peskypesky wrote: ↑Mon Jan 10, 2022 11:05 am
I've been arguing for days with people on another financial forum about this. They all argue that there is NO WAY the Fed is going to raise rates, because it would cause the market to collapse and it would make it extremely hard for the government to service its debt. They all seem to firmly believe that the Fed has no choice but to let inflation keep doing what it's doing.
It's hard to see the two bolded assumptions coexisting, given that market collapses drive demand for US Treasury debt, making it "cheaper" for the federal government to service its debt. I don't believe the safe asset shortage has been resolved, so I doubt we're going to see that relationship unwind any time soon.
Of course, other than general financial stability, all of this is outside the legal mandate of the Fed.
Last edited by drk on Mon Jan 10, 2022 11:43 am, edited 1 time in total.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
willthrill81 wrote: ↑Mon Jan 10, 2022 10:19 am
The market appears to be throwing an old-fashioned tantrum over the Fed's recent announcements. Apparently, the market was dumb enough to think that the Fed wouldn't do anything at all in the face of 7% inflation. So much for 'it's all priced in'.
GS updated their projection over the weekend to 4 rate hikes this year. That wasn't priced in (to the extent that any of this matters ... how many times have we seen market move first, narrative construction second?)
Bulls make money, bears make money, pigs get slaughtered.
willthrill81 wrote: ↑Mon Jan 10, 2022 11:07 amPeople seem to forget that the Fed's two stated primary goals are low inflation and low unemployment. Propping up stocks is not one of them.
People also seem to not notice that the fed governors are placing personal stock trades and front-running the market. Jay Pow has acknowledged the Fed put. While it isn't a stated goal, they have no choice but to support the market at this point, rates cannot rise significantly. If they got to 2% it would crash the bond market, the fed would then go QE infinity.
The fed will support the market, but they will keep us in suspense on the current price of the fed put. But it's there, and they WILL keep inflating the dollar. I made the novice mistake of believing differently in 08-09. Expensive mistake.
willthrill81 wrote: ↑Mon Jan 10, 2022 11:07 amPeople seem to forget that the Fed's two stated primary goals are low inflation and low unemployment. Propping up stocks is not one of them.
People also seem to not notice that the fed governors are placing personal stock trades and front-running the market. Jay Pow has acknowledged the Fed put. While it isn't a stated goal, they have no choice but to support the market at this point, rates cannot rise significantly. If they got to 2% it would crash the bond market, the fed would then go QE infinity.
The fed will support the market, but they will keep us in suspense on the current price of the fed put. But it's there, and they WILL keep inflating the dollar. I made the novice mistake of believing differently in 08-09. Expensive mistake.
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
All those people who believed things were different this time with tech stocks that had little earnings are getting crushed. We'll see if this will affect housing. Eventually it will IMO. The ones that get destroyed are those who believe every drop is a buying opportunity and double or triple up. Declining stock prices on stocks with good and solid earnings is one thing but with stocks that have no solid earnings and were trading at highly speculative prices is another thing.
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If you think something is important and it doesn't involve the health of someone, think again. Life goes too fast, enjoy it and be nice.
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
If it was obvious, then does that mean you successfully timed the market? If so, when will you buy back in?
rich126 wrote: ↑Mon Jan 10, 2022 11:51 am
All those people who believed things were different this time with tech stocks that had little earnings are getting crushed. We'll see if this will affect housing. Eventually it will IMO. The ones that get destroyed are those who believe every drop is a buying opportunity and double or triple up. Declining stock prices on stocks with good and solid earnings is one thing but with stocks that have no solid earnings and were trading at highly speculative prices is another thing.
Agreed. I'm baffled by the rigidity in the argument of housing being bulletproof this time around. 2008 may have involved bad mortgages, but 2020-2021 we had a true blue "housing fad". Different symptoms, similar outcome IMHO. We own a home, not relishing the thought of a 30% drop in value, but we are equity dense. I feel very bad for the 800K homebuyer with 0% down who bought 3-6 months ago, however.
