Black Monday

[bull....]

US futures having a bit of a spaz at the moment , dont they like low rates for ever?

[JSwan]

US futures having a bit of a spaz at the moment , dont they like low rates for ever?

They don't like the Fed's tone about recovery being slow

[Hoop]

US futures having a bit of a spaz at the moment , dont they like low rates for ever?

They don't like the Fed's tone about recovery being slow

Actually the wordings in the FED's press release is a little negative to the Equities Market..In Stock Market Theory Inflation is the primary driver so wording such as "...the Committee will aim to achieve inflation moderately above 2 percent for some time..." will negatively affect the Market fundamentals.

Interest rates has been a main stock market driver since 1980 (when Monetary Policy became dominant and the used interest rates as a tool to control inflation)..The wording with reference to interest rates staying at 0.00 to 0.25% for some time and suggesting it won't increase with a rising inflation rate, takes away the fundamental advantage for Stock prices to increase, as the competitive yield rates ceases to be a compelling factor for buyers to keep actively purchasing shares. (decreasing the upward pressure on the PE Ratio). ".... The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time...."
This is interesting as the FED is willing (for the time being) to put their interest rate tool back in the Monetary Policy toolbox..This may cause a looser correlation between inflation rate and Interest rates..If it does this will expose the common investor belief that interest rates is a primary driver..Before Monetary Policy (pre 1980) interest rates relationship with the Stock market was often the opposite to what it is today... often (not always) back then when the interest rates declined so did the Stock market...With the interest rate tool back in the toolbox are we going to see that pre 1980's type scenario again when the near future very low interest rates significantly fails to drive the market higher???

[bull....]

Actually the wordings in the FED's press release is a little negative to the Equities Market..In Stock Market Theory Inflation is the primary driver so wording such as "...the Committee will aim to achieve inflation moderately above 2 percent for some time..." will negatively affect the Market fundamentals.

Interest rates has been a main stock market driver since 1980 (when Monetary Policy became dominant and the used interest rates as a tool to control inflation)..The wording with reference to interest rates staying at 0.00 to 0.25% for some time and suggesting it won't increase with a rising inflation rate, takes away the fundamental advantage for Stock prices to increase, as the competitive yield rates ceases to be a compelling factor for buyers to keep actively purchasing shares. (decreasing the upward pressure on the PE Ratio). ".... The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time...."
This is interesting as the FED is willing (for the time being) to put their interest rate tool back in the Monetary Policy toolbox..This may cause a looser correlation between inflation rate and Interest rates..If it does this will expose the common investor belief that interest rates is a primary driver..Before Monetary Policy (pre 1980) interest rates relationship with the Stock market was often the opposite to what it is today... often (not always) back then when the interest rates declined so did the Stock market...With the interest rate tool back in the toolbox are we going to see that pre 1980's type scenario again when the near future very low interest rates significantly fails to drive the market higher???

do you see any inflation really happening , its more like deflation is the problem at the moment and rates this low is just a by product of that.

[bull....]

anyway the stock market didnt like the fact fed didnt give some more juice selling off today on that.

didnt know trump was a grifter but the tik tok deal if it goes thru , would sort of smack of grift under the threat of national security issues wouldnt it?

[Hoop]

do you see any inflation really happening , its more like deflation is the problem at the moment and rates this low is just a by product of that.

"do you see any inflation really happening...." My opinion is the Central Banks will have it's work cut out by trying to raise inflation..The media mentions demographic reasons with a huge number of baby boomers with wealth (large savings/assets) exerting downward pressure on interest rates thus reducing inflationary pressures...What the media has not mentioned very much is looking back in history we see secular cycle periods of inflation/deflation..since the end of the 1930's something changed and that cycle has been halted..but...history also tells you that during Industrial Revolutions the deflation cycle operated....So I guess what we are seeing for the last couple of decades is this deflationary pressure being exerted by the current Industrial Revolution we are in..This Industrial Revolution (Number 4) is not over yet...and..as it has come on the heels of the Industrial Revolution 3 (IR3) this current IR4 may be with us for another decade or more or it may lead us into IR5...Looking back on history the periods between IR's is exponentially deceasing and if the Futurists are correct (e.g Ray Kurzweil) that the world moves exponentially not linearly, then change will increase at an ever increasing speed... so I see increasing waves of downward pressure on inflation..Stuff ups with supply and demand would create high inflation so future high (hyper) inflation can not be ruled out, but this isn't an upward pressure environment at the moment so the Central banks have to exert extra upward pressure to make higher inflation happen as it won't happen naturally..

