Bye Bye GDPNow

[werepossum]

The Economy, on the quantum level, is about to peak to maximum inertial momentum. Geometric evolution calculated to the 100th position concludes to greater than 90 percent certainty: Buy Low, Sell High

lol +1

He could be self-employed. My dentist said he pays $35k for his family's medical plan (4 people).

$16k per year, or $35k if you include dental.

 

[OverVolt]

Five years ago I was so sure the economy was about to die that I yanked all out of stocks and went full in on gold. Since then the Dow is almost three times as big and my gold is worth less. I not worried though because <insert name of expert who owns a blog> predicted all this so I now doubling down on yet more gold. I started burying my silver coins in PVC in the backyard too.

The last stage of a bull market is the most profitable and most risky.

 

[OverVolt]

Saying that QE leads to lower velocity of money still wouldn't mean it was deflationary. QE is still fundamentally inflationary, but a lot of it is offset by the liquidity trap.

Inflation is a function of the velocity of money AND the overall money supply. When in a state with a near infinite preference for liquidity as we have been in, increasing the money supply tends to correspond with decreasing velocity. It's not that QE is deflationary, it is that people hoarding money decreases the velocity, which offsets the increases in the monetary base.

https://www.stlouisfed.org/On-The-E...elocity-Tell-Us-about-Low-Inflation-in-the-US

Yes I know. Its deflationary because in the long run everyone is chasing returns at any risk and at any price with all their parked money. When stocks stop delivering returns because too many people have piled into them you are left with bonds. And bonds yield like 3% because of QE. Japanese bonds I think are sub 1%. Everybody is collecting 0.1% in their savings accounts, etc. Thats deflationary. Ain't nobody can afford to retire on that shit looking out 20-30 years if this keeps up.

The returns in the stock market don't mean anything, because everyone can't cash out at these values on lower volume. If you cash out guess what, you are back getting shitty returns. Trying to guess when its peaked is the widow maker trade though, its a fools errand. Everybody is along for the ride. Eventually stocks are going to start giving shitty returns like bonds.

 

[fskimospy]

Yes I know. Its deflationary because in the long run everyone is chasing returns at any risk and at any price with all their parked money. When stocks stop delivering returns because too many people have piled into them you are left with bonds. And bonds yield like 3% because of QE. Japanese bonds I think are sub 1%. Everybody is collecting 0.1% in their savings accounts, etc. Thats deflationary.

Not by the definition of deflation.

 

[OverVolt]

Not by the definition of deflation.

Yeha, it'll be defined as the next deflationary recession

Maybe its just being older and being able to see a credit cycle start to finish. You can see how everyone is being dumb and will eventually get burned.

 

[sm625]

Welp, it looks like they dont need to kill of GDPNow after all, since even it was wrong by a full percentage point!

About the $20k health insurance costs... You have to add the deductibles onto the cost because you need to pay out on those deductibles if you actually want to make real use of your insurance. So with the average employer insurance cost at $14k, and the average deductible at $6000, you get $20k. No inflation there at all. Not a bit. That looks like a steady 1% to me. Please post more pictures now.

 

[fskimospy]

Welp, it looks like they dont need to kill of GDPNow after all, since even it was wrong by a full percentage point!

Gee, that's convenient. I'm sure they were ready to kill of GDPNow any day too. Seriously, this conspiracy theorizing is nuts.

About the $20k health insurance costs... You have to add the deductibles onto the cost because you need to pay out on those deductibles if you actually want to make real use of your insurance. So with the average employer insurance cost at $14k, and the average deductible at $6000, you get $20k.

That's nonsensical for several reasons.

1. The average deductible for all people with health insurance plans is not $6,000 or anywhere close. Full stop.

http://www.kiplinger.com/article/in...xpect-from-your-health-insurance-in-2015.html

2. Even given your figure, health expenses are highly variable in any given year. (this is why we need health insurance after all) The average person can have little to no medical expenses one year and hundreds of thousands the next, which means they would only be paying their deductible one of two years. Regardless, $6,000 would be the absolute MAXIMUM one could spend on deductibles. Incorporating the full deductible in the yearly expense is illogical.

No inflation there at all. Not a bit. That looks like a steady 1% to me. Please post more pictures now.

