k********8
发帖数: 7948 | 1 http://www.huffingtonpost.com/david-einhorn/fed-interest-rates_
A Jelly Donut is a yummy mid-afternoon energy boost.
Two Jelly Donuts are an indulgent breakfast.
Three Jelly Donuts may induce a tummy ache.
Six Jelly Donuts -- that's an eating disorder.
Twelve Jelly Donuts is fraternity pledge hazing.
My point is that you can have too much of a good thing and overdoses are
destructive. Chairman Bernanke is presently force-feeding us what seems like
the 36th Jelly Donut of easy money and wondering why it isn't giving us
energy or making us feel better. Instead of a robust recovery, the economy
continues to be sluggish. Last year, when asked why his measures weren't
working, he suggested it was "bad luck."
I don't think luck has anything to do with it. The blame lies in his
misunderstanding of human nature. The textbooks presume that easier money
will always result in a stronger economy, but that's a bad assumption. Here
is a good example of how a real family responds to monetary policy.
Consider my neighbors, Homer, Marge, and their three adult children, Bart,
Lisa and Maggie. Homer has retired from the nuclear plant, and he and Marge
live off savings and Homer's pension. Bart is in a bit of trouble with too
much credit card debt and an underwater mortgage. Lisa has been putting away
her salary and has enough for a downpayment on her first home. Maggie owns
her own business and is ready to expand.
When interest rates are high, Homer and Marge park their savings in CDs or
Money Market accounts and get a decent return. There is no incentive for
them to take much risk with their money. Bart gets into trouble very quickly
and defaults on his loans. Lisa decides she can't afford a mortgage until
rates fall. And Maggie, who's been helping out Bart with some of his
expenses, believes that she'd make money if she grew the business, but
possibly not enough to service the debt she'd be undertaking.
When interest rates are low, everything changes. Homer and Marge are getting
only a little interest on their savings, and are struggling to live off
Homer's pension. They need to rethink their finances. Bart can manage to
keep up the minimum payments on his credit cards and stay in his house. Lisa
can get a cheap mortgage, and Maggie doesn't need to make such optimistic
assumptions in order to expand her business.
Everyone agrees that low interest rates are a good way to stimulate a
stalled economy. The Fed takes this logic a step further. It believes that
if low interest rates are good, then zero-interest rates must be even better
. As a brief emergency measure, such drastic behavior is reasonable and can
even be necessary. In 2008, Chairman Bernanke had near unanimous support for
his decision to drop rates to near zero. At the peak of the crisis, it made
sense. But that was four long years and many jelly donuts ago. In the 2012
economy, a zero rate policy not only adds no benefit, it's actually harmful.
Just ask the Simpsons.
When Homer was approaching 65, he and Marge met with a financial planner to
figure out if they had enough money saved for retirement. They assumed they'
d live to be 90, and could count on receiving a fixed amount from Homer's
pension and social security checks. Marge, the cautious one, has not
forgotten that stock market meltdown better known as the bursting of the
tech bubble. She didn't want to take any investment risk and was content to
have just enough for regular haircuts for herself, a bowling and beer budget
for Homer, and visits with the children. They were told that, with nominal
interest rates at 3%, they could safely retire with $200,000.
"What happens if interest rates go to zero and stay there?" Marge asked the
advisor.
"You mean indefinitely? If you weren't willing to start taking investment
risk, you'd need 50% more in savings, or $300,000. But why would you ask
such a silly question?" asked the advisor.
To which Marge replied, "Well, we were thinking about moving to Japan..."
Homer and Marge aren't the only ones doing this sort of math. Every single
day for the next 19 years, more than 10,000 Baby Boomers will turn 65. Those
who started saving for retirement 15 years ago are suddenly finding
themselves with insufficient savings to do so.
Some will stay in the work force longer, some will drastically reduce their
spending, and some will do both. In a recent survey, 20% of U.S. workers say
they have postponed their planned retirement age at least once during the
last year. And those who have already retired have fewer options. Returning
to the workforce could be challenging. David Rosenberg points out that the
workforce for those 55 and older has expanded by 4 million since the start
of the recession, and they are returning to the workforce at lower wages.
Even more challenging is trying to find safe investments that generate a
decent yield.
Zero-rate policy makes traditional riskless investments, such as CDs and
Money Markets, unattractive to savers. Rather than view this as an
unfortunate consequence of policy, Chairman Bernanke sees this as a benefit.
He subscribes to the philosophy that rising stock prices will contribute to
a 'virtuous cycle' of economic growth. He's hoping that those approaching
retirement, and even the retired, will abandon the idea of making safe
returns, and put their savings into equities instead.
