will another downgrade of US Treasury debt do it?
or can we expect LTT to (counter-intuitively?) leap up?
or should we expect LTT to continue its (40 year?) bull market...due to problems in Europe...I know it makes no differ to the PP, but its interesting all the same.
What will it take to end the LLT bull market?
Moderator: Global Moderator
-
murphy_p_t
- Executive Member
- Posts: 1675
- Joined: Fri Jul 02, 2010 3:44 pm
-
Ad Orientem
- Executive Member
- Posts: 3483
- Joined: Sun Aug 14, 2011 2:47 pm
- Location: Florida USA
- Contact:
Re: What will it take to end the LLT bull market?
To my mind the great menace to bonds is inflation. People have no idea how much money has been printed in recent years. It's mind boggling. That said some people think that bonds are a good investment. If we are in the early stages of a long depression with ultra low inflation or even some deflation (think Japan) bonds could be a great investment.murphy_p_t wrote: will another downgrade of US Treasury debt do it?
or can we expect LTT to (counter-intuitively?) leap up?
or should we expect LTT to continue its (40 year?) bull market...due to problems in Europe...I know it makes no differ to the PP, but its interesting all the same.
By coincidence I just posted a piece in the VP forum by someone making exactly that argument.
But I don't buy it. There are too many differences between us and Japan. And there is too much money sloshing around and too much debt. At some point the FED will have to start printing again, adding to the already overflowing money supply. From an historical perspective I don't think this is 1931. I think it's more like 1971.
Trumpism is not a philosophy or a movement. It's a cult.
Re: What will it take to end the LLT bull market?
Robert Prechter lays out a pretty strong case for why he believes deflation is inevitable: http://www.thedailycrux.com/reports/int ... Report.asp
All of humanity's problems stem from man's inability to sit quietly in a room alone. - Blaise Pascal
Re: What will it take to end the LLT bull market?
Robert Prechter is the quintessential broken clock.doodle wrote: Robert Prechter lays out a pretty strong case for why he believes deflation is inevitable: http://www.thedailycrux.com/reports/int ... Report.asp
He is, however, a great "storyteller," as MT would say.
I'm not bashing the interview you posted, Doodle. I enjoyed it very much, and do think that there is some good information in it.
"All men's miseries derive from not being able to sit in a quiet room alone."
Pascal
Pascal
Re: What will it take to end the LLT bull market?
Not to sound like a broken record, but sustained inflation requires some combination of rising wages and/or expanding credit, neither of which we have right now.
Until there are signs of rising wages and/or expanding credit, every bit of inflation in the economy will be offset by price declines in other parts of the economy or consumption that simply doesn't occur, because if people have the same amount of money (or less if they lose their jobs) and the prices of the things they buy go up, they necessarily must buy less. I don't know how one can ever escape this dynamic.
A common narrative the past few years has been "inflation is coming", but the kind of inflation people fear is that which happens across the entire economy, including to the wages people are paid (wages being the "price" of labor).
When, however, one applies this narrative against the reality of an economy that has poor demographics, is in the middle of a generational deleveraging cycle, has 9%+ unemployment and which has been aggressively offshoring jobs for decades, one must wonder where any sustained inflation would come from. It seems to me that prices would see an initial move upward (as they did in the first half of 2008) and the overall economy would abruptly begin to sputter as people simply ran out of money to pay the higher prices, which would lead to softer demand across the whole economy, which would tip the economy back into recession, which would lead to downward pressure on prices.
The analogy I will trot out again is of Bernanke spraying a fire hose of easy Fed money into a tidal wave of deleveraging. Of course the tidal wave is going to overcome the monetary fire hose, no matter how much money it appears to be spraying. It's a very hard process to get ahead of once it starts. In the U.S., we've still got housing prices falling in many markets, and even a small decline in housing values can suck a lot more money out of the economy than dramatic increases in the price of milk and bread can add back into it.
Rising wages will be the canary in the coal mine for U.S. inflation, and I just don't see where the upward wage pressure is going to come from when there are so many overseas labor markets that are FAR cheaper than the U.S. Why would a U.S. company keep jobs here in a rising wage environment when there are cheaper alternatives available?
U.S. wages for all but the very highest earners have been stagnant for decades. IMHO, the whole imminent inflation narrative is deeply flawed and simply doesn't account for much of what is actually happening.
This is all just my take, of course, and I could be wrong. It does surprise me a bit, though, that the story I am telling above isn't being told in more places, considering that it seems to match up much more closely with reality than the "interest rates and inflation are about to explode" narrative seems to do.
What really puzzles me is the number of really smart market observers who have fallen for this imminent inflation narrative in recent years. When one looks back in history, there is really no precedent for a politically stable economy seeing rampant inflation following the bursting of a credit-fueled asset bubble. In fact, one of the most reliable cause and effect relationships in economics seems to be a period of deflation following the bursting of an asset bubble. I don't know why anyone thought it would be different this time.
