Stock scream room

[yankees60]

People are nuts.

My coop sent out a bulletin about "coronavirus preparedness" where they talk about what they'll do in the event that many of the staff can't come to work. Something about halting all renovations and asking residents to help with things like taking out the trash. Good that they have a policy worked out, but announcing it like this just fans the flames of panic.

So I wondered what the odds were. Wuhan has 11,000,000 population, and China (the entire country) has had 80K coronavirus cases. Making the ridiculous assumptions that 1) they are all sick at once, 2) twice as many people would actually test positive and be quarantined or hospitalized, and 3) they were all in Wuhan, that's an infection rate of 1.4%. The chance of *any* of the 16 staff members in my coop getting coronavirus would then be 28% (likely an overestimate). It would probably take at least 3 or 4 of them getting sick to seriously disable normal function.

it really helps to be able to do math, ha.

If there's a lily pond in a lake that doubles in size every day, and it covers the lake at the end of day 30, when did it cover half the lake?

Day 29

Vinny

[Libertarian666]

People are nuts.

My coop sent out a bulletin about "coronavirus preparedness" where they talk about what they'll do in the event that many of the staff can't come to work. Something about halting all renovations and asking residents to help with things like taking out the trash. Good that they have a policy worked out, but announcing it like this just fans the flames of panic.

So I wondered what the odds were. Wuhan has 11,000,000 population, and China (the entire country) has had 80K coronavirus cases. Making the ridiculous assumptions that 1) they are all sick at once, 2) twice as many people would actually test positive and be quarantined or hospitalized, and 3) they were all in Wuhan, that's an infection rate of 1.4%. The chance of *any* of the 16 staff members in my coop getting coronavirus would then be 28% (likely an overestimate). It would probably take at least 3 or 4 of them getting sick to seriously disable normal function.

it really helps to be able to do math, ha.

If there's a lily pond in a lake that doubles in size every day, and it covers the lake at the end of day 30, when did it cover half the lake?

Day 29

Vinny

Right. That's why I don't draw any comfort from the relatively low rate of infection in the general population. This virus is extremely contagious even while it is asymptomatic. That's a perfect recipe for a pandemic of epic proportions.

[yankees60]

People are nuts.

My coop sent out a bulletin about "coronavirus preparedness" where they talk about what they'll do in the event that many of the staff can't come to work. Something about halting all renovations and asking residents to help with things like taking out the trash. Good that they have a policy worked out, but announcing it like this just fans the flames of panic.

So I wondered what the odds were. Wuhan has 11,000,000 population, and China (the entire country) has had 80K coronavirus cases. Making the ridiculous assumptions that 1) they are all sick at once, 2) twice as many people would actually test positive and be quarantined or hospitalized, and 3) they were all in Wuhan, that's an infection rate of 1.4%. The chance of *any* of the 16 staff members in my coop getting coronavirus would then be 28% (likely an overestimate). It would probably take at least 3 or 4 of them getting sick to seriously disable normal function.

it really helps to be able to do math, ha.

If there's a lily pond in a lake that doubles in size every day, and it covers the lake at the end of day 30, when did it cover half the lake?

Day 29

Vinny

Right. That's why I don't draw any comfort from the relatively low rate of infection in the general population. This virus is extremely contagious even while it is asymptomatic. That's a perfect recipe for a pandemic of epic proportions.

"Epic" proportions would be the Spanish Flu of 1918...https://en.wikipedia.org/wiki/Spanish_flu

It was made much worse then by a lack of knowledge of how it was actually being spread. This time around it is well known how it spreads.

Vinny

[boglerdude]

> demand for U.S. dollars and treasuries outstrips the supply

Why then does the Fed need to buy bonds from the treasury (indirectly) . They should be able to sell off their balance sheet to all these global bond-hungry investors

[Libertarian666]

People are nuts.

My coop sent out a bulletin about "coronavirus preparedness" where they talk about what they'll do in the event that many of the staff can't come to work. Something about halting all renovations and asking residents to help with things like taking out the trash. Good that they have a policy worked out, but announcing it like this just fans the flames of panic.

So I wondered what the odds were. Wuhan has 11,000,000 population, and China (the entire country) has had 80K coronavirus cases. Making the ridiculous assumptions that 1) they are all sick at once, 2) twice as many people would actually test positive and be quarantined or hospitalized, and 3) they were all in Wuhan, that's an infection rate of 1.4%. The chance of *any* of the 16 staff members in my coop getting coronavirus would then be 28% (likely an overestimate). It would probably take at least 3 or 4 of them getting sick to seriously disable normal function.

it really helps to be able to do math, ha.