It's very odd that when externally verifiable facts go against what you want to believe you simply ignore them and try and find excuses as to why they aren't true. That's irrational.

 

[First]

Welp, it looks like they dont need to kill of GDPNow after all, since even it was wrong by a full percentage point!

About the $20k health insurance costs... You have to add the deductibles onto the cost because you need to pay out on those deductibles if you actually want to make real use of your insurance. So with the average employer insurance cost at $14k, and the average deductible at $6000, you get $20k. No inflation there at all. Not a bit. That looks like a steady 1% to me. Please post more pictures now.

Yikes, numbers really aren't your thing. Just stop.

 

[dank69]

Welp, it looks like they dont need to kill of GDPNow after all, since even it was wrong by a full percentage point!

...

That's good, I was really worried.

 

[fskimospy]

That's good, I was really worried.

I think my favorite part of the whole conspiracy is that he thought the government would get rid of GDPNow because it was reporting low economic growth numbers for the first quarter and the government has been lying/manipulating the numbers to make them look better.

Then when the government's numbers turn out to be lower than GDP now, he immediately accepts the numbers he thought were 'cooked' before because they say what he wants to believe.

It's baffling.

 

[dank69]

I think my favorite part of the whole conspiracy is that he thought the government would get rid of GDPNow because it was reporting low economic growth numbers for the first quarter and the government has been lying/manipulating the numbers to make them look better.

Then when the government's numbers turn out to be lower than GDP now, he immediately accepts the numbers he thought were 'cooked' before because they say what he wants to believe.

It's baffling.

Pretty sure he is all about the thermite so I'm not too baffled.

 

[Charmonium]

Saying that QE leads to lower velocity of money still wouldn't mean it was deflationary. QE is still fundamentally inflationary, but a lot of it is offset by the liquidity trap.

Inflation is a function of the velocity of money AND the overall money supply. When in a state with a near infinite preference for liquidity as we have been in, increasing the money supply tends to correspond with decreasing velocity. It's not that QE is deflationary, it is that people hoarding money decreases the velocity, which offsets the increases in the monetary base.

https://www.stlouisfed.org/On-The-E...elocity-Tell-Us-about-Low-Inflation-in-the-US

It depends on what you mean by hoarding money. Almost all of the $3T or so that the fed pumped into the money supply is locked in excess reserves. That money CANNOT contribute to inflation until banks start to use it as the basis for making loans and that's not happening anytime soon.

It's only now that banks are beginning to ease up on underwriting requirements. But previously, you needed a platinum plated credit rating to get any kind of loan. That's easing up now but it will be a process that will probably take a few more years before we get back to "normal" lending practices.

 

[dullard]

It depends on what you mean by hoarding money. Almost all of the $3T or so that the fed pumped into the money supply is locked in excess reserves. That money CANNOT contribute to inflation until banks start to use it as the basis for making loans and that's not happening anytime soon.

It's only now that banks are beginning to ease up on underwriting requirements. But previously, you needed a platinum plated credit rating to get any kind of loan. That's easing up now but it will be a process that will probably take a few more years before we get back to "normal" lending practices.

That is true that the money never got out to the public, so it couldn't have caused inflation. But you also forgot two other important things:

1) Asset values dropped ~$16.4T, so pumping ~$3T back in is actually way too little to make any difference with respect to inflation.

2) Inflation is more closely tied to interest rates than people are willing to believe. Interest rates are low, so if we follow the example of almost all examples of economies that have been studied, then inflation will stay low in that scenario (contrary to popular belief that inflation soars when interest rates are low).

 

[fskimospy]

That is true that the money never got out to the public, so it couldn't have caused inflation. But you also forgot two other important things:

1) Asset values dropped ~$16.4T, so pumping ~$3T back in is actually way too little to make any difference with respect to inflation.

2) Inflation is more closely tied to interest rates than people are willing to believe. Interest rates are low, so if we follow the example of almost all examples of economies that have been studied, then inflation will stay low in that scenario (contrary to popular belief that inflation soars when interest rates are low).

I'm pretty sure most people know that interest rates are extremely closely tied to inflation. (at least I would hope they do?)

That's why we're stuck in this low inflation liquidity trap. The actual interest rate level that would be consistent with somewhat higher inflation (which we want) is currently below zero. Since it is very difficult to push real interest rates below zero, monetary policy has been largely rendered ineffective.

