Early inflation indicators?

[Tilted]

It's still coming...

Seriously though, I bumped this thread for this news (I didn't want to start a new thread):

US 10-Year Treasury Yield Hits Record Low of 1.6713%

The yield on the U.S. 10-year Treasury note fell to its lowest level on record Wednesday, as continuing fears about some euro zone countries' ability to service their debt kept demand for U.S. fixed-income assets firm.

Yields on 10-year notes sank to a low of 1.6713 percent, its lowest level since September and down from 1.73 percent in late U.S trading on Tuesday.

The 30-year bond yield fell to 2.78 percent, its lowest level since October, and down from a yield of 2.84 percent in late U.S. trade on Tuesday.

 

[EmptyTimCup]

It's still coming...

Seriously though, I bumped this thread for this news (I didn't want to start a new thread):

hmm that's not good, it is ?

 

[Tilted]

hmm that's not good, it is ?

It depends on who you ask.

It isn't good if you're trying to finance your retirement years on the savings you managed to squirrel away over 50 years of working for a living.

 

[EmptyTimCup]

did you see the thread, where Krugman suggested Scientists LIE, about a pending Alien Invasion, so the Gov. would spend MORE Money

 

[Larry Gude]

hmm that's not good, it is ?

The economy isn't going to recover until energy prices drop, a lot, a bunch of debt gets written off, interest rates go up and the value of the dollar goes up.

None of which either party wants.

 

[Tilted]

1.57% now on the 10 year Note, 2.63% on the 30 year Bond

did you see the thread, where Krugman suggested Scientists LIE, about a pending Alien Invasion, so the Gov. would spend MORE Money

No, I didn't. I'll look for it.

The economy isn't going to recover until energy prices drop, a lot, a bunch of debt gets written off, interest rates go up and the value of the dollar goes up.

None of which either party wants.

I'd agree with you about the general link between energy prices and the strength of the economy, but I think that dog / tail wags the other way (though I suppose it's six of one or half dozen of the other). The only way oil goes substantially lower is if the economy is in trouble, and if the economy does really well the price of oil has to go higher. Oil demand (i.e. what I now call organic demand, as distinguished from met demand or realized demand - that's an important distinction that most people don't seem to make in their thinking about oil prices, which is what I now believe leads to so much mistaken understanding with regard to oil prices) is largely a function of the strength of the global economy, thus that relative strength (and expectations with regard to it going forward) is a big driver of oil prices.

The economy can only do so well when oil prices are high, but oil prices can only go so low if the economy is doing well. That's why I think oil has to stay in a range for the foreseeable future (and has been in a range for a while). Economies recover -> oil prices rise -> economies stumble -> oil prices fall -> economies recover...

There's a way (or, rather, a combination of ways) to slowly move ourselves away from that cycle, but all sides are so convinced that their notions are right on this general issue (when, in reality, they're respectively partially wrong and partially right), that the public conversation talks past itself and the necessary changes come much too begrudgingly and slowly. It shouldn't take $4 or $5 gas for us to make sensible changes - to move in sensible directions - but it seems that it does and will.

As for the Dollar, it's been pretty strong lately - well, at least in comparison to the Euro, for whatever that's worth.

 

[Larry Gude]

I'd agree with you about the general link between energy prices and the strength of the economy, but I think that dog / tail wags the other way (though I suppose it's six of one or half dozen of the other). The only way oil goes substantially lower is if the economy is in trouble, and if the economy does really well the price of oil has to go higher. Oil demand (i.e. what I now call organic demand, as distinguished from met demand or realized demand - that's an important distinction that most people don't seem to make in their thinking about oil prices, which is what I now believe leads to so much mistaken understanding with regard to oil prices) is largely a function of the strength of the global economy, thus that relative strength (and expectations with regard to it going forward) is a big driver of oil prices.

The economy can only do so well when oil prices are high, but oil prices can only go so low if the economy is doing well. That's why I think oil has to stay in a range for the foreseeable future (and has been in a range for a while). Economies recover -> oil prices rise -> economies stumble -> oil prices fall -> economies recover...

There's a way (or, rather, a combination of ways) to slowly move ourselves away from that cycle, but all sides are so convinced that their notions are right on this general issue (when, in reality, they're respectively partially wrong and partially right), that the public conversation talks past itself and the necessary changes come much too begrudgingly and slowly. It shouldn't take $4 or $5 gas for us to make sensible changes - to move in sensible directions - but it seems that it does and will.

