tag:blogger.com,1999:blog-8152901575140311047.post7655970199357405389..comments2024-03-28T06:23:58.716-04:00Comments on Musings on Markets: The Fed and Interest Rates: Lessons from OzAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-8152901575140311047.post-4981665209461320222014-05-30T04:29:24.788-04:002014-05-30T04:29:24.788-04:00nice blog i can visit agian
game ibig cho androidnice blog i can visit agian<br /><a href="" rel="nofollow">game ibig cho android</a>game bighttp://khogamemobile.vn/ibig/noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-4129862312653332312014-05-14T16:50:14.777-04:002014-05-14T16:50:14.777-04:00Professor,
Thanks for the excellent article and b...Professor,<br /><br />Thanks for the excellent article and blog.<br /><br />I'm assuming your reference to TBT is a long term bet against bonds. If so, how do you incorporate into you strategy the index drift that can happen with leveraged and inverse funds (e.g. http://news.morningstar.com/articlenet/article.aspx?id=272055)?<br /><br />eislanoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-69972802427712726222013-10-03T02:22:07.566-04:002013-10-03T02:22:07.566-04:00this is something i have never ever read.very deta...this is something i have never ever read.very detailed analysis.<br /><a href="http://noriskinvestor.com/" rel="nofollow">irs tax liens</a><br /><a href="http://noriskinvestor.com/" rel="nofollow">creative real estate investing</a><br /><a href="http://noriskinvestor.com/" rel="nofollow">organ tax lean sales</a><br />Maryamhttps://www.blogger.com/profile/16963031774036961008noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-7539007908881833442013-08-29T13:49:24.061-04:002013-08-29T13:49:24.061-04:00Great article (from a former student). It is hard ...Great article (from a former student). It is hard to find true cause and effect for rates but your premise is certainly plausible. It is just cognitively easier to believe the Fed is controlling rates and stocks. Increases the certainty that things will be ok vs. "we are on our own". Is it fair to say given the scenarios that long SPY and TBT should work up until the 10-year gets to 5% or so? I think if investors focused on the level that typically comes with negative stock returns, they might not throw a taper tantrum when 10-year moves 50bps. The mortgage market along has started to rapidly adjust.<br /><br /><br />Best stock to Buy Today.<br /><br />http://www.technicalanalysisofstocks.in/Anonymoushttps://www.blogger.com/profile/10672488494743966690noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-75410280156211741752013-08-20T08:33:17.437-04:002013-08-20T08:33:17.437-04:00I admire your Views, I have found Some More Stuff ...I admire your Views, I have found Some More Stuff while Surfing the web about the Topic It will be helpfull for you.<br /><br /><a href="http://www.greendirectory.co.uk/" rel="nofollow">Solar</a><br /><a href="http://www.adaptive.com/company/who-we-are/" rel="nofollow">Traceability</a><br />Harikesh Chauhanhttps://www.blogger.com/profile/14491335750627084719noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-58458343172572805102013-08-13T02:56:55.160-04:002013-08-13T02:56:55.160-04:00This is cool!This is cool!Tonjahttp://bestrecumbentexercisebikes.us/noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-87561437780640994722013-07-31T06:58:57.970-04:002013-07-31T06:58:57.970-04:00Your post was very nice to us.
