gold bugs said, and they were all wrong. A logical assumption though, it's what I expected initially as well. The USA is different to Australia as the USD is the dominant reserve currency. OTOH we are different to counties in the Eurozone who use the Euro as their common currency.

The different scenarios produce different results. And then of course there is Zimbabwe, which I'm sure you will bring up next, so lets get it done with.




Perhaps.
Quote:
 
That's what all the gold bugs said, and they were all wrong.
So far...

It is slowly happening though, China and other countries are buying less and less US Bonds. China is also reducing its holdings of US treasuries by selling them off and buying gold.

The USD is also losing its place as the middle man between international trade deals as well and more and more countries are dealing direct with their own respective currencies rather than trade in USD.


There are some people who seem angry and continuously look for conflict.
Walk away, the battle they are fighting isn't with you, it's with themselves.

The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it.
The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.

Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
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Strindberg
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Poontang
28 Dec 2013, 12:36 PM

China is also reducing its holdings of US treasuries by selling them off and buying gold.
You'll continue to lose on your investments if you continue to believe made up doomer shit like that.

Which doomer site for internet suckers did you get that off?

China is increasing, not reducing, its holdings of US treasuries. Their holdings are up 11.5% (ie up US$134.6 Billion) from Oct 2012 to Oct 2013 (latest available).

Posted Image
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

China thinks so little of gold that gold forms a tiny 1.3% of its reserves. China obviously has greater faith in US treasuries than it has in gold.
Edited by Strindberg, 28 Dec 2013, 01:53 PM.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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skamy
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HardTruths
27 Dec 2013, 10:20 AM
Posted Image
Yes, 2011 is when margin debt began to climb again. When interest rates are kept artificially low, banks and insurance companies are forced to sell fixed income products and seek out returns in stock markets. There are trillions of dollars worth of financial products with capital or income guarantees, written by large financial institutions whose long term liabilities were priced under the assumption of a long term interest rate mean of a 5%.

When rates are kept artificially low by the central bank, these institutions borrow in short term money markets or take on margin debt to purchase stocks. As soon as the interest rate returns to the long term mean of 5%, these institutions will need to sell stocks to cover their borrowings and the stock market will return to a P/E ratio that more closely resembles the risk weighted returns over treasury bills (between 7-9%), which would represent a drop of around 40-50%.

Posted Image
So you don't think any of these companies might have put the borrowed money to good use and managed to increase their returns then?

Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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Poontang
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Strindberg
28 Dec 2013, 01:51 PM


China thinks so little of gold that gold forms a tiny 1.3% of its reserves. China obviously has greater faith in US treasuries than it has in gold.
Yes, you are right, they hate the stuff.... They can not seem to get rid of the stuff quick enough it seems...

http://www.mineweb.com/mineweb/content/en/mineweb-gold-news?oid=197040&sn=Detail


Quote:
 
With net gold imports through Hong Kong again exceeding 100 tonnes in May, China looks like heading to absorb over 50% of global gold output this year - and rising.


Quote:
 
Figures for net Chinese gold imports through Hong Kong in May have now been released, and, while they did not quite come up to the record level seen in March at 136 tonnes, at 108.8 tonnes they were still the second highest total on record, and comfortably in advance of April’s 80 tonnes.

Thus China will certainly become the world’s No. 1 gold consumer this year – if indeed it was not already. (China is not forthcoming with its overall consumption statistics). So far net imports through Hong Kong for the first five months of the year have totalled over 413 tonnes – double those of a year earlier when China imported just over 830 tonnes in the full year


Quote:
 
Chia’s own gold production from its mines and as a byproduct from its smelting and refining sector exceeded 400 tonnes last year and is heading to between 420-450 tonnes by 2015 according to official estimates. This suggests Chinese gold imports plus its domestic production will, this year, account for comfortably over 50% of global new mined gold output, which is currently estimated at around 2,700 tonnes annually.


Increasingly gold trading will move from exchanges like COMEX to Shanghai and Hong Kong. COMEX may become an effective irrelevance in the gold market dealing only in ‘paper’ gold (which it effectively is already) and the physical gold price momentum will move to the east. Currently it is COMEX which is setting the global gold price. In the future it will be Shanghai if the current trend continues – and then it will be a wholly different ballgame!





Save this thread and we will look at it at the end of 2016 ;)
There are some people who seem angry and continuously look for conflict.
Walk away, the battle they are fighting isn't with you, it's with themselves.

The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it.
The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.

Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
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