Lion of the Blogosphere

What’s up with the stock market?

New highs again today. It’s almost as if my Illuminati conspiracy theories are true, that secret groups are pumping up stocks and everything else going into the presidential election.

A Bloomberg article from last week:

Over the last year, Federal Reserve officials have dramatically curtailed ambitions for interest-rate increases, even as inflation has risen and unemployment has declined.

So what gives?

Perhaps just as important as the increased attention being paid to headwinds from abroad are the changing attitudes of Fed policy makers toward inflation. That suggests more confidence they can afford to keep borrowing costs lower for longer, because there is less concern that price pressures will get out of hand.

Maybe the real reason they are keeping interest rates low despite it being almost 8 years since the asset crash and banking crisis of 2008 is to ensure Hillary gets elected?

With interest rates already at rock bottom, how will the Fed deal with a future crash?

* * *

Richard writes in a comment:

What sucks about righties having no control over the media is that questions that would embarrass liberals never get asked. Are the lefties who were howling about the damage Brexit had done to the U.S. stock market a few months ago issuing any recriminations? If things had been reversed the top outlets would be running news stories mocking those people, or at the very least calling them to account, forcing them to defend themselves with the weapons they chose to fight with. But it’s just going to be forgotten because it’s too much reality for the reality-based community to account for.

Written by Lion of the Blogosphere

August 15, 2016 at 11:34 am

Posted in Investments, Politics

32 Responses

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  1. Hillary’s election wasn’t a concern two years ago, when we were supposedly in our 5th year of the longest sustained recovery in history. Interest rates weren’t and won’t be raised significantly because the recovery doesn’t really exist. Of course that means we’re completely screwed when the next crash happens. If there’s any justice a lot of corrupt scoundrels will be hanging from lamp posts when it all comes down, although more likely they’ll be safely bunkered away while it’s the poor saps unlucky enough to live near NAMville who get roasted.

    What sucks about righties having no control over the media is that questions that would embarrass liberals never get asked. Are the lefties who were howling about the damage Brexit had done to the U.S. stock market a few months ago issuing any recriminations? If things had been reversed the top outlets would be running news stories mocking those people, or at the very least calling them to account, forcing them to defend themselves with the weapons they chose to fight with. But it’s just going to be forgotten because it’s too much reality for the reality-based community to account for.

    The next crash will vindicate them, I guess.

    Richard

    August 15, 2016 at 12:03 pm

  2. No conspiracy here. Economic growth this year is under 2% so far and the 10 year is yielding around 2%. Why would the Fed raise rates in this environment?

    Otis the Sweaty

    August 15, 2016 at 12:08 pm

  3. According to the National Bureau of Economic Research, the “Great Recession” began Dec. 2007 and ended June 2009.

    On 07/01/09, the DJIA opened at 8447. On 08/12/16, the DJIA closed at 18576. Excluding reinvestment of dividends, that’s a total price return of 120%, or an annual average return of 16.84%. Wow!

    Maybe the real reason they are keeping interest rates low despite it being almost 8 years since the asset crash and banking crisis of 2008 is to ensure Hillary gets elected?

    In Dec. 2008, the Federal Funds Rate was 0.25% and remained at that rate until Dec. 2015 when it was raised to 0.50%

    This has been killing retirees’ CD income for almost eight years! Retirees vote! So, If there is such a thing as an illuminati-conspiracy to keep interest rates low to benefit Hillary, then wouldn’t that lose the retiree voters?

    E. Rekshun

    August 15, 2016 at 12:12 pm

    • but QE for the last 20 years in japan has failed to move its stock market.

      and QE in europe has mostly failed to lift its stock markets too.

      so low rates by themselves aren’t enough.

      there still seems to be irrational exuberance about the US economy and its future.

      Trumpocalypse Now

      August 15, 2016 at 2:00 pm

      • US companies are increasingly using their money to buy back stocks to enrich shareholders and boost executive bonuses rather than investing or hiring people. I don’t know if the same phenomenon is as present in Europe.

        The stock market is next to meaningless and no rational economic policy should take its fluctuations into account when evaluating policy.

        chairman

        August 15, 2016 at 5:50 pm

    • “On 07/01/09, the DJIA opened at 8447. On 08/12/16, the DJIA closed at 18576. Excluding reinvestment of dividends, that’s a total price return of 120%, or an annual average return of 16.84%.”
      Wrong. You are using simple interest to describe a compound phenomenon, just like dishonest financial planners do when they assess an investment’s past performance. If you carry 16.84% out to 7 years, you get a gain of almost 200%. Pick simple or compound, one or the other.

