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Re: Why NGDP Targeting Won’t Work in Reality

Cullen Roche — Wed, 21 Jan 2015 14:50:41 -0000

You're not answering the question though. What will cause the CB policies to "gain traction" at some point. That's the crucial element here.

I run a business. I am not going to go hire people just because the Fed waves its hands and says that inflation might come at some point in the future. That's not how business owners think. Now, if they did something that actually had a fundamental impact on my business (like providing me with a loan to fund investment) then I might actually do something. But what you're describing is just hand waving. There is no transmission mechanism in what you describe....

Re: Why NGDP Targeting Won’t Work in Reality

Cullen Roche — Tue, 20 Jan 2015 18:10:49 -0000

I understand that, but what is the transmission mechanism by which this occurs? The Fed says it's going to do "whatever it takes" and then you run out and buy more goods and services in anticipation? How does the expectations channel actually translate to higher inflation? No Market Monetarist can explain this to me in simple english. The reason they can't explain this is because they simply don't have a real world transmission mechanism.

Re: Why NGDP Targeting Won’t Work in Reality

Cullen Roche — Fri, 16 Jan 2015 13:56:38 -0000

I think the outstanding balance of BA and BOE is virtually zero. I could be wrong. The Fed has some flexibility as to how it could interpret its limitations, but I often see the MM people claim that the Fed could buy anything or that they can make their statements more credible by saying they'll do "whatever it takes". But the simple reality is that they can't do "whatever it takes". Just look at the SNB today. The rumor is that they backed off the peg for political reasons. The "do whatever it takes" works great in Sumner's theoretical world and doesn't actually work in the real world. I think that's why people like me, who work in the actual finance world, don't see that his ideas translate to reality. I'm in reality and Sumner is in a textbook. His world doesn't apply to my world in the way he seems to think....

Re: Scott Sumner has a New Job

Cullen Roche — Thu, 15 Jan 2015 16:35:37 -0000

Hi Brit,

I hope I wasn't sounding too critical. I appreciate your thoughtful and open-minded view on these things.

I am not anti-Monetarism. I just think we focus way too much on monetary policy when it's actually much more constrained than most people believe. I'll be honest - I think NGDP targeting will fail to produce the results that some people think it will. And when it does a lot of people will realize that it was just another Monetarist experiment that failed. Ultimately, all roads lead to policymakers finally realizing that fiscal policy is where the bazooka is actually at. Unfortunately, we have to watch all these Monetarist experiments along the way....So it's just a big distraction in my view. Which is pretty tragic because there's a lot of unemployed people out there who could be put to work if we did something smarter than waiting for the Fed to implement their magic policy....

Re: Scott Sumner has a New Job

Cullen Roche — Thu, 15 Jan 2015 15:55:17 -0000

Yeah, but banks don't need to have excess reserves in order for depositors to make cash withdrawals. The MM people always talk about how excess reserves can be withdrawn as cash, but so what? This is inconsequential.

The MM people can't explain how any of this actually stimulates the economy. They just keep saying expectations change or something like that. And when Abenomics fails or QE fails then they say they weren't communicating properly or it wasn't permanent or some other lame excuse.

If you can explain in plain english why QE makes people spend more money then I am all ears....

Re: Scott Sumner has a New Job

Cullen Roche — Thu, 15 Jan 2015 14:52:40 -0000

Brit,

We know for a fact that banks are passing on their interest costs. I am not theorizing. They've explicitly stated this:

http://finance.yahoo.com/ne...

You said banks do not have to hold excess reserves. How do they do this? The quantity of excess reserves is determined by the CB. You seem to be making the same mistake that Sumner makes when he says that banks can control the quantity of reserves they hold. They can't. The Central Bank determines the quantity of excess reserves via OMO.

Re: Why NGDP Targeting Won’t Work in Reality

Cullen Roche — Wed, 14 Jan 2015 19:26:22 -0000

I don't think anyone needs to worry what Austrian economists think.... :-)

Re: Three Things I Think I Learned in 2014

Cullen Roche — Wed, 24 Dec 2014 14:02:39 -0000

Voegli is just another pundit who thinks the USA is bankrupt and that a solvency crisis and high inflation are right around the corner. In other words, all the same stuff we've been hearing about for 10 years that hasn't happened and won't happen any time soon. It's politics masquerading as economics. His understanding of the monetary system is not exactly right.

It doesn't surprise me that you're a Boglehead. Many of the Bogleheads believe that the market is some all knowing entity and that discretionary portfolio intervention of any type is silly. Of course, as I've described in my recent series on the myth of passive investing, all Bogleheads engage in discretionary portfolio intervention by deviating from global cap weighting, factor tilting, rebalancing, etc. Bogleheads are active asset pickers who call their form of active management something else. It's really just a clever form of branding that some firms sold to people under the disguise of "passive investing". It's just brand differentiation. It's not actually "passive" or all that different from many forms of "active" asset allocation strategies.