Last edited by JoinTheLocalizer on Mon Jan 10, 2022 12:03 pm, edited 1 time in total.
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
If it was obvious, then does that mean you successfully timed the market? If so, when will you buy back in?
Yes, it looks like I successfully time the market in terms of contributing to my roth. I plan on buying in near the end of the year. I don't want to get political but the polls are showing the public are massively disgruntled with inflation and how its being handled. The Feds are gonna get pressured to deal with it before midterms and the only way they're gonna be able to do that is raise rates.
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
Pretty obvious? From the market that has shrugged off every bit of bad news in 2021, including short-term high inflation and fed announcements of rate hikes?
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
If it was obvious, then does that mean you successfully timed the market? If so, when will you buy back in?
Yes, it looks like I successfully time the market in terms of contributing to my roth. I plan on buying in near the end of the year. I don't want to get political but the polls are showing the public are massively disgruntled with inflation and how its being handled. The Feds are gonna get pressured to deal with it before midterms and the only way they're gonna be able to do that is raise rates.
You might turn out to be right, but it seems awfully early to declare victory.
Once in a while you get shown the light, in the strangest of places if you look at it right.
willthrill81 wrote: ↑Mon Jan 10, 2022 10:19 am
The market appears to be throwing an old-fashioned tantrum over the Fed's recent announcements. Apparently, the market was dumb enough to think that the Fed wouldn't do anything at all in the face of 7% inflation. So much for 'it's all priced in'.
I've been arguing for days with people on another financial forum about this. They all argue that there is NO WAY the Fed is going to raise rates, because it would cause the market to collapse and it would make it extremely hard for the government to service its debt. They all seem to firmly believe that the Fed has no choice but to let inflation keep doing what it's doing.
The U.S. will only have difficulty paying the existing national debt if it politically decides not to pay it. Remember that the national debt is currently denominated in dollars. The U.S. has the ability to will as many dollars into existence as it wants. Absent political backstops, the treasury could pay off the national debt tomorrow if it wanted to (and didn't care about the serious negative consequences of doing so). Simply paying off the national debt in one fell swoop would be extremely inflationary and problematic for institutions that rely on the availability of Treasury bonds.
Where high interest rates could be problematic is in future borrowing. If spending is not trimmed to account for increasing interest payments, over time too much borrowing could cause a lack of faith in the USD as a world reserve currency such that it begins to trade at an increasing discount relative to other world currencies. If things got really dire, the U.S. could be forced to borrow in a foreign currency to pay for domestic spending. If that were to happen, that would put a true currency collapse and hyperinflation on the table. But that would likely also imply a serious fall from the U.S. status as a major world economic player.
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
7K, and it's barely gone down - though I purchased AVES (Avantis Emerging Market Value.)
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
I don't plan to access my Roth until I'm at least 59.5 which is another 20 years from now. I'd like to assume that what's happening with the markets today will have no effect on the future when I need to tap into my Roth in 2042. People who are close to or are in retirement probably has the proper allocation to let them weather market fluctuations in the near term.
Robot Monster wrote: ↑Mon Jan 10, 2022 12:45 pm
Since we're soaring off the lows, isn't anyone gonna say it? C'mon. The bulls are fighting back! There.
Robot Monster wrote: ↑Mon Jan 10, 2022 12:45 pm
Since we're soaring off the lows, isn't anyone gonna say it? C'mon. The bulls are fighting back! There.
Weak hands to strong hands!
Looks like this is turning out to be a nothingburger day. All the losses are starting to get wiped out!
(AGE minus 23%) Bonds | 5% REITs | Balance 80% US (75/25 TSM/SCV) + 20% International (80/20 Developed/Emerging)
Robot Monster wrote: ↑Mon Jan 10, 2022 12:45 pm
Since we're soaring off the lows, isn't anyone gonna say it? C'mon. The bulls are fighting back! There.
Weak hands to strong hands!
Looks like this is turning out to be a nothingburger day. All the losses are starting to get wiped out!
