The Federal Reserve: Love it or Hate it

[Copernicus]

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your arguments are getting much weaker.. <font color="red"> your lack of ability to understand them doesnt make them weak </font>

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Because it was. The "gold gurus" have been touting it for 30 years, they finally got it right. Since their analysis were wrong for so long, clearly they were missing some aspect of the gold market and whatever they were missing changed. Thats why its speculation.

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what gold gurus? what are you talking about? wtf does this have to do with anything? <font color="red"> it has to do with your inference that the run up in gold the last few years was somehow predictable and a "good investment" a priori. When you continually throw darts at a dart board you'll eventually hit the bulls eye. That doesnt mean your aim has gotten any better. </font>

people having been saying the fed is great for a hundred years but the record shows theyve done negative things along the way, therefore you're wrong. Cool? <font color="red"> im not sure whether you are making this statement or being sarcastic about someone elses, or perhaps Im misunderstanding it altogether. It makes no sense as a serious statement.</font>

Also, are you saying that one event cant be deemed more likely to occur than another event through analysis? <font color="red"> No, Im saying that when the events you are talking about are investments where you have no information that the market doesnt have, no one has been consistently +EV.</font> Who cares if its speculation or not - thats obvious? You speculate when you play poker but that doesn't mean you cant make money as a player. <font color="red"> No but it means that if you can't you shouldn't play. </font>

Further what kind of investing is NOT speculation? i really dont see why this is relevant. <font color="red">Once again the issue isnt whether it is speculation, its whether you can speculate profitably. Hedged investing and indexed investing with long timr horizons have proven to be profitable...one that requires expertise, and one that doesnt. Naked commodities investing, market timing, fundamental analysis etc have demonstrated for decades that they are not profitable </font>
You seem to be saying you are just as good placing random bets as you're from economic analysis tied to prediction? <font color="red"> after transaction costs and over the long term yes. Im not the one saying it, decades of tracking investment professionals says it </font>

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if you want to make a case the US standard of living has gone down, be my guest. You havent done it yet.

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How bout not answering a question with a question. Also why the hell would i try do that when i never made any statement regarding the US standard of living other than if anything that its over inflated? WTF does this have to do with anything that we're discussing? We're talking about the pros and cons of monetary policy. Or at least thats what ive been talking about. <font color="red">you started the discussion about CPI and the relative values of currencies. I guess I wasnt clear enough. All of that amounts to statistical games if the standard of living has continued to improve </font>

If im just not understanding the relation then please spell out it to me like a baby.

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it started from the bull market and increases in real wealth and demand exceeding supply, just like any other market.

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If demand exceeds supply prices rise. Has demand changed since or is that people were given loans who never should have gotten any? <font color="red"> both. If there were no lack of demand currently then the quality of loans would be irrelevant, because the borrower could sell his way out of unaffordable debt. conversely the seemingly endless demand led to relaxing of loan standards. the level of defaults that have actually occurred is miniscule with regard to the total mortgage market. The reaction to date has been way overblown. </font>

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That in turn, as it has in every real estate boom in the past, invites highly leveraged speculators into the market and some of them always get caught. The actual subprime market defaults are concentrated with the speculators and flippers, not primary residences

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What invited the speculators were overtly and artificially low interest rates. <font color="red"> no, demand and low interest rates resulting from a non-inflationary economy invited the speculators </font> Even right now the only reason the fed will not fight inflation is because they're continuing to keep interest rates as low as they can to help the housing market. <font color="red">do you even follow the Feds interest rate movements? If anything they were raised too quickly for the level of inflation shown and they dampened economic growth </font>

People in that market are calling for cuts still. <font color="red"> cool you got one right. Of course virtually everyone is calling for cuts still, so that wasnt exactly a brilliant observation </font>

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you tell me. What were the spending that resulted in the deficits (which, by the way, are on their way down and projected to surpluses in 4 years or so).

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its a number of things. way too many to list off. Im really not concerned with which party did what though. Neither of them are fiscal conservatives.

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when you dismissed my comment about the reasons the dollar has tough times ahead and listed policy issues, clearly implying the Dems would be better.

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Thats a stretch. Im saying Dems and Repubs will both screw it up. You say only one of the two will. <font color="red"> No, I said the candidates have made it clear that one of the two will definitely be worse. </font> Therefore you should benefit against betting with me in favor of the dollar, since im speculating that its more likely to fail than you are.

