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Started By
Message
re: So, the dollar is at a 13 year high
Posted on 3/10/15 at 10:42 am to fishfighter
Posted on 3/10/15 at 10:42 am to fishfighter
quote:
unless the feds devalue the dollar.
How do you propose they do this?
1
Posted on 3/10/15 at 10:47 am to Big Scrub TX
quote:
How do you propose they do this?
Increase the money supply, and therefore inflation.
Posted on 3/10/15 at 11:33 am to schexyoung
Wouldn't that also cause the alreay historically low interest rates to drop even further?
Posted on 3/10/15 at 11:37 am to iAmBatman
How can they get lower? Aren't CDs are at negative real rates of return?
Posted on 3/10/15 at 11:40 am to Rohan2Reed
That's why I'm asking if increasing the money supply is possibility. The interests rates are already so low and typically increasing the money supply decreases interest rates.
Posted on 3/10/15 at 11:46 am to iAmBatman
Seems like that would take a decade to have a real effect on the value of the dollar. Can't flood the market with more greenbacks too quickly without an implosion.
Posted on 3/10/15 at 12:21 pm to Rohan2Reed
The Fed has already ended their quantitative easing programs and are going to raise interest rates this year (market is priced for about 40% by June and 75% by September). The Fed has more options now compared to a couple years ago, specifically asset purchases since they aren't buying anything extra and actually aren't even rolling prepayments on their mortgage book. The issue is the message that would send to the markets would be very disruptive considering the current messaging, you could easily see 5's and 10's rally 40-50bps in a day.
It's not ideal for the dollar to be this strong, however the key isn't strength or weakness but rather stability. This rally has been pretty nuts, we're up ~11% in just the past 3 months which is very disruptive for capital stability and global corporate FX adjustments. Unfortunately its not the job of the Fed to not only save our economy (as they did post-crisis) but every other global one as well. Although I don't think this will disrupt the Fed from raising rates this year I do think it will have an affect on the pace of further rate hikes following the June or September meetings.
It's not ideal for the dollar to be this strong, however the key isn't strength or weakness but rather stability. This rally has been pretty nuts, we're up ~11% in just the past 3 months which is very disruptive for capital stability and global corporate FX adjustments. Unfortunately its not the job of the Fed to not only save our economy (as they did post-crisis) but every other global one as well. Although I don't think this will disrupt the Fed from raising rates this year I do think it will have an affect on the pace of further rate hikes following the June or September meetings.
Posted on 3/10/15 at 12:29 pm to iAmBatman
quote:
Wouldn't that also cause the alreay historically low interest rates to drop even further?
I think they would also raise the fed funds rate in conjunction.
Posted on 3/10/15 at 12:33 pm to schexyoung
I'm no expert but I'm pretty sure that the two events are mutually exclusive.
You can't increase the money supply and also increase interest rates. The way I understand it, interest is the price of money. If you increase the supply of money, then the price of money (interest) decreases.
You can't increase the money supply and also increase interest rates. The way I understand it, interest is the price of money. If you increase the supply of money, then the price of money (interest) decreases.
Posted on 3/10/15 at 12:33 pm to BennyAndTheInkJets
Good stuff. Thanks.
Posted on 3/10/15 at 12:39 pm to iAmBatman
the Fed can adjust money supply using techniques other than adjusting the market interest rate. such as reserve requirements.
quote:
A change in reserve ratio is seldom used but is potentially very powerful. The reserve ratio is the percentage of reserves a bank is required to hold against deposits.A decrease in the ratio will allow the bank to lend more, thereby increasing the supply of money. An increase in the ratio will have the opposite effect.
Posted on 3/10/15 at 12:52 pm to BennyAndTheInkJets
You realize there's been 2 other times in history the 10 yr treasury has dropped below 4%?? It took 32 and 35 years respectively for the treasury to come back above 4% in each occasion as well. We dropped below 4% in 2007 this last time, I don't expect it to fluctuate that much.
