Wednesday, August 20, 2014

Why does DC always end up with the ten year interest rate?

I have the ten year treasury rate and the effective federal rate. The effective federal rate is the current interest expenses divided by the total public debt.  I have scale factor to convert both to a proportion, (% value times 100).

But the maturity structure, the distribution of loans by term has changed from four years to six years, and varied in between.  Yet regardless, the market always assumes the government should pay the ten year rate.  Why? A new puzzle.

The possible answer is the 30 year mortgage rate for home loans is set to the ten year, and if that is a large part of the economy, that would set the peak of the distribution, other rates would be set in the -pLog(p) sense.  That number is 5% of the economy, not enough, it seems to me.

DC runs on the eight year recession cycle, but that is not all.  There is also the 30 year secular stagnation cycle, the cycle that is driving DC to bankruptcy.  The market may be charging DC the ten year rate to offset the cost of the secular stags it is causing.  This would be the extra fee the debt cartel charges treasury.  How often is the census? Every ten years. What happens at each census? Increased mal-proportionality in government flow, more inefficiency.

Eric Holder, you idiot

USA Today: "I am the Attorney General of the United States, but I am also a black man," Holder told Ferguson residents at a community meeting. "I can remember being stopped on the New Jersey turnpike on two occasions and accused of speeding. Pulled over. ... 'Let me search your car' ... Go through the trunk of my car, look under the seats and all this kind of stuff. I remember how humiliating that was and how angry I was and the impact it had on me."

I can remember, just the other day, a police raid on a house I was working on.  Guns drawn to my face, my hands up, and by god, I almost sold the house to one of the cops!.  I remember cops pulling into another house I was working on, looking for pot, five of them. One of them had some good gardening tips and complimented me on the patio. I remember how white I was, and still can remember the color of my skin.

I have had a cop follow me for miles, suspicious, then pull me over for a drunk test, (I do not drink). She was a lady cop, we chatted as I did the toe to toe, turns out we went to the same high school.

Eric Holder, you are a friggin racist and idiot, where did you get your law degree?

A partialy bad omen

The retailer cut its year end earnings forecast amid slack sales and losses from last year's data breach
 Target Corporation lowered its year end earnings forecast on Wednesday as the ailing retailer posted a 62% drop in second quarter profits.

Some of this was a one time loss from the theft of customer account info.  Some was slack sales and flat same store sales.  Mostly bad news and retail is a bell weather for the economy..

Obamacare costs, again

The Wall Street Journal: Risks Create Tumult for Tech, Health-Care Firms
Seismic shifts in the technology and health-care sectors highlight why executives are divided or undecided about taking financial and strategic risks. … At the opposite end of the spectrum is the health-care industry. The still-evolving Affordable Care Act, has made many companies hire thousands and plow millions into their businesses. The health-care sector is expected to post revenue growth of 12.2%, the highest of any sector, and earnings growth of 15.9%, second only to the telecommunications industry. Health-care companies increased spending on buildings and equipment by 15%, the greatest surge of any sector and compared with a 24% decline in the second quarter last year, according to FactSet (Knox and Murphy, 8/18).
Kaiser: Under the Affordable Care Act, the federal government pays 100 percent of the costs for newly eligible Medi-Cal enrollees for the first three years.
So, given that health care is 15% of the economy, the 12% revenue growth comes to 1.8% of GDP, paid for mostly with new federal debt.  Obamacare taxes will be a small part of the budget picture, most of the new enrollees are heavily subsidized. The expectation of a 3% deficit/GDP is gone, replaced with a 5% of deficit/GDP.  The increased capital gains tax is here now precisely to cash in on the expected higher interest rates.

Tuesday, August 19, 2014

I am still puzzled by this economy

Mainly the excess reserves and low yields for Treasuries.  The economy is still growing at 2.5% (YoY) , typically, the bean counters say. So why are the big banks happy to pile on the excess reserves at a .25% (YoY) deposit rate? It seems like an economy where banks do not even operate, all growth is coming from retained earnings. Who is lending money to DC at .1% (YoY) when the world growth is still 2% or greater? This is not the Fed, this is the lending market operating these low rates. Either the bean counters are mis-counting growth, or the risk premium of off the charts.  Something is not right with this economy.

