Quantitative easing and the disinsentive to hire in the US.
MGLICKER
Posts: 7,995 ✭✭✭
Corporate entities in the SP500 have performed mostly in dazzling fashion, with C level execs and their shareholders rolling in profitable stock options and share appreciation.
Now let us say that General Electric or Caterpillar see a need to hire additional staff. Multiply that if you will, by all the SP500 firms.
Hiring say 100,000 new American workers a month would in 15 months add 1% to the domestic labor force. Added to the 200,000 current monthly new jobs created, we would jump to 300,000 per month which would no doubt cause a bottom up rise in interest rates. A rise that at the least would tamp down stock prices. At worst 20% or more could be whacked off the Dow Jones 30.
Economically wiser I would think to forgo the expansion, or more likely continue to head overseas to grow.
The annual meetings of the movers and shakers in Davos Switzerland each winter are questionable and are an opportunity to incubate this type of collusion.
Now let us say that General Electric or Caterpillar see a need to hire additional staff. Multiply that if you will, by all the SP500 firms.
Hiring say 100,000 new American workers a month would in 15 months add 1% to the domestic labor force. Added to the 200,000 current monthly new jobs created, we would jump to 300,000 per month which would no doubt cause a bottom up rise in interest rates. A rise that at the least would tamp down stock prices. At worst 20% or more could be whacked off the Dow Jones 30.
Economically wiser I would think to forgo the expansion, or more likely continue to head overseas to grow.
The annual meetings of the movers and shakers in Davos Switzerland each winter are questionable and are an opportunity to incubate this type of collusion.
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Comments
<< <i>Quantitative easing and the disinsentive to hire in the US. >>
MGLICKER: There are disincentives for many positive economic actions right now, both on the corporate and the individual level. We can see where that has gotten us today with both record equity prices coupled with record entitlement spending. Somewhat counterintuitive but with the The Fed ans the U.S. Gov't leading the charge, it is what it is. Our ballooning balance sheets have to be dealt with soon and I'm afraid to say - there's a not a soul in the country who's going to deal with them. We are beyond the tipping point.
Knowledge is the enemy of fear
<< <i>Sorry to burst your bubble, but a rise in interest rates will result in a much higher stock market. >>
Are you still watching reruns of California Chrome at the Belmont, certain that eventually he will win!
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<< <i>Sorry to burst your bubble, but a rise in interest rates will result in a much higher stock market. >>
Are you still watching reruns of California Chrome at the Belmont, certain that eventually he will win!
Again you demonstrate your lack of knowledge of inter market relationships.
Knowledge is the enemy of fear
<< <i>
<< <i>
<< <i>Sorry to burst your bubble, but a rise in interest rates will result in a much higher stock market. >>
Are you still watching reruns of California Chrome at the Belmont, certain that eventually he will win!
Again you demonstrate your lack of knowledge of inter market relationships. >>
+1
I give away money. I collect money.
I don’t love money . I do love the Lord God.
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<< <i>
<< <i>Sorry to burst your bubble, but a rise in interest rates will result in a much higher stock market. >>
Are you still watching reruns of California Chrome at the Belmont, certain that eventually he will win!
Again you demonstrate your lack of knowledge of inter market relationships. >>
Cohodk, could you please expound on this. I appreciate your imput and posts. Thanks.
I was under the impression that rising interest rates would have a negative impact on equities.
My personal opinion on todays markets is that "little effect" will depend heavily on if rising interest rates are purposely triggered as part of monetary policy. Any perception of the FED having lost control of rates will cause panic in many, many markets. This panic will take the form of both buying and selling depending on the market. An interest rate induced panic could easily cause PMs to rise and equities to fall. Keep in mind that there are $Trillions of Interest Rate Swap derivatives that could blow up the many portions of the economy with rising interest rates. This would cause PMs to spike.
Anxiously awaiting cohodk's reasoning on why rising interest rates would result in a rising stock market. I'm gonna be open minded on this one since I also appear to lack of knowledge of inter market relationships.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Anxiously awaiting cohodk's reasoning on why rising interest rates would result in a rising stock market. I'm gonna be open minded on this one since I also appear to lack of knowledge of inter market relationships. >>
I think Dave is referring to rates rising in a positive economic environment where the economy is hitting on all cylinders (or most cylinders!) and thus equity prices would rise.
Today, if we start discounting future cash flows at a 3% or 4% rate? Equity values would drop down quickly ~15% to 20%.
We could get into the various reasons why investors might sell, but the end result would most likely be the same.
Knowledge is the enemy of fear
Just like a drop in interest rates resulted in a much higher stock market?
The point being that many of the markets are "broken". (Works good if you wanna put your trust in the financial sector tho.)