If there's a lily pond in a lake that doubles in size every day, and it covers the lake at the end of day 30, when did it cover half the lake?

Day 29

Vinny

Right. That's why I don't draw any comfort from the relatively low rate of infection in the general population. This virus is extremely contagious even while it is asymptomatic. That's a perfect recipe for a pandemic of epic proportions.

"Epic" proportions would be the Spanish Flu of 1918...https://en.wikipedia.org/wiki/Spanish_flu

It was made much worse then by a lack of knowledge of how it was actually being spread. This time around it is well known how it spreads.

Vinny

Yes, that's the scale I was thinking of.
And as far as knowledge of how it spreads, that is good.
Unfortunately, we have the disadvantage that the speed of travel is many times faster than it was in 1918. An infected person can be anywhere in the world in 24 hours.

[pmward]

> demand for U.S. dollars and treasuries outstrips the supply

Why then does the Fed need to buy bonds from the treasury (indirectly) . They should be able to sell off their balance sheet to all these global bond-hungry investors

They do so to supply liquidity to the repo markets. They do this because of the limitations of their powers. They have no lawful ability to provide liquidity to foreign entities. Debt is money itself. Both sides of the balance sheet have to match. One persons liability is another persons asset.

Also I did not say anything about "global bond-hungry investors" I said that this is all because of global trade. What do you think they use as collateral in global trade? Bond hungry investors, which come out the woodwork when things like the virus create fear, exacerbate the issue. But they are not the root cause.

All paths eventually lead to currency debasement. When we actually get to that point though is anyone's guess.

[Cortopassi]

All paths eventually lead to currency debasement. When we actually get to that point though is anyone's guess.

Aren't we on a continuing path of debasement? I liked this graph.

[pmward]

Well I use the term debasement as different than inflation. Inflation is a slow burn local devaluing of purchasing power. Debasement that I'm referring to though is more inline with the large scale debasements of the 1930s and 1970s, more with the intent to intentionally devalue the currency vs other currencies. Only this time, other countries will be cheering us on because they are tired of having to pay more and more money in local terms to buy dollars just so they can acquire the goods they need in trade. This is like a hidden tariff to them, which is especially penalizing for small emerging markets. Now this debasement can take place in many forms. We don't have a gold peg these days to devalue against, so they will have to get a bit more creative in their measures. Likely it also won't be sold as a debasement, it will be sold as something like MMT for social spending, helicopter money to fix the wealth divide, or forgiveness of existing debt (potentially even the QE debt on the Fed's balance sheet itself). At first it will also work incredibly well, and people will love it, both here and globally. Eventually though... well I think everyone here on this forum is aware how that ends.

[Xan]

pmward,

Would you mind going into more detail on how Country A needs to buy US Dollars in order to acquire goods from Country B? You may have covered that earlier but I think I'm too dense for it to sink in.

[pmward]

pmward,

Would you mind going into more detail on how Country A needs to buy US Dollars in order to acquire goods from Country B? You may have covered that earlier but I think I'm too dense for it to sink in.

Absolutely. I'll give a quick TLDR here. This podcast here goes really in depth with it, so this is also worth a listen if this is something you wish to understand. It was indeed difficult to wrap my head around at first because it's so complicated: https://www.macrovoices.com/547-jeff-sn ... m-overview

TLDR version: If country A needs to buy U.S. dollars where do they go? Markets. U.S. Dollars are a commodity basically. Typically these come from the Eurodollar commodity markets. So what is a Eurodollar? It is a derivative of the U.S. dollar. What is it a derivative of? Banks balance sheets denominated in U.S. Dollars. These are banks all over the world that supply these Eurodollars, even U.S. banks. Heck, you can even buy Eurodollar futures on the Chicago mercantile exchange. This is a completely ad hoc and unregulated industry that has been going on since around the 1960s. This is the most important market in the world. Until 2008 everything was great. Banks saw creating Eurodollars as a risk free return. It kept trade going on without the need for Federal regulation, intervention, or even consideration to foreign markets. This also allowed the Fed to focus exclusively on local liquidity supply, and ignore all foreign liquidity supply.

