Magox Posted January 11, 2013 Share Posted January 11, 2013 (edited) You and I will never see eye to eye on speculation. We've gone circles with each other on this issue for years and it won't ever change. You somehow believe that speculation is this outside derivative that doesn't warrant the effect that it has had. That the money printing from the Fed shouldn't have caused rising prices in some of the markets, because from your view it's just a "bubble" caused by these nefarious speculators. That's simply not the case. Again, this is a perfect example of you living in a vacuum. You see an ETF and it's creation, prices rise, and voilaaaaa! Speculation caused the prices to rise. Do you really want me to dig up information of tons of ETF's that were created to only see the price of the underlying product drop? Also, you see that prices make a sharp increase after QE, and in your view, you say "It's those stupid neanderthal investors believing that QE is making prices go higher, because of their fallacious view on money printing" . That's what you think. You simply cannot fathom why prices rise when the creation of new money out of thin air could possibly make prices rise. Those trillion dollars of treasury purchases I guess don't filter their way into the economy right? And there many ways that it filters into the economy, one is by driving down rates. You don't believe those lower rates have added price pressure? How about consumer patterns? You don't believe that consumers have adjusted their patterns in how they buy homes as a result of QE? What about Corporate bond issuance? You don't think that QE has had an impact? What about investor behavior? You don't believe that investors have adjusted their portfolios because of QE? Oh, and here is what you really fail to understand.. And for the life of me I cannot see how any rational thinking person is not able to recognize the impact on the value of the dollar. You honestly believe that loose monetary policy through QE shouldn't have an impact on QE, or at least not much of one. That's absurd. A lower monetary value = higher prices. That is basic economics, and you fail to grasp this very basic concept. The only reason why our Dollar hasn't dropped any more is because loose monetary policy is being used in most major advanced economies. It's a race to the bottom. I've always argued from day one, that the only reason why we haven't seen an even higher increase is because of the slack on the economy. On this point we agree. And when the world economy, specially here, begins to pick up, we will see prices rise sharply. And again, you will believe it's a bubble. Of course it isn't a bubble, it's a rational consumer and investor response caused by underlying conditions. Once conditions change, then prices will drop off. That sir, is no bubble. A bubble is irrational overexuberant investor behavior. And not all bubbles are created equally. One sort of bubble is usually a piling on effect to maximize profits due to short-term trends. Those pop fairly quickly. A long-term bubble is a bubble that accumulates over a period of time, caused by outside factors that elicit irrational investor behavior. The devaluation of the US dollar is not an irrational response from investors. It is perfectly logical. Prices haven't ballooned, they've just risen sharply. There is a distinction between the two. But again, you will never see it that way, you will scoff at the suggestion that QE is rationally responsible for the rising prices of everyday commodities and in your mind only accept that investors are buying these commodities only to maximize profits while the rest of us get hosed by these greedy bastards. Who said this? "Since investors aren't stupid" hmmm Oh and me vague? Whenever I do have a "vague" response, it's usually because of one of a few reasons, normally because the person I'm responding made such a moronic comment, that the only response that I believe is appropriate is one of a mocking nature. And two, because I've spoken about the pertaining subject at hand ad nauseum and I don't have any real desire to relitigate the issue again. Edited January 11, 2013 by Magox Link to comment Share on other sites More sharing options...
