Thursday, December 29, 2016

Dollar repatriation

Steve Bannon plots economic destruction

Interesting view that as soon as the fed tightens i.e. stops the support of the bond market, then nominal rates can be very low because as dollars are repatriated to the US you can get an effective return from the dollar increasing in value.

Posted by stillthinking @ 03:41 AM (7530 views)
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5 thoughts on “Dollar repatriation

  • “If a person, firm, or institution is dependent upon inflationary credit expansion for sustenance, that person, firm, or institution is – by definition – insolvent. Somebody or some institution (e.g. government) is spending beyond their/its means. As a nation, we have spent beyond our means.”

    That’s a blunder. It has been pointed out here before that a sovereign nation with its own currency is nothing like a household, company or even multinational w.r.t. solvency. Nations never die – barring war, natural disaster or some other external calamity. The government can get away with borrowing forever in a way that no individual person or institution can which is why our politicians kick problems down the road; they do it because they can.

    “The only path to an economic recovery runs through monetary tightening by the Fed. Waiting until we have an economic recovery before tightening is a calculus to destroy the currency and the economy. When the currency collapses is impossible to predict, but the currency will eventually collapse if current policies aren’t abandoned.”

    Betting against the USA is very risky. Despite all its problems, the USA is one of the most dynamic economies in the world. The Saudi attempt to bankrupt the American oil industry is the latest example of a bet against the USA going wrong.

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  • American banks have been lobbying for an IR rise. None more so than Bank of America. Its $20+billion annual income is made up of about 50% non-interest income and 50% interest income. A 1% IR rise in both short- and long-term IRs would increase its interest income from >$10 billion to over 14.5 billion (well offsetting any resulting loss on its securities income).

    According to S&P Global Ratings ZIRP has left the bottom 99% of non-financial US corporations (those outside the top 25) with big debt problems. They’ve been borrowing to buy back their shares and boost both share prices and dividends (i.e. execs lining their pockets). That 99% have a cash/debt ratio of just 12% ($900bn / $6,000bn) – the lowest over the past decade, including the run-up to the crash, putting much of corporate America at risk of default.

    These share repurchases are cheaper with borrowed cash than with repatriated profits – but wait for Trump’s plans for low taxes on repatriated profits to see lots more share buybacks and even more inflated stock prices (Goldman Sachs estimates $200 bn will be repatriated in 2017 and $150 bn of this will go to stock buybacks.

    Despite all the borrowing capital spending is falling and company outlays on equipment, software and buildings are sluggish.

    A sluggish economy, an inflated stock market, much greater inequality and potentially defaulting companies are the results of Fed policy. So don’t believe any ‘technical’ explanations of what they’re doing. Inflation is well under 2%, and the dollar’s rise reduces import costs, and wages aren’t rising (despite Yellen’s ‘signs’….signs! ‘that wages are picking up’

    So maybe the Fed is listening to the banks.

    (btw, Bannon’s infrastructure plans are based on private-public partnerships, transferring more from taxpayers to the 1%)

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  • Higher interest rates actually tend to go hand in glove with RISING house prices.

    Why does this surprise you? It is because you fall for the PROPAGANDA that central banks control the economy. In fact, they REACT to the economy, frozen like rabbits in headlights until forced to act. They raise rates in response to increased economic activity, during periods where prices are rising and cut rates when economic activity falls. They are constantly fighting the market and accentuate the business cycle. Of course, interest rates should solely be chosen by the market-place. If only central banks could let go and have the market set the interest rate on the sole basis of the market close.

    Remember, house prices rose into 2008, during a tightening cycle and fell after 2008 as interest rates collapsed. However, objective truth is no competitor to outright lies and propaganda, whereby the media parrot that if interest rates rise, house prices will fall, on the basis that central banks are in control.

    Of course, interest rates will only go up when unemployment is low, inflation is high and wages are rising, which is what the central banks have told us. As such, during that time house prices will of course rise!!

    Expect US interest rates to rise along with the DOW and US house prices as its economy starts to take off. Particularly if Trump follows through with his tax cut, deregulation and America first agenda.

    Conversely, at the same time, UK rates could continue to fall if continued Eurozone weakness hampers our growth alongside capital inflows putting a pressure on Sterling that will limit BOE’s appetite for interest rate rises as it tries to match Eurozone devaluation efforts. Though the FTSE powering ahead does suggest that tightening may not be as far away as I had thought, but rates do continue to fall and flirt with negative values, as was seen in 1yr Gilts the last couple of weeks. Yes, 1yr Gilts are barely positive now, but 2yr Gilts have fallen in line with the 1yr’s, suggesting both could become negative in the coming weeks if the trend continues.

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  • “Higher interest rates actually tend to go hand in glove with RISING house prices”

    How many times have we heard from this quarter that lower interest rates (e.g. short-term gilts going negative) will lead to SOARING house prices?

    So, we have to assume that only when there is no movement in rates can house price rises be curbed?

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  • “Prevailing practitioners of economics tell us that inflation stimulates exports.”

    No they don’t.

    Mark Alvarez of’s attempt to debunk the economic theory that he hasn’t bothered to learn is even less interesting than his website’s ongoing attempts to debunk the myth that 9/11 was orchestrated by Al Qaeda, as opposed to some conspiracy spearheaded by the US govt.

    I know many (most?) of you are climate change deniers but I suspect of the 1000s of articles committed to the internet about house prices that day, this was not by one of the most credible authors.

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