economy

[dmp]

The issue is not what they will do but how the market will react, they have telegraphed their intent.in fact they will just start buying less, since this is short term debt it will naturally roll off their balance sheets as it matures.

Partially correct - it is rolling off but it is not short term debt. The QE bought treasuries, MBS etc - more long term debt. But as is matures, the Fed has been repurchasing. Starting this fall, they indicated they will slow repurchases and let them rolloff. Currently repurchases are something like 60 billion a month (as I recall, may be wrong).
The fed overnight lending rate, which they have been bumping up .25% lately, controls short term rates but in order to bring down longterm rates, QE was used to purchase long term debt. This succeeded in bringing down the whole yield curve.
Bond rates (the natural rate) are determined by supply and demand. Less demand, higher rates are offered to attract buyers. With central banks buying, more buyers meant lower rates.
The ECB & BOJ are still buying so QE is still ongoing. 
Even as the Fed starts rolloff securities, the world is still awash in capital looking for returns.

money supply will still expand to match the weak GDP growth. I had hoped for faster GDP growth but tax reform appears like it will be delayed.

huh?
money supply expands with more debt. I've never heard the theory money supply expands due to weak GDP growth. Indications are that corporate debt has rolled over and is declining.
If tax cuts and more wealth in the pockets of the very wealthy drove higher GDP, the last thirty years would have not been showing a downward trend.
In fact it is probably the opposite. More wealth in the pockets of the very wealthy drove inflation of assets (houses, stocks), but reduced inflation and money velocity on the more general economy.
Economists say GDP growth is driven by demographics and productivity.

(6) Convert debts into another novel cryprocurrency and inflate heavily, making the debts disappear into infinity.

The Fed/US gov has complete control over the USD. But the ability to sell future debt relies on investor confidence.  If they wanted to wipe out the entire US debt they could tomorrow by printing money.  But why would anyone buy a US treasury if the return would be based on printed money? Investors would flee the USD in general, creating havoc.
Cryptos have money inflation programmed into the algorithm. For instance bitcoin increases 12.5 every 10 minutes currently. This mining reward will continue to halve periodically until the total supply is fixed at 21 million in a few decades. This is one of the fundamental reasons bitcoin is attracting attention.

(6) Keep 'printing' and invest heavily into Bitcoins. Then torpedo and confiscate the entire train.

hum... the US could outlaw cryptos but since they are global - 'confiscating' the blockchain would be extremely difficult. Would need a majority of hashing power.  And they could not do this without attracting great attention. I don't see any point.
Cryptocurrencies are here to stay and starting a major disruption of the status quo. The inovation is proceeding extremely fast. As soon as a weakness is identified in one, new technology is invented to improve upon it. For instance bitcoin has a problem with fungibility and ring signatures were implemented with Monero to make them untraceable.

 

[JohnRoberts]

Partially correct - it is rolling off but it is not short term debt. The QE bought treasuries, MBS etc - more long term debt. But as is matures, the Fed has been repurchasing.

I stand corrected, they purchased a mix of maturities based on what was available at each auction. A mix of 2 and 3s all the way to 10s and 30s and tips.

Starting this fall, they indicated they will slow repurchases and let them rolloff.

current advice is they will fully reinvest principal until mid 2018 (unless they change their mind again).

Currently repurchases are something like 60 billion a month (as I recall, may be wrong).

sounds close enough

The fed overnight lending rate, which they have been bumping up .25% lately, controls short term rates but in order to bring down longterm rates, QE was used to purchase long term debt. This succeeded in bringing down the whole yield curve.

they purchased all maturities to suppress rates on all.

Bond rates (the natural rate) are determined by supply and demand. Less demand, higher rates are offered to attract buyers. With central banks buying, more buyers meant lower rates.
The ECB & BOJ are still buying so QE is still ongoing. 
Even as the Fed starts rolloff securities, the world is still awash in capital looking for returns.

yes this easing is fungible so affects the whole world... US is ahead in tightening but some are still easing.

huh?
money supply expands with more debt. I've never heard the theory money supply expands due to weak GDP growth.

