All about risk
Link:https://mishtalk.com/economics/fed-rate-cut-expectations-drop-on-unexpectedly-strong-cpi-data/
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Author(s): Mike Shedlock
Publication Date: 13 Feb 2024
Publication Site: Mish Talk
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Author(s): Mike Shedlock
Publication Date: 12 Feb 2024
Publication Site: Mish Talk
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Everyone knows, or at least should know, that the “Big 3” rating agencies that rate about 98 percent of all debt all issue trash ratings. Here’s the background on how that happened.
Rating agencies used to get paid by investors on the basis of how well they did at estimating the likelihood of default. The better your ratings, the more sought out your opinions.
In the mid 1970s, the SEC created nationally recognized statistical ratings organizations (NRSROs). Following that idiotic regulation, the rating agencies got paid on the basis of how much debt they rated, not how accurate their ratings were. Fees come from corporations issuing debt, not investors seeking true default risk.
The more stuff you rate AAA, the more business you get from companies who want their debt rated. The new model is ass backward, and why ratings are trash. A genuine fiasco happened with ratings during the Great Financial Crisis with tons of garbage rated AAA went to zero.
There should not be NRSROs. The SEC made matters much worse, except of course for the Big 3 who have a a captured, mandated audience, coupled with massive conflicts of interest.
Author(s): Mike Shedlock
Publication Date: 5 Aug 2023
Publication Site: Mish Talk
Link:https://mishtalk.com/economics/real-personal-spending-rises-twice-as-much-as-income-in-june/
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Real (inflation-adjusted) consumer spending rose 0.4 percent in June. Real disposable income rose 0.2 percent.
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Real PCE goods peaked in March of 2021. All of the growth in consumer spending for 27 months is due to an increase in demand for services.
Author(s): Mike Shedlock
Publication Date: 28 July 2023
Publication Site: Mish Talk
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Two things on the Fed’s mind are the core rate of inflation (all items excluding food and energy) and rent. Both have proven stubborn.
Despite constant talk of falling rent prices please note that Rent of primary residence has gone up at least 0.4 percent, every month for 23 straight months!
The falling rent meme has been wrong for at least a full year.
Author(s): Mike Shedlock
Publication Date: 12 July 2023
Publication Site: Mish Talk
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Biden’s efforts to produce more inflation are nonstop, 24×7. His latest move is a set of regulations to force people into Obamacare despite the fact a District Court already ruled against his proposed regulations.
Biden Attempts to Make Healthcare Even More Expensive
To understand what Biden wants to do, and why the Supreme Court is likely to smack it down, we need to review a District Court ruling from 2020.
On July 24, 2020, CATO reported In a Win for Consumers, a Court Ruling Affirms the Legality of Short‐Term Health Insurance Plans
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Jam City, Dateline July 7, 2023
The Wall Street Journal comments on Biden’s Short-Sighted New Health Rule
Behold the President’s plan to limit short-term health insurance plans in order to jam more consumers into the heavily subsidized and regulated ObamaCare exchanges. The Health and Human Services, Labor and Treasury Departments on Friday proposed rules to roll back the Trump Administration’s expansion of short-term, limited-duration insurance (STLDI) plans. Since 2018 these plans have been available in 12-month increments, and consumers have been able to renew them for up to 36 months.
These plans are especially attractive to young people whose employers don’t provide coverage. Why would a healthy 26-year-old want to pay for maternity, pediatric and other services he probably won’t use in the near future?
The Inflation Reduction Act sweetened ObamaCare’s insurance premium tax credits that are tied to income. As a result, a 60-year-old making just above four times the poverty level has to pay only 8.5% of his income toward his insurance premium while the government picks up the rest. If premiums increase, government is on the hook for more.
Author(s): Mike Shedlock
Publication Date: 9 July 2023
Publication Site: Mish Talk
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The Fed’s Summary of Economic projections is far more interesting. I highlighted the median economic forecast in pink. Each dot represents the position of someone at the meeting.
Looking ahead to 2025, the Fed is clueless.
Actually, that’s not a bad thing. Someone on the committee is likely to be correct.
Moreover, the results look like one of my favorite sayings: I don’t know and no one else does either, especially the Fed.
Author(s): Mike Shedlock
Publication Date: 14 Jun 2023
Publication Site: Mish Talk
Link: https://mishtalk.com/economics/hello-president-biden-the-ball-is-in-your-court
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Key Provisions
Hello Joe, the Ball is in Your Court
Republicans only had 4 votes to spare but with some last minute haggling, the bill passed 217-215.
It wasn’t a pretty serve by McCarthy, but the ball cleared the net and landed in play.
The only way to get the ball back in the Republican court would be for the Senate to pass a measure or amend the House bill.
Author(s): Mike Shedlock
Publication Date: 8 May 2023
Publication Site: Mish Talk
Link: https://mishtalk.com/economics/credit-default-swaps-imply-a-two-percent-chance-the-us-defaults
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The implied odds are two percent but contract trading is very thin. And some of the protection is mandatory. If regulators raise risk flags, some banks feel compelled to buy insurance.
So most likely the true odds of default are much lower.
There is also a three day grace period. We could have a default, but if it is rectified within three days, those betting on a default will be technically correct yet receive no payout.
I believe the odds of a payout on these contracts is essentially zero. But yeah, if there is a default for a couple of days, there will be “chaos” as several people on Twitter have commented.
Author(s): Mike Shedlock
Publication Date: 21 Apr 2023
Publication Site: Mish Talk
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Please consider the Biden-Trump Plan to Cut Social Security
While Trump promised to not touch SS, Biden said he would protect SS “without any change“.
Biden’s “guarantee” is impossible, by existing law.
The pledge to not change a thing means automatic benefit cuts starting in 2033 according to the bipartisan Congressional Budget Office (CBO).
Author(s): Mike Shedlock
Publication Date: 15 April 2023
Publication Site: Mish Talk
Link: https://mishtalk.com/economics/yellen-said-no-bailout-but-its-a-huge-bailout-of-the-banking-system
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It won’t matter but I am pleased the Journal blasted Bill Ackman and venture investor David Sacks, as “frantic panic spreaders“.
There’s more in the article about how Rohit Chopra, an Elizabeth Warren acolyte on the FDIC board, is hostile to bank mergers on ideological grounds, perhaps preventing a merger.
The Journal speculates how Biden might illegally act to guarantee all deposits or pressure House Speaker Kevin McCarthy.
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Once again, the Fed kept interest rates too low, too long, encouraged speculation, then bailed out the banks.
Spare me the sap about this was a depositor bailout not a bank bailout.
When you value assets at par so that banks don’t have losses, what the hell is it.
Author(s): Mike Shedlock
Publication Date: 12 Mar 2023
Publication Site: Mish Talk
Link: https://mishtalk.com/economics/how-many-rate-hikes-does-the-market-now-expect-of-the-fed
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Now Vs a Month Ago
- The market now sees a terminal rate of 5.36 percent in September, call it 5.25-5.50 percent.
- A month ago the market thought the terminal rate was 5.00 percent in June.
- Previously, the market expected a peak in June followed by two or three 25-basis point cuts all the way to 4.32 percent.
- The market now sees a a cut from 5.36 percent to 5.0 percent.
Author(s): Mike Shedlock
Publication Date: 11 Feb 2023
Publication Site: Mish Talk