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No question somebody with solid grounding in fiscal and monetary policy would be beneficial. Ron Paul isnt it except for tax policy, where he has nothing over the other Republicans. There are clearly no Dems who are, because none of them that I know of are talking about tax cuts or even maintaining current tax levels.

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Ron Paul has nothing over the Repubs for tax policy? I also said specifically we need someone hawkish, not just with a solid grounding in monetary policy.

Mike Gravel wants to abolish IRS and supports tax cuts i believe. Richardson ive also heard was a fiscally conservative governor but never looked at the record myself.

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Uhhh maybe because theyve been increased substantially over the last few years and we are in a non-inflationary economy? If anything you'll see interest rate cuts soon, which I already pointed out is dangerous in combination with the increased liquidity and needs to watched closely.

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Do yourself a favor and read any of the recent fed statements. If you disagree with the fed and support them there must be some contradiction.

From recent fed statement which was the least hawkish of all just because so many were expecting immediate bail outs:

"Although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information."


So you think inflation has already been weeded out and is not a concern, but the fed disagrees with you. If anything they'll bail out the markets at the at the cost of further inflation. Interest rate cuts will not come because of a strong economy. They will come to bail out the economy at the expense of the currency.

As of now the fed's primary bias, even among all this turmoil, is still inflation. <font color="red"> nothing youve said here disagrees with anything Ive said, other than the opinion of many that the Fed has been too conservative with regard to the threat of inflation. </font>

If the economy was non-inflationary why do you see interest rate cuts as dangerous? <font color="red">I said interest rate cuts in combination with the expansion of the monetary supply are dangerous. DUCY? </font>

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Its better than the alternatives as dcifr has clearly explained.

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not its not as Ludwig von Mises and followers clearly explained. Where is dcifr's proof of this btw? <font color="red">LvM, lmao. If Austrian economics was demonstrably better it would be the prevailing theory. It isnt, its not. </font>

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further manipulations are often the best opportunities to make money because they cant manipulate forever and you can exploit the manipulations too in a variety of ways. back to the craps table

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lol. i dont even have time to go over this one.
<font color="red"> perhaps I didnt explain clearly enough. If you arent one of the manipulators you are simply guessing at when to get in or out of a market. A perfect example is the Hunt brothers manipulation of the silver market. A lot of people made money on the way up, but if they didnt bailout in advance of the bottom falling out (or got in to late) poof they were gone. Put another way, speculation in commodities or any other market where long term profits arent driven by real growth in value of the investment is a zero sum game, and a negative sum game after transaction costs. </font>
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which is precisely what I do, other than the few times when I eliminate risk by moving out of the market altogether, such as when the Dow was in the 13900s, and I will do again when the primaries start to shake out and before the Democratic risk premium is fully priced in.

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i wasnt asking about your portfolio. I was asking why you were using that as an excuse to avoid committing to a bet. <font color="red"> you really are f$%^ing dense, arent you? </font>

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What part of "I don't speculate" don't you understand?

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Do you have any cash? Do you have any stock? You are speculating. Get over it.

[/ QUOTE ] <font color="red">Perhaps after re-explaining it to you once again youve come to understand the difference between naked speculation and consistently profitable investing. </font>

[adios]

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This is what I originally thought you meant but then you said it wasnt. The austrian arguement is that the liquidity that gets pumped into the economy causes investors to act irrationally because it makes them miscalculate the value of stocks. But this isnt irrational given the individuals immediate information on the availability of credit. If the stock market were truly free from government regulation the true market values of stocks would be achieved a lot faster

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You realize that U.S. stock market returns in the aggregate since say 1926 are mucho higher than what financial theory would predict them to be. This is what I don't understand about all the criticism regarding investors getting bilked because of actions by the Fed. Investors have been overly compensated for the risk inherent in owning stocks not under compensated for the risk. I use 1926 because that's generally the date people use since that's when the S&amp;P 500 was initiated. The S&amp;P 500 is a proxy for the overall valuation of the market. The disparity between actual returns from the stock market (ex post returns) and what financial theory states they should be is commonly refereed to as the equity risk premium puzzle or paradox. Search google for more info if interested. Dr. Bradford Cornell, UCLA professor, wrote an excellent and higly readable book about the equity risk premium which includes a discussion of the equity risk premium puzzle.

Cliff Notes: Investors have been overly compensated for the risk of owning stocks not under compensated.

