“It took a viral invasion to unmask the weakness of American finance. Distortion in the cost of credit is the not-so-remote cause of the raging fires at which the Federal Reserve continues to train its gushing liquidity hoses. But the firemen are also the arsonists. It was the Fed’s suppression of borrowing costs, and its predictable willingness to cut short Wall Street’s occasional selling squalls, that compromised the U.S. economy’s financial integrity.
I'm guessing that even if you had the opportunity, you probably would not get a mortgage... but if I'm wrong in my assessment, there is a way to get a conforming mortgage even as a self-employed individual... I qualified for one right before rates shot up and locked in 3.375% for a 30-year fixed.. I probably went through about a dozen mortgage brokers before I found a guy that knew how to do this.
Thanks for pointing to The End Game. I'm in the first year of a start up Electrical Contractor, so I can't afford the subscription, but I'm listening to the free episodes he has available. I've been thinking about episode 3 and the distortion of passive algo's for days and trying to apply it not just to the financial system, but considering how other automatic, or near automatic, systems might also be distorting our markets and lives.
I mean, my father used to work with the software and hardware for stocking warehouses for walmart for instance. Even 10 years ago, it was all automated on the store level; an item's out, it gets ordered. No one checks price, considers fluctuations, availability, impact on consumers, anything. Same thing with the stock market, it works great, but what happens if suddenly all the walmarts order them but consumers can't afford the prices on goods? Or the truckers can't afford to deliver, but the money has already transferred accounts, and the banks refuse to give it back?
Same thing with oil and gas. Or crops. Or animal butchering. Government spending programs.
I've simply been trying to see if there are any parallel systems the concept could apply to - algorithms with automatic (or near automatic) purchases and sales, almost forced money in.
agree...cost of debt capital is being subsidized and propping up asset prices as a result. a relevant data point here supporting the distortion. ~30% of 10yr equivalent duration has been removed from the market...a significant reduction in float of outstanding G4 sovereign bonds (i.e. high quality safe assets). its not that complicated.
I agree completely with interest rate distortion...however, I'm also non-W2 and in the process of closing a refi at 2.5%. Perhaps that's the reason the chicken should cross the road...
I think one thing missed by the "fed doesn't matter" crowd is that bonds aren't just bought by the fed as a response to policy. Banks, pensions, hedgers and others predict what they think the fed will do and then act on it. Showing a chart of QE vs bond prices or interest rates is misleading as this implies that the Fed is the only buyer.
I'm guessing that even if you had the opportunity, you probably would not get a mortgage... but if I'm wrong in my assessment, there is a way to get a conforming mortgage even as a self-employed individual... I qualified for one right before rates shot up and locked in 3.375% for a 30-year fixed.. I probably went through about a dozen mortgage brokers before I found a guy that knew how to do this.
Thanks for pointing to The End Game. I'm in the first year of a start up Electrical Contractor, so I can't afford the subscription, but I'm listening to the free episodes he has available. I've been thinking about episode 3 and the distortion of passive algo's for days and trying to apply it not just to the financial system, but considering how other automatic, or near automatic, systems might also be distorting our markets and lives.
I mean, my father used to work with the software and hardware for stocking warehouses for walmart for instance. Even 10 years ago, it was all automated on the store level; an item's out, it gets ordered. No one checks price, considers fluctuations, availability, impact on consumers, anything. Same thing with the stock market, it works great, but what happens if suddenly all the walmarts order them but consumers can't afford the prices on goods? Or the truckers can't afford to deliver, but the money has already transferred accounts, and the banks refuse to give it back?
Same thing with oil and gas. Or crops. Or animal butchering. Government spending programs.
I've simply been trying to see if there are any parallel systems the concept could apply to - algorithms with automatic (or near automatic) purchases and sales, almost forced money in.
agree...cost of debt capital is being subsidized and propping up asset prices as a result. a relevant data point here supporting the distortion. ~30% of 10yr equivalent duration has been removed from the market...a significant reduction in float of outstanding G4 sovereign bonds (i.e. high quality safe assets). its not that complicated.
https://twitter.com/MrBlonde_macro/status/1417129834547875841?s=20
I agree completely with interest rate distortion...however, I'm also non-W2 and in the process of closing a refi at 2.5%. Perhaps that's the reason the chicken should cross the road...
Another great article Doomberg. Keep cluckin.👍
I think one thing missed by the "fed doesn't matter" crowd is that bonds aren't just bought by the fed as a response to policy. Banks, pensions, hedgers and others predict what they think the fed will do and then act on it. Showing a chart of QE vs bond prices or interest rates is misleading as this implies that the Fed is the only buyer.
Good piece, keep it up