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  • #121
  • Jan 10, 2006 6:53pm Jan 10, 2006 6:53pm
Sounds like a very good and interesting book. If you can give a good guess off of possible decisions one might make a few more pips.


yeah for more pips
Fdisk Please I just want a few pips. Is that too much to ask?
  • #122
  • Jan 11, 2006 3:13pm Jan 11, 2006 3:13pm
Here's what the Danske posse had to say on Ben-Ben:

How will he be different?

1) He will favour an explicit inflation target, which we think will be adopted within a year
2) He will be as trigger happy as Greenspan
3) He will have a “text book” view on the economy and tend to overreact to inflationary trends
4) He will be fiercely independent from politics
5) Contrary to conventional wisdom he is not a dove.

Many are seeing Bernanke as a dove. This view mainly stems from his rhetorics in 2003 and 2004. However we don’t think he is. Rather the 2003- 2004 story reveals him as very academic sort of policy maker.

He will be a trigger happy chairman. He will do great speeches with clear analysis. He will be independent. He will tend to overreact on inflationary developments and tend to forget that monetary policy has long lags and is rather more complicated in the real world than in the text books.

Do you agree Merlin?
  • #123
  • Jan 11, 2006 3:23pm Jan 11, 2006 3:23pm
Quoting Isotonic
2) He will be as trigger happy as Greenspan
this line gives it away...this analysis is a load of crap.

if one reads bernanke's book, one of the standout points he makes is that you should use monetary policy sparingly and un-reactively. he makes a point of letting the reader know that policy makers should not try to correct for the short term, but use a longer term approach. thats the whole point of inflation targeting, so you have an "anchor" (as he calls it) to focus on for the long haul. bernanke is a promoter of "doing nothing" as often as possible.
Relax and be happy.
  • #124
  • Jan 11, 2006 3:27pm Jan 11, 2006 3:27pm
iso, i just googled the Danske comments on bernanke, those guys are full of shit. their argument for why bernanke will be reactive is weak at best.
Relax and be happy.
  • #125
  • Jan 11, 2006 11:20pm Jan 11, 2006 11:20pm
Lord knows monetary policy discussion policy makes my eyes glaze over despite my best intentions. However, I'll toss this in, since I just came across this after seeing Steve Forbes in a brief interview. His view is that the interest rate hikes are all well and good, but the biggest inflationary threat at this time is the large amount of money being printed.
  • #126
  • Jan 13, 2006 12:20am Jan 13, 2006 12:20am
i just typed up my notes on the book:

bernanke believes the central bank…
...has limited powers and can not steer inflation precisely.
...should have a single objective, as multiple objectives can conflict.
...needs to disinflate before it can start a targeting campaign.
...must have credibility with the public in order to be effective.

bernanke believes that inflation targeting should…
… have loose rules (ie half discretionary, half mechanical).
… have an extremely transparent interface with the public.
… have a single-point nominal anchor, like 2%, instead of a range like 1% - 3%.

bernanke's traits:
… not scared to miss an inflation target
… un-reactive (goes back to limited bank powers)
… big on credibility
… sensitive to and interested in the public's expectations.

my predictions:

first, if i am right about bernanke, he will not do anything in his first meeting. no rate hike, no rate cut. i say this because that would be his style, to come in and check out the situation before making any moves. he doesnt even have that much confidence in the central bank's ability to control inflation, so he tends to lean toward doing nothing.

second, the last 14 rate hikes have been a setup. we are all being fooled! greenspan has been preparing the way for bernanke this whole time. notice my point above "needs to disinflate before it can start a targeting campaign." well that is just what greenspan has been doing over the past year. this book goes in depth about how economies need to be "setup right" (ie disinflated) before they can go into inflation targeting. there are so many similarities to our current situation that i have to believe we are in this "setup" phase already.
Relax and be happy.
  • #127
  • Jan 13, 2006 3:54am Jan 13, 2006 3:54am
Merlin, here's another piece from FXCM.

I don't think you'll agree with some of their opinions:

"His most well-known stances include an unwavering devotion to inflation-targeting, which Greenspan opposes. He is also known as “printing-press” Ben, a title that he has been criticized for, because it means that he has explicitly promised to print money as a manner of increasing liquidity to generate inflation, if necessary."

"Having Bernanke as Fed Chairman would mean that we would probably be moving to an inflation targeting policy similar to the ones followed by the European Central Bank and the Bank of England. He may also want to prove early on that he is a staunch inflation fighter. This would be more restrictive and less flexible than the current policy, but having Bernanke as Chairman would also mean bringing about greater disclosure to the public and hopefully the credibility to the Fed. "
  • #128
  • Jan 13, 2006 3:58am Jan 13, 2006 3:58am
Both banks have him as an inflation targeter, whereas you disagree I think.