 

[Charmonium]

That is true that the money never got out to the public, so it couldn't have caused inflation. But you also forgot two other important things:

1) Asset values dropped ~$16.4T, so pumping ~$3T back in is actually way too little to make any difference with respect to inflation.

2) Inflation is more closely tied to interest rates than people are willing to believe. Interest rates are low, so if we follow the example of almost all examples of economies that have been studied, then inflation will stay low in that scenario (contrary to popular belief that inflation soars when interest rates are low).

I'm not sure which assets you're referring to but both home prices and stock prices have rebounded to their pre-crisis levels. Of course that's more true generally of stocks. With housing, it depends a lot on which markets you're talking about but overall I think that's probably true.

The association between rates and inflation is based on supply and demand. A large supply of money implies that the cost of money is cheap and hence you get low rates. Unfortunately, when supply exceeds demand that also tends to create inflation - but only if the money actually makes it into the economy. Excess reserves are essentially firewalled from the economy and only become available once banks start to lend.

 

[Charmonium]

I'm pretty sure most people know that interest rates are extremely closely tied to inflation. (at least I would hope they do?)

That's why we're stuck in this low inflation liquidity trap. The actual interest rate level that would be consistent with somewhat higher inflation (which we want) is currently below zero. Since it is very difficult to push real interest rates below zero, monetary policy has been largely rendered ineffective.

That's going to change this year. Yellen has already said the fed will raise rates this year. Most of the speculations seems to be focusing on Sept but I wouldn't rule out June.

It will most likely be a quarter point but since the fed funds rate is around .12 now I think, It will really be more like an eighth of a point.

They've also said that after they start to raise, further hikes will be data dependent. So many are reading this to mean that we might get one small hike this year and probably won't see another until some time next year, if at all.

But the fed knows that as you approach NAIRU (full employment), you need to start to drain excess liquidity, especially considering that any monetary policy changes can take several months to start to have an effect.

In addition they understand that they need to bring their balance sheet back into line. That means selling some of the $3-4T they have in assets and thus reducing the money supply.

 

[dullard]

I'm not sure which assets you're referring to but both home prices and stock prices have rebounded to their pre-crisis levels. Of course that's more true generally of stocks. With housing, it depends a lot on which markets you're talking about but overall I think that's probably true.

I was referring mostly to stocks and housing prices. You are correct that stock prices have recovered (inflation adjusted they are basically where they were before).

Housing prices are recovering but aren't there yet. The median price of homes sold in 2005, 2006, and 2007 all ranged from $210,000 in winter to $230,000 in summer months. In the last year the prices were $197,600 in winter and $222,000 in summer. So housing prices are recovering but still have another 5% to go (ingoring inflation) and 22% to go (including inflation) to fully recover.

 

[dullard]

I'm pretty sure most people know that interest rates are extremely closely tied to inflation. (at least I would hope they do?)

That's why we're stuck in this low inflation liquidity trap. The actual interest rate level that would be consistent with somewhat higher inflation (which we want) is currently below zero. Since it is very difficult to push real interest rates below zero, monetary policy has been largely rendered ineffective.

So many people on Anandtech claim that low interest rates lead to hyperinflation. When in fact the opposite is true. I just looked over the last 60 years of US data. When the effective federal funds rates are below 4%, inflation the next year has never exceeded 4.75%. In fact, the average inflation for the next year was 1.98% when the effective federal fund rates were below 4% (average uses 293 monthly data points, so this isn't a small sample size)

The correlation over the last 60 years is (annual inflation rate for the next year) ~= 0.4973* (effective federal funds rate) + 1.2%.

With effective federal fund rates near zero, that correlation says our inflation for the next year will be just about 1.2% (if the economy behaves typically).

 

[Charmonium]

A little off topic but here is a great explanation of why inflation isn't a problem despite record levels of liquidity in the system. Personally I think he overlooks certain factors but it's still a good article from a renowned economist.

excerpt:

All of this changed in 2008, when a legislative reform allowed the Fed to pay interest on excess reserves. The commercial banks could sell Treasury bills and longer-term bonds to the Fed, receive reserves in exchange, and earn a small but very safe return on those reserves.