I never heard that either.... what I meant is that central banks will still expand the money supply, because the GDP is still expanding  albeit at a sub standard rate (1-2%)

Indications are that corporate debt has rolled over and is declining.
If tax cuts and more wealth in the pockets of the very wealthy drove higher GDP, the last thirty years would have not been showing a downward trend.

the downward trend is in GDP growth, not GDP.

In fact it is probably the opposite. More wealth in the pockets of the very wealthy drove inflation of assets (houses, stocks), but reduced inflation and money velocity on the more general economy.

Central bankers intentionally tried to create a "wealth effect" using asset inflation to make people feel wealthier.  This disproportionately helped people who actually own assets (like the wealthy, but also worked on underwater housing).

Economists say GDP growth is driven by demographics and productivity.

productivity is a factor, demographics is indirectly involved, We need immigration to continue economic growth, but not wide open borders, more biased toward productive new citizens.

The Fed/US gov has complete control over the USD. But the ability to sell future debt relies on investor confidence.  If they wanted to wipe out the entire US debt they could tomorrow by printing money.  But why would anyone buy a US treasury if the return would be based on printed money? Investors would flee the USD in general, creating havoc.

thus my concern about market response to this expected future change.

Cryptos have money inflation programmed into the algorithm. For instance bitcoin increases 12.5 every 10 minutes currently. This mining reward will continue to halve periodically until the total supply is fixed at 21 million in a few decades. This is one of the fundamental reasons bitcoin is attracting attention.

another ping against bitcoin is high transaction fees ($5 IIRC). This makes it hard to buy your morning cup of coffee with bitcoin.

hum... the US could outlaw cryptos but since they are global - 'confiscating' the blockchain would be extremely difficult. Would need a majority of hashing power.  And they could not do this without attracting great attention. I don't see any point.
Cryptocurrencies are here to stay and starting a major disruption of the status quo. The inovation is proceeding extremely fast. As soon as a weakness is identified in one, new technology is invented to improve upon it. For instance bitcoin has a problem with fungibility and ring signatures were implemented with Monero to make them untraceable.

Blockchain has been widely embraced by the financial industry. A lot of this will be transparent to end users, just cheaper better transactions.  The alternate currency seems like somebody's wet dream...  but the future hasn't happened yet so I don't know.  (my small gold position is still down, but market keeps going up.    ).

JR

 

[dmp]

current advice is they will fully reinvest principal until mid 2018 (unless they change their mind again).

To quote the former Fed Chief Greenspan:
"If I've made myself too clear, you must have misunderstood me"

Current plan they telegraphed is to roll off 6 billion a month and ramp up to 30 billion but they have not said exactly when it will start.  I thought I'd read that it could be this fall (Sept meeting) but we will have to wait and see.

Blockchain has been widely embraced by the financial industry. A lot of this will be transparent to end users, just cheaper better transactions. 

The technology innovation with bitcoin (blockchain) basically  was a public ledger. The original whitepaper is worth the read:
https://bitcoin.org/bitcoin.pdf

The technology removes a central authority for transactions (remove VISA, paypal, banks, etc...)
It might help banks in the short term but it might also make them obsolete. Time will tell.

another ping against bitcoin is high transaction fees ($5 IIRC). This makes it hard to buy your morning cup of coffee with bitcoin.

Yup, and there are other coins that innovate for this to have very low fees.  Transaction difficulty has made Bitcoin unusable for day-to-day purchases. Not only is a high fee required, but confirmation times are 30 mins. Who wants to wait 30 mins at the coffee shop for your purchase to complete?
Bitcoin was the first to market and benefits from the network effect - other than that other cryptos beat it.
Bitcoin is currently leading for store-of-wealth and discrete wealth transfer (for instance, in a country with capital controls - people want control of their money).
But fungibility is a problem that most aren't aware of yet. Every coin can be traced back over the blockchain to every previous owner and transaction. If you buy a coin today, and it can be shown that same coin was used 5 years ago for an illegal purpose (even multiple owners ago), then the Gov could use civil asset forfeiture laws to seize it / criminalize it. 

