The long-term potential growth rate for the economy is about 4.5% in my opinion - 3% for productivity growth, if the economy is left to its own devices that is, and 1.5% for labor market growth. There is, therefore, no justification for rates to be higher than 4.5%. All this does is cut productivity, which is partially a function of growth, and all that does is lower the maximum growth rate of the economy, which just makes inflation worse. If you pull up a chart of the yield on the 10-year over the past two years, you'll notice that 4.5% was at first resistance and is now support. On the way back down, once the economy slows enough to make this a good trade, 4.5% will once again be support. The only reason for Fed Funds to be at the stupid and insane level of 5.25% is so that Ben can show what big balls he has. (If you think it isn't insane, explain why the yield curve has been inverted for just about the entire time Fed Funds have been at this level.) This makes the Chinese giggle, since it makes their task of keeping the yuan undervalued that much easier. In short, the absolute maximum level for Fed Funds should be 4.5%. A sane, neutral level would be more like 3.75 to 4%. The market has been fairly shouting this for years now, via the inverted curve and the bloated current account deficit; the Fed has, of course, been deaf. As usual.
Yield was inverted because of manipulators like GS who promised 3 rate cuts although any thinking creature can understand Fed cant cut when inflation is 0.7% Mom It's almost 10% YoY and it's official numbers So Fed must hike at least to 12-13%
They are expanding 10 to 14% more money and credit each year to keep the economy alive. until our trading partners try to SPEND the money inflation stays somewhat tame. quite a fence walk.
Bob, since they no longer report M3, how do you track such a thing? I have heard there are alternate ways to figure M3, but not be an economist I am at a loss.
Uncle Ben will do exactly when he has done since he took office, which is NOTHING. Can someone please tell me if he did anything significance other than with Mario B? Greenspan probably still have more influence than Ben.
There are still others that track it. The M3 number was just a calculation, and the raw data still exists. The Fed didn't WANT to publish it because they are pumping money and credit in like crazy to keep the economy rolling, IMO. Or maybe its because they didn't want to have to explain it or be forced to reduce it. Most of the increase is borrowing, not printing. They are only printing 10% more money, but there is a multiplier effect, and increased borrowing brings it up to 14%. So if you are wondering why things are going up, its because there is more money out there to buy it with, thats all. Honestly, as bad as housing and autos are already, what would happen if the Fed really tightened to reduce the real inflation rate? google shadow statistics m3
If any more funds go bankrupt or there is a crash monday, or housing numbers are so bad they can't even find a way spin them, I'll predict a rate cut.
Ah yes. The manipulation explanation. Back in the real world, the 10 year will be oversold on a long term basis, far as I can see, when it gets to 5.35% or so. I sold the utilities a little while ago in my long-term account, and will probably look to begin getting back in if this yield level is reached, and then is reversed. I'd want to see the yield drop below the 10-week average of the rate, and the trend of this average turn down as well before I would do that. I'm pretty sure that will happen, since the consensus has quickly formed that the bond bull is dead based on this sudden spike in yields breaching that infamous long-term trendline. The market will do what it must to confound that consensus. Energy is still looking bullish, so it'll probably be a while before this setup comes together. I'd guess it'll be the end of the year before it does, which is fine. Did I mention that I don't think the Fed will be raising rates anytime soon?