[Copernicus]

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This is what I originally thought you meant but then you said it wasnt. The austrian arguement is that the liquidity that gets pumped into the economy causes investors to act irrationally because it makes them miscalculate the value of stocks. But this isnt irrational given the individuals immediate information on the availability of credit. If the stock market were truly free from government regulation the true market values of stocks would be achieved a lot faster

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You realize that U.S. stock market returns in the aggregate since say 1926 are mucho higher than what financial theory would predict them to be. This is what I don't understand about all the criticism regarding investors getting bilked because of actions by the Fed. Investors have been overly compensated for the risk inherent in owning stocks not under compensated for the risk. I use 1926 because that's generally the date people use since that's when the S&amp;P 500 was initiated. The S&amp;P 500 is a proxy for the overall valuation of the market. The disparity between actual returns from the stock market (ex post returns) and what financial theory states they should be is commonly refereed to as the equity risk premium puzzle or paradox. Search google for more info if interested. Dr. Bradford Cornell, UCLA professor, wrote an excellent and higly readable book about the equity risk premium which includes a discussion of the equity risk premium puzzle.

Cliff Notes: Investors have been overly compensated for the risk of owning stocks not under compensated.

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This kind of modeling goes well beyond what we use regularly, though one of my client's large investment managers brought it up at dinner a couple of months ago. Apparently Yakov Ben-Haim has proposed a "solution" to the paradox that is consistent with the actual risk premium. His "cocktail party" synopsis raised my interest in the context of poker, since it is centered around decision making under uncertainty. The little reading I did after that kinda killed my interest, since the solutions are non-probabilistic.

[DcifrThs]

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What part of "I don't speculate" don't you understand?

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Do you have any cash? Do you have any stock? You are speculating. Get over it.

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Perhaps after re-explaining it to you once again youve come to understand the difference between naked speculation and consistently profitable investing.

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Copernicus, you've outlined your thoughts pretty well and i agree w/ many if not most of them.

i would like to say though, that you should probably give up on this point (despite the fact that it is exceedingly obvious).

"a wise man told me 'don't argue with fools, cause people from a distance can't tell who is who.'"

Barron

[Copernicus]

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What part of "I don't speculate" don't you understand?

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Do you have any cash? Do you have any stock? You are speculating. Get over it.

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Perhaps after re-explaining it to you once again youve come to understand the difference between naked speculation and consistently profitable investing.

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Copernicus, you've outlined your thoughts pretty well and i agree w/ many if not most of them.

i would like to say though, that you should probably give up on this point (despite the fact that it is exceedingly obvious).

"a wise man told me 'don't argue with fools, cause people from a distance can't tell who is who.'"

Barron

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I dont disagree....even a cat gets tired of batting around a bloodied mouse at some point, even if he keeps getting back up to fight. If he kept digging a deeper hole like so many here do he just repeats the same mistakes over and over, so even the entertainment value isn't there.

[DcifrThs]

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This is what I originally thought you meant but then you said it wasnt. The austrian arguement is that the liquidity that gets pumped into the economy causes investors to act irrationally because it makes them miscalculate the value of stocks. But this isnt irrational given the individuals immediate information on the availability of credit. If the stock market were truly free from government regulation the true market values of stocks would be achieved a lot faster

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You realize that U.S. stock market returns in the aggregate since say 1926 are mucho higher than what financial theory would predict them to be. This is what I don't understand about all the criticism regarding investors getting bilked because of actions by the Fed. Investors have been overly compensated for the risk inherent in owning stocks not under compensated for the risk. I use 1926 because that's generally the date people use since that's when the S&amp;P 500 was initiated. The S&amp;P 500 is a proxy for the overall valuation of the market. The disparity between actual returns from the stock market (ex post returns) and what financial theory states they should be is commonly refereed to as the equity risk premium puzzle or paradox. Search google for more info if interested. Dr. Bradford Cornell, UCLA professor, wrote an excellent and higly readable book about the equity risk premium which includes a discussion of the equity risk premium puzzle.

Cliff Notes: Investors have been overly compensated for the risk of owning stocks not under compensated.