If you have interes...<br />Your post was very nice to us.<br />If you have interest in the stock market, to visit our website ........<br />click on following...<br /><a href="http://www.capitalstars.com/hnipack.php" rel="nofollow">MCX Tips</a> <br /><a href="http://www.capitalstars.com/hnipack.php" rel="nofollow">Commodity Tips</a> Simran Shahhttps://www.blogger.com/profile/07370783388451703047noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-18166009778926515202013-06-29T07:16:18.395-04:002013-06-29T07:16:18.395-04:00Prof D,
Great article (from a former student). I...Prof D,<br /><br />Great article (from a former student). It is hard to find true cause and effect for rates but your premise is certainly plausible. It is just cognitively easier to believe the Fed is controlling rates and stocks. Increases the certainty that things will be ok vs. "we are on our own". Is it fair to say given the scenarios that long SPY and TBT should work up until the 10-year gets to 5% or so? I think if investors focused on the level that typically comes with negative stock returns, they might not throw a taper tantrum when 10-year moves 50bps. The mortgage market along has started to rapidly adjust.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-42594763767004587672013-06-27T11:02:43.207-04:002013-06-27T11:02:43.207-04:00Damodaran,
when you invest in the distinct curren...Damodaran,<br /><br />when you invest in the distinct currency for example Embraer, did you hedge the currency?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-88047746040401402522013-06-27T10:56:25.191-04:002013-06-27T10:56:25.191-04:00The inference from a Fundamental Interest Rate bei...The inference from a Fundamental Interest Rate being equal to Inflation + Real Growth is that the the real risk free rate = real growth rate. <br /><br />Assuming there is no credit risk, the nominal risk free rate should be the inflation rate plus a little something (if you like a lenders share for financing the real growth; so definately below the real growth rate). And the little something over inflation would depend mostly on confidence in growth; with super high confidence in growth, it would tend to 0, so the nominal interest rate would be very close to the inflation rate. On the other hand, when confidence in growth is low, the little something extra over the inflation rate will tend towards real growth levels (lenders demand a higher share of growth because they believe the risk of growth being sustained is high). So in US during 2006, real growth was 2.38% and inflation 2.52%. If confidence in growth continuing at 2.38% had been high, the real interest rates would have been closer to 2.52%; while if confidence were low it would tend towards 4.9%. <br /><br />In normal times I suspect nominal rates would settle at inflation rate + a % of real growth depending on how the growth is financed (ie higher debt % of total capital used would pass more of the real growth to lenders).<br /><br />Using as India as an example, during period of high confidence we saw very low real interest rates for 10Y g-secs. This does not stack up with an expectation of real risk free rates tending towards real growth rates.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-91511659389527569032013-06-26T20:08:56.269-04:002013-06-26T20:08:56.269-04:00Professor,
I noticed that your graph of fundament...Professor,<br /><br />I noticed that your graph of fundamental interest rates starts at 1954. It's excellent to go back that far, but if you went back a 21 more years a different -- and more relevant -- story emerges. <br /><br />The Fed under Marriner Eccles pegged term rates from 1933 to 1951. During the late 40s these rates were well below inflation. <br /><br />To see, in a different context, a problem with the concept of a fundamental interest rate based on inflation and growth, independent of a central bank, consider Japan today. Imagine that Prime Minister Abe announced a 4% inflation target, instead of a 2% one. Imagine, further, that the market believed him. The net result would NOT be that interest rates would shoot up anywhere near 4%. For at a 4% interest rate, the government's debt servicing expense would exceed its total tax revenues. Instead of 4% rates, Japan would experience severe financial repression similar to its 1937-1947 period.<br /><br />More generally, the level of outstanding government debt, the composition of this debt, and the cost of servicing it, has a profound effect on the "natural rate" of interest.<br /><br />"Fiscal Dominance" regimes are essentially violations of the principal that rates must follow inflation. These non-Ricardian regimes have persisted for decades, if not generations. E.g., Italy from 1920s to 1980s. See Jens Weidmann's recent BIS paper.<br /><br />I would further maintain that the mere possibility of such a regime exerts enormous influence over asset prices.<br /><br />respectfully yours, <br /><br /><br />Nick R.<br />Kyoto, JapanAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-36899437813548299132013-06-25T13:46:54.399-04:002013-06-25T13:46:54.399-04:00Jason,
I did not mean to suggest that the Fed has ...Jason,<br />I did not mean to suggest that the Fed has little power over inflation. In fact, it does affect inflation & real growth with its policies, but its effect is greater on the former rather than the latter. Real growth that comes from Fed actions has a short shelf life and a real growth that continues because of Fed support for the long term will almost always bring with it the risk of higher inflation.<br />On the sensitivity of other asset classes to interest rate changes, the best thing to do is to look at history. Run regressions of returns on asset classes against changes in interest rates over long periods. I know that this is backward looking but it is a good place to start,Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-89620102389660822842013-06-24T11:39:42.832-04:002013-06-24T11:39:42.832-04:00Thanks for the post, professor.