 

[JohnRoberts]

To quote the former Fed Chief Greenspan:
"If I've made myself too clear, you must have misunderstood me"

Greenspan practiced obfuscation, Fed chiefs since him have tried to be far more transparent.

Current plan they telegraphed is to roll off 6 billion a month and ramp up to 30 billion but they have not said exactly when it will start.  I thought I'd read that it could be this fall (Sept meeting) but we will have to wait and see.

The technology innovation with bitcoin (blockchain) basically  was a public ledger. The original whitepaper is worth the read:
https://bitcoin.org/bitcoin.pdf

The technology removes a central authority for transactions (remove VISA, paypal, banks, etc...)
It might help banks in the short term but it might also make them obsolete. Time will tell.
Yup, and there are other coins that innovate for this to have very low fees.  Transaction difficulty has made Bitcoin unusable for day-to-day purchases. Not only is a high fee required, but confirmation times are 30 mins. Who wants to wait 30 mins at the coffee shop for your purchase to complete?
Bitcoin was the first to market and benefits from the network effect - other than that other cryptos beat it.
Bitcoin is currently leading for store-of-wealth and discrete wealth transfer (for instance, in a country with capital controls - people want control of their money).
But fungibility is a problem that most aren't aware of yet. Every coin can be traced back over the blockchain to every previous owner and transaction. If you buy a coin today, and it can be shown that same coin was used 5 years ago for an illegal purpose (even multiple owners ago), then the Gov could use civil asset forfeiture laws to seize it / criminalize it.

I have 3 working PCs mostly sitting idle.... Maybe I need to start mining?

JR

 

[Script]

Bitcoin is currently leading for store-of-wealth

start mining?

Yes, cryptos seem the new 'gold' -- probably also because QE has made bonds go into bubble. But I wouldn't be surprised at all, once Bitcoins have reached their 'natural limit of units', that they self-destruct. Who knows... Game over. Want to play again?

Either way, not ideal timing for cryptos right now, I'd say. Bitcoin and Ethereum might be coming out of yet another bubble. Well, rather falling right now or consolidating. Anyway, 'investing' there has become pretty much like high-speed (high-risk) trading/speculation. Rather short holding times (no longer months, but weeks, even days) -- so they need constant monitoring. But if you have time... several e-brokers out there trading them.

Speaking of gold (the metal): Forget gold for short to mid-term. Too many parties with an interest to keep it low (impede alternate wealth storage: 'We are to consume not to save!'). Maybe grab on low for trading (with profit realized rather sooner than later), or go physical gold on next rock bottom, that is, literally 'buy and forget' as in painting it black and using it as a door stop (long term). But then again, gold does not really have that much of a practical value. It's shiny, yes, some think it's groovy, and it makes for good electronic contact, but that's it really. In Japan gold makes for nice decoration on temples, while others grate it into their green tea for consumption. Anyway, gold doesn't 'produce'. So maybe even forget 'gold' altogether. Cryptos are the new gold, albeit with much higher risk. If not that maybe go 'mining companies' for now, cos most miners dig up a variety of stuff and stocks are property after all. But just like gold, not ideal timimg it seems. Although most miners have undergone radical restructuring for better cost effectiveness, miners still don't really want to fly. [Projection: Mining will get interesting once they start mining on asteroids (completely sci-fi for now, but legal framework is underway)].

Techs and cryptos are the latest hype.

 

[JohnRoberts]

The old joke about how much gold to own is "enough to bribe the border guards" .

I wouldn't buy  bitcoin as an investment, but if I can mine some with my idle computers, it might be worth the electricity.

JR

 

[Phrazemaster]

What about silver? It's fairly low right now, and has a zillion practical uses. Also they say it's terribly undervalued as not enough is mined to sustain current consumption. Not sure in that case why price is not much higher.

 

[Phrazemaster]

The old joke about how much gold to own is "enough to bribe the border guards" .

I wouldn't buy  bitcoin as an investment, but if I can mine some with my idle computers, it might be worth the electricity.

JR

BTW JR I didn't know one could mine bitcoins. Is it terribly complicated?

 

[JohnRoberts]

BTW JR I didn't know one could mine bitcoins. Is it terribly complicated?