Posted on 3/10/15 at 1:08 pm to Shepherd88
Where did I say anything about 4%? I said a 40-50bp rally, which we've had happen post crisis. Hell we've had 25bp swings in the 10-year happen 6 times since '07. And that's just EOD to EOD, I'm not even counting intraday swings.
ETA: Also, a rally would imply rates falling so I have no idea where you got 4%?
ETA: Also, a rally would imply rates falling so I have no idea where you got 4%?
This post was edited on 3/10/15 at 1:12 pm
Posted on 3/10/15 at 1:16 pm to BennyAndTheInkJets
Not making an argument just making a statement. My point being that interest rates ain't gonna be coming up as quickly as most think.
Posted on 3/10/15 at 1:19 pm to Shepherd88
You mean the Fed raising the FF target or market rates rising?
Posted on 3/10/15 at 1:28 pm to BennyAndTheInkJets
Both, but my point would be the market raising the rates. I believe the market will suppress the Fed from raising FF rates as quickly as they want to. If they do we will look at a flat yield curve.
Until we see quality foreign sovereign debt with higher interest rates then there's no where for countries such as Germany to put money towards. They're the ones driving down our treasury currently.
Which I believe was your point you made earlier with our Fed not only trying to help the U.S. but the global market as well.
Until we see quality foreign sovereign debt with higher interest rates then there's no where for countries such as Germany to put money towards. They're the ones driving down our treasury currently.
Which I believe was your point you made earlier with our Fed not only trying to help the U.S. but the global market as well.
Posted on 3/10/15 at 5:36 pm to Shepherd88
I don't think the Fed cares that much about the slope of the yield curve all things considered right now. We're pretty steep as it is, not as steep as 2012 but historically very steep. Forward curves are pretty flat and have been for a while so its not like the market is mispriced or the Fed is unaware of this. They want to raise rates for all of the normal economic reasons, but also symbolically. They've made it very clear they want to move away from ZIRP.
I agree with your overall sentiment though, from a market perspective as well as the Fed's overall neutral policy rate. Until there is a more attractive investment within developed nations than the US our rates will be subdued. Not to mention short-term space which is becoming extremely supply constrained from regulation/reduced budget deficits, although that is a completely different giant bag of worms that I am all too familiar with. I full believe the "new neutral" policy rate will be in the 2-2.5% range compared to the 4% previously. Longer rates (30-year) will stay lower just because the natural habitat investors can't move from that space. DB pension plans aren't going to start looking at Eurodollars or 5-year corporate paper anytime soon, they're stuck in long credit and long duration space due to their liability composition. From a very long term perspective (400-500 years) this is just the natural long-term trend of interest rates from the intertwining of capital globally. From a more intermediate perspective I don't see global growth being what we've seen over previous 50 years (aside from a couple pockets).
I agree with your overall sentiment though, from a market perspective as well as the Fed's overall neutral policy rate. Until there is a more attractive investment within developed nations than the US our rates will be subdued. Not to mention short-term space which is becoming extremely supply constrained from regulation/reduced budget deficits, although that is a completely different giant bag of worms that I am all too familiar with. I full believe the "new neutral" policy rate will be in the 2-2.5% range compared to the 4% previously. Longer rates (30-year) will stay lower just because the natural habitat investors can't move from that space. DB pension plans aren't going to start looking at Eurodollars or 5-year corporate paper anytime soon, they're stuck in long credit and long duration space due to their liability composition. From a very long term perspective (400-500 years) this is just the natural long-term trend of interest rates from the intertwining of capital globally. From a more intermediate perspective I don't see global growth being what we've seen over previous 50 years (aside from a couple pockets).
Posted on 3/11/15 at 9:37 am to fishfighter
quote:
What is going to happen now that the dollar is so high? I know it is going to hurt exports big time, in turn will start shutting down plants and jobs.
The pace can be very disruptive to financial markets. VERY Disruptive. EUR/USD 1.05 needs to hold. I imagine there were some frayed nerves on European trading desks today.
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