I think there'...Thanks for the post, professor.<br /><br />I think there's a feedback problem with the statement that inflation and real growth are better explanatory variables than Fed Funds rate. Doesn't Fed guidance and policy (in part, Fed Funds rate) determine inflation? At least for the period post-1981? In that case, wouldn't some of the Fed Funds rate impact manifest itself in the following inflation numbers?<br /><br />Also, I take issue with the vague proposition that today's Fed is impotent when pitted against long-term inflation. The Fed could only be so powerless if inflation stemmed from a currency depreciation spiral, which I have a hard time seeing while: (1) Japan engages in ultra-loose monetary policy, (2) China begins a difficult transition to consumption, and (3) Europe's productivity wanes under tight monetary policy.<br /><br />Lastly, do you have any suggestions for those of us looking at interest-rate sensitivity of different asset classes?Jason DaCruzhttps://www.blogger.com/profile/15586277884128262631noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-52758351275369703902013-06-22T17:27:47.925-04:002013-06-22T17:27:47.925-04:00Monevator,
You are right. The Fed has power but it...Monevator,<br />You are right. The Fed has power but it's power is best left unused (as was the case with the Wizard of Oz). When markets look to the Fed for salvation, it is always troublesome.<br />To others,<br />I don't look at the beta of my portfolio since there is little that it will alter. I try to find under valued companies across the spectrum and I think that will take care of my beta risk.<br />And finally, I do think it is a time for caution (not panic or euphoria) on stocks.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-77077060671174017962013-06-22T14:19:20.288-04:002013-06-22T14:19:20.288-04:00I couldnt help but notice that in your grid of pos...I couldnt help but notice that in your grid of possible scenarios for stocks and bonds under various combinations of econ growth and inflation, there are four positive outcomes for stocks amd five negative. If ii assign equal probability to each (meaning i dont think i have the ability to handicap them.. Which i dont) the implicit message is to be cautious of stocks at the moment, no?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-58801609504307501312013-06-22T11:31:00.407-04:002013-06-22T11:31:00.407-04:00THANK YOU for such an intelligent article!!THANK YOU for such an intelligent article!!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-56374066079153657502013-06-22T05:45:14.709-04:002013-06-22T05:45:14.709-04:00Hi Damodaran,
I have one question over your inves...Hi Damodaran,<br /><br />I have one question over your investment philosophy: Do you follow the beta of your portfolio to look for portfolio's market neutral? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-8773147040016088252013-06-22T02:08:35.859-04:002013-06-22T02:08:35.859-04:00Hello from a long-term fan of your site and work (...Hello from a long-term fan of your site and work (for which, many thanks!)<br /><br />Regarding the Fed's power to set rates, or lack of it, could there not be a halfway house between the Wizard of Oz and complete omnipotence, whereby the reality of the latter leads to the perception of the former?<br /><br />Think of a mafia boss, in The Godfather mould. If you knew nothing about the mafia, you might think the don's raised eyebrows and modest requests don't amount to much. You might conclude it's the fear of the mafia, rather than the reality, that causes people to listen to him.<br /><br />Every now and then the boss therefore has to go out and whack someone to remind everyone he means it. Overall, he has to whack less people than would otherwise be the case to get his point across, due to the fear this instills.<br /><br />I think it's similar with the Fed? The market knows what it will do and can do, and this shows up in attempts to pre-empt its action (=avoid getting whacked). This might reduce the apparent correlation, but in reality it's the fear of the very real power that in prompting people.<br /><br />We might try going through a recession with the Fed funds rate at 6% or an economic boom with the rate set at 1% to test the theory that the Fed doesn't really have so much influence. ;-)Monevatorhttp://monevator.comnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-21062065852399440492013-06-21T22:22:12.571-04:002013-06-21T22:22:12.571-04:00What are the limits to bond buying? The Fed can bu...What are the limits to bond buying? The Fed can buy 100% of the issuance past and future if it so wishes (which could take it into negative equity but that's not as such a constraint for a central bank).cighttp://commentisglee.wordpress.comnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-41408561230941260152013-06-21T15:39:32.178-04:002013-06-21T15:39:32.178-04:00The price of ETF is for bid/ask and no by intrinsi...The price of ETF is for bid/ask and no by intrinsic value of weight price bonds, no? <br /><br />How do you do to asses the intrinsic value of ETF? screwnoreply@blogger.com