As for the Dollar, it's been pretty strong lately - well, at least in comparison to the Euro, for whatever that's worth.

Square that circle with oil prices the last 4 years compared to the economy, good sir.

Our economy has been a mess since fall of '08, or sooner, with enormous borrowing. Europe has been getting scarier, year by year. Even China is slowing. And where is oil? To me, oil prices have not, and are not, reflecting the global economy and, in my view it is two fold; other economies would suffer, greatly, the oil economies, especially important is Russia, and it has been agreed by Bush and now Obama, to keep oil somewhere around $100. Add to this one of our only bright spots is oil as well. Add to this, huge institutional dollars that long ago left real estate and need a safe haven.

That is what I 'feel' is going on. I don't believe in oil prices being market driven anymore. Some, sure but, not primarily. Middle East stability would be exacerbated by oil crashing. We, domestically, don't want it to fall both because of the boom in our oil economy and the green economy absurdities make no sense at $100 let alone $50 or lower. Russia doesn't want it. It would hurt Mexico. It would hurt South America. Fledgling economies in Africa don't want it.

Oil is a geopolitical tool now.

 

[Tilted]

Square that circle with oil prices the last 4 years compared to the economy, good sir.

Our economy has been a mess since fall of '08 (Not consistently so though, and certainly not consistently so regarding all areas of the global economy - conditions have fluctuated and, more importantly, expectations for what was coming (3 months out, 1 year out, 3 years out) have fluctuated significantly.), or sooner, with enormous borrowing. Europe has been getting scarier, year by year. Even China is slowing. And where is oil? To me, oil prices have not, and are not, reflecting the global economy and, in my view it is two fold; other economies would suffer, greatly, the oil economies, especially important is Russia, and it has been agreed by Bush and now Obama, to keep oil somewhere around $100. Add to this one of our only bright spots is oil as well. Add to this, huge institutional dollars that long ago left real estate and need a safe haven.

That is what I 'feel' is going on. I don't believe in oil prices being market driven anymore. Some, sure but, not primarily. Middle East stability would be exacerbated by oil crashing. We, domestically, don't want it to fall both because of the boom in our oil economy and the green economy absurdities make no sense at $100 let alone $50 or lower. Russia doesn't want it. It would hurt Mexico. It would hurt South America. Fledgling economies in Africa don't want it.

Oil is a geopolitical tool now.

I think it squares rather well with what's happened in global economies (and with changing expectations with regard to them) over the last 4 years. When it seemed that things might fall completely apart - that the world might end - in the second half of 2008, oil crashed big time. We saw a massive over-correction from the previously heavily-bloated prices. Then, when it seemed that we'd survived and the world wasn't going to end, oil prices recovered. Oil prices climbed based on optimism in portions of the global economy (e.g. China and emerging markets, and even mildly improving conditions in the U.S.). When worries about China creeped in, or when concerns about Europe came to the forefront, or when prospects here in the U.S. looked down, oil prices receded.

A number of things have affected oil prices, both acutely and chronically. A flood of liquidity, risk aversion with regard to equities, and meaningfully nonexistent real returns on safe havens like Treasuries, have combined to push money into the oil market. Supply-side concerns or prospects have entered the equation from time to time to push oil prices one way or the other. Those effects I would not deny. But the primary, consistent, underlying driver of price action in the oil markets over the last few years has been the perceived state of the global economy - indications, expectations, hopes, and fears with regard to it. Oil prices have, to a large extent, functioned as a surrogate for global economic expectations - with a few supply-side fear effects thrown in occasionally to keep things interesting.

The crashing oil prices that we've seen over the last month have mostly been the result of growing concerns about Europe - the disconcerting notion that, after a couple of years of efforts to stave off disaster, the #### may actually be getting close to hitting the fan. And concerns about China slowing down are getting more play.