Bogelheads are discretionary interventionists who (often) think the market is some "efficient" mechanism, but don't understand that the entire "passive" framework is a huge contradiction. You're actually an advocate of discretionary active portfolio management and if your politics were consistent with your portfolio management style you'd also believe in the type of govt intervention you've spent so much time railing against here.

Re: Three Things I Think I Learned in 2014

Cullen Roche — Wed, 24 Dec 2014 11:50:46 -0000

I think the word you're looking for is gobbledygook. You sound a little silly when you use a word incorrectly in consecutive comments. :-)

The economy is actually made up of what people think are mostly win-win transactions. You buy goods and services in exchange for money because it's a fair trade in your mind. But there are entities and people who can take advantage of this arrangement and do things that unnecessarily sway the balance in favor of capitalists usually in the name of greed (though masked as "maximizing shareholder value" or something like that). They can manipulate prices, wages, etc. Human beings are unique in that we take so much more than we need and often do so at the severe detriment to others. It need not be this way even in a capitalist system. This doesn't mean that capitalists don't earn their profits or deserve their profits. But capitalists can be more mindful of their ability to help others in the process of helping themselves. Again, I don't think this is a "silly" point. Morally and monetarily, I think it's a hugely important point. In fact, I suppose that capitalists who take this to heart can actually compete on higher ground than their competitors who engage in a "take all" sort of business practice.

A great example is my business model. I charge 0.35% for asset management. That's 0.65% lower than the average in the industry. So, I specifically reduce my own potential profit, but in doing so I am able to generate a better product for my clients because they keep more of their returns. My business model and lifestyle doesn't require that I make gross amounts of money so I am perfectly happy taking less knowing that my clients can keep more. It's a win win. And my competitors hate my guts for it because I am taking market share from them. So yes, we can do what's right for our clients AND earn a profit so long as you understand that sometimes doing the right thing means earning less profit in exchange for a better overall product.

I just finished reading the book "Enough" by John Bogle. You might want to read it over the holidays. It will help you understand where I am coming from. Take care.

Re: Three Things I Think I Learned in 2014

Cullen Roche — Tue, 23 Dec 2014 22:44:31 -0000

1) I said the system wasn't inherently evil. Why are you insulted by something I said wasn't the case?

2) I have a fiduciary responsibility to do what's in the best interest of my clients as opposed to just doing what's in the best interest of my firm. "Good" in the financial services industry is pretty cut and dry when it comes to this standard.

I didn't say anyone was "evil". I didn't imply that you were a bad person. I simply said that capitalism works best when capitalists look out for the interests of other people. I have no idea why that is an offensive concept or even a controversial one. Do you reject the idea that we can earn a profit AND look out for the best interests of other people?

Why are you getting so defensive over a totally innocuous comment?

Re: Three Things I Think I Learned in 2014

Cullen Roche — Tue, 23 Dec 2014 19:26:15 -0000

1) It's not about being a "totally giving man" (whatever that means). It's about understanding the fact that capitalism is actually a system that works best when the capitalists take care of their customers before they take care of themselves. This isn't a "liberal" idea. It's just a good business model and one that I take to heart.

2) Well, yes. I have clients who I work hard to take good care of. And I often sacrifice my personal well-being for their well-being. That's what a good business owner does at times.

You've tried to take what should be good business practices and flip them into some sort of political rant. And leave all the personal stuff out of the comments next time. I got rid of comments because of people like you who can't seem to comment on the internet without making everything some personal political crusade....Sheesh. Lighten up.

Re: Three Things I Think I Learned in 2014

Cullen Roche — Tue, 23 Dec 2014 14:58:02 -0000

English. We speak english here!

Re: Bullion Baron: Attention Traders: The Value Of Cash Is Not Absolute

Cullen Roche — Tue, 09 Dec 2014 02:11:29 -0000

I don't have the comments on my site any longer so I can't verify what was or wasn't said. But I have personally never believed in/used industry short positions as forms of insurance so that doesn't make a lot of sense to me.

More importantly, I'd argue that gold is a form of insurance, but it's generally a poor form of insurance because there are some very serious underlying risks involved in its price. The most important of which is what I refer to as a "faith put", ie, the idea (myth, in my opinion) that gold is a currency that warrants a price premium well above its cost of production. Insurance should provide the holder with a reduced sense of uncertainty. Gold's value is not only extremely volatile, but it's extremely uncertain. It's nothing like buying options or an insurance policy on an asset which provide you with a certain future value in the case of catastrophe. So yes, gold can be used for insurance purposes, but there are much better ways to insure against financial asset risk than to own high risk non-financial assets.

That's my view anyhow, Not that I expect you to agree. :-)

Take care.

Re: Bullion Baron: Attention Traders: The Value Of Cash Is Not Absolute

Cullen Roche — Mon, 08 Dec 2014 23:48:30 -0000

Hi BB.

