Fed plans to raise rates as soon as March to cool inflation
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September 30, 2022, 08:07:01 AM
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  Fed plans to raise rates as soon as March to cool inflation
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Author Topic: Fed plans to raise rates as soon as March to cool inflation  (Read 10102 times)
Person Man
Angry_Weasel
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« Reply #175 on: September 22, 2022, 07:01:37 AM »

Fed raises rates 75 bp as expected.  Powell says that a recession might be necessary to bring inflation under control.

For the first time using my inflation-adjusted yield curve (discounting the yield curve with inflation swaps at each tenor) as the curve inverted (the convention curve has been inverted for a while) although only mildly.  It does seem that a recession next year is coming.   Given how mild my my inflation-adjusted yield curve is is it possible that it will be a mild recession.

So basically like the recession caused by 9/11/computer bust but maybe much more broad with the same volume (there won't be a sector that is totally destroyed like commercial banking (1990)/residentials(2008)/technology(2001)..et al..)

I'm still hoping for an environment that doesn't kill most people's chances of advancing their career.
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jaichind
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« Reply #176 on: September 23, 2022, 06:51:45 AM »

My calculated 30-year inflation-adjusted yield (which discounts the 30-year treasury yield by the 30-year inflation swap) reaches 1.22% which is the highest since 2011.   It was -0.6% in early 2022.  The pre-2008 era has this metric between 1.5%-2.0%.  I think we are getting very close to the end of the adjustment transition to the pre-2008 era as far as federal borrowing costs are concerned.
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Person Man
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« Reply #177 on: September 23, 2022, 01:45:35 PM »

My calculated 30-year inflation-adjusted yield (which discounts the 30-year treasury yield by the 30-year inflation swap) reaches 1.22% which is the highest since 2011.   It was -0.6% in early 2022.  The pre-2008 era has this metric between 1.5%-2.0%.  I think we are getting very close to the end of the adjustment transition to the pre-2008 era as far as federal borrowing costs are concerned.

So people are selling stock and even commodities/metals to lend the Government money because itís willing to pay more?
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jaichind
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« Reply #178 on: September 23, 2022, 02:48:50 PM »

My calculated 30-year inflation-adjusted yield (which discounts the 30-year treasury yield by the 30-year inflation swap) reaches 1.22% which is the highest since 2011.   It was -0.6% in early 2022.  The pre-2008 era has this metric between 1.5%-2.0%.  I think we are getting very close to the end of the adjustment transition to the pre-2008 era as far as federal borrowing costs are concerned.

So people are selling stock and even commodities/metals to lend the Government money because itís willing to pay more?

Of course.  Because the USD is the reserve currency in the world and the USA government can always pay its debts if you can get plus 1% after inflation return on USA treasuries that is very attractive to many people.  As I head toward retirement I am already rotating into long-term fixed income and this turn of events is the best thing that can happen for me.
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jaichind
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« Reply #179 on: September 26, 2022, 03:54:10 PM »

The 30 inflation-adjusted treasury yields that I am computing surge to 1.4%.  This is getting very close to the 2004-2007 average of around 1.5%.  The real federal government borrowing costs are surging before our eyes.  If it goes to 1.5% and stays there then one can finally say that the USA has finally exited the abnormal post-2008 financial crisis era.  In 2008 I thought it would take 5-10 years to get out of the shadow of the crisis but it now seems that it took fully 14 years.
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Clarko95 📚💰📈
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« Reply #180 on: September 26, 2022, 04:23:06 PM »

For the first time using my inflation-adjusted yield curve (discounting the yield curve with inflation swaps at each tenor) as the curve inverted (the convention curve has been inverted for a while) although only mildly.

Out of curiosity (I studied valuation and work in banking), why do you do it that way? And is this alternate measure widely used? Have you tested its reliability in the past?

(Hope I'm not derailing the thread here)
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jaichind
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« Reply #181 on: September 26, 2022, 05:44:00 PM »

For the first time using my inflation-adjusted yield curve (discounting the yield curve with inflation swaps at each tenor) as the curve inverted (the convention curve has been inverted for a while) although only mildly.

Out of curiosity (I studied valuation and work in banking), why do you do it that way? And is this alternate measure widely used? Have you tested its reliability in the past?

(Hope I'm not derailing the thread here)

This is totally made up by me and has no real backtesting behind it.  I came up with the idea of discounting the treasury yields by the inflation swap of the same tenure back in the 2010s mostly as a way to measure financial repression.   My observation was that in 2012 there was massive financial repression which was fairly accommodative toward the Obama 2012 re-election campaign.  Of course, this was able to measure the massive financial repression in the 2020-2021 period as well. 

The idea of creating a yield curve out of my numbers came more from criticism I read in various reports half a year ago that using the yield curve to predict recessions had the problem that it did not take into account the large differences between short-term and long-term inflation.  These reports did not come up with solutions to the problem.  I merely used my numbers as a way to adjust for this.  Now that short-term and long-term inflation numbers are beginning to converge makes my adjustments are less useful and relevant going forward anyway.
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jaichind
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« Reply #182 on: September 28, 2022, 04:32:02 AM »

30-year treasury yield discounted by 30-year inflation swaps surges past 1.5%.  We are officially exiting from the post-2008 financial repression world.  It feels so good to be free.
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jaichind
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« Reply #183 on: September 28, 2022, 04:42:15 AM »

US Dollar index USDX is the highest level since 2001.

If you look at JP Morgan's broad-based currency strength adjusted for CPI differentials between different economies the USD is at the highest since the 1985 Plaza accords.  Looking at the JPM CPI differentials adjusted currency index shows that CNY and INR are still fairly strong and it is really EUR, GBP, and JPY that are way down at historical lows that are driving the USD relative strength.

At some stage ECB, CBE, and the BOJ will have to accept reality and raise rates and these trends will readjust itself.
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jaichind
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« Reply #184 on: September 28, 2022, 04:45:47 AM »

Funny I mentioned the 1985 Plaza Accords.  I just read an article where the Biden administration rules out another Plaza Accords to arrest the surge of the USD.  I guess in a supply-constrained vs a demand-constrained world there is a smaller benefit to having a weak currency to help with export competitiveness.
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jaichind
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« Reply #185 on: September 28, 2022, 04:49:02 AM »

 James Carville said in the mid-1990s that if there was reincarnation " I would like to come back as the bond market".  That world mostly came to an end after the 2008 crisis.  That world is back.
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Southern Delegate and Atlasian AG Punxsutawney Phil
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« Reply #186 on: September 28, 2022, 05:01:43 AM »

Funny I mentioned the 1985 Plaza Accords.  I just read an article where the Biden administration rules out another Plaza Accords to arrest the surge of the USD.  I guess in a supply-constrained vs a demand-constrained world there is a smaller benefit to having a weak currency to help with export competitiveness.
What would the politics of another Plaza Accords look like, if Biden opted for that?
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jaichind
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« Reply #187 on: September 28, 2022, 06:55:41 AM »

https://www.bloomberg.com/news/articles/2022-09-28/boe-to-carry-out-purchases-of-long-dated-uk-bonds-to-calm-market#xj4y7vzkg

"BOE Steps Back Into Bond Market to Restore Stability"

Sign.  The QE is like a drug.  Once you use it is a hard habit to kick.  It allows you to live in a MMT-like magical world with no consequences and where everything is free.  Eventually, you have to pay the piper.
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jaichind
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« Reply #188 on: Today at 07:40:55 AM »

PCE Deflator MoM came in at 0.3% as opposed to 0.1%.  The trend is still negative.  Hopefully, the recent rate increase and more to come will start to get this under control.
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