In a similar vein, the Fed believes that by lowering interest rates, it
makes bonds unattractive compared to stocks. Using logic worthy of
Montgomery Burns, Homer's old boss at the Springfield Nuclear Plant, the
Chairman is hoping to create a Wealth Effect. I can almost hear Mr. Burns
and his sycophantic aide Smithers now:
Smithers: "Sir, you're saying we need the stock market to go up?"
Burns: "Yes, that's the fix we're looking for."
Smithers: "And why would that be, sir?"
Burns: "Don't you get it? A rising stock market allows people to feel
wealthy. And a seemingly wealthy person is a profligate person."
Smithers: "Profligate, sir?"
Burns: "Profligate. It means they spend money they don't have on things they
don't need."
Smithers: "So instead of enabling people to actually have more disposable
income, we'll get them to spend more by simply making them feel rich?"
Burns: "Exactly! Now how can we do that?"
Smithers: "Well, we can always encourage them to sell their bonds and buy
stocks."
Burns: "Now how would we ever convince them to do something as foolish as
that?"
Smithers: "Just set interest rates to zero indefinitely. Then no one can
afford not to invest in the market."
Burns: "Why, Smithers, that's brilliant! This is exactly the kind of counter
-intuitive thinking we've been needing around here!"
Only it's not counter-intuitive; it is simply misguided thinking that
persists among the Fed Chairman and other government ivory tower thinkers.
They do not understand or relate to the prime component of capitalism and a
free market: greed. And because they do not understand greed, they also do
not understand fear, which presents a double whammy for making bad policy
decisions.
****
Let's think about it from an investor's perspective: For about 30 years,
bonds have mostly risen in value. By directly intervening in the bond market
and by promising zero percent short-term interest rates through 2014, the
Fed has all but guaranteed that it will do what it takes to keep bond prices
from falling. Right now, Homer and Marge own bonds that yield 2%,
practically risk-free. What rational investor will sell when there is no
downside?
For years, people have talked about the 'Greenspan put' or the 'Bernanke put
' on the stock market. Some question whether such a put is deliberate,
others question its effectiveness, and some even question whether or not it
exists at all. The Fed has always explicitly denied using monetary policy to
create a floor on the markets, and its inability to do so should have been
settled when the NASDAQ fell 78%. As for whether or not the Fed puts are a
myth, I think it depends on where you look.
It isn't where you think: The real Fed put is under the bond market.
If the Fed's hope is to drive investors into equities, propping up the bond
market is counter-productive. While there are many parts of the cycle where
higher bond prices fuel higher stock prices, at this point in the cycle the
relationship has reversed. In recent months, stocks and bonds have developed
a strong negative correlation -- what is bad for bonds, is good for stocks.
The Fed does not understand investor psychology: If you want to get people
to sell bonds and buy stocks, the best way to do that is to show them that
bond prices can, and do, fall.
Another flaw in the Fed's logic is that many savers aren't willing to
participate in the virtuous cycle experiment. Some might be convinced to
take on this risk. But others who, like Marge, have seen the market get cut
in half twice in the last dozen years, will resist. They don't believe it is
prudent to gamble their nest egg in the market.
Those who have given up on earning more will have to save more and spend
less. This is the antithesis of a wealth effect, and their reduced spending
is a drag on the economy.
This reduced spending has unintended consequences for the Simpson kids as
well. Chairman Bernanke is unwilling to raise rates, even by a modest amount
. He's hoping that his zero-rate interest policy will encourage Lisa to buy
that house and persuade Maggie to start expanding the business. He worries
that a rate hike will discourage them from doing so. What he cannot seem to
acknowledge is that it's been three years of ZIRP, yet credit-worthy
borrowers still are not looking for loans.
Interest rates are only one consideration when looking to invest. If it
makes sense to build a factory in a 2% ten-year note environment, it
probably still makes sense to build it with long rates at 4%. Long duration
investments of that nature have so many other risks that, once rates are low
enough, further reductions in the marginal cost of money no longer make
much difference.
The corollary is that if it doesn't make sense at 2%, it isn't going to make
sense at 1% or even at zero, because there must be some other reason not to
build. The cost of money has long since passed the point where it is a
constraint on otherwise sensible economic behavior in the real economy.
Incrementally lower rates no longer trigger large refinancing, let alone
construction booms, in the mortgage and housing markets.
Putting money back into the hands of savers would stimulate the economy and
might be just the push that Maggie needs to go ahead with that business
expansion.