I knew it would happen.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Well, obviously there is much more involved than what I will write here, but in simplest terms--which I find most profitable--if rates were to rise it means investors are selling their bonds. So now they have cash and need to reinvest it. Where they gonna put it? The Stock Market.
We could get into the various reasons why investors might sell, but the end result would most likely be the same. >>
Unless it is Japan or China selling massive amounts of treasuries to fund their own poorly managed economies.
<< <i> However, an orderly and anticipated interest rate increase could have little affect on equities. >>
Tough to imagine that a move on 10 year rates would not adversely hit the stock market.
SP 500 dividend yield is 1.85% today. Much of the equities market has become a proxy for fixed rate instruments as orchestrated by Bernanke (you can look it up as he expressed such a desire many times).
Box of 20
The market LOVES positive employment data, especially if its in industrial and manufacturing......which suggest more capital investment.
Think about it....more jobs creation.....more people buying goods and services, better for housing, more capital investment, more innovation and research.
So historically when rates rise for the right reasons, (ie increase in demand for goods and services whereby the fed historically in the past puts the brakes on the economy by gradually raising fed funds rate).....then you could expect maybe a very mild selloff in stocks initially and then onward and upward in stock prices.
Thats what the fed does......they raise rates when the economy is expanding and lower rates when the economy is contracting.
Historical data supports that fact.
I will always take an expanding economy scenario over a shrinking economy scenario ( ie people losing jobs).
This fear of Japan or China selling US bonds and thereby creating havoc in our bond markets has been around for years and years. If that were to actually happen or the fed raises rates much to fast that would be negative for stocks.....
I will say the unwinding of QE is still ultimately somewhat of an experiment but so far so good.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i>Well, obviously there is much more involved than what I will write here, but in simplest terms--which I find most profitable--if rates were to rise it means investors are selling their bonds. So now they have cash and need to reinvest it. Where they gonna put it? The Stock Market.
We could get into the various reasons why investors might sell, but the end result would most likely be the same. >>
add in negative interest rates at banks...
<< <i>I will say the unwinding of QE is still ultimately somewhat of an experiment but so far so good. >>
You are correct on both counts.
It is an experiment in trying to repair several years of financial hocus pocus by rapidly diluting the money supply with money backed only by the electrons generated to create it.
So far, so good is true as well. Some wonderful vacations are taken on credit cards. When the fun is over, the $10,000 bill always arrives. This bill will come do as well.
<< <i>Sorry to burst your bubble, but a rise in interest rates will result in a much higher stock market.
Just like a drop in interest rates resulted in a much higher stock market?
The point being that many of the markets are "broken". (Works good if you wanna put your trust in the financial sector tho.) >>
Is the market really that much higher? In 2007 the 10yr was 5.2%, now is 2.5%. S&P was 1550, now 1950. Thats 25% over 7 years---big yawn. How about the rise in the 10yr from 1.5% to 3% over 18 months in 20012/13? You know what the SP500 did? It went from 1300 to 1900--nearly 50%. And you know what will happen if the 10yr goes from 3% to 4%? Well, lets just say you better be prepared for the SP500 at 2500. Just think of all the "broken markets" crap you will hear then.
This market broken stuff is ridiculous. Markets are behaving exactly as they should. In time circumstances will change that will cause equities to drop and/or PMs to rise, but this will also be the market doing exactly as they should. Sometimes there are too many people on own side of the boat and it capsizes, or corrects an imbalance. Markets will always do the same. Eventually interest rates could rise to a level that discourages investment in equities and encourages investment in fixed income. Then rates fall, equities fall, and the cycle repeats.
Not directed to you Jmski, but the arrogance that thinks one is smarter than the market because they are not behaving as they "should", and the conjuring of manipulation and conspiracy theory to account for ones own erroneous prognostication, is a fascinating look into investor psychology. It is also a symptom of our society where we hold others to blame for our own misconduct and/or ill fortune. I may come across as an arrogant SOB, but thats only because I have been humbled so many times. Knowing what one does not know, is true knowledge.
FWIW---I bought puts on the Transportation index today, but not because I think the market is broken.
And for thought---the 10yr yield on Spanish bonds is less than on US Treasuries. Which country do you think is going to attract more money? What will that do to its currency? How will other assets react? These are the questions one should ask.
Knowledge is the enemy of fear
A collapse in corporate profits and record Wall Street highs? Really? Consider this chart a Wall Street warning.
Oh, and if you haven't heard, ZIRP is starting to work - the debt bubble is back.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
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<< <i>a collapse??? dont look like a collapse to me, looks like its almost at its all time high, and a bump down to gather more steam... >>
Bet you wouldn't say the same thing about these similar movements:
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Bet you wouldn't say the same thing about these similar movements: >>
u r right i wouldnt, but i would say they arent the same, one doesnt trade profits/income, there is no volume but a neat chart though...
and the gold n silver charts, that is one proposed support, but i would use a more horizontal one, also if it breaks yours, it may not mean anything, u wont know til later... and later, may be detrimental to an action one may take...
<< <i>Markets are behaving exactly as they should? I think not.
A collapse in corporate profits and record Wall Street highs? Really? Consider this chart a Wall Street warning.
Oh, and if you haven't heard, ZIRP is starting to work - the debt bubble is back.
I dont really see any "collapse in profits", but if we look at the chart objectively, we would see that profits peaked in 1997 and stocks were higher 3 years later. Looks like another peak in 2006 and no selloff until 2 years later. Maybe in 2016 we will see a sizable stock market decline.
Knowledge is the enemy of fear
This market broken stuff is ridiculous. Markets are behaving exactly as they should. In time circumstances will change that will cause equities to drop and/or PMs to rise, but this will also be the market doing exactly as they should. Sometimes there are too many people on own side of the boat and it capsizes, or corrects an imbalance. Markets will always do the same. Eventually interest rates could rise to a level that discourages investment in equities and encourages investment in fixed income. Then rates fall, equities fall, and the cycle repeats.
Observe the price history of the S&P500 since about 1995. Tell me if you think that the market's not broken. I can tell you why each of the erratic swings since 2000 has occurred, and it's not from the functioning of a normal price-clearing mechanism. The market is broken.
Not directed to you Jmski, but the arrogance that thinks one is smarter than the market because they are not behaving as they "should", and the conjuring of manipulation and conspiracy theory to account for ones own erroneous prognostication, is a fascinating look into investor psychology. It is also a symptom of our society where we hold others to blame for our own misconduct and/or ill fortune. I may come across as an arrogant SOB, but thats only because I have been humbled so many times. Knowing what one does not know, is true knowledge.
Markets have been manipulated since they existed. Fundamentals ought to be the basis for stock valuation, or for any asset valuation for that matter. I just don't see this as being the case, these days. Bill Black helped prosecute 1000's of cases for financial malfeasance in the 1980s, but there's only been a handful of those types of prosecutions in the past 5 years. The overriding consideration has been to protect the financial industry, regardless of the transgression involved. The best you can do is to step aside and avoid their skimming operations.
If you really think that you can consistently out-maneuver these crooks, be my guest.
I knew it would happen.
<< <i>If you really think that you can consistently out-maneuver these crooks, be my guest. >>
If ya can't beat em, join em...
At the risk of sounding repetitive,
"The best you can do is to step aside and avoid their skimming operations."
It's a lot like when you sit down to a poker table, and if you can't tell who the mark is.........
It's you.
I knew it would happen.
<< <i>If ya can't beat em, join em...
At the risk of sounding repetitive,
"The best you can do is to step aside and avoid their skimming operations."
It's a lot like when you sit down to a poker table, and if you can't tell who the mark is.........
It's you.
Except when your winning!
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i>
<< <i>If ya can't beat em, join em...
At the risk of sounding repetitive,
"The best you can do is to step aside and avoid their skimming operations."
It's a lot like when you sit down to a poker table, and if you can't tell who the mark is.........
It's you.
Except when your winning! >>
Yep, two sides to every coin and two sides to every trade.
We shouldn't fault anyone who's taken advantage of the cards played by The Fed, U.S. Treasury, U.S. Congress, et al. Almost like drawing three Kings every year since 2009.
If you look at the chart you posted and zoom in on the timeframe 1950 to 1976, it would look remarkably similar to the 1995 to present time. Stocks went up 5 fold from 1950 to 1969 then dropped 40%. Then nearly doubled, dropped 50%, then doubled. Its almost exactly what has happened over the last 15 years.
The problem with your chart, and why it gives you the heebeejeebies, is that it is an arithmetic scaling. In 1950 a 20 point move was a double in the index whereas today that 20 points is just over 1%. So every move today is magnified 100x from the beginning of the chart.
I understand your desire to see something that might explain why the market isnt doing what you think it should, but you need to understand the market is much bigger and smarter than all of us. Now im not saying that stocks cant drop 50% and gold double in the next 2 years, but a good investor would look back at the last 3 years and figure why, given all they knew to be true, the market outcome was not anticipated. If your conclusion is manipulation or conspiracy, then rethink it again. If you draw the same conclusion, then im afraid you will make similar mistakes in the future.
Im not bashing gold as I think it could double over the next decade, but the rise will not be linear, rather 80% of the move probably occurs in less than 3 years. My question is which 3 years? Unfortunately I dont see it being 2014-2016, so why squander opportunity cost in other asset classes?
Knowledge is the enemy of fear