I have never actually recommended hedging against equity exposure with a short on the financial sector. I am not sure where you got that idea from.

I've stated that you might consider using non-correlated assets, options, and (perhaps) shorting indices, but that's very different from shorting a specific industry.

Thanks for letting me clarify.

Re: What This Nerd is Reading: X-CAPM – An Extrapolative Capital Asset Pricing Model

Cullen Roche — Thu, 23 Oct 2014 15:43:44 -0000

Money multiplier, inflation necessarily hurts our living standards, etc. It's a miracle that this man is so fabulously successful in private equity and payment systems when he clearly knows nothing about macroeconomics and economics in general....He did blow up his hedge fund, but I guess people don't care about that.

Re: What This Nerd is Reading: X-CAPM – An Extrapolative Capital Asset Pricing Model

Cullen Roche — Thu, 23 Oct 2014 15:33:29 -0000

Hi Billie,

Smart comment. I don't have much first hand experience with the use of pricing models on the primary markets. What's your experience with how this is done and how applicable models like CAPM actually are? My experience is that they're a very general guide that influences corporate decision making, but certainly doesn't play the same role that some academic economists might like to think.

Thoughts?

Thanks!

Re: Rail Traffic and Jobless Claims Still Point to Expansion

Cullen Roche — Tue, 30 Sep 2014 11:37:59 -0000

Man, so much negativity when I post something bullish. :-)

Re: Rail Traffic and Jobless Claims Still Point to Expansion

Cullen Roche — Tue, 30 Sep 2014 11:36:56 -0000

BDI has never been a very good indicator of anything.

Re: Saving is not the Key to Financial Success

Cullen Roche — Mon, 29 Sep 2014 21:10:34 -0000

Chris, you can't save unless someone has issued and spent the financial assets that you save. The economy isn't one man on an island. You can't say you only care about yourself when your ability to save is actually dependent largely on the actions of other people operating within the economy. That's the ultimate fallacy of composition.

Re: What is the Purpose Of Interest?

Cullen Roche — Mon, 29 Sep 2014 17:28:48 -0000

Interest rates have declined primarily because the rate of inflation has declined. So you've had the Central Bank in the USA dropping interest rates thinking this would spark inflation. When the economy is weak as it is now then the banks are essentially charging less to interact in the system. They are actually trying to entice people to interact more. The overall structure of interest rates at present really just reflects a weak economy and environment of low inflation.

Re: The Great Gold Debate

Cullen Roche — Mon, 29 Sep 2014 12:20:05 -0000

Well, an asset that creates an output or cash flow stream has embedded demand which gives it value. A farm is not just a bunch of commodities. A farm is a cash flow stream because the commodities are used to create a product that people want. Gold is, to a large degree, just gold. It sits around and looks pretty. Its value is based on much more than just its productive elements. Its value, arguably, has a misguided premium in it because people think there's something special about gold in terms of its utility within the monetary system. My guess is, if gold were seen purely as a commodity, its value would decline substantially....

Re: Saving is not the Key to Financial Success

Cullen Roche — Sun, 28 Sep 2014 19:56:23 -0000

The point is that one does not dissave when they invest. If I spend $100 to build a factory worth $100 that will produce more than $100 in the future then my savings has not declined. I have spent, but not consumed, for future production. It's just accounting.

I hope that helps.

Re: The Great Gold Debate

Cullen Roche — Sun, 28 Sep 2014 19:55:06 -0000

What is this comment? Are there any facts? Anything of substance? Or is this just ideological rambling? Where is your evidence that I don't understand central banks or gold? Where are the facts in your comment? Why bother leaving such a wasteful and useless comment? Please show me the history where your argument holds water. Or better yet, explain why your heroes like Peter Schiff have been so miserably wrong about so much for so long....

Re: Government Job Cuts are Driving Down the Labor Force Participation Rate

Cullen Roche — Sun, 28 Sep 2014 19:52:24 -0000

That's just a total misrepresentation of what I said. I did not say we should dig holes and fill them up. I did not say govt jobs = pvt sector jobs. You literally just made that up so you could intentionally misrepresent my argument to make your inaccurate argument look better. Why bother commenting if you have to misrepresent what other people say in order to make your comments look credible???

I said there is productive work to be done today that private sector firms aren't doing.

If you are going to misrepresent my words in order to make some political argument then don't waste time commenting. Everyone here can see that your argument is basically politics masquerading as facts. It's ideological nonsense. Sorry, but you're not convincing anyone. It's just pure politics and I am tired of seeing a weak economy and endless suffering just because ideologies like yourself can't admit that the govt does a lot of good for people and could do a lot more.

Re: Saving is not the Key to Financial Success

Cullen Roche — Sat, 27 Sep 2014 12:38:52 -0000

The macro accounting doesn't lie. If you save more then someone else saves less. In the aggregate saving more does not make us better off.