Monday, October 15, 2018

Why Interest Rates Need To Be Increased- Contrary To Dotard's Idiocy ('The Fed's Losing It's Mind')

Image result for Trump screaming baby images
"WAAAAAH! The Fed has lost its mind with their interest rate hikes! They're messing up my stock market!"

It seems Baby Doturd loves the stock market when it's soaring so he can brag he's behind it. But when it tanked last week he disowned it,  blaming the nearly 1400 point loss  on the Fed as opposed to his (and the GOP's) own stupid policies. The orange -hued ignoramus erupted last week Wednesday, belching :

“I think the Fed has gone crazy.  The Fed is going wild. I don’t know what their problem is. They are raising interest rates and it’s ridiculous.”

No, what's ridiculous is you butting your butt brain into issues about which you have no clue. Just like you did with your jackass stupid trade war with China, and sputtering bilge such as "Trade wars are easy to win!"  No, fool, they are not and the impact always smacks citizens.  This asshole actually also had the nerve to blurt out:

I think I know more about it than they do.”

 No you don't, Dotard,  but you're too too damned dumb and self-absorbed to figure it out. Likely a victim of the  Dunning -Kruger Effect because of your pronounced cognitive incapacity and narcissism.  To remind readers, the Dunning-Kruger effect is defined as “a cognitive bias whereby unskilled individuals suffer from illusory superiority, mistakenly rating their ability much higher than is accurate.” Wikipedia adds that “This bias is attributed to a metacognitive inability of the unskilled to recognize their ineptitude.” 

Or, as psychologist David Dunning (the discoverer) once explained to Errol Morris, writing in an essay series, “The Anosognosic’s Dilemma: Something’s Wrong but You’ll Never Know What It Is,” for the New York Times:

 “If you’re incompetent, you can’t know you’re incompetent … [T]he skills you need to produce a right answer are exactly the skills you need to recognize what a right answer is.”  
In the case of Trump, aka Dotard, he is fundamentally ignorant and  mega unskilled, as well as incompetent regarding just about every imaginable thing from tax policy, to tariffs, to immigration and its positive contributions, to interest rates.   The imbecile arguably doesn't even know that interest rates are "far below historic definitions of normal" according to a WSJ piece from last Friday.

In addition,  Doh- Turd seems not to process he's a victim of his own "success" (sic)  in jazzing up an economy that didn't need it - actually overheating it.  The demented dolt seems to have forgotten that his (and the GOP's) tax cuts juiced corporate earnings and led them to use the extra $$$ for stock buybacks - which sent valuations of  corporate equities hurtling beyond anything sustainable.

 This is part of  what is prompting the Fed to raise interest rates and drawing Donnie Dotard's ire. Why? Because he has to have some entity to blame other than himself. He loves to embrace the market when it's soaring but after it crapped out last week he want to distance himself knowing the midterms are around the corner and fearing voter-investors might take it out of his hide.

The other aspect not grasped by this imbecile brat and pretend president, is that when bond yields rise stocks tend to sink.   The yield on 10-year United States Treasury bonds reached a seven-year high last week of 3.25 percent (it receded some on Wednesday as stocks dropped), up from 2.82 percent in August. The 10-year rate was below 1.4 percent as recently as July 2016. What this did is stoke volatility across asset classes, igniting a single-minded search for protection.    This was largely reflected in buying up bonds (bonds have lower prices when their yields go up as the 10-year Treasury did last week).

Basically what happened is that stock investors - seeing high bond yields - sold off equities and bought Treasurys in a flight from risk .  But the real problem lay in the future i.e. when stocks sell off amid falling bond yields which tends to precede recession. Last week, then, was just a warning shot over the bow of irrationally exuberant investors too enamored of overpriced stocks.

Another less discussed aspect is the purchase of options. Not only did investors grab up bonds (including risky corporate bonds) but also options that pay out if the S&P 500 takes a drastic fall. Why would they do that? Well, because they are convinced a drastic fall is coming - if not now then later.  But what their frenzied buying of options has done is to drive up the cost of hedging stock portfolios to the highest in months.

In other words, investors (especially of the 'momentum' species) are bracing for even greater turmoil across markets, increasing hedges on their stock positions. The concern is with this behavior in addition to bond purchases as yields go up on the long term (e.g. 10-year) Treasurys.

Here's the skinny:The behavior of stock, bond and commodity markets last week showed investors' main concerns were that higher oil prices (now approaching $100 a barrel) will fuel inflation and trigger the Fed into raising interest rates even more rapidly.  This according to Charles Himmelberg chief market economist at Goldman -Sachs.  Himmelberg also said (in the same Friday WSJ piece) he saw more evidence investors are retreating from risk and worrying about economic growth.

Retreat from risk will especially be rife if the 10-year  Treasury yield should approach 3.5 % - a level some analysts believe would be a major threat to stock valuations.

Let's seek even more perspective here:  For much of the last couple of years, short-term interest rates, which the Fed controls directly, have risen much faster than longer-term rates, which are set based on global supply and demand for bonds. The Fed was plowing ahead with rate increases, while investors were evidently skeptical that growth would be persistent enough to justify higher long-term rates. (After all the Reeps passed tax cuts that promised both to stimulate the economy but also expand the supply of government debt to now an estimated $1.5 trillion)

In late August, the rate on 10-year Treasury  bonds was only 0.18 percent higher than for two-year government bonds, a phenomenon known as a flat yield curve. (When that number turns negative, it’s considered an “inverted yield curve” and is often a measure of looming recession.)

Since then, longer-term rates have risen faster than shorter-term ones. Still the yield curve remains flat by historical standards and the gap between 10-year and two-year bonds was up to only 0.33 percent in recent days.

The yields of inflation-protected bonds have moved mostly in lock step with traditional bonds in recent weeks, suggesting that traders haven’t become more worried about inflation.  The rise in longer-term interest rates is driven mainly not by a rise in inflation expectations, but rather by a rise in investors’ expectations for what the Fed will do and for how much compensation bond investors are demanding in lending over long time horizons.

Leaders of the Fed have indicated that they expect to keep raising their target interest rate to around 3.4 percent by the end of 2020, up from the current level of just above 2 percent.  This is very reasonable, contrary to Baby Dotard's histrionics,  given higher interest rates will provide more leverage if and when the next recession does occur.  To keep interest rates too low puts an artificial strait jacket on the Fed's responses, which a real president would grasp - but evidently the splenetic infant Trump can't.

Recall Trump criticized the Fed when it raised interest rates in July, and again when it raised interest rates in September. But his attacks have sharply intensified in recent days, in tandem with the drop in the stock market.

What we need is for this forlorn loser brat to grow up and admit that Fed Chief  Jerome Powell
Image result for Jerome Powell
knows a hell of a lot more about finance and economics than he does.  (Especially as we now know the mutt made all his money from common grifting and tax fraud - with Daddy Fred's help)

 And after all- if Dotard  needed surgery, say for removal of his appendix - he'd not want a trained monkey doing it but a competent human surgeon.  In like manner we can't have an orange Orangutan like Trump trying to manage the economy or dictate interest rates.  It needs to be left to the "big boys".

See also:

The Market Weighs in on Trump’s Economic Policies


"In truth, the whole of Trump’s economic policy has been a massive injection of debt into an already healthy economy. His tax cuts for corporations and deficit spending for military expansion have added more than $2 trillion to the national debt in just two years. It’s like injecting adrenaline into an already healthy runner in the middle of a marathon.

Let’s be clear. Any moron with a handful of credit cards charged off to the next generation can gin up the illusion of prosperity. That’s all the Trump economy is: borrowing trillions of dollars from the future, spending it today, and pretending to be a genius. But the market has figured it out."

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