TPS Posted January 11, 2013 Share Posted January 11, 2013 (edited) You and I will never see eye to eye on speculation. We've gone circles with each other on this issue for years and it won't ever change. You somehow believe that speculation is this outside derivative that doesn't warrant the effect that it has had. That the money printing from the Fed shouldn't have caused rising prices in some of the markets, because from your view it's just a "bubble" caused by these nefarious speculators. That's simply not the case. Again, this is a perfect example of you living in a vacuum. You see an ETF and it's creation, prices rise, and voilaaaaa! Speculation caused the prices to rise. Do you really want me to dig up information of tons of ETF's that were created to only see the price of the underlying product drop? Also, you see that prices make a sharp increase after QE, and in your view, you say "It's those stupid neanderthal investors believing that QE is making prices go higher, because of their fallacious view on money printing" . That's what you think. You simply cannot fathom why prices rise when the creation of new money out of thin air could possibly make prices rise. Those trillion dollars of treasury purchases I guess don't filter their way into the economy right? And there many ways that it filters into the economy, one is by driving down rates. You don't believe those lower rates have added price pressure? How about consumer patterns? You don't believe that consumers have adjusted their patterns in how they buy homes as a result of QE? While I've harped on the commodity speculation, I've never said it's the only impact. I'm simply saying it has been an impact at least two major times since 2008. As i think you and even TAsker have to agree, several trillion dollars are simply sitting as reserves at banks (not really at banks, but electronic accounts at the Fed). The other impacts have been on the dollar, as we agree a couple years ago. Your criticism here is unwarranted. What about Corporate bond issuance? You don't think that QE has had an impact? What about investor behavior? You don't believe that investors have adjusted their portfolios because of QE? Oh, and here is what you really fail to understand.. And for the life of me I cannot see how any rational thinking person is not able to recognize the impact on the value of the dollar. You honestly believe that loose monetary policy through QE shouldn't have an impact on QE, or at least not much of one. That's absurd. A lower monetary value = higher prices. That is basic economics, and you fail to grasp this very basic concept. The only reason why our Dollar hasn't dropped any more is because loose monetary policy is being used in most major advanced economies. It's a race to the bottom. On bonds, see the discussion GG and I had on low rates and the huge refinancings. On portfolios, that is my main argument! Historically, the three main transmission mechanisms for monetary policy are asset prices, interest rates, and the value of the dollar. I suppose you misconstrue and assume I live in a vacuum because I've focused on a new mechanism, the ability of investors to buy commodity products. The others are well known. QE is supposed to drive up asset prices; lower interest rates are supposed to increase borrowing and improve cash flows through refinancing; and it should cause the dollar to fall. Yes, that's all basic economics. I've always argued from day one, that the only reason why we haven't seen an even higher increase is because of the slack on the economy. On this point we agree. And when the world economy, specially here, begins to pick up, we will see prices rise sharply. And again, you will believe it's a bubble. Of course it isn't a bubble, it's a rational consumer and investor response caused by underlying conditions. Once conditions change, then prices will drop off. That sir, is no bubble. A bubble is irrational overexuberant investor behavior. And not all bubbles are created equally. One sort of bubble is usually a piling on effect to maximize profits due to short-term trends. Those pop fairly quickly. A long-term bubble is a bubble that accumulates over a period of time, caused by outside factors that elicit irrational investor behavior. Yes, we agree here. Maybe bubble is too strong for you, but I would say that the 2008 run up was a bubble as well as the 11/10-5/10 run up which was mainly driven by QE. I agree with your description going forward, it will depend on economic recovery, the difference is that i argue big banks/investors (starting with the CFMA) have a greater impact on commodity prices NOW; they are more volatile because the markets have flipped. The reason futures markets had position limits was to ensure that investors were not the primary influence on prices, but that commercials were the primary influence. That's no longer the case in the short run. The big banks are the major players now, and they play both sides--physical and investing. They make money on the volatility. Why do you think commodity trading went from insignificant to generating > 20% of revenues for the likes of JPMorgan et al over the past 10 years? The devaluation of the US dollar is not an irrational response from investors. It is perfectly logical. Prices haven't ballooned, they've just risen sharply. There is a distinction between the two. But again, you will never see it that way, you will scoff at the suggestion that QE is rationally responsible for the rising prices of everyday commodities and in your mind only accept that investors are buying these commodities only to maximize profits while the rest of us get hosed by these greedy bastards. As we agreed over two years ago, QE caused the dollar to fall as part of the so-called currency wars.Buying (investing in) commodities when the Fed is expanding the money supply is a rational response under normal conditions, but not with a depressed economy. Those higher prices can't be sustained without an increase in the REAL underlying demand by users of commodities; which is exactly what happened several times since the crisis. The argument is not that difficult. With the developments in commodity futures markets since 2000, it's allowed investors to play all commodities as if they are like gold, the difference is that gold has very little "commercial" demand, so its price will rise and fall and remain thre based on investors' beliefs--however, almost all other commodities suffer from the gravity of real demand! Who said this? "Since investors aren't stupid" hmmm Most professionals aren't, but there are many retail investors who are easily swayed by bad theory, and have been/will be convinced to buy things that they don't understand; especially when returns are so low on everythign else. Oh and me vague? Whenever I do have a "vague" response, it's usually because of one of a few reasons, normally because the person I'm responding made such a moronic comment, that the only response that I believe is appropriate is one of a mocking nature. And two, because I've spoken about the pertaining subject at hand ad nauseum and I don't have any real desire to relitigate the issue again. We all get tired of the same arguments.As I tell my students, there is no truth, especially in macro. It's up to them to decide what theories are best at predicting. Cheers... Edited January 11, 2013 by TPS Link to comment Share on other sites More sharing options...
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