However, in 2008, obviously destruction was wrought across the financial industry. After the bank collapses here the Fed locally stepped up and bailed the banks out. However, nobody was there to bail the Eurodollar markets out. Banks took massive losses in defaults. So, these days, banks are not as keen to create Eurodollars, as they see the inherent risks. You can even see this playing out locally, as repo markets have to have the Fed step in and provide liquidity because even locally banks are much more hesitant to provide short term liquidity to each other here in the U.S. Since the Eurodollar market is a completely ad hoc market, there is nobody there to backstop it. There are trillions of dollars needed each and every day to support all global trade. So what happens when these countries cannot get the dollars they need? Or when the rising price of the dollar makes the cost of acquiring dollars more and more? For one, it causes countries and banks to hoard the dollars they do have, which further tightens liquidity. Secondly, it makes countries and banks have to go to other markets.... like the U.S. treasury market in order to acquire the U.S. dollar liquidity they need. Treasuries are being purchased on massive scale, not for the yield, but simply for as a means of collateral. Yield could be -10% and they would still purchase them, because they don't care about the yield, they are only renting them as a means of collateral. Add into this the increased banking regulation, which requires big banks to hold more reserves, and increased the collateral requirements on investment banks against any derivatives they issue, and it just squeezes the supply. This not to mention the fact that U.S. Treasuries are one of the most popular bank reserve currencies held by central banks across the world to stabilize their currencies. The bond markets are no longer primarily investment markets, as the demand for collateral FAR outweighs the demand for investment. But, who suffers? The people that depend on bonds as a fixed income investment. They are basically the ones currently paying the bill. The cost of bonds goes up, and the yields go down. This is not sustainable forever obviously.

[Xan]

TLDR version: If country A needs to buy U.S. dollars where do they go?

I appreciate the time you're taking and the podcast link. But I'm still missing it. Your answer starts off skipping over my question. WHY does Country A need US Dollars in order to conduct trade? Are we talking about trade with the US? It sounded to me like you were saying Country A needed US Dollars in order to trade with Country B, both of which I assumed were not the US.

[mathjak107]

The only reason a foreign currency is accepted by someone is because they know someone who they can pass it to .
So ultimately the only reason a US DOLLAR is accepted is because eventually someone needs something from us ...I could not spend a dollar in Tokyo .

I had to trade it to someone who took it because they will trade it to someone else looking to spend it here ....I came home from Cuba with some money I forgot to convert back to dollars or euros ....

No one will accept it here because they don’t know anyone buying anything in Cuba

[pmward]

TLDR version: If country A needs to buy U.S. dollars where do they go?

I appreciate the time you're taking and the podcast link. But I'm still missing it. Your answer starts off skipping over my question. WHY does Country A need US Dollars in order to conduct trade? Are we talking about trade with the US? It sounded to me like you were saying Country A needed US Dollars in order to trade with Country B, both of which I assumed were not the US.

Yes, if country A is China and country B is France, both need U.S. Dollars to do trade. Why? There are many reasons:

Because that's simply the way it has been since Bretton Woods.

When we broke the Bretton Woods accord Nixon made sure that the Middle East oil countries would only supply oil in U.S. dollars.

All commodity market contracts worldwide are denominated in USD (with the exception that recently China did create an oil contract in RMB, but it's obviously not very popular, and this is also part of why Trump became hostile against China, as any country that threatens hegemony politically has traditionally been seen as a threat to the US as a whole).

What other currency has enough debt (i.e. money supply) to support the whole of global trade?

What other options that currently exist are there?

How long would it take to create, implement, and transition to a new system to replace the current one?

What countries currently exist that want to challenge the US, and do they have enough backing to create a threat big enough to actually succeed?

Obviously, this will change some day. But it won't be a quick nor smooth transition. The transition from the GBP to USD took decades, and the move from USD to whatever the future trade currency is (likely something electronic and country neutral) will be incredibly slow as well. The systems in place are extremely complex, it isn't something that can just be wholesale replaced one day on a whim. Like I mentioned, the whole Eurodollar market is ad hoc, and as such nobody truly understands the whole of it. It also requires the US to not be hostile against any attempts to break away from the USD. Currently, they view it as hostile, and like to use things like tariffs, embargos, ext for anybody that tries to threaten the status quo. Traditionally, the only way a country loses hedgemony is to lose a major war, at which time the victor asserts their might by demanding all other countries to use their currency. Bretton Woods, while GB didn't necessarily lose, it was the US that won the war, and they saw that as their opportunity to seize power of the global economy. Keynes in Bretton Woods brought up creating a neutral trade currency, but the US was going to have none of that, haha.