Another blob of jelly that we are still working to digest is the Fed's
promise to keep rates at zero for a long time. Chairman Bernanke hopes this
will encourage borrowing and investment, but it may have the opposite effect
because it undermines any sense of urgency. By setting the time value of
money to zero, the Fed devalues time.
Retailers know that to create short-term demand for a promoted special, you
have to create a reason to Buy Now! -- "One day Bonanza," "First 1,000
customers through the door," and even the softer, "Good while supplies last,
" incite action. The promise to keep rates low invites procrastination. Why
should anyone make a marginal decision to borrow and spend or build today,
knowing that low-cost financing will still be available through the end of
2014?
Chairman Bernanke's strategy of bringing Walmart's Every Day Low Pricing to
central banking has not worked. If the Fed Chairman wants to light a fire
under Lisa and Maggie, announcing a small rate increase with the possibility
of more to come could provide the incentive they need to buy or build
rather than risk missing out.
****
Some will argue that if the Fed raises rates, it will cause deflation. Just
the word 'deflation' makes Chairman Bernanke break into a cold sweat and
reach for the Jelly Donuts. Fear of deflation should depend on what, exactly
, is deflating.
The sort of deflation that puts pressure on wages is a clear negative, as it
leads to a lower standard of living. On the other hand, lower prices caused
by scientific progress and higher efficiency are unambiguously positive.
Apple's newest iPhone has twice the memory, a better camera, and other small
improvements and carries the same price as the prior version. Government
statisticians see an improved product at the same price and count it as a
price cut, or deflation.
There is no reason for the Fed to conduct monetary policy to offset advances
that improve our standard of living, in particular when it results in
driving up the price of something else, like oil.
Yet, while the Fed seems compelled to respond to innovation as if it were a
bad thing, it throws up its hands when confronted with rising oil prices.
Unfortunately, when the Fed sets policy with a goal of driving prices higher
, it doesn't get to choose which prices are most affected.
When asked about the rising oil price, Chairman Bernanke concedes that it is
a negative for consumers. He then disclaims any responsibility, and states
it is beyond the power of the Fed to affect it. He blames oil prices on
emerging markets, political turmoil and speculators. If we take him at his
word that speculators are causing the problem, it's worth considering what
might be causing the speculation.
From the 2010 Jackson Hole speech that kicked off the QE2 frenzy, spot oil
went from $73 to $114 a barrel in eight months. The price of food and most
other commodities went up even faster.
While Chairman Bernanke hopes that flooding the market with dollars will get
people to buy stocks, he appears less willing to accept that many respond
by scrambling for hard assets in fear of dollar debasement. The rush into
commodities is further exacerbated by cheap money that enables the
inexpensive financing of speculative, levered positions. Again we see the
two drivers -- fear and greed -- at work. The consequences of this
speculation are reflected in the prices of food and energy.
Worse is that, even if Chairman Bernanke believed his policies were
influencing oil prices, it's not clear that it would change his behavior. He
seems to believe that inflation is a necessary by-product of growth, and
that as long as it is kept under some control, accommodative monetary policy
will help the economy.
In the current economic cycle, I do not believe this is true. There is
nothing that slows the economy faster than rising oil prices, and most
recessions have been preceded by rising or even spiking oil prices. Money
spent at the gas pump is not available to be spent at the Kwik-E-Mart on
other items.
Inflation has ceased to be an unfortunate by-product of growth. Rather, it
is a direct hindrance to growth. We see the evidence in the disappointing
growth during the first half of 2011. When the Fed finally signaled that
there would be no QE3, commodity inflation stopped, oil prices retreated,
and the economy began to improve. Oil prices again rose with the serving of
the "Operation Twist" Jelly Donut, putting 2012 growth estimates at risk.
Tighter monetary policy would limit inflation and in all likelihood trigger
a pronounced reduction in oil and food prices, which would provide a
substantial boost to the real economy. While this thought runs contrary to
Fed groupthink, it is consistent with recent experience. In light of this, I
cannot understand why we are even discussing, let alone hoping, for QE3.
****
Chairman Bernanke recently gave a series of speeches outlining his view of
the role of the Fed and its performance during the financial crisis.
To summarize his version: The crisis wasn't the Fed's fault; the Fed did a
heroic job in reacting to the crisis; and the Fed isn't going to repeat
perceived mistakes from 80 years ago.
Chairman Bernanke made a number of comments that while historically
questionable, reveal his point of view and lend credence to the theory that
he has and is likely to continue to under-price the cost of money:
•He points out that to encourage stability central banks are supposed
to mitigate financial panics or crises, but pays no similar thought to the
idea that they should encourage stability by preventing bubbles.