Over the past couple of years I've followed the price action in oil fairly regularly. It's gotten to the point that I can pretty much tell whether the overnight news out of Europe and Asia was generally good or generally bad - or rather, generally taken in a positive or negative light - before I even get out of bed and make my way to my desktop computer to catch up on what that news is. I wake up, reach for my iPhone or iPad, and open a basic financial markets app that, among other things, shows me what oil is trading at. If it's down a meaningful amount, I can be fairly sure that the news out of Europe is pessimistic. If it's up a meaningful amount, I can be fairly sure that the news out of Europe is optimistic. Occasionally I get surprised to find out that the movement can be attributed to a supply-side concern or prospect (e.g. intensified turmoil in some oil producing nation). But more often than not oil prices move in lock step with global economic sentiment, or based on news affecting some important segment of the world's economy. The correlation is quite strong and has, over time, become undeniable. As I've said, and you've suggested, there are other issues and dynamics in play; but it seems to me that the ever changing state of expectations regarding the global economy has been the omnipresent driver.




EDIT:

Today's example: I wake to see that WTI is down another $1.51 and Brent another $1.73. Why? Probably, to a large degree, this...

Weak China PMI exacerbates bearish sentiment for shares, euro

China slowdown worsens amid signs U.S. losing steam

 

[Larry Gude]

I think it squares rather well with what's happened in global economies (and with changing expectations with regard to them) over the last 4 years. When it seemed that things might fall completely apart - that the world might end - in the second half of 2008, oil crashed big time. We saw a massive over-correction from the previously heavily-bloated prices. Then, when it seemed that we'd survived and the world wasn't going to end, oil prices recovered. Oil prices climbed based on optimism in portions of the global economy (e.g. China and emerging markets, and even mildly improving conditions in the U.S.). When worries about China creeped in, or when concerns about Europe came to the forefront, or when prospects here in the U.S. looked down, oil prices receded.

A number of things have affected oil prices, both acutely and chronically. A flood of liquidity, risk aversion with regard to equities, and meaningfully nonexistent real returns on safe havens like Treasuries, have combined to push money into the oil market. Supply-side concerns or prospects have entered the equation from time to time to push oil prices one way or the other. Those effects I would not deny. But the primary, consistent, underlying driver of price action in the oil markets over the last few years has been the perceived state of the global economy - indications, expectations, hopes, and fears with regard to it. Oil prices have, to a large extent, functioned as a surrogate for global economic expectations - with a few supply-side fear effects thrown in occasionally to keep things interesting.

The crashing oil prices that we've seen over the last month have mostly been the result of growing concerns about Europe - the disconcerting notion that, after a couple of years of efforts to stave off disaster, the #### may actually be getting close to hitting the fan. And concerns about China slowing down are getting more play.

Over the past couple of years I've followed the price action in oil fairly regularly. It's gotten to the point that I can pretty much tell whether the overnight news out of Europe and Asia was generally good or generally bad - or rather, generally taken in a positive or negative light - before I even get out of bed and make my way to my desktop computer to catch up on what that news is. I wake up, reach for my iPhone or iPad, and open a basic financial markets app that, among other things, shows me what oil is trading at. If it's down a meaningful amount, I can be fairly sure that the news out of Europe is pessimistic. If it's up a meaningful amount, I can be fairly sure that the news out of Europe is optimistic. Occasionally I get surprised to find out that the movement can be attributed to a supply-side concern or prospect (e.g. intensified turmoil in some oil producing nation). But more often than not oil prices move in lock step with global economic sentiment, or based on news affecting some important segment of the world's economy. The correlation is quite strong and has, over time, become undeniable. As I've said, and you've suggested, there are other issues and dynamics in play; but it seems to me that the ever changing state of expectations regarding the global economy has been the omnipresent driver.




EDIT:

Today's example: I wake to see that WTI is down another $1.51 and Brent another $1.73. Why? Probably, to a large degree, this...

Weak China PMI exacerbates bearish sentiment for shares, euro

China slowdown worsens amid signs U.S. losing steam

I think we have different views on what 'meaningful' means. We are, in my view, being 'taxed' to the tune of about a billion dollars a day, as a nation, over where oil should, in my view, be and, in my view, would be were Glass/'Steagal still in effect; limiting non industry speculation.

A dollar a barrel, $10 a barrel, isn't very meaningful to me. If you are correct in your view that there is still a strong market component, a primary one as I understand your comments, and not primarily a geo political tool as I see it, then would you agree we should see oil collapse, meaningfully, as in down under, say, $70, over the next two quarters?