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yup. there is one theory about a "fix" to the puzzle that i agree with put forth by a solid economist, Thaler.

he says that the premium matches what you'd expect if you assume investors are often short sighted and have a time horizon shorter than logically correct for long term investors AND are highly averse to losses vs. gaines (prospect theory proves this last point). if you assume a portfolio evaluation horizon of 1 year and a 2x loss aversion, the equity risk premium is what you'd get (i.e. about 6%).

this theory isn't widely accepted but i think it matches what i'd imagine investors in aggregate to be like (i.e. not theoretically correct and very loss averse relative to gains).

other theories about the risk premium puzzle just make assumptions about investors that i highly disagree with and in practice don't match participant action.

Barron

[Zygote]

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your lack of ability to understand them doesnt make them weak

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is there a possibility you are lacking the ability to understand mine or the austrian position or havent inquired enough into it?

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it has to do with your inference that the run up in gold the last few years was somehow predictable and a "good investment" a priori. When you continually throw darts at a dart board you'll eventually hit the bulls eye. That doesnt mean your aim has gotten any better.

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it was a good investment a priori. Read "The coming collapse of the dollar and how to profit from: gold" by James Turk. that came out in 2004. This was the early secular bull market for gold that was glaringly obvious.

I invested a priori. Ill make predictions for the future for you right now if you like and you can check up on them.

What you seem to mis-understanding is just because some in the market realize the same information i do doesnt mean things arent mis-priced. If more people are putting money against the information than for it there still exists opportunity to make money. This happens often for a variety of reasons. I dont see how you deny it. You seem to think every long term profitable investor was just lucky besides those in index funds or fully hedged positions?

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im not sure whether you are making this statement or being sarcastic about someone elses, or perhaps Im misunderstanding it altogether. It makes no sense as a serious statement.

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im reducing your argument to an absurdity. It wasn't meant to be serious.

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No, Im saying that when the events you are talking about are investments where you have no information that the market doesnt have, no one has been consistently +EV.

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Again, just because other people know the likely eventual path of a currency doesnt mean they will outnumber those who put their money against this. Some market participants/manipulators, like China, buy securities for political reasons which is one reason why there are +ev bet available, for example.

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No but it means that if you can't you shouldn't play.


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Okay so? You seemed to be denying that its possible to make money while speculating.

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Once again the issue isnt whether it is speculation, its whether you can speculate profitably. Hedged investing and indexed investing with long timr horizons have proven to be profitable...one that requires expertise, and one that doesnt. Naked commodities investing, market timing, fundamental analysis etc have demonstrated for decades that they are not profitable

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Fully hedged positions are the opposite of profitable. You hedge to minimize risk not increase profits.

Your reasoning with indexes still doesnt make sense. You are saying its possible that indexes are mispriced but its not possible that stocks or commodities within the index are mispriced. How can this be true?

I also never said anyone can predict perfect times for anything but that in no way means people cant still recognize general trends and find positive value investments.

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after transaction costs and over the long term yes. Im not the one saying it, decades of tracking investment professionals says it

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please cite a study that proves that profitable investing besides fully hedged positions and index funds is a myth and no investor can do better than a random dart throw, regardless of how well he/she can describe the market?


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you started the discussion about CPI and the relative values of currencies. I guess I wasnt clear enough. All of that amounts to statistical games if the standard of living has continued to improve

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and i said standard of living is not close to a definite measure of whether or not monetary policy has been successful. I also said specifically that the standard of living right is artificially high right now so a measure of going up doesnt say much. Obviously the standard of living would be high when you're prosperity rests on borrowing.

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both. If there were no lack of demand currently then the quality of loans would be irrelevant, because the borrower could sell his way out of unaffordable debt.

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its not the people dont demand the houses its that there is no one who can actually afford to be he's debt. He couldnt afford and many other on the market couldnt afford theirs. They still want home, but there isnt enough resources to support them. This bubble started from artificially low interest rates.

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the level of defaults that have actually occurred is miniscule with regard to the total mortgage market. The reaction to date has been way overblown.

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Im saying its going to get a lot worse from my analysis. Are you speculating that its not?

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do you even follow the Feds interest rate movements? If anything they were raised too quickly for the level of inflation..

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I quoted the fed to back up my argument. Why dont you quote them to back up yours.

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People in that market are calling for cuts still. cool you got one right. Of course virtually everyone is calling for cuts still, so that wasnt exactly a brilliant observation

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show me any recent past statements that show the fed is even seriously considering them.

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No, I said the candidates have made it clear that one of the two will definitely be worse.

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so? you brought this up to reason that problems will only occur if dems win the race. Why did you bring it up if not?

