Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

[ProdigyofZen]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Difficult to picture I know. But unemployment rose at the same time peaking in 1975, the UK had to go to a 3 day working week to conserve energy, suffered major devaluation etc.
Classic example of stagflation.

Yes, llanlad but the difference between the 1970s in the UK and US to today is debt.

[llanlad2]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

In that scenario, unemployment most likely rises to 10 to 12%. Not sure I see wage inflation with an extra 4 to 6% unemployed.

Difficult to picture I know. But unemployment rose at the same time peaking in 1975, the UK had to go to a 3 day working week to conserve energy, suffered major devaluation etc.
Classic example of stagflation.

[ProdigyofZen]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

In that scenario, unemployment most likely rises to 10 to 12%. Not sure I see wage inflation with an extra 4 to 6% unemployed.

[llanlad2]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Exactly!

Wage price inflation is definitely more likely if repatriation of jobs takes place due to protectionism and trade wars.

Obama complaint against China raises threat of trade war

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Unless there is wage inflation. In the Uk rates went from 5% to 12% between 1970 and 1974. Average house prices............doubled.
Admittedly it it was a more unionised manufacturing era with less threat of outsourcing which is opposite to today. But still not impossible.

Exactly!

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Anticipation fatigue. I've been expecting disaster for so many years and maybe it's happening, but it's a slow process, not a clear-cut event. The Big Crisis will not occur until after I give up expecting it and decide to relax. I'll let you all know when that happens so you can be prepared...

Basically yes. The markets are not kind. The only way to survive is to distance yourself. Vast majority of people will be burnt out or will have given up when the real crazy stuff happens. It is really hard to stay cool but it is the key to surviving the volatility and maybe even making some money

[llanlad2]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Sure that may be the case but have you thought about this....

If interest rates for mortgages are currently 3% and you think interest rates will be 7% within the next 1 to 2 years what mechanisms and what is occurring in the economy to get to that 7%?

In other words, sure you will buy your house now for 200k at 3% but in 2 years if rates jump to 7% it will be worth 150k.............as the economy and housing crash from the doubling in interest rates.

Unless there is wage inflation. In the Uk rates went from 5% to 12% between 1970 and 1974. Average house prices............doubled.
Admittedly it it was a more unionised manufacturing era with less threat of outsourcing which is opposite to today. But still not impossible.

[vinoveri]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Anticipation fatigue. I've been expecting disaster for so many years and maybe it's happening, but it's a slow process, not a clear-cut event. The Big Crisis will not occur until after I give up expecting it and decide to relax. I'll let you all know when that happens so you can be prepared...

Ha Ha, thanks for the laugh Shiny. Please do let me know.

I don't want or look for disaster, but have been expecting something to occur to, as to the title of this thread, a forcing function of sorts, to reset/readjust the system to one of less instutionalized corruption and political capture, but have concluded that while it could occur, historically these changes happen over generations if not centuries (

(and reading hudson and hedges doesn't help)

[shiny!]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

I for one am going to focus more the goodness and beauty in life, continue to develop meaningful human relationship and return to philosophy - the coming to grips over these past 6 years of the economic/political/legal corruptions and being disabused on illusions have taken a toll .. for far too long.

Anticipation fatigue. I've been expecting disaster for so many years and maybe it's happening, but it's a slow process, not a clear-cut event. The Big Crisis will not occur until after I give up expecting it and decide to relax. I'll let you all know when that happens so you can be prepared...

[vinoveri]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

With respect, this is about creating money to write of the bad debt while making whole the creditors who hold the debt ... in a controlled way attempting to maintain the illusion of order of democracy and rule of law and nothing more (except perhaps dollar hegemony, global power, etc.).


It will likely work w/o a major exogeneous shock or internal revolution. It's "worked" so far for those pulling the strings.
Recall the prognostications in 2009, 2010, 2011 that, respectively, 2010, 2011,2012 was the year that everything would blow up because "at some point it has to end"
Even itulip has modified its prediction that the change would occur in 2013 after the presidential elections to now 2015.