      Math Avenger

      August 16, 2016 at 2:45 pm

  4. Right. Basically all of the gains in the economy since 2008 have been from things that progs have no desire to talk about. And Rs were too clueless to score points off of.

    1) once-in-a-generation oil-production boom (not the promised green jobs)
    2) SUV and truck sales (facilitated by #1 and completely negating Cash for Clunkerz)
    3) bars and restaurants (mostly low-wage and contributing to obesity)
    4) health care expenditures rising from 16% to 17.5% of GDP (Ocare was supposed to “bend the cost curve”)

    Obama was lucky that technology saved his “green jobs revolution” scheme from embarrassing him. Hillary won’t be so lucky with her “day-care jobs revolution” plan, especially as a sliding stock market ends our temporary reprieve from huge deficits.

    Fiddlesticks

    August 15, 2016 at 12:21 pm

    • Don’t forget the oil boom was also enabled by low interest rates pushing investors into commodity speculation (by investors I mean large institutional free money recipients like JP Morgan). The banks then issued loans to these oil companies floating assumptions about indefinite oil production based on prices in the $100 range. The expansion in leverage is naturally temporarily additive to GDP as that money gets spent on power, plant, equipment and well paid labor such as engineers and blue collar drill types (see North Dakota boom towns). Once the speculation on oil ended and the supply demand fundamentals caught up (I guess JP Morgan has less power than the Fed when it comes to manipulating the price of financial assets) the entire industry imploded. So now you have a negative cascade of high paid job destruction, useless equipment for uneconomical oil extraction (shale) and a bevy of bad highly leveraged loans on the banks books. That mixed with all the other shenanigans in the economy and you just want to say oh fuck it this shit is too complicated.

      AngryBipartisan

      August 15, 2016 at 1:09 pm

    • Well there is the issue the relative security of the US economy.

      EMEA has been buffeted by years of GrExit, PIGS, Cyprus and now BrExit. Brazil and Venezuela have collapsed and bomb going off in europe isnt helpful to investing.

      The US stock market has been greatly helped by the fact that money has to go somewhere.

      Lion of the Turambar

      August 15, 2016 at 3:38 pm

    • Yep, I remember obama’s “Cash for Clunkers” silliness. I know three very well-off 60-year-olds that took advantage of that boondoggle. It did raise the price of used cars for a short while. I got a few laughs at work when, about that time, my employer was offering incentivized early retirements to trim the work force. I called it my employer’s own “Cash for Clunkers” program to get rid of some dead wood.

      Oh, and sort of like the first-time home-buyers credit, up to $8000, back in ’09-’10. Four millionaires in my family were each able to collect the full $8K credit!

      E. Rekshun

      August 15, 2016 at 5:55 pm

      • Cash for Clunkers, and to a lesser extent the housing program, were proven to be complete busts. Edmunds did a study demonstrating that all CARS did was pull forward existing auto demand a few months.

        It used tax payer money to pay people to buy stuff they were already going to buy. And it prevented poor people from being able to access the market of affordable used cars and parts.

        Lion of the Turambar

        August 15, 2016 at 7:25 pm

  5. It seems like all the stops have already been pulled in support of Obama.

    It’s almost as if the normal rules do not apply.

    Dan

    August 15, 2016 at 12:25 pm

  6. On the other hand US interest rates are downright high compared to the negative interest rates that have gone on in Europe for the last 2 years.

    Negative interest rates make no sense to me. I don’t understand why anyone would participate in the banking system, except out of habit.

    Dan

    August 15, 2016 at 12:29 pm

    • Large corporations, who are major holders of cash, are too large to benefit from most government bank bail out schemes, so government bonds allow them to avoid the risk of bank failure, and at that level holding physical cash costs more than modest negative interest rates.

      massivefocusedinaction

      August 15, 2016 at 1:33 pm

    • i believe only one european bank has passed on the negative rates to its depositors.

      banks must hold some sovereign debt as part of their capital requirements, and i believe such still yields more than the ECB deposit rate. but a large fraction of the sovereign debt is simply owned by the ECB. holding piles of banknotes is too much trouble and may be illegal afaik.

      the negative rates are paid by banks on their deposits with the ECB. i don’t know if there is any deposit requirement for the banks, or if they simply have no one to lend to and will take the negative depo rate over risking it on new loans. losing -0.5% is better than losing 10%.

      what will happen the next time?

      1. central banks and central governments will coordinate with huge budget deficits and QE simultaneously, aka “helicopter money”.

