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Showing posts from June, 2016

A (Fantasy) Interview With Our Fed Chair

Question:  When will you next raise rates, and how high do you imagine you’ll need to take them in this cycle?

Answer:  Rates are best determined by the free market’s balance of supply and demand for capital.  In fact interest rates are actually the cost of money, and it makes absolutely no sense for the Fed, or any other entity, to dictate what that cost ought to be by overriding the market itself.

Why Rates Must Remain Low

There is an old bond trader joke that I first heard in the 1980’s when I traded mortgage-backed securities at Drexel Burnham Lambert.  It went like this:  “Upon dying, Albert Einstein finds himself in what he is told is heaven.  He encounters another individual there and asks him what his IQ is.  When he is told that it is 175 he is overjoyed, knowing that he’s found an intellectual peer with whom he can share much.  Upon meeting another, he discovers that person’s IQ is 140 and is pleased to have met another highly intelligent person with whom he can enjoy chess and other pursuits.  He is feeling pretty good about heaven, when he comes across a person who tells him that his IQ is a mere 90, and he is flummoxed.  What, he wonders, is this guy doing in my heaven and what can I even say to this person?  Then it comes to him.  ‘Where,’ he asks, ‘do you think interest rates are heading?’”