YouSaid · the spoken record

Mark Dow

lines on the record: 132
first: 2024-04-15
most recent: 2024-04-15
sittings or episodes: 1
sources: podcast

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“Yeah, so the word bailout is some connotation that you don't agree with, but it sounds like we agree on the facts. And also I'll say you said add liquidity. We know it's not lender of last resort. It's dealer of last resort. Like it's not like they were lending against them. It was just buying one way flow. But the way I'm saying, what do you think about Mark, the narrative that U.S. Treasury debt is increasing? The government is increasing its debt, which is true on an absolute basis. It's also especially true on a debt-to-GDP basis. As such, debt to GDP, which was I'm just looking at 40% in the 70s and now it's 120%, it's marginally down from 2020, but it's still very high relative to historical basis that the Federal Reserve has to monetize that debt to inflate away the debt so that there's no natural bias for treasuries because there's too much of them and that the Federal Service has to inflate away the debt by keeping interest rates lower than the rate of inflation as it did in World War II, the 1940s.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“I wouldn't use the word bail it out because I think they just provided liquidity so that the market could start to clear on its own. And it took a while because they had to absorb a lot of the selling, the force selling that was going on. But their mindset is not to bail out anybody. Their mindset is to ensure that the markets can work, that they can work and they can work out the price issues, that there are no, like I said, there's no market failure where supply and demand don't meet.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Risk like in the GFC, all those banks deserve to go bankrupt. In doing that, you would have dragged down so many innocent people that didn't do anything wrong. The guy, you know, the dry cleaner in Cedar Rapids who has a chain of four dry cleaners and he's got deposits that on lend the deposits to Citigroup, he wouldn't have been able to make payroll, right? Unless the government steps in and short circuit that. So it's not fair in the sense that some people who deserve to go bankrupt for the risk they took don't go bankrupt. you know, it's a little bit like that train switch thing. You save a bunch of people or do you let that one guy who deserves to die die?”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“They stepped in and bought liquidity, as I was saying, a lot of the hedge fund guys. Treasury dealers, they kind of have, they're usually associated with banks and they have an obligation to kind of be good citizens in the market and they'll get brownie points for other parts of the regulatory regime kind of thing. Hedge funds don't have that constraint, so they can just ghost you. They can just disappear if something happens. So it's a structural flaw that should be addressed. Unfortunately, it's just so wonky and geeky that no one's ever going to pay attention to it. But I think our treasury system be made robust. But what I do know is if the treasury hadn't stepped in and provided liquidity, more people would have been hurt that didn't deserve to be hurt. Now, it's sad because the hedge funds taking a bad bet, they deserve to get hurt, right? Guys deserving to take.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“You said, yeah, the treasury market was breaking in March of 2020, but not the short, the bill. It was the 10-year, the five-year, the coupon part of the market. And that broke before the flood of issuance. So I just want to get that thing. But the treasury market was breaking and the Federal Reserve did bail the Treasury Market out then in March of 2012.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“The center of the global financial system dysfunction just fall into dysfunction. You need the bid and the ask to clear. And it's an unfortunate system in some respects because in the run to the GFC is kind of when we had peak treasury liquidity because just the way the capital charges were done banks could allocate more capital to market making than they do now and there are more hedge funds involved in market making in the treasury market than used to be the case and that makes the market more brittle than it otherwise needs to be. That can be fixed through structural reform and it should be but still if the market is failing you need to step in or their collateral effects on innocent people that haven't done anything wrong.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Basically, when the selling got intense in the third week of March, the fiscal stuff comes later, but it sounded like it came pretty soon. But it kind of doesn't change the story. If you're suggesting that people, the treasury market would have exploded if the Fed hadn't monetized the deficit kind of thing, which you'll hear a lot of guys argue, fine. But the bigger thing was there was a huge demand for cash, right? I mean, now we've seen it. We've settled down. There's no yields aren't exploding and the treasury is issuing all kinds of amounts. So why would it be desirable to let the Treasury market explode? I just don't see any circumstances. Now, you don't want the Fed to be in, I mean, I prefer the Fed to be, have as small a balance sheet as possible, right? Obviously, they've changed regime. They've gone to a floor regime, so they're going to need a lot more reserves than they needed before. That's a separate and interesting discussion. But you don't want to let...”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Yes, and so I'm looking at the TGA, and it started exploding higher April 1st through July 22nd. And then the CARES Act was signed on March 27th stock market bottom was March 23rd. And then I think the extreme QE was around late mid to late March, I believe. I don't know the exact dates.