How long can the public sector deficit spending go on? If Japan is any guide, it can go on for decades (and interest rates can fall to absurd levels). In an MMT world, public sector spending has no logical stopping point, since the public sector spending in fiat money is really just an abstraction that the government and central bank can re-define as it goes in any way it wants.
Until there are signs of rising wages and/or expanding credit, every bit of inflation in the economy will be offset by price declines in other parts of the economy or consumption that simply doesn't occur, because if people have the same amount of money (or less if they lose their jobs) and the prices of the things they buy go up, they necessarily must buy less. I don't know how one can ever escape this dynamic.
A common narrative the past few years has been "inflation is coming", but the kind of inflation people fear is that which happens across the entire economy, including to the wages people are paid (wages being the "price" of labor).
When, however, one applies this narrative against the reality of an economy that has poor demographics, is in the middle of a generational deleveraging cycle, has 9%+ unemployment and which has been aggressively offshoring jobs for decades, one must wonder where any sustained inflation would come from. It seems to me that prices would see an initial move upward (as they did in the first half of 2008) and the overall economy would abruptly begin to sputter as people simply ran out of money to pay the higher prices, which would lead to softer demand across the whole economy, which would tip the economy back into recession, which would lead to downward pressure on prices.
The analogy I will trot out again is of Bernanke spraying a fire hose of easy Fed money into a tidal wave of deleveraging. Of course the tidal wave is going to overcome the monetary fire hose, no matter how much money it appears to be spraying. It's a very hard process to get ahead of once it starts. In the U.S., we've still got housing prices falling in many markets, and even a small decline in housing values can suck a lot more money out of the economy than dramatic increases in the price of milk and bread can add back into it.
Rising wages will be the canary in the coal mine for U.S. inflation, and I just don't see where the upward wage pressure is going to come from when there are so many overseas labor markets that are FAR cheaper than the U.S. Why would a U.S. company keep jobs here in a rising wage environment when there are cheaper alternatives available?
U.S. wages for all but the very highest earners have been stagnant for decades. IMHO, the whole imminent inflation narrative is deeply flawed and simply doesn't account for much of what is actually happening.
This is all just my take, of course, and I could be wrong. It does surprise me a bit, though, that the story I am telling above isn't being told in more places, considering that it seems to match up much more closely with reality than the "interest rates and inflation are about to explode" narrative seems to do.
What really puzzles me is the number of really smart market observers who have fallen for this imminent inflation narrative in recent years. When one looks back in history, there is really no precedent for a politically stable economy seeing rampant inflation following the bursting of a credit-fueled asset bubble. In fact, one of the most reliable cause and effect relationships in economics seems to be a period of deflation following the bursting of an asset bubble. I don't know why anyone thought it would be different this time.
How long can the public sector deficit spending go on? If Japan is any guide, it can go on for decades (and interest rates can fall to absurd levels). In an MMT world, public sector spending has no logical stopping point, since the public sector spending in fiat money is really just an abstraction that the government and central bank can re-define as it goes in any way it wants.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: What will it take to end the LLT bull market?
Isn't it fair to say that the Japanese LTT bull market turned around once LTT got down to 0.7%? yields in 2001 or there abouts? Since then it has wiggled about with lowish but not as low yields. I suppose once yields are down to <1% it runs out of steam. I suppose in principle a drop from 0.7% yields to 0.2% yields would give a big capital gain but that hasn't happened (yet) in Japan.
In the UK we have >5% inflation due to currency devaluation. I suppose in a global financial meltdown, the USD will strengthen due to safe haven status and so you will not get that. But perhaps emerging market currency strength will cause US inflation. If all manufacturing capacity has been offshored, then wage inflation in China would be enough to cause price inflation in the developed world even if the developed world median wage falls and unemployment rises further. It won't matter to Apple if we can't afford ipods so long as enough of the people in the emerging markets can. The global median wage is something like $1700 per year. Let's say that stays like it is (in real terms) but the location of those who can afford ipods or whatever just shifts a bit geographically. That could bring most things we take for granted out of reach due to currency depreciation.
In the UK we have >5% inflation due to currency devaluation. I suppose in a global financial meltdown, the USD will strengthen due to safe haven status and so you will not get that. But perhaps emerging market currency strength will cause US inflation. If all manufacturing capacity has been offshored, then wage inflation in China would be enough to cause price inflation in the developed world even if the developed world median wage falls and unemployment rises further. It won't matter to Apple if we can't afford ipods so long as enough of the people in the emerging markets can. The global median wage is something like $1700 per year. Let's say that stays like it is (in real terms) but the location of those who can afford ipods or whatever just shifts a bit geographically. That could bring most things we take for granted out of reach due to currency depreciation.
Last edited by stone on Wed Nov 23, 2011 3:10 am, edited 1 time in total.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin