Aleph Blog ：Martin Wolf, Quantitative easing has lowered rates i

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Eight Notes On 8/19
By: Aleph Blog Thursday, August 19, 2010 2:51 PM Email Article Bookmark: TwitterDeliciousDiggYahoo BuzzFacebookStumbleuponLinked InMy SpaceNewsvine Font Size Print Article
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1) I am not a Treasury bond bull, per se, but I am reluctant to short until I see real price weakness. And some think that I am only a fundamentalist value investor. With bonds, it is tough to catch the turning points, and tough to grasp the motivations of competitors. Better to miss the first 10% of a move, than miss it altogether. And consider this teardown of the past bear case here. Or look at the bull case here. Or, look at Japan supporting us as China sells.

But are there enough buyers out there for Treasury notes on the current path of deficits? At present interest rates, the answer is likely "no," after some time. The US is going to have to change its behavior, and shrink deficits, especially expenses from defense and entitlements.

2) To Narayana Kocherlakota: Yo, man, time to grow up. Markets are what they are. They react to what you say, not what you mean. But beware the the day that you say what you mean, lest the market go bonkers. What, you say that is unfair? Feh, sir, welcome to the markets. We understood what you meant. There is no document so analyzed as the FOMC statement. If it is misanalyzed in your view, it is your fault for sloppy language.

3) Hitting a 10 out of 10 on the "Hooey scale," this piece at Martin Wolf's forum rings the bell. Quantitative easing has lowered rates in Japan, but has not helped employment to any degree. The same will be true for the US. Hint: lowering discount rates raises the value of existing enterprises, but does little for new enterprises because new enterprises need equity finance. There is no evidence that lower interest rates, of themselves, will lower unemployment.

4) If someone had said to me that I would say something nice about Basel III soon, I would have growled. But I was wrong, Basel III limits short-term leverage. Very nice, would that Dodd-Frank had been equally useful. (I wrote about this many times.) The thing that still gores me about the Basel standards is that it is wrong to rely on companies for credit analysis.