•He said, "Tightening of monetary policy in 1928 and 1929 to stem
stock market speculation" was a "policy error."
•In discussing the causes of the Great Inflation of the 1970s, he said
"monetary policymakers responded too slowly" but made no mention of
abandoning the gold standard as one of the causes.
•He said that the housing bubble was created by deteriorating
underwriting standards and downplays the role of the overly accommodative
monetary policy.
Taken together, the message is that when monetary policy proves inadequate,
the Bernanke Fed's response has been, and will be, even more aggressive
intervention.
So, where are we now? Real GDP is growing between 2-3% and reported
inflation is running at between 2 and 3%. Excluding the calculated deflation
from technological progress would add about another 1% to inflation. On
that basis, nominal growth is probably about 5-7%.
In the face of this, we have a policy of near zero cost money with promises
to keep it that way for years, and an open debate as to whether we need more
quantitative easing. When this monetary policy is combined with a large
fiscal deficit, it leaves policy makers very little flexibility should we
enter another recession or encounter another crisis.
I know this isn't conventional thinking, and it certainly isn't the way the
Fed looks at it, but I believe that raising short rates -- not to a high
level, but to a still low level of 2 or 3% -- would be much more conducive
to both growth and stability.
The household sector balance sheet has a negative duration gap, meaning that
it holds proportionately more short-term floating assets like bank deposits
and money markets compared to its liabilities, which are disproportionately
long-term fixed obligations including mortgages.
Raising rates would directly transmit income to families, enabling them to
spend more freely and boost the economy -- a stimulus so to speak.
Unfortunately, it appears that Chairman Bernanke is more focused on
financial institution balance sheets. While the Fed recently declared most
of the largest banks to be healthy, and approved programs to reduce bank
capital, continuing with zero rates several years into the recovery reveals
a focus to support banks rather than households.
Zero rates allow the banks to carry non-performing and other questionable
assets indefinitely. When the cost of money is nearly zero, dead beat
borrowers can appear current by making nominal payments. When banks can
finance their non-performers for free, they have little incentive to work
them out. This lengthening of the work-out process supports banking profits
and defers needed pain for some underwater borrowers. But, it also prevents
the markets -- particularly the real estate market -- from clearing. This in
turn delays the economic recovery and postpones job creation.
Income inequality remains a headline issue. Democrats argue for higher taxes
for top earners, and increased transfer payments to those on the other end
of the spectrum. Republicans remain opposed to any redistributive policies.
Ending the Jelly Donut monetary policy would do more to alleviate income
inequality than any of the widely debated changes in the tax code.
For the super wealthy, zero rates supported by a Bernanke put on the bond
market encourage outsized income through leveraged speculation. For everyone
else, zero rates reduce the standard of living because greater food and
energy costs soak up income. Ironically, it is some Republicans that are
beginning to question the Jelly Donut monetary policy, while Democrats
generally support it. Democrats who sincerely care about income inequality
should speak out against the Fed's policies.
It is a reasonable concern that a sudden change in rate policy would be
destabilizing to current leveraged investment positions. The market for
interest rate derivatives is the largest in the world. Many institutions
continue to manage interest rate derivative risk through Value-at-Risk, a
flawed concept that I warned about the last time I was here in early 2008.
Given the crisis that ensued later that year, and the now-understood meaning
of VaR to be 'value of some risks in a normal environment,' it is a
remarkable testament to our lack of true reform that the measure is nearly
as widely used today as it was then.
As a result, it is important that any policy shift has to be delivered
through considered messaging and preparation, as a shift in policy could
cause problems for some institutions that are very deeply positioned in the
zero-rates-forever camp.
If you haven't exercised in a while, going for that first run is indeed a
painful experience. So, yes, policy makers should pay attention to possible
disruption, but this is not reason enough to forgo the needed change in rate
policy. After jogging for a few days, exercising becomes easier, and as
exercising gets easier, the desire for more exercise goes up and the desire
for Jelly Donuts goes down.
****
It's time for Chairman Bernanke to begin restoring the markets to their
natural balance. Provide the proper incentives for Lisa and Maggie to start
investing in the economy again. Let Bart possibly default on his
unsustainable debts so that the banks can start getting those loans off the
books. Stop giving Mr. Burns access to free money that he can use to
speculate in bonds and commodities at the expense of the middle class. As
for Homer and Marge, quit trying to fool them into thinking they're wealthy
and instead give them the opportunity to retire with some financial security
. With a little extra money in their pocket, Marge can go back to the beauty
parlor, and Homer can support the beer and bowling economy.