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“But they can fail badly, and treasuries are at the center of the global financial system, and you don't want the risk of cascading defaults of people having to unwind positions all over the world. So you step in, you say, okay, I understand there's a big shock here and there's an unusual demand for liquidity, for settlement liquidity. I'm going to provide that. And they did. And things calmed down. People could trade rationally and we go back to looking at our other factors. To suggest that we should have let the free market clear means you know nothing about policy and you have no real life experience. There's just no way anyone with real life experience could want that to happen. I've seen it in too many countries. When people panic, they panic and the panic feeds on itself. Having something that can short circuit that panic is hugely advantageous.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Could be a big weekend. I need to stock up on cash. Doesn't mean the business is going to come, but it's there. At the same time, you had a lot of hedge funds in basis trades. That made it even worse, so that exacerbated that problem. So you got selling because people, you know, under times of stress, people sell bonds and buy cash because of that liquidity preference, right? And this was exacerbated by that.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Don't know when the issuance started. I would have to look and see when the issuance started. I know what happened was the fiscal. You may be right. I don't think you are because I don't think fiscal mobilizes that quickly. But nonetheless, we had a huge supply of treasuries from people wanting cash. And so this is that monetary elasticity that the system needs to provide. Because think about it. If you're holding a bond or you're holding a deposit at the Fed, they're both claims on the government. So you have a preference. I like the bond because it yields more. But the cash, I have immediate access to that if I need it, if I need it for settlements, right? So in stress, what do people do? They sell their bonds and they buy cash. Because they don't know how much cash they're going to need in the cash register, right? That's like a shop owner.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Mark, I've got a question. So, the Treasury issued a bunch of. Treasury debt in March to fund these very extreme fiscal programs to meet the extreme shock in the economy. And the Federal Reserve bought a lot of that debt or even if it wasn't the same debt.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“It's a little bit like what they say about the US is that they'll do all the wrong, when they do the right thing after exhausting all the bad options. Well, capitalism is the least bad option, right? It's not perfect. It's just better than everything else”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Extra year. That would be a different story, right? Because you start to get numbers like that, and then it runs a lot more risk of getting entrenched in the system. So when you actually break down the numbers, it wasn't that bad. It's just ideologically people don't like government involved. People think they have this kind of Notion free markets have to clear in a certain way. And we know markets don't work. I mean, we know markets are better than anything else, but we know they fail.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“But that's ideological. So that's the ideological part. The ideological partical. Just looking at the facts. I mean, no one likes bigger government. No one likes to pay taxes. No one likes it, any of these things. No one ever roots for government. But if you sit back and objectively and say, did it work? It worked unless you have some kind of ideology where saying, well, it would have been better with a free market. There's absolutely no evidence of that and a lot of evidence that it wouldn't have been. And in fact, the GFC was a light version of that, right? We didn't spend enough fiscally to get us back up the curve fast enough. So we have a lot of evidence. And if you look around the world, there's even more evidence of this. We don't look around the world a lot. And then 5% inflation, you could talk about how much inflation is tolerable, but you and I, in our two scenarios, and I think your scenario is pretty extreme, the 60% or it's on the high side for sure. Both of those, you're talking about 1 or 2% extra year. It's not like we're talking about five or 10%.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Mark, what I was saying is that it is an inherently up to people's judgment what percentage inflation was like worth that risk. Some people would say they could deal with a 5% inflation because it could have been such a great depression. Other people would say, actually, I like the free market economy and we made distortions that are socialist, blah, blah, blah, blah, blah. It is a matter of opinion. But that's ideological.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“And you have a shock like this, and both of them fall. So public policy supports demand, but supply is really low, right? But with public demand high, that gives an incentive for supply to get back up to that demand as fast as possible. If, however, both of them take a shock and you do nothing with demand, people don't have any incentive to build back supply. And as you know, the whole hysteresis thesis that capital lies fallow and pretty much goes to waste at some point. It starts to deteriorate and you're, you know, with time over time and your ability to get the supply back to where it was before diminishes, right? It keeps the supply alive in a certain sense. So this is the reason why fiscal, when there's a hole and you get a shock, you need fiscal policy so that the supply side has an incentive to come back and doesn't wither away, right? And I think this is why when you look at the US compared to the countries that we see other industrialized countries, if you want to call them that, why we've done better, because they allowed for more atrophy of the supply side.