Yeah, I put in 6 different limit buy orders when the prices were dropping. None of them executed.
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
How was it obvious? If so, why didn't you short it with your life saving?
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
How was it obvious? If so, why didn't you short it with your life saving?
Yeah, and what's obviously going to take place next?
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
How was it obvious? If so, why didn't you short it with your life saving?
Yeah, and what's obviously going to take place next?
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
Pretty obvious? From the market that has shrugged off every bit of bad news in 2021, including short-term high inflation and fed announcements of rate hikes?
While we're at it, I also saw the Jags beating the Colts yesterday too. Point is, any given Sunday (or market day in this case).
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
I dumped $20k into VTSAX/VTIAX when I joined this forum in 2011, and it dropped 20% a couple weeks later.
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
I dumped $20k into VTSAX/VTIAX when I joined this forum in 2011, and it dropped 20% a couple weeks later.
Still turned out pretty OK though.
I just bailed on my commodities fund at the end of December in favor of Total Stock Market, and yikes, the timing on that sucked, so I very much appreciate your long-term point of view.
BoogyBogle wrote: ↑Mon Jan 10, 2022 11:50 am
Wow, I would hate to be the person who dumped all 6k into their Roth IRA on January 3rd. But it was pretty obvious we were gonna go through a major correction pretty soon with the Fed stating during their December FOMC that 3 rate hikes were coming in 2022. That gives them power to hike rates this month and say that they gave everyone a heads up already.
I dumped $20k into VTSAX/VTIAX when I joined this forum in 2011, and it dropped 20% a couple weeks later.
Still turned out pretty OK though.
I just bailed on my commodities fund at the end of December in favor of Total Stock Market, and yikes, the timing on that sucked, so I very much appreciate your long-term point of view.
I had a lot of dividends reinvested last month. They're all down. Hopefully, they come back sometime before I die. I don't know if I'll live as long as Bob Saget or Betty White. But it makes you think when folks die young.
If things got really dire, the U.S. could be forced to borrow in a foreign currency to pay for domestic spending. If that were to happen, that would put a true currency collapse and hyperinflation on the table.
You would think your 'friends' on that finance forum would be astute enough to realize most US debt is in US dollars. In a worst case scenario they literally can print itself out of debt. Sure there would be bad ramifications. However, it seems like the scenario might be the lesser of 2 evils.
If things got really dire, the U.S. could be forced to borrow in a foreign currency to pay for domestic spending. If that were to happen, that would put a true currency collapse and hyperinflation on the table.
You would think your 'friends' on that finance forum would be astute enough to realize most US debt is in US dollars. In a worst case scenario they literally can print itself out of debt. Sure there would be bad ramifications. However, it seems like the scenario might be the lesser of 2 evils.
Also, the Fed doesn't print money. Not physically and not virtually. It merely can regulate interest rates and issue reserve notes to commercial banking system to offset bank liabilities aka "money". But, this thread of discussion is outside the scope of markets. Jeff Snider is IMHO the foremost expert on this subject and understanding how QE cannot produce inflation. He seems to know more than just about anyone from the talking head shows, even folks like El-Erian.
JoinTheLocalizer wrote: ↑Mon Jan 10, 2022 6:05 pm
Also, the Fed doesn't print money. Not physically and not virtually. It merely can regulate interest rates and issue reserve notes to commercial banking system to offset bank liabilities aka "money". But, this thread of discussion is outside the scope of markets. Jeff Snider is IMHO the foremost expert on this subject and understanding how QE cannot produce inflation. He seems to know more than just about anyone from the talking head shows, even folks like El-Erian.
The Fed doesn't just magically put money into people's bank accounts, if that's what you're referring to. But the Fed absolutely does create money. In fact, all banks create money when they make loans, as discussed here. The Fed can just do things at a far larger scale than an ordinary bank can.
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willthrill81 wrote: ↑Mon Jan 10, 2022 11:49 amSo are you shorting LTT right now?
No, also not holding LTTs.