 

[Tilted]

I think we have different views on what 'meaningful' means. We are, in my view, being 'taxed' to the tune of about a billion dollars a day, as a nation, over where oil should, in my view, be and, in my view, would be were Glass/'Steagal still in effect; limiting non industry speculation.

A dollar a barrel, $10 a barrel, isn't very meaningful to me. If you are correct in your view that there is still a strong market component, a primary one as I understand your comments, and not primarily a geo political tool as I see it, then would you agree we should see oil collapse, meaningfully, as in down under, say, $70, over the next two quarters?

I think we disagree somewhat about what price levels would reflect fair market pricing (i.e. based primarily on fundamentals and future expectations) - maybe appropriate pricing would be a better description - given certain economic conditions and expectations. Given what's happening in Europe, and China, and here, and elsewhere in the world, I'd expect oil prices should fall to around $80 (WTI) / $95 (Brent) from the $110 / $125 they were at not too long ago. I wouldn't expect them to fall much lower - as in, below $75 - unless conditions and/or expectations continue to get worse. If things do fall apart in Europe - e.g., Greece leaves the EU and that has broader negative impacts - then I could see oil prices going considerably lower. Likewise, if things pick up from here - e.g., if it starts to look like Europe has figured out its sovereign debt crises - I could see oil easily going up $10 or $20.

I think there is a liquidity premium in the oil prices, but I don't think it's as much as you think it is. We don't much disagree on the mechanisms in play here (I don't think), we disagree on the measurements - the degree of effects. That's fine and not all that surprising. I'd be tickled to death with $70 oil on average over the next 3 years, you probably think it could be and should be considerably lower.

To answer your question more directly, no, I don't' think oil should fall below $70 if things (and expectations) remain pretty much as they are now. I think $75 - $80 is the lowest we can expect in that case. Oil could go to $70, but I'd expect that that meant things got considerably worse, or scarier, in at least some important part of the world.

 

[Larry Gude]

I think there is a liquidity premium in the oil prices, but I don't think it's as much as you think it is. .

Is this to say 'safe haven' which is how I view it.

I absolutely think it is huge. If real estate were sound, or simply stable, I think oil would be under $50, easy. Maybe lower.

 

[Tilted]

Is this to say 'safe haven' which is how I view it.

I absolutely think it is huge. If real estate were sound, or simply stable, I think oil would be under $50, easy. Maybe lower.

That's an aspect of what I'm referring to as the liquidity premium, yes. More generally, I'm referring to the notion that there's a #### load of money floating around out there that has to or wants to find some place to be at any given moment.

 

[Larry Gude]

That's an aspect of what I'm referring to as the liquidity premium, yes. More generally, I'm referring to the notion that there's a #### load of money floating around out there that has to or wants to find some place to be at any given moment.

It may be easy to prove my gut wrong on this but, I think there is just enormous dollars doing that very thing in oil seeing it as the one of the few safe place to put a lot of money to protect it's value. And Glass/Steagal was long ago created to minimize this. I mean, it seems obvious to say given the real estate condition, the uncertainty there. I dunno. I've just found that in the last four years, I am losing all sense of the over all economy because nothing is 'real' anymore. We don't allow economic hardship anymore which is THE driving force behind people doing the hard work of fixing something.

It all goes back to my Profit/Loss economy transformed to an Asset/Liability economy theory. All we do is protect balance sheets and that makes understanding for the common folk very difficult and opaque.

 

[Tilted]

It may be easy to prove my gut wrong on this but, I think there is just enormous dollars doing that very thing in oil seeing it as the one of the few safe place to put a lot of money to protect it's value. And Glass/Steagal was long ago created to minimize this. I mean, it seems obvious to say given the real estate condition, the uncertainty there. I dunno. I've just found that in the last four years, I am losing all sense of the over all economy because nothing is 'real' anymore. We don't allow economic hardship anymore which is THE driving force behind people doing the hard work of fixing something.

It all goes back to my Profit/Loss economy transformed to an Asset/Liability economy theory. All we do is protect balance sheets and that makes understanding for the common folk very difficult and opaque.

Back to the profit/loss versus asset/liability discussion later, but for now let's talk about the Glass-Steagal thing - i.e., the idea of keeping deposit banking services and trading separated from each other and of limiting the (sometimes irresponsible) proprietary trading that could be done by deposit banks so as to limit the risk of systemic failure (as I understand that to be your basic idea).