To be honest I'm not sure what to think since your opinions seem to quite different to Danske & FXCM. Remember these banks have big research teams looking at all this data so surely they can't be all wrong!?

Quoting merlin
i just typed up my notes on the book:

bernanke believes the central bank…
...has limited powers and can not steer inflation precisely.
...should have a single objective, as multiple objectives can conflict.
...needs to disinflate before it can start a targeting campaign.
...must have credibility with the public in order to be effective.

bernanke believes that inflation targeting should…
… have loose rules (ie half discretionary, half mechanical).
… have an extremely transparent interface with the public.
… have a single-point nominal anchor, like 2%, instead of a range like 1% - 3%.

bernanke's traits:
… not scared to miss an inflation target
… un-reactive (goes back to limited bank powers)
… big on credibility
… sensitive to and interested in the public's expectations.

my predictions:

first, if i am right about bernanke, he will not do anything in his first meeting. no rate hike, no rate cut. i say this because that would be his style, to come in and check out the situation before making any moves. he doesnt even have that much confidence in the central bank's ability to control inflation, so he tends to lean toward doing nothing.

second, the last 14 rate hikes have been a setup. we are all being fooled! greenspan has been preparing the way for bernanke this whole time. notice my point above "needs to disinflate before it can start a targeting campaign." well that is just what greenspan has been doing over the past year. this book goes in depth about how economies need to be "setup right" (ie disinflated) before they can go into inflation targeting. there are so many similarities to our current situation that i have to believe we are in this "setup" phase already.
  • #129
  • Jan 13, 2006 11:30am Jan 13, 2006 11:30am
Quoting Isotonic
Both banks have him as an inflation targeter, whereas you disagree I think.

To be honest I'm not sure what to think since your opinions seem to quite different to Danske & FXCM. Remember these banks have big research teams looking at all this data so surely they can't be all wrong!?
what makes you think i disagree with the "inflation targeter" title? he is an inflation targeter, for sure.

as for my differing opinions with the banks, im not surprised by that. im not usually impressed with big research teams, thats why i go out an do my own homework (ie reading the man's books). iso, i really want you to read this book now so you can see just how loose these opinions on bernanke are. everyone is speculating on what he is like, what his objectives are, etc, when alls they need to do is read bernanke's books to find the answers straight from the horses mouth
Relax and be happy.
  • #130
  • Jan 13, 2006 11:32am Jan 13, 2006 11:32am
Quoting Isotonic
He may also want to prove early on that he is a staunch inflation fighter.
ive heard this line before. and i dont believe it for one second. bernanke isnt the kind of guy that wants to "prove" something. he doesnt want people to think of him as a dove or a hawk. he is neutral, and i think he will prove that by not doing anything to rates in his first fed meeting.
Relax and be happy.
  • #131
  • Jan 14, 2006 1:10pm Jan 14, 2006 1:10pm
it'll be interesting to see how he sets his stall out with policy announcements, targets etc. once the initial media interest fizzles away lets keep an eye on his performance and see how well he does.

btw, are you gonna update the matrix for the new boy? could we improve upon it somehow?

Quoting merlin
ive heard this line before. and i dont believe it for one second. bernanke isnt the kind of guy that wants to "prove" something. he doesnt want people to think of him as a dove or a hawk. he is neutral, and i think he will prove that by not doing anything to rates in his first fed meeting.
  • #132
  • Jan 14, 2006 1:56pm Jan 14, 2006 1:56pm
Quoting Isotonic
it'll be interesting to see how he sets his stall out with policy announcements, targets etc. once the initial media interest fizzles away lets keep an eye on his performance and see how well he does.

btw, are you gonna update the matrix for the new boy? could we improve upon it somehow?
yeah, i will make a new matrix soon. thanks for reminding me.

btw, a test of whether i "know" bernanke or not will be his first rate decision. if he puts rates on hold as i believe he will, that will be a good indicator that his book has prophetic value.
Relax and be happy.
  • #133
  • Edited Mar 30, 2006 11:19am Jan 22, 2006 12:48pm | Edited Mar 30, 2006 11:19am
This is from the "Fed Funds Reference Guide" from CBOT:

Fed Funds Futures and the Probability of a Fed Policy Shift

Perhaps no single interest rate is watched more intently than the fed funds target rate set by the Federal Open Market Committee (FOMC or, popularly, the Fed). Perhaps, too, no single financial policy decision carries more weight in all corners of the financial world than an FOMC decision concerning whether to raise, lower, or leave untouched the fed funds target. In the weeks immediately prior to a Fed meeting, the financial media will carry comments to the effect that fed funds futures prices indicate, for example, a 43% probability for a 25 basis point (bp) decrease in the fed funds target rate.

These people are working from simple probability math, and you can do the same thing. Consider the market situation on March 27, 2003. The next FOMC meeting was scheduled for May 6. Also, for some weeks, at least some commentators had been saying the Fed would be likely to lower its already low target rate from 1.25% to 1.00%. Of course, the March 18 meeting had come and gone with no change in the target.