JoinTheLocalizer wrote: ↑Mon Jan 10, 2022 6:05 pmAlso, the Fed doesn't print money. Not physically and not virtually. It merely can regulate interest rates and issue reserve notes to commercial banking system to offset bank liabilities aka "money". Jeff Snider is IMHO the foremost expert on this subject and understanding how QE cannot produce inflation. He seems to know more than just about anyone from the talking head shows, even folks like El-Erian.
Wrong. Currency is literally borrowed into existence, doesn't matter if you think they are hitting "ctrl-p" or not. Fed creates a bond, sells it to the open market, and turns around and buys it immediately back, which leads to the same effect as if they had hit ctrl-p. QE absolutely produces inflation because it's expansion of the supply of currency. Have you watched the stock market at all in the past 2 decades? Anyone saying different is a propagandist getting their audience lost in technical jargon.
The FED also purchases bonds and stocks via open market operations and the PPP (Plunge Protection Team). Have a look at the balance sheet.
There is no such thing as a Plunge Protection Team. That is a zerohedge inspired conspiracy theory.
The Fed could not create sustained inflation with all of the QE in the world, QE1, QE2, QE-infinity. Just doesn't do anything meaningful, and even all of the PPP programs did little to stop the March crash from continuing. This is because again the Federal Reserve doesn't print money, doesn't do it physically and doesn't do it virtually. That we'll just have to disagree on. It was only when the "government put" came into existence (eg CARES etc), stimmy checks and basically direct payments to Americans that inflation started taking hold. That is why the Federal Reserve wants a CBDC, so that it can directly control inflation by being a direct banker to J6P.
Banks weren't really cooperating with the Fed as much as the Fed would've liked. That's why Uncle Sam stepped in and presented CARES et al.
Last edited by JoinTheLocalizer on Mon Jan 10, 2022 7:34 pm, edited 1 time in total.
JoinTheLocalizer wrote: ↑Mon Jan 10, 2022 6:05 pm
Also, the Fed doesn't print money. Not physically and not virtually. It merely can regulate interest rates and issue reserve notes to commercial banking system to offset bank liabilities aka "money". But, this thread of discussion is outside the scope of markets. Jeff Snider is IMHO the foremost expert on this subject and understanding how QE cannot produce inflation. He seems to know more than just about anyone from the talking head shows, even folks like El-Erian.
The Fed doesn't just magically put money into people's bank accounts, if that's what you're referring to. But the Fed absolutely does create money. In fact, all banks create money when they make loans, as discussed here. The Fed can just do things at a far larger scale than an ordinary bank can.
The Fed doesn't create money, I guess we agree on that. Only commercial banks can do that by lending it into existence.
Okay, if the Fed can’t print money, who can? The banking system. Nearly all money creation nowadays happens in the banking system. Now, banks aren’t literally creating dollars that we carry in our wallets (only the Treasury can create those), but what they can do is expand and contract the supply of credit. We have a credit based monetary system and the money supply expands and contracts through the creation and destruction of credit. Let’s say you deposit $100 into your bank. You are giving the bank your $100 in exchange for a bank deposit, which is an IOU that the bank owes you. Now, everyone, from banks to businesses, to households all have balance sheets. Assets fall on the left side and liabilities on the right side of the balance sheet. Money is created by commercial banks expanding both sides of their balance sheet (I will explain in a moment). It’s important to remember that one’s asset is another’s liability and vice versa. So, the $100 deposit shows up on the liability side of the bank’s balance sheet (because they will owe this money back to you) and cash (reserves) you gave them shows up on the asset side of their balance sheet.
If things got really dire, the U.S. could be forced to borrow in a foreign currency to pay for domestic spending. If that were to happen, that would put a true currency collapse and hyperinflation on the table.
You would think your 'friends' on that finance forum would be astute enough to realize most US debt is in US dollars. In a worst case scenario they literally can print itself out of debt. Sure there would be bad ramifications. However, it seems like the scenario might be the lesser of 2 evils.
They can't print the country out of debt while trying to hold down inflation. The two are antithetical.