That gave the Fed the ability in 2010 to begin its massive monthly purchases of long-term bonds and mortgage-backed securities. This quantitative easing (QE) allowed the Fed to drive down long-term interest rates directly, leading to a rise in the stock market and to a recovery in prices of owner-occupied homes. The resulting rise in household wealth boosted consumer spending and revived residential construction. And businesses responded to this by stepping up the pace of investment.

Although a link between the Fed&#8217;s creation of reserves and the subsequent increase in spending remained, its magnitude changed dramatically. The Fed increased its securities holdings from less than $1 trillion in 2007 to more than $4 trillion today. But, rather than being used to facilitate increased commercial bank lending and deposits, the additional reserves created in this process were held at the Fed &#8211; simply the by-product of the effort, via QE, to drive down long-term interest rates and increase household wealth.

That brings us back to the apparent puzzle of low inflation. The overall CPI is actually slightly lower now than it was a year ago, implying a negative inflation rate. A major reason is the decline in gasoline and other energy prices. The energy component of the CPI fell over the last 12 months by 19%. The so-called &#8220;core&#8221; CPI, which excludes volatile energy and food prices, rose (though only by 1.8%).

Moreover, the dollar&#8217;s appreciation relative to other currencies has reduced import costs, putting competitive pressure on domestic firms to reduce prices. That is clearly reflected in the difference between the -0.2% annual inflation rate for goods and the 2.5% rate for services (over the past 12 months).

Nonetheless, inflation will head higher in the year ahead. Labor markets have tightened significantly, with the overall unemployment rate down to 5.4%. The unemployment rate among those who have been unemployed for less than six months &#8211; a key indicator of inflation pressure &#8211; is down to 3.8%. And the unemployment rate among college graduates is just 2.7%.

 

[OverVolt]

(contrary to popular belief that inflation soars when interest rates are low).

This guy gets it.

1/10 people are barely even on the correct page yet alone figuring out a game plane of what to DO. Ayeeee its hopeless :0).

 

[LegendKiller]

There's a myriad of reasons why banks are not lending as much as they can, constrained capital, increased regulation, bottom-end borrowers are still not that healthy, poor liquidity, once-bitten-twice shy on mortgages, CARD Act for credit cards, shitty borrower behavior and risks for Student Loans, small business creation still low because borrowers aren't healthy. The list goes on and on.

 

[brianmanahan]

Welp, it looks like they dont need to kill of GDPNow after all, since even it was wrong by a full percentage point!

that's the thing with predictions. they are usually wrong.

it's really easy to make predictions. but nobody usually goes and checks to see if they were right or not.

 

[dullard]

There's a myriad of reasons why banks are not lending as much as they can

I think you missed a key reason. Banks are still massively profitable without needing to take on this risk at this time. If the banks were losing money instead of making billions in this market, I think you would see that the search for profits would overrule many of your items on that list.

 

[LegendKiller]

I think you missed a key reason. Banks are still massively profitable without needing to take on this risk at this time. If the banks were losing money instead of making billions in this market, I think you would see that the search for profits would overrule many of your items on that list.

Not really. Look at the mortgage market. Many banks wouldn't lend even conforming mortgages, or even hold them, because there was too much risk in the fact that they could be put back. Look at consumer loans, banks cut off lower-end FICO CCs because of the Card Act doesn't allow them to Risk Based Price. Look at Autos, a lot of the tools they have they can't use because of "disparate impact" could be perceived at any point. The CFPB is making them pay a road toll to even operate and the number of compliance people an indirect auto lender needs is huge. Banks still won't get into subprime auto even thought many non-banks can live in the space just fine. Why? Regulations.

Capital constraints under BASEL III are putative towards a lot of loans and securities.

What about Volcker. Non-Volcker compliant investment funds can't be held by the banks, you see the disruption in the CLO market. Middle Market/levered loans are still wide compared to where they should be.

This isn't a case of just current profitability. Why would they take on more risk right now when they've already been assaulted under dozens of new regulations that really don't do jack shit.

 

[dullard]

Hmmm, GDPNow is somehow still alive and ticking. 2.3% GDP growth was just forcasted for the 2nd quarter.

https://www.frbatlanta.org/cqer/research/gdpnow.aspx