I have been waiting for one of the bitcoin experts around here to tell us..  ;D

Apparently it takes significant computer power to do it quickly and the ability to mine (what they call the process) effectively is driving the high end of the computer business ....  I think maybe fast gaming video processors are good for making bitcoin.

I suspect my old PCs wouldn't be fast but if they are just sitting around doing nothing it's found money, unless the electricity consumed is worth more than the bitcoins.

--------

re: silver.... yes more commodity uses than gold which is mostly jewelry but when you see people on TV saying you should buy it, I put one hand on my wallet to be sure it is still there.  If it was such a good buy, why would they tell everybody?

I bought a small position of gold, just in case, and I'm down some 25% or more since i bought it (a couple years ago. )

Better stuff to buy (after you have enough to bribe the border guards).

JR

 

[Phrazemaster]

I have been waiting for one of the bitcoin experts around here to tell us..  ;D

Apparently it takes significant computer power to do it quickly and the ability to mine (what they call the process) effectively is driving the high end of the computer business ....  I think maybe fast gaming video processors are good for making bitcoin.

I suspect my old PCs wouldn't be fast but if they are just sitting around doing nothing it's found money, unless the electricity consumed is worth more than the bitcoins.

--------

re: silver.... yes more commodity uses than gold which is mostly jewelry but when you see people on TV saying you should buy it, I put one hand on my wallet to be sure it is still there.  If it was such a good buy, why would they tell everybody?

I bought a small position of gold, just in case, and I'm down some 25% or more since i bought it (a couple years ago. )

Better stuff to buy (after you have enough to bribe the border guards).

JR

Makes sense. Thx.

 

[Script]

Silver is same as gold. Just different color.

 

[JohnRoberts]

Silver is same as gold. Just different color.

More plentiful and a bunch cheaper.... Both are considered precious metals and currency hedges while Gold may be more popular of the two. Some think bitcoin will be a currency hedge but that stands to be proved over time.  For some history google "Hunt Brothers and Silver", they tried to corner the silver market in 1980.

Less than 1/3 of silver comes from actual silver mines, the rest comes as a byproduct of refining other metals like gold, but a lot of silver comes from copper mining so strong industrial activity that consumes a lot of copper will depress silver prices. In recent years the commodity prices have been distorted by hoarding in China and other less orderly market effects. Low interest rates makes it easier to hoard commodities betting on higher future prices.

JR

 

[JohnRoberts]

I am not sure what motivated this study, perhaps because they had the data and could.  Academics in Seattle where the minimum wage has been rising incrementally for several years now, decided to look at food safety citations in the fast food industry over this period of rising wages.

Perhaps surprising, safety violations increased along with wages. One likely explanation is that higher wages resulted in less workers, doing more work each, so they are spread more thinly and let some tasks slide.

I guess this qualifies as an unintended consequence.... While correlation does not prove causation, they did a comparison study in a region with stable wages and did not see the increase..

JR

 

[dmp]

BTW JR I didn't know one could mine bitcoins. Is it terribly complicated?

It seems pretty easy. Install the software and start running it.  I'm going to give it a try with a different coin called Monero.

Bitcoin is useless to even try right now, unless you want to lose money on electricity. The way the mining algorithm works is the computer tries to find the nonce to complete a hash with a leading amount of zeros. The bitcoin protocol increases the difficulty (number of zeros) so that a new block is mined every ten minutes. So the more computer power working on mining, the more difficult it becomes. Through the market forces, the computer power increases as long as it is profitable to do so, so it is nearly as expensive to run the computers as the bitcoin you get.
Almost all bitcoin is mined in China today because the electricity is cheap.
Also, ASIC cards were developed that do the bitcoin calculation with less electricity than CPUs or GPUs, so unless you have ASIC mining hardware you'll lose money doing it.
Other alt coins (like Monero) have algorithms that do not work on ASICs, so anyone with a CPU or GPU can try it. That's what I'm doing with a couple GPUs my IT dept were getting rid of.  I don't expect to make much money.
An old computer is probably good for a learning exercise only.