      2. perpetual bonds…such bonds have no finite value at 0%…thus rates can be lowered forever…or until the central bank owns all the perpetual bonds.

      Trumpocalypse Now

      August 15, 2016 at 1:52 pm

  7. The stock market hasn’t had a relationship to the real economy in the United States for some time now.

    Rotten

    August 15, 2016 at 1:06 pm

  8. Lion,
    I think a lot of this is just tied to the banking system at this point. Our credit based economy, and therefore our overall credit, has to exponentially expand in order to keep the system going. All of this credit is being shoveled into the equity markets. Look at this chart in this attached article: http://dailyreckoning.com/3-letter-time-bomb-portfolio/

    JerseyGuy

    August 15, 2016 at 1:39 pm

    • that chart shows the cause of most of the increase in inequality.

      but the central banks can keep the party going forever. inflation is never going to happen again.

      QE has become the mother of all trickle down policies. the owning class has gotten richer. the asset-less are at best treading water.

      one example…buy italian government bonds on margin at 1% in 2012…QE makes you rich. it’s absurd.

      Trumpocalypse Now

      August 15, 2016 at 5:14 pm

  9. Whats up with Wall Street?

    Funny you ask…

    http://www.wsj.com/article_email/trumps-self-reckoning-1471213081-lMyQjAxMTA2NTEyNDYxMjQzWj
    Trump’s Self-Reckoning
    The GOP nominee and his supporters face a moment of truth.


    “Mr. Trump has alienated his party and he isn’t running a competent campaign. Mrs. Clinton is the second most unpopular presidential nominee in history—after Mr. Trump. But rather than reassure voters and try to repair his image, the New Yorker has spent the last three weeks giving his critics more ammunition.

    Those who sold Mr. Trump to GOP voters as the man who could defeat Hillary Clinton now face a moment of truth. Chris Christie, Newt Gingrich, Rudy Giuliani, Paul Manafort and the talk-radio right told Republicans their man could rise to the occasion.

    If they can’t get Mr. Trump to change his act by Labor Day, the GOP will have no choice but to write off the nominee as hopeless and focus on salvaging the Senate and House and other down-ballot races. As for Mr. Trump, he needs to stop blaming everyone else and decide if he wants to behave like someone who wants to be President—or turn the nomination over to Mike Pence. ”

    Pence/Martinez! In Your Heart You Know She’s White!

    Lion of the Turambar

    August 15, 2016 at 2:05 pm

  10. The stock market should always be drifting high in an economy with inflation. Interest rates are only a proxy for the stance of monetary policy, what really matters is the monetary base, interest paid on reserves (affects the effective monetary base) as well as expectations of what the central bank will do with the monetary base in the future.

    But yes, the Fed is clearly backing off and thus easing monetary policy by chilling people out about future interest rate hikes. This is probably partly due to a desire to help Crooked Hillary Clinton, but it’s also warranted. The Fed has been far too tight for far too long. We do not have the monetary head-of-steam needed to sustain interest rate hikes without killing what little monetary head-of-steam we already have.

    Economic Sophisms

    August 15, 2016 at 2:57 pm

  11. The NYSE Composite Index is below where it was in 2014. That index doesn’t include some of the Internet monopoly stocks that trade on the NASDAQ, such as Amazon, Facebook, and Google. The Dow Jones Transportation Average is still about 12% below its 2014 peak.

    Mark Caplan

    August 15, 2016 at 4:39 pm

  12. I rates dont really matter. Most credit demand is from corporations buying their own stock with bond issues. It may matter at the margin for speculative vehicles maybe.

    The qe, and the tax haven accumulation since the 80s, is the wind in the willows. When the rich have so much wealth the only option is to dump it in stocks rather than bonds, entrepreneurialism or deposits.

    You can thank ronald “i had dementia and the lowest iq of a president in modern times/they picked me because i was an actor” reagan for the disaster cuck economics of open borders, tax cuts for reginald and get rich quick schemes for no bid millitary contractors.

    Alot of alt righties are logical on social issues but the issue of cuck trickle down economics confounds them (leaving aside socially retarded libertarians who truly believe in the randian paradise of kinshasa).

    A national public works eygptian great pyramid building scheme would have a larger fiscal multiplier than hosing the rich with quant easing and tax cuts.

    Which is exactly why it would never happen.

    Personally i think krugmans idea of faking an alien invasion is even better because at least you wouldnt have fucking pyramids ruining the landscape and fundamental tech investment would be through the roof. But the pyramids would be more plausible politically if they promised to name them after extractors i suppose.