On March 27, the May fed funds futures contract was trading at a price of 98.86 which implied a fed funds rate of 1.14% (100 – 98.86). Using a standard probability equation, you could have used that implied rate to estimate the probability that the Fed would either lower the target to 1.00% on May 6 or leave it unchanged at 1.25%.

1.25% * (6/31) + [1.00%p + 1.25%(1 - p)] * (25/31) = 1.14%

Here p is the probability the Fed will lower its target rate 25
bps, (1-p) is the probability the Fed will leave the target unchanged, (6/31) is the fraction of the month during which the target is known to be 1.25%, and (25/31) is the fraction of the
month during which the target is unknown.

Solving for p, you will discover that in this case p equals 0.5456. That is, this exercise predicts a 55% probability that, given the market situation on March 27, 2003, the Fed would lower its target rate 25 basis points at its May 6 FOMC meeting and a 45% probability that it would leave the target unchanged.

edit> follow the link below to get the docs:
http://www.cbot.com/cbot/pub/page1/1,3248,1060,00.html

Quoting Pip Daddy
If you click on the "Carlson-Craig-Melick" link there's a paper that describes the estimation technique.
  • #134
  • Jan 24, 2006 11:23pm Jan 24, 2006 11:23pm
Quoting Isotonic
This is from the "Fed Funds Reference Guide" from CBOT:

Fed Funds Futures and the Probability of a Fed Policy Shift

Perhaps no single interest rate is watched more intently than the fed funds target rate set by the Federal Open Market Committee (FOMC or, popularly, the Fed). Perhaps, too, no single financial policy decision carries more weight in all corners of the financial world than an FOMC decision concerning whether to raise, lower, or leave untouched the fed funds target. In the weeks immediately prior to a Fed meeting, the financial media will carry comments to the effect that fed funds futures prices indicate, for example, a 43% probability for a 25 basis point (bp) decrease in the fed funds target rate.

These people are working from simple probability math, and you can do the same thing. Consider the market situation on March 27, 2003. The next FOMC meeting was scheduled for May 6. Also, for some weeks, at least some commentators had been saying the Fed would be likely to lower its already low target rate from 1.25% to 1.00%. Of course, the March 18 meeting had come and gone with no change in the target.

On March 27, the May fed funds futures contract was trading at a price of 98.86 which implied a fed funds rate of 1.14% (100 – 98.86). Using a standard probability equation, you could have used that implied rate to estimate the probability that the Fed would either lower the target to 1.00% on May 6 or leave it unchanged at 1.25%.

1.25% * (6/31) + [1.00%p + 1.25%(1 - p)] * (25/31) = 1.14%

Here p is the probability the Fed will lower its target rate 25
bps, (1-p) is the probability the Fed will leave the target unchanged, (6/31) is the fraction of the month during which the target is known to be 1.25%, and (25/31) is the fraction of the
month during which the target is unknown.

Solving for p, you will discover that in this case p equals 0.5456. That is, this exercise predicts a 55% probability that, given the market situation on March 27, 2003, the Fed would lower its target rate 25 basis points at its May 6 FOMC meeting and a 45% probability that it would leave the target unchanged.

very nice! thank you sir. i just made a neat indicator that shows the probability live on the fed funds futures chart...
Relax and be happy.
  • #135
  • Jan 31, 2006 1:16pm Jan 31, 2006 1:16pm
For immediate release The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-1/2 percent.

Although recent economic data have been uneven, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Jack Guynn; Donald L. Kohn; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; and Janet L. Yellen.

In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 5-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas, and San Francisco.
Relax and be happy.
  • #136
  • Jan 31, 2006 1:21pm Jan 31, 2006 1:21pm
this is much more hawkish than the market (and me) expected.

i still think bernanke does nothing in the next meeting, but this certainly opens the possibility of another rate hike.
Relax and be happy.
  • #137
  • Jan 31, 2006 1:22pm Jan 31, 2006 1:22pm
its official, greenspan is gone. i almost shed a tear.
Relax and be happy.
  • #138
  • Jan 31, 2006 1:28pm Jan 31, 2006 1:28pm
i just covered my long yen position on the belief that the dollar will strengthen.

i almost covered my long S&P position, but i held off. the stock market is strong, but it has some serious headwinds.

and as for my short bond position, well, i just sat back and smiled
Relax and be happy.
  • #139
  • Jan 31, 2006 1:32pm Jan 31, 2006 1:32pm
damn the currency market was SOOO SLOW to react to this statement. would have been (and still is) a good scalping opportunity. just go long the dollar and cover in an hour
Relax and be happy.
  • #140
  • Jan 31, 2006 1:53pm Jan 31, 2006 1:53pm
I expect more reaction ahead of the week
kiss the trend
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