I thought I was dreaming when I saw that the swiss national bank had gone to negative .75 as their interest rate on deposits. Likely that was what shook the market.
one more thing, Gillie, as money parked in OIL comes out, realizing that OIL is not a safe haven, it is going to Treasury Bonds and the Swiss Frank. This seems to be what people are saying as money going to a risk off trade. It occurs that for years prior to the past several months OIL was considered to be a fairly safe haven investment. This has caused higher US interest rates and higher costs borne by consumers in gasoline and in all regards. Now that angle seems to have come unglued. and a reversal of fortune in the other direction is in process. Hopefully the price can be maintained at a level that keeps US production in play as a threat to the robber oil sheiks.
I presume it is a possibility with such a wild swing in a currency like asset such as OIL that we will be hearing about some investment options which have failed as a result of the losses for some in OIL bets. Perhaps this risk off is also reflecting the fear of a black swan event from this rippling into the rest of the financial sector. That remains to be seen as a risk. Hopefully the Fed has learned from last time that they need courage and quick action to insure the mm funds in this case. That lesson has still not been learned.
Gillie I noticed the cpi is deflating for November and December, which is a twist from what we've come to expect. Presumably as the oil shock works is way through consumer goods this will have an even larger effect. It is like a raise without getting a raise for most people, and a budget booster which has rarely been in play. Unless it translates to real estate which seems unlikely, this is good for stocks. The interest rate declines recently are also good for homebuyers, and for banks as it might spur refinancings.
Its fascinating. We've been engrained to think since 1979 that OPEC had a controlling grip on oil prices. This is a new mindset which is turning over old ways of thinking. Look at ten year treasuries reflecting this same thing. When oil goes down, other prices depending largely on the transportation factor go down as well. The ten year interest rate seems to be following along with this pattern.
Mr.S, I am not only talking about the mortgage component as the problem leading up to 2008, but the interest rate tightening beginning in 2005 which turned out to be too soon and with no rational thought to effect on all of the arm's which would reset at the same time during a recession. Further there was no thought at all by govt to best practices of handling all of the foreclosures dumped on market at the same time and the effect that would have on the economy, housing markets, and neighborhoods itself, as well as the decisions made to crash some financial institutions and sell them for spare parts, and not others. So govt is implicated in this in many ways, not f and f.
In the macro sense this 2008 recession is the counterpoint to the s and l crisis. Fact being that in the s and l crisis the interest rate shock was borne by the institutions and in this one the shock was borne by the residential borrowers. I put it all to FED not thinking ahead to who was going to bear the brunt of interest rate shock of the arms resetting which had by 2007 become prevalent.
This is most definitely great news. It reverses a problem in the economy which has been in place since 1999. After the job gains arrive then the wage improvements will solidify. While employers are not thrilled with this situation it is long overdue and fair that people's wages and job possibilities are improving, allowing them to keep up with inflation and get ahead. Also the labor participation rate declining means more people are doing other things, not looking for jobs.
Since the rates of increases in high school graduates have moderated from the growth of 1999-2012 the Colleges are now going to be forced to bite the bullet which is also a long time past due.
So much of the economy is based on the population numbers and demographic trends it is surprising that is not talked about more frequently.
There was a prevailing idea up until 2008 from the late 1980's that generally mortgage bonds were as safe as treasuries. I heard that idea from legitimate bank investment gurus who "proved" it to me on blackboards with chalk. These were smart people who believed that diversification and past experience, as well as always increasing home prices would never allow anything bad to happen.
I have always thought it was largely the government's fault.
Looks like I was right, again. The colleges can't seem to restrain their bloat and gimmee entitlement requests so Govt Is going to cut out the first two years and transfer that to the no frills community colleges on top of flat to declining numbers of high school graduates to be considered in the first place.. Handwriting was on the wall. Oops for the colleges who ramped up budgets and spending.