[Cortopassi]

Pmward,

What’s your day job? Degree in something financial? Just curious. You dig in pretty deep.

[Xan]

So, maybe I'm getting close?

The barter system is unwieldy and impractical for an economy of any complexity. A currency is the solution: rather than keeping up with how many eggs a loaf of bread is worth, with combinations writ large times a million, we can keep everything denominated in a currency.

Is it the same for international trade? Do things have to be denominated in a common currency, in this case the USD, for things to flow smoothly? Rather than keeping track of how francs convert to pounds or marks to lire or whatever, everything's done in dollars?

[Kbg]

So, maybe I'm getting close?

The barter system is unwieldy and impractical for an economy of any complexity. A currency is the solution: rather than keeping up with how many eggs a loaf of bread is worth, with combinations writ large times a million, we can keep everything denominated in a currency.

Is it the same for international trade? Do things have to be denominated in a common currency, in this case the USD, for things to flow smoothly? Rather than keeping track of how francs convert to pounds or marks to lire or whatever, everything's done in dollars?

They don't have to be. However, the parties involved do have to agree what the exchange/payment will be in. There's nothing saying two parties couldn't agree to do the transaction in shelled, salted peanuts.

Where countries have a monopoly and can force specific currency usage is when it comes to taxes and fees and any associated conversions in terms of value...which pretty much explains why a currency is used and the preference almost always goes to the currency that provides the best ease of use.

Hands down that is the USD today, but this situation is not an American birthright. Before the USD it was the GBP.

[pmward]

Pmward,

What’s your day job? Degree in something financial? Just curious. You dig in pretty deep.

Haha, I'm a software engineer. But I read too much... way too much. I'm generally a very curious person and the things that interest me I dig deep into and understand how they work. Finance is only one of those topics. I find these things fascinating, they are just so complex!

So, maybe I'm getting close?

The barter system is unwieldy and impractical for an economy of any complexity. A currency is the solution: rather than keeping up with how many eggs a loaf of bread is worth, with combinations writ large times a million, we can keep everything denominated in a currency.

Is it the same for international trade? Do things have to be denominated in a common currency, in this case the USD, for things to flow smoothly? Rather than keeping track of how francs convert to pounds or marks to lire or whatever, everything's done in dollars?

Correct. The system is actually very efficient so long as the necessary liquidity is there. If a country is going to buy something from another, they go into the markets, buy dollars (which handles the conversion) and then use those dollars for the transaction. The country that sold the goods receives the dollars, and then they can either use those dollars to trade with other countries, hold them, or go to the markets and sell them for local currency.

[pmward]

So, maybe I'm getting close?

The barter system is unwieldy and impractical for an economy of any complexity. A currency is the solution: rather than keeping up with how many eggs a loaf of bread is worth, with combinations writ large times a million, we can keep everything denominated in a currency.

Is it the same for international trade? Do things have to be denominated in a common currency, in this case the USD, for things to flow smoothly? Rather than keeping track of how francs convert to pounds or marks to lire or whatever, everything's done in dollars?

They don't have to be. However, the parties involved do have to agree what the exchange/payment will be in. There's nothing saying two parties couldn't agree to do the transaction in shelled, salted peanuts.

Where countries have a monopoly and can force specific currency usage is when it comes to taxes and fees and any associated conversions in terms of value...which pretty much explains why a currency is used and the preference almost always goes to the currency that provides the best ease of use.

Hands down that is the USD today, but this situation is not an American birthright. Before the USD it was the GBP.

All commodity contracts are denominated in USD (minus once again that anomaly RMB oil contract). This is the biggest thing that forces the issue. So yes, while countries technically can trade in anything they want, and definitely do use some barter, that bartering is done assuming value of goods in USD terms and any balances outside of goods traded are paid with USD. So like I'll send you 1 billion in oil if you send me 500 million in microchips and 500 million in USD as an overly simplified example.

[Kbg]

So, maybe I'm getting close?

The barter system is unwieldy and impractical for an economy of any complexity. A currency is the solution: rather than keeping up with how many eggs a loaf of bread is worth, with combinations writ large times a million, we can keep everything denominated in a currency.