"... its more like deflation is the problem at the moment and rates this low is just a by product of that. " My opinion on this is... the downward pressure on inflation is not the problem until deflation gets to more than -1% when it then starts to impact on growth rates.. e,g the Supply/Demand side of things..

Debt is the worry now...Moderate amount of debt can create growth but there is a limit before it stifles (long term) growth..from my readings the economists use to think 160% GNP was the debt limit but I think they have revised that percentage figure upwards as the interest rates keep dropping to unthinkable lows...Of course with increasing debt the only way to increase growth is the ("chicken or the egg spiral") decreasing the cost to service that debt,, so it seems a low interest rate environment is here to stay until debt is reduced either by pay back or debt devaluation by inflation...It seems the FED is now signalling it will (try to) add inflation into the mix..

End of Rant..whew!

[BlackPeter]

Well, higher inflation combined with low interest rates certainly would help to reduce the debt bubble. Let inflation pay for the public debt mountains. I guess the poor soules having to pay the bill in that situation would be the holders of long term near zero rated bonds, who would lose much of the value of their money which they wanted to preserve by buying the bonds in the first place.

Problem with this solution is that many of the bond holders are either banks or other financial institutions (which would have to write off huge amounts of their balance sheets) or pension schemes.

Crashing banks and pension funds is not exactly what we need ... however - the other options to get out of the current situation (like states being unable to repay their debt and going bankrupt or decade long austerity) don't look much more palatable either.

Interesting times :

[Aaron]

do you see any inflation really happening , its more like deflation is the problem at the moment and rates this low is just a by product of that.

Try changing the category from "general CPI" to "Housing" 7% compounding for the last 20 years.
https://www.rbnz.govt.nz/monetary-po...ion-calculator

Not sure about the site but NZX50 from 1,632 to 11,797 what does that work out to somewhere north of 10% compounding annually. Although this is a gross index which includes dividends.
https://tradingeconomics.com/new-zealand/stock-market

I suspect a large part of the increase is 20 years of lower and lower interest rates.
I see inflation, lots of it and policies like low interest rates designed to drive it higher. Just not inflation for the for the large chunk of NZ without assets.

I would like to see deflation.

[Hoop]

Well, higher inflation combined with low interest rates certainly would help to reduce the debt bubble. Let inflation pay for the public debt mountains. I guess the poor soules having to pay the bill in that situation would be the holders of long term near zero rated bonds, who would lose much of the value of their money which they wanted to preserve by buying the bonds in the first place.

Problem with this solution is that many of the bond holders are either banks or other financial institutions (which would have to write off huge amounts of their balance sheets) or pension schemes.

Crashing banks and pension funds is not exactly what we need ... however - the other options to get out of the current situation (like states being unable to repay their debt and going bankrupt or decade long austerity) don't look much more palatable either.

Interesting times :

Yes indeed..
It seems the overuse of QE .. has dug itself a hole..actually still digging deeper

[bull....]

Try changing the category from "general CPI" to "Housing" 7% compounding for the last 20 years.
https://www.rbnz.govt.nz/monetary-po...ion-calculator

Not sure about the site but NZX50 from 1,632 to 11,797 what does that work out to somewhere north of 10% compounding annually. Although this is a gross index which includes dividends.
https://tradingeconomics.com/new-zealand/stock-market

I suspect a large part of the increase is 20 years of lower and lower interest rates.
I see inflation, lots of it and policies like low interest rates designed to drive it higher. Just not inflation for the for the large chunk of NZ without assets.

I would like to see deflation.

yep the decades long decline in rates and the boom in credit has made this a golden time for what they say the baby boomers.