O'Donnell, RBS Securities and welfare bum

In this Yahoo article the discussion is that low rates are the new normal. The Fed really is not going to raise rates because rates are dropping as we head into recession.  What rates are not dropping? The interest on excess reserves, the fee Congress pays to the bond dealers for sling some 15 Trillion in roll over debt from DC.  So what does RBS Securities have to say? They read right out of the Keynesian welfare manual and want more government debt.

For the Fed's Interest Rates, Low Is the New Status Quo

 And RBS Securities fixed-income strategist Bill O'Donnell argued that regulation's chastening effect has caused an overdependence on the Fed for financial liquidity. When that dries up, he said, "nobody really knows how the system will hold up under duress."
We shouldn't blame all this on overzealous regulators. Banks' prior excesses and the damage they wrought necessitated a regulatory response. The problem is that it exacerbated a difficult economic environment because fiscal policy makers had failed to devise more effective stimulus measures such as infrastructure-investment programs.

First, over dependence on the Fed for liquidity, OK we got that, the preipheral economy is breaking up.  The what does O'Donnell propose? More debt base spending from the center.  This idiot wants more bad effects from the causes he just described.  His empty brain must be rattling around.

Monday, August 18, 2014

Are we there yet?

How soon until the recession? I have current tax receipts for the federal government. They peak 2 to 6 months before the recession.  Have our tax receipts peaked yet? It looks like it, they are straight up, vertical.

Jerry Brown declares California independence

California governors sometimes even broach the topic of sovereignty. Example: On a July junket to Mexico City, Jerry Brown observed that  “Even though California is a mere sub-national entity, it is equivalent to the eighth largest country in the world and we intend to operate based on that…clout.”

          Brown referred to gross domestic product, where California ranks just behind Brazil and Russia, but is gaining on them, and well ahead of prominent nations like Italy, India, Mexico and Argentina.

Its hot in California

Bloomberg reporting on the worst drought in history.

Sunday, August 17, 2014

Where is the San Diego mayor during this fiasco?

Jim Hamilton, one of the smart economists, scorches a California municipal pension fund for a bonehead strategy. Read the blurb and have a feeling of Big Whoops this will end badly for Sane Diego taxpayers. Kevin Faulconer, the mayor, will lose his job when this crashes.
The unfunded liabilities of the San Diego County Employees Retirement Association have increased every year for the last five years, reaching $2.45 billion last year, more than quintuple the level in 2008. The calculation of how big the shortfall is assumes that the fund is going to be able to earn a 7.75% return on its investment after subtracting administrative costs. If it earns less than 7.75%, the shortfall will be even bigger. A 10-year Treasury bond currently pays 2.4%, and a typical stock has a dividend yield under 2%. So what do you do if you’re in charge of the system’s $10 billion in assets?

One thing you could do is ask the taxpayers for more money right now.
What the SDCERA board did instead was to approve a strategy that is supposed to increase the return on the fund’s assets.
And how do you do that, exactly? Suppose you invest $50,000 outright in the S&P 500. If the market goes up 1%, next year it will be worth $50,500, and you’ve earned 1% on your investment. (I’m going to ignore the role of dividends, which complicate a little the calculations I’m about to describe, but don’t change the basic story.)
Or you could use your $50,000 to cover the initial margin requirements for a couple of S&P 500 futures contracts, which would have a notional value of around a million dollars. That means that if the market goes up 1%, the notional value goes up to $1.01 million, and you get to keep all the $10,000 gain for yourself. That’s a 20% return on your initial $50,000 investment– not bad money in a ho-hum market!
Unfortunately, the downside is that if the market goes down 1% rather than up, you lose 20% on your investment. Oh well, what’s life without a little excitement?