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“But we know. I mean, a 10% unemployment. You're right. If they hadn't provided the income provided the income to get people back to a low level of unemployment, we would have had hysteresis. This is the problem. We would have had that problem when, you know, if, because think about it, if you have a shock, you have a supply and you have demand, right?”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“No, but Mark, the opinion of the chance of averting a recovery, again, the probability of which we don't know how bad it could have been. Obviously, it could have been greater than the Great Depression or it could have been a mild recession.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“But it's only ideological, and the people who aren't looking at the evidence. Because if you're looking at the evidence, I mean, the math, those are numbers I gave you. It wasn't an opinion. Now, the opinion was whether you think it's two-thirds or I think it's one-third.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Yes. So you have 3%. That's another way of looking at it. 3% of excess inflation per year. That's what we had. Now you're saying two-thirds of that roughly was because of fiscal. Roughly. I think it's more like one-third. Either way, you're talking between 1% and 2% extra a year in exchange for the best economy of all the G7 economies, right? So they might have overfilled the whole, but in the grand scheme of things, it wasn't that much. Of course, it feels like a lot more when you're paying more for things and you have to buy eggs when the eggs are surging or you have to buy gas when gas is surging. But in the grand scheme of things, it's just not that much. So like I said, I think all things considered, there's criticism here and there, but things went really, really, really well. And they could have gone a lot worse.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“So you say 60% caused by fiscal. I think that's on the high side, but let's take it. So if you have cumulative target of six and then you have four, eight, and three, that's 15, right? So six for 15 is nine. Okay, if you think from that 9, you think 60% of that was caused by fiscal, you only get an extra 2% a year. That's what it was. If that's the price for maintaining income and unemployment, and I think that's high. I think most of the estimates are coming in closer to 30, right? But whatever, it doesn't matter. The math works for anything. It just shows you it's kind of a small price to pay to overfill that hole a little bit relative to underfill that hole, which took us all those years, took much longer to get back on trend.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, three and a half or something like that, whatever. Three and change. Okay, so we know that target inflation is 2%, right? That's the tolerated amount of inflation. So for three years, that gives you 6% cumulative of target. Now, before we go any further, you have to ask yourself, how much do you think intuitively fiscal policy added to inflation was responsible for that inflation? Is it 50%?”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“In 2022, yeah, so basically we had three years of inflation, 4%, 8%, and 3%, right? That's kind of where we've been coming at. We'll see where we come out this year, maybe 3% again. But let's just make it simple.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“And if you take it further mathematically, right? I do think fiscal contributed to the inflation for sure. I don't think monetary did. I think the fiscal did to some degree. But even there, I always think of long-term income growth as kind of a line that gently slopes upwards, right? When you get one of these shocks, it's like you have a big U, a big dent in that line, big downward dent. And fiscal policy is designed to fill that hole. Now we can argue whether or not they overfilled the hole, which they probably did a little bit this time, or they underfilled the hole, which they probably did in the GFC. But they're filling a hole. So at the margin, yeah, it created more inflation. And obviously we would have had a lot less inflation if they had let unemployment stay at 10% and everything fall apart. But that's not a non-starter in a democratic system. So you have to say, how much damage might that have done? And then, okay, so we had in.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“We can't pretend that they could stop COVID, right? But their job was to make sure, given that shock or those shocks, right? And in those shocks, the Russian invasion came at the worst possible time. Right when the Fed started to worry in November of 2021 about expectations being unanchored, a couple months later, we got that shock. And we didn't know how long was going to last, fortunately, because the SBR drawdown and other production increases, it didn't last that long. But we didn't know that at the time, and it happened at the worst possible time. So the Fed had to go hard to keep these longer-term expectations in check. And I think in that respect, they did a good job. And I understand, I know they're heavily criticized for starting three months later, however many months late, but it wasn't going to fix, you know, starting three months earlier wasn't going to fix the ports in Long Beach. It wasn't going to stop the delta wave. So I just don't think it mattered that much.