Apparently it takes significant computer power to do it quickly

Most small players join mining pools. So instead of running a mining computer for 2 years then hitting payday, you get a monthly share of everyone in the pool.

 

[JohnRoberts]

Thanks... kind of what I thought...  NVIDIA and AMD are pursuing specialty products (variant video cards) to sell to miners?

I wonder if this isn't in a bubble too?  I wouldn't buy their stock based on bitcoin mining.

JR

 

[dmp]

GPU video cards have been around for a few years. There development was driven by video games.  But certain other applications that use repetitive calculations of a certain type can benefit from GPUs as well as video rendering.
Mining crypto's is small potatoes.
The surge in business for NVIDIA has been driven by web services I think.  Selling hardware for cloud computing

 

[dmp]

So in the middle of Trump's made in America week, his private mar-a-lago club has requested additional H2-B visas to bring in cheaper labor than available here in the good ol USA.
https://lcr-pjr.doleta.gov/index.cfm?event=ehLCJRExternal.dspJobOrderView&frm=lcjr&task=view_job_order&view=external&lcjr_id=116833

Funny that such a  great economy can't pay workers a living wage and has to continually undercut wages to keep up the profits.

 

[JohnRoberts]

So in the middle of Trump's made in America week, his private mar-a-lago club has requested additional H2-B visas to bring in cheaper labor than available here in the good ol USA.
https://lcr-pjr.doleta.gov/index.cfm?event=ehLCJRExternal.dspJobOrderView&frm=lcjr&task=view_job_order&view=external&lcjr_id=116833

Funny that such a  great economy can't pay workers a living wage and has to continually undercut wages to keep up the profits.

Not very funny..

They allowed some 15,000 more H2B visas but the companies using them say that is too little and too late in the season be very helpful.  Summer is half over or more.

I doubt Trump is personally managing seasonal workers at his resorts but it sounds like the typical media screed these days.

I guess it would be a home run for media if they were to bring in Russian temporary workers.  ;D

JR

PS : Elon Musk is talking more about the risks of AI (he wants the government involved) . I see a huge risk for employment as AI will replace more and more menial jobs with robotics or computers,, Walmart replaced some 10k workers who were managing the store's cash... now they have a machine for that.  The future is coming at us fast, don't blink or you won't know when to duck..

 

[dmp]

They allowed some 15,000 more H2B visas but the companies using them say that is too little and too late in the season be very helpful. 

If companies depend on seasonal workers, maybe they should make the positions more attractive to attract potential employees.
Didn't Trump say there were 94 million unemployed people on the sidelines who could be working?

I see a huge risk for employment as AI will replace more and more menial jobs with robotics or computers

I see a huge potential for improving quality of life. Just need the political / Capitalist powers that be to do the right thing. The economic systems of the developed world are in desperate need of innovation to avoid a collapse, imo.

 

[JohnRoberts]

If companies depend on seasonal workers, maybe they should make the positions more attractive to attract potential employees.

This is an old issue.  In many cases they can not get americans to do the work for a rate that makes sense.. IIRC these were specifically non-farm workers where the economics are even more brutal, resulting in more machine pickers, and vegetables engineered to have skin you can't break with a baseball bat. For landscaping robot lawn mowers already exist but i expect more movement in that direction.

Didn't Trump say there were 94 million unemployed people on the sidelines who could be working?

I don't know, I try not to listen to him about specific details... there still seems to be job openings lacking skilled workers (welders, plumbers, etc).

I see a huge potential for improving quality of life. Just need the political / Capitalist powers that be to do the right thing. The economic systems of the developed world are in desperate need of innovation to avoid a collapse, imo.

Star trek is science fiction, albeit good science fiction.

I see a need to anticipate these workplace trends (I expect it to be significant and faster than we expect, because economic benefits will provide a tailwind to speed up the change). We need to help those who want to work to stay constructively engaged...  We should make it even easier for people with new ideas to start and operate businesses.

The future will be very different , this can be a good thing, or bad depending on how we adapt to the changes.. If we allow the number of disaffected workers to become a significant fraction they could become unhappy together. Large groups of unhappy people makes me unhappy.  8)

JR