On the latter point, indulge an inquiry from me if you don't mind: When you are considering what bank(s) to do business with (or when you did), what factors did you consider and base your choice(s) on (e.g. hot bank tellers, location of branches)? If there were multiple considerations, give me a sense of their relative importance.

I'm heading out to the golf course in a bit, so if I don't get back to this conversation quickly I'll do so later.

 

[Larry Gude]

On the latter point, indulge an inquiry from me if you don't mind: When you are considering what bank(s) to do business with (or when you did), what factors did you consider and base your choice(s) on (e.g. hot bank tellers, location of branches)? If there were multiple considerations, give me a sense of their relative importance.

We use two banks. One is local/local 5 branches, for our checking/payroll. Convenience was priority one. Easy to get to, us and our people, for our day to day banking. The other is local/regional for the heavy lifting, chosen for long time involvement in our industry; ag/hort.

 

[Tilted]

We use two banks. One is local/local 5 branches, for our checking/payroll. Convenience was priority one. Easy to get to, us and our people, for our day to day banking. The other is local/regional for the heavy lifting, chosen for long time involvement in our industry; ag/hort.

Okay, fairly typical considerations. Some people have also mentioned the rates the banks offer on, e.g, CDs, money market accounts, when I've made a similar inquiry of them.

Now, if it's not asking too much, indulge me once more and then I'll try to get to my point. If you were going to have someone do work on a vehicle, what kinds of things might you consider when it came to deciding what mechanic / body shop to take it to? Or, perhaps even better, when you had young children and needed a babysitter for them for a while - what did you consider when deciding who you would let babysit them?

 

[Larry Gude]

Now, if it's not asking too much, indulge me once more and then I'll try to get to my point. If you were going to have someone do work on a vehicle, what kinds of things might you consider when it came to deciding what mechanic / body shop to take it to? Or, perhaps even better, when you had young children and needed a babysitter for them for a while - what did you consider when deciding who you would let babysit them?

For a vehicle, it used to be about convenience. For our non Toyota cars and trucks it still is, meaning a shop right here in town. For our Toyota's, I long ago fell in love with how they do, the attention to detail. So, we take 'em to the dealer 20 miles away.

For babysitter, it started out as family; sisters, grandmothers. After that ice was broken, it became friends with kids the same age and then neighbor girls that I knew well enough.

 

[Tilted]

For a vehicle, it used to be about convenience. For our non Toyota cars and trucks it still is, meaning a shop right here in town. For our Toyota's, I long ago fell in love with how they do, the attention to detail. So, we take 'em to the dealer 20 miles away.

For babysitter, it started out as family; sisters, grandmothers. After that ice was broken, it became friends with kids the same age and then neighbor girls that I knew well enough.

Would you leave your vehicle with someone you didn't trust to take care of it? Would you choice a conveniently located mechanic that you had doubts about (i.e. you weren't sure they could fix the problem and wouldn't cause other problems) over an inconveniently located mechanic that you trusted completely?

Would you let someone you didn't think was responsible - or someone that you didn't know at all - watch your children?

 

[Larry Gude]

Would you leave your vehicle with someone you didn't trust to take care of it? Would you choice a conveniently located mechanic that you had doubts about (i.e. you weren't sure they could fix the problem and wouldn't cause other problems) over an inconveniently located mechanic that you trusted completely?

Would you let someone you didn't think was responsible - or someone that you didn't know at all - watch your children?

I'm not following here.

The loosening of regulations on, generically, Wall Street was, to me, obviously, in response to demands from DC that money be available to fuel, generically, real estate, home building and ALL the good business associated with it. To use the mechanic analogy, it became where the shop, or the babysitter, had opportunity to bring in additional business that would lessen their attention on the previous core business.

 

[Tilted]

I'm not following here.

The loosening of regulations on, generically, Wall Street was, to me, obviously, in response to demands from DC that money be available to fuel, generically, real estate, home building and ALL the good business associated with it. To use the mechanic analogy, it became where the shop, or the babysitter, had opportunity to bring in additional business that would lessen their attention on the previous core business.

That's not the point I'm getting at. I'm wondering if, when picking a mechanic, you give any consideration to how good a job they will do as a mechanic - how well they will take care of your car?