Check out our brand new Local Poker Communities! Get updates and interact with poker players in your area.
Visit the United States Poker Community | Visit the California Poker Community | Read more about the Launch of P5s Local

For the Finance and Econ Geeks

Reply to Thread
  1. DonkeyGoo DonkeyGoo is offline

    Matthews, NC
    United States

    Posts: 417
    Joined: Apr 07

    Feb 26th, 2008 (2/26/2008 2:11pm)

    So I went to a conference yesterday and the speaker was pretty bearish on the economy, then the Obama stuff that was being thrown around got me thinking so here's an interesting line of thought.

    Right now the Fed is actively lowering short term rates. However, commodity prices continue to rise so the market is concerned about inflation, and therefore they doubt that rates will stay low, as rates will have to rise to fight inflation. Therefore long-term rates are staying high, mortgage rates aren't dropping and thus the stimulus from lower rates isn't what it should be. Real stimulus comes from lower long and intermed term rates that encourage business investment and home purchases or refinance.

    He suggested that the fed will have to come down "at least another 200 bps", which seems like an aweful lot. Further he suggested that if commodities stay hot (which I think is likely, in fact we may go into a bigger commodity rush if it's the only asset class working) the fed will need to start buying the 10 year, which they don't normally do in an attempt to lower the long end of the curve.

    Anyway, if Obama supports obvious inflationary policies could we see the short-end drop to 1% and still have the long end above 5%?? This is just scary, we get all of the attempt to stimulate but no benefit... ugggg stagflation. I don't think that it would be the 70s all over again, instead we would raise rates and the economy would slow significantly. I don't think that we're going into a depression, but this could be a situation that leads to 1-2 years of very bad equity markets.

    Thoughts??
  2. ronkend ronkend is offline

    Bosnia and Herzegovina

    Posts: 5,588
    Joined: May 05

    Feb 26th, 2008 (2/26/2008 2:15pm) in reply to DonkeyGoo

    Actually the libor is starting to come down. Libro measures the long term interest rates, so these rates have been falling by quite a bit since the beginning of Feb. In mid January the Fed funds stood at...fuck....4 I think and Libro was up near 7......libor has fallen down below 5, and the funds rate escapes me atm...so the gap is narrowing which will be a good thing for the economy.
  3. ccm ccm is offline

    Vancouver
    Canada

    Posts: 3,629
    Joined: Mar 06

    Feb 26th, 2008 (2/26/2008 2:25pm) in reply to ronkend

  4. DonkeyGoo DonkeyGoo is offline

    Matthews, NC
    United States

    Posts: 417
    Joined: Apr 07

    Feb 26th, 2008 (2/26/2008 2:28pm) in reply to ronkend

    Long-term Libor is a pretty bad measure on the longer end of the curve, AAA 10-year is up in the last 3 months although short-term libor and prime are both down significantly.
    Thread Starter
  5. dandickau dandickau is offline

    Gilbert, AZ
    United States

    Posts: 6,076
    Joined: Feb 05

    Feb 26th, 2008 (2/26/2008 2:33pm) in reply to DonkeyGoo

    How dare you call us geeks.
  6. DonkeyGoo DonkeyGoo is offline

    Matthews, NC
    United States

    Posts: 417
    Joined: Apr 07

    Feb 26th, 2008 (2/26/2008 2:37pm) in reply to dandickau

    sir, given my post there should be no doubt that I put myself squarely in this category.
    Thread Starter
  7. ronkend ronkend is offline

    Bosnia and Herzegovina

    Posts: 5,588
    Joined: May 05

    Feb 26th, 2008 (2/26/2008 2:39pm) in reply to DonkeyGoo

    Well, being that I am likely going to major in economics, I would have to be as well......sigh
  8. Leet8s Leet8s is offline usausausausausa

    New York City, NY
    United States

    Posts: 8,035
    Joined: Aug 06

    Feb 26th, 2008 (2/26/2008 3:00pm) in reply to ronkend

    The fed is non-partisan. Obama (or Bush currently) have no effect on the monetarily policy. Only a group of a few stuck up economists do.

    And to the guy who said cut by another 200 basis points: HELLO INFLATION!!! Inflation is much worse than a slowing economy. Tell you the truth I rather see the Fed increase rates this March, lol.
     
  9. DonkeyGoo DonkeyGoo is offline

    Matthews, NC
    United States

    Posts: 417
    Joined: Apr 07

    Feb 26th, 2008 (2/26/2008 3:14pm) in reply to Leet8s

    Obviously they don't effect policy, but they can influence inflation, which does affect the curve. So if congress raises min wage significantly, that increases inflation fears, and the market reacts. I didn't say that they would cut that much, but a fairly large money manager did, I just thought that this might be interesting to think through.
    Thread Starter
  10. Leet8s Leet8s is offline usausausausausa

    New York City, NY
    United States

    Posts: 8,035
    Joined: Aug 06

    Feb 26th, 2008 (2/26/2008 3:23pm) in reply to DonkeyGoo

    I thought about the 200 basis points and I saw stagflation. gg american economy
     
  11. Seykota Seykota is offline

    TX
    United States

    Posts: 8,385
    Joined: Jul 05

    Feb 26th, 2008 (2/26/2008 4:14pm) in reply to DonkeyGoo

    Here's something I read today along similar lines (minus the Obama factor)...

    <span>Will High Commodity Prices Last?</span> <span>Mark Bloudek</span> <span>Today, 1:47 pm </span>

    Something I've been thinking about for awhile is the effect investor demand will have on commodities prices. I've wondered about this is because the traditional safe haven trades in these times of uncertainty are't very appealing (think 2% 3-month T-bills). Also, average retail investors have been given the tools (ETF's) to purchase commodities.

    So let's think about this now. What happens when investors sell their currency (i.e. dollars) for commodities because they want diversification away from a devaluating currency. The answer is simple, the commodities rise in price and then people/economists get worried about inflation. So now we have investors around the world competing for a fixed amount of commodities. When investors buy a commodity index, they're effectively buying/storing a house full of food (wheat, corn, or soybeans), some barrels of oil, etc.

    So where do all these commodities get stored?

    Let's go into the world of futures contracts and remember that these are deliverable contracts. What do commodity fund managers do when they get an inflow of investor (safe haven) money? They go out and buy futures contracts, (or derivative contracts based on commodity prices, oh brother more counterparty risk here) usually using the front month contract, which is the closest to delivery.

    When the front month contract gets close to delivery, they roll it over (sell the soon-to-expire contract and buy the next front month contract). As a result, the front month contract can have a lot of demand (open interest) that never has any intention of taking delivery because the investors don't physically have the storage tanks.

    If you look at various commodities (crude, wheat, soybeans), you'll see the front month contracts are much higher in price than the back-end months. Why so much demand for the front month contracts? Could it be that investors are having a crisis of faith in the paper currencies and are fleeing to real tangible assets while inducing price inflation across the commodity complex?

    Won't this just make life more difficult for the U.S. consumer/homeowner as more income gets sucked up in paying for food/energy causing even more problems with loan defaults/delinquencies (think credit cards here)?

    But the bigger question I'm pondering is whether or not this price spike in commodities is a temporary spike after the safe haven flow stops. I think so, but I wouldn't want to be the Fed and have to bet on that, especially if it were to lower rates further and pour even more gasoline (Lowering T-bill rates further) on the commodity/safe haven trade.

    Interesting times indeed.
    http://www.minyanville.com/community...t=0#threadbody
Reply to Thread

Similar Threads