Eventually, some one will be right. Maybe next month, maybe 10 years, maybe 50. Eventually we'll all be dead. I for one am going to focus more the goodness and beauty in life, continue to develop meaningful human relationship and return to philosophy - the coming to grips over these past 6 years of the economic/political/legal corruptions and being disabused on illusions have taken a toll .. for far too long.

[Bundi]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

+1
but it IS 'going to work'
just not so much for The Rest Of US.
free money/QE to the priv eq crowd to buy up millions of foreclosures is certainly going to work for them tho...

Maybe helps them to sell existing inventory of mortgage backed securities but it isn't so clear to me that buying for investment purposes because rates are low represents a smart decision given all of the macro factors. These PE firms in theory would need to exit at some point, no? Renting a slew of separate single family homes may not be as easy or profitable as people expect.

[shiny!]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

+1
but it IS 'going to work'
just not so much for The Rest Of US.
free money/QE to the priv eq crowd to buy up millions of foreclosures is certainly going to work for them tho...

+ 40,000,000,000

[lektrode]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

As jk says, I understand what the Fed's thinking is here, I just don't think it's going to work.

+1
but it IS 'going to work'
just not so much for The Rest Of US.
free money/QE to the priv eq crowd to buy up millions of foreclosures is certainly going to work for them tho...

[ProdigyofZen]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Very Simple Grasshopper, THEY WON'T. They want a positive inflation rate (sorry should say a very negative real rate) and they want everyone to know about it. This is the mother of all asset price pumps (till we hit the wall again when gas hits$5-6 per gallon), then we get another ka. But, I think that after Obama gets re-elected, the bond market will not flinch. Over $1 T in defense cuts next year. The biggest Austerity in the US will be in the defense industry. Luckily, I think I'm in the only growth Industry in DOD right now. Just enough salve to goose the election, and then REAL pain next year as QE3 will not offset defense cuts. But till those cuts are announced IN DETAIL, yeah we got a rally in all risk assets, till may next year.

If I'm wrong and Romney wins, I think you are going to see a sell off on the risk side after the honeymoon rally, he's actively targeting Bernanke and pushing really hard for domestic austerity, (in all things OTHER than defense). Bond market will like that but risk assets won't. If Romeny succeeds in pushing through his domestic austerity agenda sans defense, dollar rallies strong, strong deflationary trend, dollar gets way overvalued and real economy grinds to a halt. And then we get a real no kidding big ka followed by big almost immediate poom. (Aka Argentina)


Assuming, of course, no IRAN strike, no unexpected crisis, and Draghi stays on the path of QE European style. As long as europe QEs at a slower rate than the fed, then we hit the wall first. Otherwise they do. But bottom line there is a recession coming hard core when gas breaks the $5 gallon thershold.

Lots of variables and ways for this to play out, my guess is May June next year if obama is re-elected, or if Romney wins (based on the end of the rally and gas crossing a threshold price)
Outcome seems the same, the only diff seems to be who will be left holding the bag in the White house when bad things happen.

Maybe I'm wrong and Romney is pandering to fiscal conservatives, but if he practices what he preaches, we are likely to hit the Big One (the one the bond market takes notice of) sooner than the Obama Scenario.

Obama = Gas Price driven demand destruction recession (inflationary)
Romney = Austerity led Super KA (followed immediately by Market driven POOM)

I actually think that the Romney path gets us on the Argentina Trajectory Faster than the Obama path.



Should have some clarity come November.

The "rhetoricalness" of my question "how are they going to raise rates if inflation hits 5% in thext 3-6 months" was apparently lost in internet forum purgatory !

[CanuckinTX]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Canuck,

You want to tell me you are just going to shovel money into that account earning zero, if you start seeing inflation pick up?

There is an awful lot of money in the US still. It will start to shift from bonds.

I've already got my gold and I'm sure as heck not going to just go spending money on stuff I don't need just because I have money lying around. Maybe I'm in the minority but that's the whole point I'm making anyway. The masses they need to be able to re-fi can't do it. 40% of people in CA are underwater and over 50% in Nevada. Florida is just as bad. The people that really need the money get no help from lower interest rates.

As jk says, I understand what the Fed's thinking is here, I just don't think it's going to work.