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nothing youve said here disagrees with anything Ive said, other than the opinion of many that the Fed has been too conservative with regard to the threat of inflation

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So you agree you and the fed are interpreting the market differently? You think they have been too conservative with regard to inflation and they are saying they must be very conservative now.

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If the economy was non-inflationary why do you see interest rate cuts as dangerous? I said interest rate cuts in combination with the expansion of the monetary supply are dangerous. DUCY?

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Um thats what ive been saying. Am i going crazy or did you not say the markets are non-inflationary and the fed has been too tight? How can the interest rate cut negatively effect the money supply under those circumstances? A rate cut will always result in the increase in money supply, but if the markets are not currently inflationary and in fact deflationary like you claim then this is not bad in any sense.

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not its not as Ludwig von Mises and followers clearly explained. Where is dcifr's proof of this btw? LvM, lmao. If Austrian economics was demonstrably better it would be the prevailing theory. It isnt, its not.

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Im personally not so interested in appeals to majority or things along that long. Core ideas matter much more to me. Id expect someone who calls themselves Copernicus to not defend an argument by appealing to the status quo.

further neoclassical economics has adopted an extremely large share of Austrian economics.

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perhaps I didnt explain clearly enough. If you arent one of the manipulators you are simply guessing at when to get in or out of a market.

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not pure guessing. for example china has little reason to continue buying us securities for much longer and many other factors will tempt them away in the near future and may even results in a sell off of current assets. Either way this will likely contribute to a secular downtrend in USD, on top of the fact that the fed has their hands tied when it comes to fighting inflation.

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i wasnt asking about your portfolio. I was asking why you were using that as an excuse to avoid committing to a bet. you really are f$%^ing dense, arent you?

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must be.

also im curious to why you think the democratic risk premium isnt fully priced in. How that possible? and after transaction costs? must be negative ev.

[Zygote]

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What part of "I don't speculate" don't you understand?

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Do you have any cash? Do you have any stock? You are speculating. Get over it.

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Perhaps after re-explaining it to you once again youve come to understand the difference between naked speculation and consistently profitable investing.

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Copernicus, you've outlined your thoughts pretty well and i agree w/ many if not most of them.

i would like to say though, that you should probably give up on this point (despite the fact that it is exceedingly obvious).

"a wise man told me 'don't argue with fools, cause people from a distance can't tell who is who.'"

Barron

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Why don't you defend any of the points that were targeted at your remarks rather than encourage others to be self-righteous?

[ianlippert]

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Copernicus, you've outlined your thoughts pretty well and i agree w/ many if not most of them.

i would like to say though, that you should probably give up on this point (despite the fact that it is exceedingly obvious).

"a wise man told me 'don't argue with fools, cause people from a distance can't tell who is who.'"


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This is a pretty lame cop-out

I'm an ACist but I'm open minded. I'd really like to understand your point of view but I dont see it as a good explanation for business cycles. Now mabey its just because the austrian theory is an over simplification, but its not like we are talking about quantum mechanics here. You guys should be able to give a rough explanation for us laymen. If not, is there any good resources that give an in depth explanation of current money markets?

[DcifrThs]

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What part of "I don't speculate" don't you understand?

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Do you have any cash? Do you have any stock? You are speculating. Get over it.

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Perhaps after re-explaining it to you once again youve come to understand the difference between naked speculation and consistently profitable investing.

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Copernicus, you've outlined your thoughts pretty well and i agree w/ many if not most of them.

i would like to say though, that you should probably give up on this point (despite the fact that it is exceedingly obvious).

"a wise man told me 'don't argue with fools, cause people from a distance can't tell who is who.'"

Barron

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Why don't you defend any of the points that were targeted at your remarks rather than encourage others to be self-righteous?

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fact: passively investing in risky assets by collecting risk premium pays you over time.

fact: speculating is different than passive risk premium collection.

fact: speculating is zero sum (negative sum), risk premium collection is positive sum (everybody can win)

if you disagree with any of those statements let me know.

Barron

EDIT: to be clear, i'm calling anybody who firmly states as a fact (what you did)something contrary to those points a fool. further, it isn't worth arguing with somebody that dense. on the other hand, if somebody made that statement (something contrary to those points) and wants to learn as to why they are facts, i'll gladly engage and relay the theory that leads them to be true. you don't seem to be willing to learn and instead make statements like

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Do you have any cash? Do you have any stock? you are speculating, get over it

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that is an embarrasing (for you) belief.