
Stocks plummet as interest rates keep on rising - zitterbewegung
https://finance.yahoo.com/news/stocks-plummet-rates-keep-rising-202646935.html
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georgeecollins
This is the most normal, healthy thing. Interests rates have been unnaturally
low. Now they are starting to rise and seem likely to rise. The ability to get
a higher return on bonds will put negative pressure on stock prices, sending
P/E rations towards their historical averages. And that is OK!

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skybrian
I'm wondering what "unnatural" means when it comes to a mostly-arbitrary human
game like the economy? Seems like it's all artificial, and interest rates in
particular are especially artificial (controlled by central banks).

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dragontamer
Long-term interest rates are controlled by the auction the US Treasury holds:
aka the free market.

Only short-term interest rates are controlled by the central bank. And that's
mostly because the central banks own something like a $$$TRILLION in short-
term debt and raw cash, so they simply have enough money to shift the market
direction.

In essence: short-term interest rates are still determined by auction, just
like any other debt from the US treasury. But when a trillionare is sitting
there with ideas about how the market should look like, the trillionare has
real power to manipulate the market. Note that these trillions of dollars are
money from private banks. Under a "true free market" situation, the
Trillionare would still exist! The pile of $TRILLIONS is the money that's been
collected by all of the banks in the USA.

In theory, if the central banks ran out of money, they would lose their power
to manipulate the markets. But otherwise, the central bank is simply the
largest "consumer" on the market. That's the extent of their control. Much
like how Apple can buy out the entire 10nm or 7nm production chain for months
at a time (preventing Apple's competitors from using TSMC's or GloFo's
advanced nodes whenever Apple starts to prepare an iPhone).

Entities with lots of money exert power over the entire market. That's the
free market.

Perhaps a better example would be the GDAX Bitcoin exchange. It only will take
$25 Million to increase BTC's price to $9000 right now on GDAX:
[https://www.gdax.com/trade/BTC-USD](https://www.gdax.com/trade/BTC-USD). It
will only take 3000 BTC to drop BTC's price down to $7000, over the short term
at least.

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skybrian
Good point on long-term rates, but on short-term rates, this seems like a
distinction without a difference?

The Fed can create unlimited amounts of money so at least in theory, they're
always going to be able to prop up demand for treasuries in dollar terms.
(Possibly at the expense of inflation.) If the short-term interest rate rises,
it's because they want to let it rise. And they can always change their mind.

~~~
dragontamer
> The Fed can create unlimited amounts of money

This is where "money" is no longer a useful term. The Fed has no means of
creating M0:
[https://www.investopedia.com/terms/m/m0.asp](https://www.investopedia.com/terms/m/m0.asp)

Only the US Mint can create M0.

What the Fed can do with QE is create new accounts. And as I described to
another poster, the concept is very similar to how a credit card can "create"
money out of thin-air by creating a $5000 credit card for you.

Does the money really exist? Not really. Its just a number, and the reason why
it works is because you, the credit card holder, will do your best to return
the money at a future date.

Similarly, QE is fine as long as the Fed draws it down and sells the bonds
back into the market (or alternatively, lets them mature and doesn't buy any
back). Which it has begun to do.

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skybrian
Sure. I wouldn't put "create" in scare quotes, though. Money created this way
exists just as much as other money. Just like Bitcoin or credits in some
online game or Hacker News comments exist.

~~~
dragontamer
I put it in scare quotes because of the important difference. When most people
talk about "printing money" or "creating money out of thin air", they are
talking about:

1\. Create money

2\. Spend Money

And this is bad. Very, very, very bad.

\----------

In contrast, the credit cycle is:

1\. Create Credit

2\. Spend Credit

3\. Pay back credit. <\--- Most important step!!

Step 3 is incredibly important to making sure it all works out at the end. In
essence, "printing money" is scary because it skips step 3. (See Venezuela for
details).

So as you can see, "Create Credit" is quite different from the colloquial use
of "Create Money". People have every right to be scare of "creating money" or
"printing money". Because that's the sort of stuff that destroys economies.

The creation of credit is only a problem if it can't be paid back.

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rmrm
Recessions are also normal, healthy things. Until the business cycle stops
being a cycle, and debt cycles stop being cycles...people should
expect....cycles. Its ok. With the fed not renewing QE, and unemployment and
private debt where it is....expect a recession to come in the relatively near
future. It has to happen, as sure as we need seasons.

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dragontamer
[https://www.treasury.gov/resource-center/data-chart-
center/i...](https://www.treasury.gov/resource-center/data-chart-
center/interest-rates/Pages/TextView.aspx?data=yield)

Interest rates have been rising since January at least, and there's an
expectation that the good economic news we got will encourage the Fed to raise
interest rates in March.

I'm thinking that the authors of the article just needed "something to say"
about why people are selling stocks today. But I don't think its interest
rates, mostly because interest rates haven't really been "moving quickly" or
unexpectedly.

I think recent volatility, especially the destruction of XIV (inverse
volatility index tracking ETF) has caused some people to flee the market. Its
been years since the stock market fell a bit, and people have forgotten what
it feels like to lose money. Scared people contribute to the sell-off.
Basically, your standard market correction.

There might be some other explanations out there: but attributing it to the
long-expected interest rate hike seems weird. The 30-year Treasury went +0.02%
today. Its not moving very quickly.

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jacob019
It's amusing how there is a tendency in the media to attribute changes in the
market to recent events when more often than not there is little evidence of
correlation.

~~~
tehlike
It is called market making the news. Easy to attribute to recent events like
you said.

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cwperkins
This reminds me of mid-2015 and early 2016. I believe it's a normal healthy
correction and not the ominous beginning of something bigger. It feels like
the economy has at least enough gas to keep moving to the end of 2018, but I'd
be surprised if Trump completes his term without a market downturn.

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ProfessorLayton
I really wonder how the Bay Area housing market is going to fare when
borrowing money becomes a lot more expensive than it is now. Right now the low
interest rates are baked into the prices — Piled onto the lowered deductions
in the new tax bill, and something's gotta give.

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georgeecollins
Do you really wonder? When interest rates go up, property that is mortgaged
tends to go down in price.

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WheelsAtLarge
Interest rates are only part of the problem. The real culprit is a weak
dollar. Hard for foreign buyers to stay invested in the US and make a profit.
Also hard for exporters to make a profit outside the US. We are a net importer
as a nation so a weak dollar will hit us with more expensive goods. We'll be
seeing it soon.Thank Trump and his treasury secretary.

The weak dollar is not Good even if we suddenly start to export.

~~~
georgeecollins
>> The weak dollar is not Good even if we suddenly start to export.

That's assuming that a decline in the value of investments is better than the
increase in jobs due to more exports. For most people on this forum, I think
that is true. For most people in the US, a decline in a portfolio of equities
(that they don't generally hold) is a great trade off for jobs (through
export).