I'd like to turn my attention to the stock market. There are a lot of cheap
and even very cheap stocks. The companies in the S&P will earn over $100 per
share collectively this year, and the consensus for next year is for higher
earnings and no recession. The market is at 14 times earnings and only has
to compete with 2% ten-year Treasury notes. Even with the recent rally,
equities are cheap enough that they should not need the Fed to push risk-
averse savers into stocks or a Bernanke put in order to do well. What gives?
I believe that stocks are depressed because there is a pervasive feeling
that something awful is going to happen. What is this enormous tail-risk? It
's the intersection of reckless fiscal policy with Jelly Donut monetary
policy.
There is a fear that our Fed Chairman is an academic willing to take great
systemic risks in an experiment to prove out his thesis as to how we should
have fought the last Great Depression.
I believe that removing the tail risk that Chairman Bernanke will feed us a
coma inducing dose of Jelly Donuts would go a long way toward restoring the
relationship between P/E multiples and long-term interest rates to the
benefit of stocks, at the expense of bonds. If the Fed were to stop trying
so hard to prop-up the stock market, the reduction in tail risk would
probably fuel the market going up on its own.
I think we've reached the point where even Homer can see that the last thing
he needs is another Jelly Donut, but the Fed Chairman is oblivious.
We can all say "D'oh!"
****
While I hope that you found this discussion thought-provoking and persuasive
, as an investor my job is to figure out what will happen rather than what
should happen. If we didn't have a Jelly Donut monetary policy, I would sell
gold, sell bonds and buy stocks. But, the Fed is filled with academics who
thoughtlessly rely on econometric models that reflexively indicate that
repeated Jelly Donut orgies are the best way to get a sugar rush into the
economy. And, the Fed Chairman seems to have no trouble rationalizing any
policy failure on the basis that "monetary policy cannot be a panacea," or "
it's bad luck," or as proof that he just hasn't force fed us enough Jelly
Donuts, yet. As long as this is the case, it seems unlikely the Fed will
change course.
As a result, I will keep a substantial long exposure to gold -- which serves
as a Jelly Donut antidote for my portfolio. While I'd love for our leaders
to adopt sensible policies that would reduce the tail risks so that I could
sell our gold, one nice thing about gold is that it doesn't even have
quarterly conference calls.
David Einhorn is president of Greenlight Capital, Inc., which he co-founded
in January 1996. Greenlight Capital is a value-oriented investment advisor
whose goal is to achieve high absolute rates of return while minimizing the
risk of capital loss. David is also Chairman of the Board of Greenlight
Capital Re, Ltd. (NASDAQ:GLRE). He is the author of Fooling Some of the
People All of the Time: A Long Short (and Now Complete) Story, published in
December 2010. | k********8
发帖数: 7948 | 2 gosh David Einhorn is genius!!
he's thinking exactly what i've being thinking!!
so folks, don't be surprised to see me rise as next generation famous hedge
fund manager! | c********a
发帖数: 6466 | 3 好长。。。
当大家没工作没钱的时候，政府付利息鼓励去股市也没用啊
更何况大本现在不需要QE, 从年份来看，现在是牛市的正常调整 | a***s
发帖数: 5417 | 4 他long gold, 你short gold, 你们不在一条船上。
hedge
【在 k********8 的大作中提到】
: gosh David Einhorn is genius!!
: he's thinking exactly what i've being thinking!!
: so folks, don't be surprised to see me rise as next generation famous hedge
: fund manager!
| s*****n
发帖数: 5488 | 5 写的很sharp. 不过他不明白大本印钞票其实是为了弥补国库的亏空。否则利息稍微涨
一点，美国政府就还不起债务了，像一个可怜的卡奴。
hedge
【在 k********8 的大作中提到】
: gosh David Einhorn is genius!!
: he's thinking exactly what i've being thinking!!
: so folks, don't be surprised to see me rise as next generation famous hedge
: fund manager!
| k********8
发帖数: 7948 | 6 这么搞下去是恶性循环。
归根到底，政府的钱是从税收来的，而不是自己印给自己的。
自科技泡沫破灭后经济已经盘整了十几年了，也该放手试一试了！
【在 s*****n 的大作中提到】
: 写的很sharp. 不过他不明白大本印钞票其实是为了弥补国库的亏空。否则利息稍微涨
: 一点，美国政府就还不起债务了，像一个可怜的卡奴。
:
: hedge
|
|
