To the economic PHD's - so why are short term yeilds skyrocketing in tandem with 30 years. I assume the short term assests are FED target for accumulation and not the long term assets? Has BEN got his maths and theory wrong?
I am not an economics PhD, for the record. When you say "short-term", what precisely do you mean? How short?
Because essentially these are assets that business borrows/uses as working capital - am I wrong to say that the whole idea of QE2 is to provide cheap liquidity to business to boost economy, so how will this work out if business cycle finance yeilds are going through the roof?
It's not. I think it's a point oft confused; QE1 was to create liquidity. QE2 is to affect growth through what Bernanke called the 'portfolio channel'. That is - driven riskfree assets so rich that investors search for return in the more risky stuff - ie, stocks - and create a wealth effect down the pipeline. Anyway, whether that works or not is another debate. In the current environment, the availability of liquidity is not a problem. The problem is either the inability to lend (through regulatory uncertain and risk aversion) and the unwillingness to borrow. For what it's worth, I don't think the portfolio channel will solve this fundamental issue.
One problem with the Fed's logic is thinking that just because rates are low on UST yields or in the banking system that these low rates will filter through into the real economy. Excluding your mortgages (if you have one), how many of you guys can borrow without putting down collateral at 3-5%, say on a personal loan or small business loan? I'm seeing 8-9% at best, but this is a worse rate than you could get pre-2008. If you've own some retail store that is some kind of cash cow maybe its not a problem borrowing near 0%, but whenever there is risk involved the bank looks the other way. So it doesn't matter how much money Bernanke prints (or doesn't, as he claims!), the more he pushes on the monetary string the less effect it has. Another $1TR doesn't mean money is cheaper for the regular Joe like you and me... I think he's working on the notion of some kind of "wealth effect", higher stock prices and lower mortgage rates stemming from lower UST yields making everyone feel better. That probably works in normal times to some extent. Hell, maybe we do need some inflation just to wipe down the real value of the debt in the system. Others here are a little more forgiving on Bernanke, but I am inclined to view him as 21st century John Law. But I hope I'm wrong.
mmm - but higher stock prices are not directly or indirectly proportional to real wealth generation. Its an illusion ( im not complaining though this pumping up of stocks) and the Joes & Judies next door do not get any richer either. Its the professional investors assuming they know what they are doing whose pockest get fatter and thats only 0.00000000000000000000000000000000000001% of the population.
That's not exactly true. Vast (as in the overwhelming majority) amount of stocks are held in (state, union, etc) pension funds, mutual funds (don't forget all the private sector 401ks), endowments, etc; So lifting equity prices will create a wealth effect through elevating those assets. Professional investors usually manage other's people money. That other people money are usually your money in some way or form.
ASusilovic very happy in the last couple of days. It seems bond traders are recalling what it means to be a US bond trader. And by the way : thank you Mr. President for the prolongation of the tax cuts !
True, but we also know that "retail accounts" have been redeeming stock mutual funds for the last 33 weeks !