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While everyone has been selling, banks have been stepping up and buying Treasuries in a big way.
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Mike Norman considers the following as important:
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While everyone has been selling, banks have been stepping up and buying Treasuries in a big way.
Topics:
Mike Norman considers the following as important:
This could be interesting, too:
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| While everyone has been selling, banks have been stepping up and buying Treasuries in a big way. |
Mike, can You do a video where You will explain how market makers as a whole take a decision to expand/reduce their balance sheet ( for example on SPY) and how it increases Implied Volatility? Which comes first and which is fallowed after? Is it possible to predict, and if Yes then please explain because You worked on many exchanges and met many of market makers. Thank You for Your videos!
I can't answer your question directly. I'm not knowledgeable enough.
But I did learn from classic mmt scholars that banks issuing new loans-or-credit is balance sheet expansion. It's not lending out capital. It's not lending out reserves. It's not lending out multiples of reserves like some of those videos say.
The signed loan contract is an increase in risk-laden assets, which pay interest income to the bank, and the bank simultaneously creates liabilities when it creates a new deposit. You sign a paper for 250k, the bank deposits 250k into an account .. typically the account of the seller, not the borrower. Now the bank has expanded its assets and expanded its liabilities, so expanded its balance sheet.
Contraction of new loans being issued is the opposite. As loans get paid down, by paying liabilities from private account back to the bank, the outstanding asset shrinks, is amortized. So that's reducing the banks balance sheet.
@dilbertgeg Thak You My Friend! But we need to understand if we can use it in real trading. That is why we need to hear it from Mike, even better, maybe we can hear it from someone ho is in charge of expanding balance sheet of some big market makers.
Do you think real estate prices will come down as a result of mortgage rates go up?
@Daniel Ricany Daniel, your comments seem be in line with economist Michael Hudson. Hudson veers from MMT on several dimensions like when he talks about taxes (as if the currency issuer needs tax revenue). Hudson is coming from the same place in principle as many MMT scholars.
He has explained how LOW TAXES on real estate GAINS means that asset price inflation drives more profits to the F.I.R.E. sector.
In terms of interest rates, Mike has been saying that the Fed is talking about a few basis points. I haven't directly looked at what Powell said. Investopedia reminds me that
One basis point is equal to 1/100th of 1%, or 0.01%
So 25 basis points is 1/4 of 1%
How drastically is that really going to impact home buying decisions?
@dilbertgeg Well mortgage rates have jumped from like 3.0% to 3.6% in the past few weeks alone based off of this Fed news. It is said that for every interest rate increase of 1%, housing prices are offset by 10%. So if previously, your payment would buy you a 500k house, that same payment with a 1% higher rate would only allow you to buy a 450k house for the same payment. For some, that could disqualify people for that 500k house because they may have been at the upper limits of their qualifications with the old rates anyhow.
@Daniel Ricany Good points. Thanks for teaching me.
Maybe the low end house builders will get a boost.
(I would guess that prices would still rise over time but more slowly.)
@dilbertgeg It may end up also pushing out first time home buyers completely, who are typically attracted to house built by low end house builders.
To me, this depends on if you view a house as an asset or a consumable good. When stocks go up, that doesn’t mean there’s inflation, same can be said for housing.
When mortgage rates go up, house prices do come down since people budget within a monthly payment. This is disconnected from the influence of goods inflation.
The cost to build new constructions will go up as the cost of the raw material goes up with inflation. This could lead to smaller profit margins for home builders since they’ll need to stay competitive with the secondary market prices.
It’s interesting Jamie Dimon is looking for 4 rate increases and banks are buying bonds.
It's because they know the market will crash after one or two hikes. They are buying U.S. Treasuries as they are a safe haven
Don't banks have to own treasuries? Can you prove that banks have a choice between treasuries and riskier stuff like junk bonds and are choosing treasuries?
Hi Mike, I'm a novice trader from Greece. This stuff you are posting is by far better information than most of the economic analysis taking place on big-name channels. It would be interesting for me to find out the sources of this info and your general approach to the numbers. Keep it up!