Is it the same for international trade? Do things have to be denominated in a common currency, in this case the USD, for things to flow smoothly? Rather than keeping track of how francs convert to pounds or marks to lire or whatever, everything's done in dollars?

They don't have to be. However, the parties involved do have to agree what the exchange/payment will be in. There's nothing saying two parties couldn't agree to do the transaction in shelled, salted peanuts.

Where countries have a monopoly and can force specific currency usage is when it comes to taxes and fees and any associated conversions in terms of value...which pretty much explains why a currency is used and the preference almost always goes to the currency that provides the best ease of use.

Hands down that is the USD today, but this situation is not an American birthright. Before the USD it was the GBP.

All commodity contracts are denominated in USD (minus once again that anomaly RMB oil contract). This is the biggest thing that forces the issue. So yes, while countries technically can trade in anything they want, and definitely do use some barter, that bartering is done assuming value of goods in USD terms and any balances outside of goods traded are paid with USD. So like I'll send you 1 billion in oil if you send me 500 million in microchips and 500 million in USD as an overly simplified example.

Countries don't trade, businesses and people in countries trade. A futures contract is not the actual commodity itself. I don't think we are fundamentally disagreeing. My main point is trade occurs in whatever is efficient for the purpose. If we put our way back hats on, that's how precious metals got their start.

[pmward]

Countries don't trade, businesses and people in countries trade. A futures contract is not the actual commodity itself. I don't think we are fundamentally disagreeing. My main point is trade occurs in whatever is efficient for the purpose. If we put out way back hats on, that's how precious metals got their start.

Countries do trade between each other as well. It's not all companies. But when I say countries I am simplifying to mean some entity in some country and another entity in another country, so you are right that I don't think we are fundamentally disagreeing. And there is more to it than just efficiency. There is a lot of politics involved. There also is no competition at this point. Aside from that though, USD is the only currency that can support global trade, so there really is no other option. Other countries are not thrilled about the tight liquidity and added expense these days, but for now it is a necessary evil. But this goes around to my point that eventually there will be a currency debasement and other countries will actually cheer for it, whereas traditionally a country is upset if a trade partner devalues.

[Cortopassi]

So the current pop in stocks reason is being pushed because Biden did so well. And tomorrow, are we back to Coronavirus?

And from the I haven't been in the news for a while category, let me say I'm patient zero:

https://finance.yahoo.com/news/steve-wo ... 29443.html

3/4/5% moves are becoming way too common here.

[boglerdude]

This is not sustainable forever obviously.

Why not. plz be concrete - what specific businesses are getting billions of new money in the repo market and what are they buying with it.Why does the Fed have to intervene as opposed to letting the market set the rate. eg I'd loan to the repo market for 10%. Apple has sufficient cash so they dont require short term loans... is the list of who is getting how much in repo, public?

[dualstow]

So the current pop in stocks reason is being pushed because Biden did so well. And tomorrow, are we back to Coronavirus?
...

Next day (today 8:45am):
Futures down 700+ on coronavirus fears.

[Cortopassi]

So the current pop in stocks reason is being pushed because Biden did so well. And tomorrow, are we back to Coronavirus?
...

Next day (today 8:45am):
Futures down 700+ on coronavirus fears.

I'm starting a newsletter. $99 a month.

[pmward]

This is not sustainable forever obviously.

Why not. plz be concrete - what specific businesses are getting billions of new money in the repo market and what are they buying with it.Why does the Fed have to intervene as opposed to letting the market set the rate. eg I'd loan to the repo market for 10%. Apple has sufficient cash so they dont require short term loans... is the list of who is getting how much in repo, public?

The Fed doesn't have to do anything. I'm not discussing ideologies here. It really doesn't matter why, what they could or should do, what is right or wrong, what would be better or worse, etc. What matters is what they actually do. It is the way it is and there is nothing any of us can do to change it, so there really is no point in discussing why they don't do something differently, imo. It simply is the way it is. These monetary systems are extremely complex systems that have been iterated upon in an agile manner for decades to get to this point, and there is no simple black or white reason why behind the whole system.

The repo markets are only accessible to big banks. The banks get the liquidity from this market and they do with it whatever they see fit. There is no way to track exactly where these go as these funds can make numerous hops. These things can be put into use and work their way through the system in innumerable ways.