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“We should learn the other thing, you know. I was saying earlier that the takeaway from this is the importance of initial conditions in monetary policy. That's one takeaway. The other takeaway, I think, that people should have is you can't stop a shock. You can't stop, a central bank can't stop all forms of inflation. If the shock is the wrong kind of shock, you're going to get inflation no matter what the central bank does. What can the central bank do though? Keep long-term inflation expectations in check. Let people know that you're on it and as soon as you work through these transitory problems or whatever, whatever name you want to put on them, right? You know, these short-term issues that are causing inflation, in this case, the supply side falling apart, once we put that back together, your inflation is going to be low again. And if you look at the longer-term inflation expectations in the markets, they never got that high. So for me, that's how you should judge a central bank's job, not whether or not there was inflation.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“One part of the economy, and it was overweighted in its representation given the archaic statistical system that we live under. I get that whole process, but I think that explains a lot of what was happening with the Fed and what was happening with people expecting a recession. And I should say, though.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Go to the movies, whatever it is. We couldn't do those things. So we had a big surge in manufacturing and there was a backlog. And then because supply of that got curtailed too. And then everyone scrambled to ramp up their production of goods. And all of a sudden we had an inventory glut, right? So as services were coming back, we were developing an inventory glut on the good side. So these just massive sectoral swings. Now our statistical system is geared towards the old economy we used to have that was much more manufacturing heavy. So people were looking at the indicators coming across the transom and they were saying, you know, oh, and they were overstating that. I'm not saying they were wrong. Yeah, they were wrong, but it's understandable that they say, oh, the probability of recession is increasing, but they were getting carried away with what the absolute level of probability was because they were missing the point that this was only capturing.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“The guy who always takes the under expected hit to growth from that. I didn't expect a recession, but I thought we were going to slow down more. And I think one of the reasons why people, I mean, obviously the yield curve and people who focus on the money supply, I think that's entirely intellectually wrong. But I understand that a lot of people focus on it because traditionally that's what people did. We talked about why the world monetary world is different today. What surprised me, I think what led a lot of people to think that the risk of recession was much, much higher and indeed imminent was the sectoral reallocations we were getting as a result of the COVID shock. So COVID basically shut down services, right? So as we know, incomes were maintained and it all went into goods. We couldn't go to restaurants. We couldn't travel. We couldn't.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Moment, and then we're going to go hard. And that's what they did. Now, in my mind's eye, they should have begun QT sooner because we had a mini asset bubble in certain coins and specs and a few other things. And there's a signaling effect from that, kind of the reverse of the placebo effect. So many people believe that was popping up the market, even though it wasn't, that taking it away was probably enough for people to stop and say, like I was saying earlier, if you're really out over your skis taking risk, any little change can trigger you retrenching. And then once that starts, it feeds on itself and the bubble corrects. So that might have helped. But to be honest, Jack, I'm a guy who tends to think that, you know, I take the under with respect to the effect of monetary policy on the economy and on markets. I take the under with respect to the wealth effect as well. And I was still surprised that the wealth effect in 2022 was as weak as it was. Even I.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Think a really good job, all things considered. And I even understand where they were coming from by being late to hike, right? I totally get that. That made sense to me. Wait until the absolute last minute for inflation to correct on its own because the nature of the shock was transitory. But we kept getting shocks. And at some point, when you feel, so you wait for the, you know, we didn't know how many shocks there were going to be. We got the delta wave, and that changed, that was a game changer. And I think that opened the feds' eyes and other guys' eyes. And they said, oh, Jesus, now we have to worry about whether or not it's just one shock, we know it's going to settle down on its own and we're going to be okay. Two shocks. Now all of a sudden you get the boats. I saw them off my balcony here lining up up the coast and to get into the port at Long Beach, right? And there's nothing the Fed could have done about that, but it got to a point where they were afraid that long-term expectations were going to be unanchored. And then they said, okay, we're going to wait until that.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“And it just was an eye opener for me because I studied in graduate school. We didn't have behavioral finance or behavioral economics yet. So I kind of, I was always a little bit skeptical of efficient markets just knowing how humans behave. And then I saw reality. I go, wow, this is not even close to rational. Because, you know, we have meme coins and all kinds of crazy things happen regularly, right? in different forms so it's been a huge boon to me over over my career but you know it's just it's kind of too bad that that um it undermines the trust in in the fed and they've done maybe not perfect”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Policy, I think he's right. Exactly. It doesn't happen too often. And I'm not saying the fed always gets everything right or gets everything wrong. I understand where they're coming from a lot better, I think, than other people from my policy experience, right? I worked at the Treasury Department for a couple of, you know, a couple different presidents. I worked total for three different presidents. I've got a lot of policy experience at the International Monetary Fund. I climbed into so many central banks around the world. I can't even tell you. So you get to understand how kind of how the plumbing, how the plumbing works.