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WTF is QE?; Does Stimulus Stimulate?
Topic Started: 4 Sep 2015, 07:28 AM (7,635 Views)
Andrew Judd
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Loki
13 Sep 2015, 08:11 PM
In this I agree with you. I think we will see the Fed lose control of rates if they don't hike the funds rate this year. If they DO hike the funds rate this year,I am fairly confident we will see a collapse of asset bubbles everywhere, but particularly the US stock markets.

If you look at the junk bond market, particular energy (shale oil and gas mostly), I would say that the Fed has already lost control of rates, as the market realises that the Fed cannot control the price of oil, so the funds rate and QE are now irrelevant to HY credit.


What do you mean by "credible manner"?
I assume you are looking at rising yields for shale oil and gas. That sector has surely be hammered by the collapse in the oil price. Bankrupticies will happen and the sector will consolidate.

You are then suggesting the reason for the rising yeilds is somehow a fed failing and they must lack credibility.

Whereas I am still believing the market still shows they still think what the Fed is doing is credible.

If the fed does raise rates there will be some winners and some losers and the fed will be wanting to reduce risk taking and we know that for years to come (if the fed remains credible) rates are going to be very very low. For the fed to remain credible there is a limit to how far they can stimulate before they act to slow that down. If you look at many indicators today like rising house prices or record hotel occupation and so forth it is hard to see how you can still justify such super low rates when if rates rise say 1% they will still be at a super low rate. I am not expecting a rate rise next week.
Edited by Andrew Judd, 13 Sep 2015, 08:31 PM.
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Loki
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Andrew Judd
13 Sep 2015, 08:25 PM
I assume you are looking at rising yields for shale oil and gas. That sector has surely be hammered by the collapse in the oil price. Bankrupticies will happen and the sector will consolidate.
And the debt will evaporate like a magical unicorn and the sky will rain Hershey's bars.
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You are then suggesting the reason for the rising yeilds is somehow a fed failing and they must lack credibility.
Yes, junk bond rates are rising because the market no longer believes that an infinite amount of risk is risk free.
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Whereas I am still believing the market still shows they still think what the Fed is doing is credible.
I have no idea why.
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If the fed does raise rates there will be some winners and some losers and the fed will be wanting to reduce risk taking and we know that for years to come (if the fed remains credible) rates are going to be very very low. For the fed to remain credible there is a limit to how far they can stimulate before they act to slow that down. If you look at many indicators today like rising house prices or record hotel occupation and so forth it is hard to see how you can still justify such super low rates when if rates rise say 1% they will still be at a super low rate. .
I think you may not understand how capital markets work.
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I am not expecting a rate rise next week
I still give it 50/50. If they do not, China, Japan and Korea will have to ease again. Either way, prepare for more volatility.


“Talk sense to a fool and he calls you foolish.” - Euripides
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Andrew Judd
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Loki
13 Sep 2015, 09:10 PM
And the debt will evaporate like a magical unicorn and the sky will rain Hershey's bars.

Yes, junk bond rates are rising because the market no longer believes that an infinite amount of risk is risk free.

I have no idea why.

I think you may not understand how capital markets work.

I still give it 50/50. If they do not, China, Japan and Korea will have to ease again. Either way, prepare for more volatility.
I know you understand why rates will rise on companies potentially facing bankruptcy because of a collapsing oil price.

Why do you think that is a responsibility of the Fed?

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Loki
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Andrew Judd
13 Sep 2015, 09:18 PM
I know you understand why rates will rise on companies potentially facing bankruptcy because of a collapsing oil price.

Why do you think that is a responsibility of the Fed?
Nothing is the responsibility of the Fed. Interest rates are the cost of borrowing plus a risk premium. If the risk premium rises faster than the cost of borrowing falls, the central bank loses control of interest rates.

Do you understand what will happen when large numbers of shale oil companies default?


“Talk sense to a fool and he calls you foolish.” - Euripides
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Andrew Judd
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Loki
13 Sep 2015, 09:36 PM
Nothing is the responsibility of the Fed. Interest rates are the cost of borrowing plus a risk premium. If the risk premium rises faster than the cost of borrowing falls, the central bank loses control of interest rates.

Do you understand what will happen when large numbers of shale oil companies default?
So are you making a point about junk bonds or shale oil risks?

I am not sure where we are going with this. We seem to be going in circles

Back to an earlier point you made,

>>Yes, junk bond rates are rising because the market no longer believes that an infinite amount of risk is risk free

the market cannot ever have thought there was an infinite amount of risk that was risk free. All that has happened is that people have been obliged to move into more risky assets, where interest rates for higher risk are lower than they would otherwise be..

Fundamentally I cannot follow you and your snarky style is certainly not helping. Just talk straight please and avoid that kind of thing and it will be easier to understand what you are getting at
Edited by Andrew Judd, 13 Sep 2015, 10:24 PM.
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Loki
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Andrew Judd
13 Sep 2015, 10:21 PM
Just talk straight please and avoid that kind of thing and it will be easier to understand what you are getting at
Is it easier if I use caps?

INTEREST RATES ARE THE COST OF BORROWING PLUS A RISK PREMIUM. IF THE RISK PREMIUM RISES FASTER THAN THE COST OF BORROWING FALLS, THE CENTRAL BANK LOSES CONTROL OF INTEREST RATES.

Not exactly sure what was snarky about the above sentence, if you give it to me straight, I will try and moderate my communication with you.


“Talk sense to a fool and he calls you foolish.” - Euripides
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Andrew Judd
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Loki
13 Sep 2015, 11:31 PM
Is it easier if I use caps?

INTEREST RATES ARE THE COST OF BORROWING PLUS A RISK PREMIUM. IF THE RISK PREMIUM RISES FASTER THAN THE COST OF BORROWING FALLS, THE CENTRAL BANK LOSES CONTROL OF INTEREST RATES.

Not exactly sure what was snarky about the above sentence, if you give it to me straight, I will try and moderate my communication with you.


regardless of whatever a central bank does to conduct monetary policy it does not expect to be in control of the entire economy

You seem to be thinking that the difficulties of one industry show that a central bank is losing control. Meanwhile while we are at it, the circumstances of a falling oil price are effectively already another fall in interest rates or taxes.

I get the impression that no matter what happens you see doom.
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Loki
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Andrew Judd
14 Sep 2015, 12:02 AM


regardless of whatever a central bank does to conduct monetary policy it does not expect to be in control of the entire economy

You seem to be thinking that the difficulties of one industry show that a central bank is losing control. Meanwhile while we are at it, the circumstances of a falling oil price are effectively already another fall in interest rates or taxes.

I get the impression that no matter what happens you see doom.
Posted Image

No. words. left.


“Talk sense to a fool and he calls you foolish.” - Euripides
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Andrew Judd
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Loki
14 Sep 2015, 01:13 AM
Posted Image

No. words. left.
Just more baby stuff?
Edited by Andrew Judd, 14 Sep 2015, 01:19 AM.
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economist
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Loki
13 Sep 2015, 11:31 PM
Is it easier if I use caps?

INTEREST RATES ARE THE COST OF BORROWING PLUS A RISK PREMIUM. IF THE RISK PREMIUM RISES FASTER THAN THE COST OF BORROWING FALLS, THE CENTRAL BANK LOSES CONTROL OF INTEREST RATES.

Not exactly sure what was snarky about the above sentence, if you give it to me straight, I will try and moderate my communication with you.
How does this fit with NIRP?
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