    A commenter above also notes japan has tried it for years to no avail. They do these things not because they have a 105 iq like reagan (before dementia) but because it makes money for their masters.

    The Philosopher

    August 15, 2016 at 4:43 pm

    • First, Reagan may have signed the 1986 amnesty. But the bill’s intention was to provide legal status to a portion of the illegals who had been in the country for several years. In exchange for enforcement against employers who recruited or hired illegals. I still believe cracking down on employers is the best way to get rid of illegals. The problem is that it’s too easy for a president to simply not enforce the law. Reagan couldn’t have foreseen that enforcement would have been so blatantly disregarded — including by his own party.

      And, second, “cuck trickle down economics” isn’t alt-right. I won’t say that no alt-right has ever supported it. But that’s not an alt-right issue. It’s not even particularly conservative. It’s libertarian. My impression is that conservatives only sided with libertarian position on that issue because they opposed all the big government poverty and social justice programs — and rightly so. Not because they actually believed or even cared about any of the trickle down stuff. Case in point, you can see that all the alt-right and real conservatives (as opposed to the fake “TruCons”) are on board with Trump’s protectionism. In other words, they don’t buy into “trickle down”.

      destructure

      August 15, 2016 at 10:08 pm

      • huh?

        “trickle down economics”, “supply side economics”, “reaganomics”, “voodoo economics”, “zombie economics” are all synonyms.

        none has anything to do with trade or social programs or even “starve the beast” or lowering government spending.

        it specifically refers to lowering taxes on investment income, not earned income. the idea is that this will mean more capital will be available for investment in expanding existing enterprises or starting new ones.

        even joseph stiglitz has admitted there were some reasons why it might have worked.

        but it’s been tried over the last 35 years and it’s failed. why is debatable, but that it has failed is not.

        Trumpocalypse Now

        August 16, 2016 at 12:55 am

      • though more broadly it may include cutting corporate taxes and cutting taxes on earned income if it is believed that high earners will then invest a substantial part of their tax savings.

        but perhaps as lion has noted capex is already fully deductible from corporate income in the form of depreciation expense.

        it’s not even related to the motivation theory of tax cuts, that higher taxes are a disincentive to work…even though, as alan greenspan noted, money itself is usually a secondary concern for high earners. their earnings relative to other high earners is primary.

        the capital gains and dividend rate have pretty much continued to march down since the late 70s.

        Trumpocalypse Now

        August 16, 2016 at 1:13 am

    • The alt-right is much less open to Reagan style economics than conservatives in general. The alt-right is more about culture and society, and therefore often ambivalent or hostile to neoliberal capitalism.

      chairman

      August 16, 2016 at 8:34 pm

      • Trumppocalypse

        Those theories work when you make assumptions of human behaviour.

        The number 1 assumption being high iq people are autist tendency like gates and his love for african children.

        The real dynamic is that many high iq or powerful people are actually schizo and dont play parlour games.

        The russian neolieberal experiment in the 1990s is a just case.

        Im fairly certain autist friedman was a useful idiot for a schizo. They fund and promote this gunk. The number crunching on an illogical psychological premise being an apt dynamic of modern economics.

        The Philosopher

        August 18, 2016 at 3:10 am

  13. What sucks about righties having no control over the media is that questions that would embarrass liberals never get asked. Are the lefties who were howling about the damage Brexit had done to the U.S. stock market a few months ago issuing any recriminations?

    No.

    But the Leave campaign had to campaign with essentially the entire British media and establishment arrayed against them. They won thanks to Farage’s media savy. Trump needs to step it up and go around the media with ads.

    The Undiscovered Jew

    August 15, 2016 at 6:08 pm

  14. OK, here’s the bottom line: our national debt is $20 trillion. At 5% that would amount to $1 trillion a year just to pay the interest on that debt. That’s all there is to it, and that’s why we will have rock-bottom rates far into the future.

    sestamibi

    August 15, 2016 at 6:26 pm

  15. The US rally is a side effect of the ECB and BOJ interactions.

    SP500 earnings are down six quarters in a row, but we are going to all time highs.

    Makes no sense. Watch out!

    jorge

    August 15, 2016 at 9:32 pm

  16. “With interest rates already at rock bottom, how will the Fed deal with a future crash?”

    Short term rates are near-zero or negative in every advanced economy. But we have long-term rates on the high side. The Fed could easily lower them by printing money and buying up long-term bonds. It can also buy non-federal debt, such as Fannie Mae, corporate, and state government bonds.

    Lot

    August 15, 2016 at 10:23 pm


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