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Right. And I think that if you go from saying the Federal Reserve is making a mistake by being too tight to now is making a mistake of being too loose, somewhere along the line, you should reach the middle zone of actually saying, I agree with Federal Reserve Policy.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Diagram probably overlaps a lot between these two groups, right? They need to criticize the Fed because it makes them feel better, makes their clients feel better. They get more clicks or more subscriptions. It validates their worldview, all those kinds of things. But in the real world where those of us who manage money live, it just doesn't work.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Going to provoke a huge response. This just laughable. It's much more important what we think is happening to inflation and growth. That's what drives the bond market and this other stuff gets lost. So I'm glad I had this conviction. It was a huge money maker for me. And to be honest, for most of my career fading other people's fear of the Fed, all these stories that come out has been a huge money winner. has been a huge trade, right? And I don't see that stopping anytime soon, in part because of people's needs. A lot of guys need clicks. They need boogeymen and a lot of guys have the ideology. I call them the policy bears, that all policy moves are always wrong. The Fed is always screwed up. I posted something kind of, you know, tongue-in-cheek this morning, how it was only 12 months ago that people were screaming on television about the Fed doesn't cut now a recession as a lock. And now there are people starting to berate the Fed for signaling cuts.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“They didn't loosen. And this for me was a phenomenon. How it spreads tightened when they're increasing supply. It's because it catalyzed interest in the sector, got the guys to stop simulating their golf swings and focus on their business. And they said, hey, that actually looks good. And then they heard the sell side pitches and it sounded even better. And pretty soon that effect swamped any supply effect. So that was my first clue that how easy it is to swamp these kinds of supply effects like we're talking about with QE and QT. I mean, I just don't know how else you explain it. Like I said, the TGA story went away. We know they replenished it. And then people stopped talking about it. The bank term funding program, they repay it all of that and people stop talking about it. Now they're onto something else. And they're going to talk about, you know, I mean, to think that changing 50 billion dollars in issuance from the treasury from one part of the curve to another is...”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Distinguishable from zero just because you can't, the other effects are just swamping it, right? So this is the problem. You don't see it in term premium. Multiples have expanded under QT. They've expanded under higher rates. So all of the theoretical things that make such compelling intuitive sense didn't happen. And it's not as if they're going to all of a sudden they're going to end up at the end of repo and everything is going to crash. I remember my days as a mutual fund fixed income manager. I managed mostly emerging market portfolios, but I also managed the TIPS portfolio and a credit portfolio, a couple of other things. And I got to know some of the analysts. And I noticed in a high yield desk in particular, the high grade desk, excuse me, the high yield desk, they did their work pretty well, but the high grade guys spent most of their time simulating golf swings, right? They were just kind of hanging around. And then when an issuance would come, when supply would come, spreads tightened.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Right, and there are a lot of guys out there now, and it sells really well, and we know the behavioral reason for that. Man is a hierarchical being. And it makes us feel better to crap on other people, right? I mean, that's just kind of how humans work. So to talk about whether it's high school cafeteria food or the principal or whatever authority figure you want to say, these guys are idiots, this is what they should be doing, that always sells because it makes us feel better about ourselves. It makes us feel less impotent and less insignificant. And it's kind of getting deep on the psychology side. But I've been around a long time and I see how it works and I see the personalities of the people arguing these things. So it just, like I said, people are kind of scrapping around for arguments to avoid saying, oh, you know, QE, we're actually doesn't do anything in QT doesn't do much either. I mean, I'm not saying that they don't do anything. I know I get misquoted that, but they do very, very little, so small that you can't even tell if it is anything, right?”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“It's gonna buy less, right? So I'm saying the effects might be there, but they're so small that we can't say even if they're there, they're not discernible. What's discernible is the yield curve going up and down in response to people's economic expectations, right? You know, growth and inflation and all that typical stuff, but not the supply argument that people make. We just don't see that. It just doesn't matter. All the people predicting that QE was going to do these things, now they're coming up with excuses, in part because they've been wrong, and in part because it allows them to defend their worldview. Their worldview is that every policy move is wrong”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“We just don't have a lot of examples of that really happening. It conforms with the theory, and that's why it resonates with people's intuition so powerfully. But like I said, we just don't see that happening. Look, the Fed raised 500 basis points and has done a yard and a half of QT. The long end has only gone up 300 basis points. It hasn't gone up by more than 500.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Not in an observable way, definitely. Yeah, all periods of most periods of quantitative easing happened as interest rates, long-term interest rates rose not fell. And if the Federal Reserve is buying trillions of it, they should go down, right? But here, Mark, is such an important point. I'm glad you brought this up about how do you determine what is a cause and what is an effect? In other words, going back to our conversation, you said that because monetary conditions can get moderately tighter while the stock market goes up, therefore monetary conditions don't matter. What if it is that the reason interest rates the Federal Reserve had to raise interest rates was because the economy was too hot and the stock market was too hot and that what caused the interest rates to go up is that they were too loose and therefore it's the effect.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Expectations in a way that people didn't want to hold bonds. So the argument that, oh, well, QE drives down interest rates, and therefore it's going to increase the desire to buy equities, that doesn't really work because that wasn't happening, at least not.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Or the Fed buying your T-bills and giving you deposits. Now, if they're buying your bonds, maybe you have a duration shortfall that you need for your book reasons. But those people aren't buying stocks anyway. These are banks, right? So they might buy some mortgages or they might buy some high grade if they need to replace their duration. But if they really wanted to take risk and people wanted to increase their allocation to stocks, they could have didn't have to wait for QE. They could have sold their bonds beforehand and bought the stock. So it's just, if you get back and you think about how people behave, what drives our decisions, right? It's not this. And to go a step further, as we know when QE1, two, and three, we saw those. When those happened, yields were going higher, not lower. Why? Because it placebo effect changed economic.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Excess reserves, and the government is just giving you one liability in exchange for another in your fixed income portfolio. That's not going to make you go out and change your allocation between fixed income and stocks, right? Instead of holding a T-bill, you hold a government deposit with roughly the same interest rate. Just to make it simple, right? You still got your 60-40, you're not going to change it to 70, 30 because of that, right? So that's all that's happening. This money stays there. Now, it may well be for another reason that you want to go to 70, 30, right? Because you see everyone buying coins and you want to participate or whatever, you know, whatever the risk asset in video, right? Legitimate company, a great company, it goes up. People want to get involved. Those kinds of things can make people change their allocation from 60, 40 to 70, 30, but not the treasury.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“Right, which resides at the Fed and takes away from the fixed pool of reserves or takes away or adds to. So that got totally replenished. Nothing happened. Now they're saying, oh, well, look, it's the reversed repo that's getting drawn out. Well, yeah, reversed repo is excess reserves. So they weren't going into the stock market anyway. And I didn't hear anybody making the argument when the reserve repo was increasing that, oh, this isn't pumping up the stock market because it's just going right into reserves. They're saying, no, it's pumping up the stock market and it's artificial. So the people that you're hearing arguing this, basically, that no, it's just Reserve Repo. These guys, none of them, I guarantee you, were making the argument when reserve repo was getting filled that it didn't matter for risk assets because it was going in. They only discovered it now. But that's exactly why QE doesn't matter. It just goes into excess reserves and then comes out of it.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“I say they need subscribers, right? I just don't think it's bullshit just to use the French word. First of all, remember it was the bank term funding program. Oh, look, they're doing QE. Look, that's why the stock market is going up, right? That got repaid stock market stayed higher. Look at TGA. They're drawing down the TGA.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“And now back to the interview. What would you say right now to the people who say that the stock market is going up because the Federal Reserve is doing shadow quantitative easing by draining the reverse repo facility?”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT
“In the first instance, we draw the fossil parallel, right? They're just a simple kind of brain dead parallel. Oh, this looks roughly like this. And then as we go forward in time, we start to see the differences. And over the past year, I would say, we started to see the differences with respect to initial conditions much better than we did before.”
2024-04-15 · Forward Guidance · Mark Dow: The Bears Are Making Stuff Up About Fed/Treasury Plumbing To Excuse The Fact That They Were Wrong · IDENTIFIED FROM THE TRANSCRIPT