In May, settlement of financial trades will go from two days to one day. We mere mortals have only one reason to care about the settlement of financial trades – “time is risk” as the FT puts it. All else equal, the longer a trade is in settlement limbo, the greater the risk it will fail. We mere mortals should care about trade failure because trade failure can lead to cascades of failures – a liquidity event. Otherwise, it doesn’t affect us.
Much of the FT article is about how all else is not equal. At least in the short run, one-day settlement is likely to lead to an increase in failed trades. Changing processes, increasing demands on staff, distrust of counter-parties readiness to transact over night – could be fun.
I’m curious as to the effect on repo trade. Will shorter settlement times mean less demand for repo finance? A reduced risk of failed trades, all else equal, should lower the cost of repo. If repo dealers think borrowers have done a good job preparing for the shift to T1 from T2 settlement, repo won’t tighten in May. If they have doubts, repo is likely to discriminate between the big guys and the rest.
Moses Herzog
As an oldtimer who remembers when Charles Schwab was cutting edge (if you were an individual investor wanting to make your own decisions and do your own homework (sometimes at the library with the BULKY/HEFTY “Valueline Investment Survey” and pray no one else was using it when you wanted it) and then eventually “TD Waterhouse”, blablabla I’m sympathetic on a nostalgia level. But mostly it just sounds like whiny/whimpering Brits. The Brits probably miss the teenage boys running around on exchange floors with pink sheets.
I agree repo bears watching. Hopefully “FT” and WSJ etc, will give us a heads up on things as we go along
Baffling
I think its the whiny brits part. Settlement lag hurts day traders , keeping funding locked up in the interim. Big business essentially gets a short term loan, which used to be three days. Anybody griping is simply upset they lost access to this cheap short loan. Thisbis good for the investor. The article has some valid concerns, but they are not insurmountable. We have technology to solve these issues, so spend the money and implement. It should only impact profit slightly. If that turns negative it probably means you are not well run to begin with.
2slugbaits
Off topic, but whatever happened to the Econbrowser NCAA tournament challenge that JDH used to manage?
Moses Herzog
Good question. I just assume he lost a little enthusiasm for it, or maybe he just decided to isolate it to his classroom students. No one would get angry with him for that. I was running 2nd place one year up to like the last 2 rounds and then I went down like a B-17 in flames.
Moses Herzog
Tell the God’s honest truth, I’m more excited about Caitlin Clark than ANYTHING going on in men’s college basketball. The glory days to me were the days of Jerry Tarkanain, Billy Tubbs, Abe Lemons. 98% of the head coaches who captured my imagination and my heart are long gone. The only two basketball coaches I can think of that I even halfway like anymore is Shaka Smart at Marquette and James Larranaga at Miami, and I can rarely catch either’s games where I live.
pgl
So you are not on that damn UConn bandwagon?
Moses Herzog
Heh, never liked UConn. I don’t even know who I would pick to win it all now. I don’t follow it as well as I used to. I got some kind of stats blog that sends “newsletters” to my email, I suppose I could flip through there and see if there’s a team I like. I hate “favorites” so it would be unlikely to be a number 1 seed if I picked one. and I HATE Kansas, so they are out as well.
Moses Herzog
If you held a gun to my head, I’d pick Iowa State to win it all. The rest I’m too lazy and cowardly to breakdown.
Baffling
Houston has a really strong team this year, and best coach in the country. I am a duke fan. But money is on houston.
Some of the perennially worst recruiting violators (including Kansas’ Bill Self) have never gotten the “show cause” penalty. Sampson got the five-year “show cause” penalty. The man can’t coach offense worth a sh*t.
Is his current team very talented?? Yes they are.
Baffling
One thing i like about sampson is that he is the antithesis of the blue bloods. Since i am a duke fan, that may sound hypocritical. But he is having sustained success with low ranked recruits. He may cheat, but so do the others. The fact that he is still in the tourney and Kentucky went home is great for the sport. Gives us average folks hope we can make it as well.
Macroduck
We are occasionally treated to accusations from the troll choir that President Biden is waging a war on fossil fuels, energy producers and so on. This is, of course, just mindless aping of GOP talking points:
In his latest newsletter, Ian Bremer takes on this bit of GOP hackery:
“Today, the US is the largest crude producer in the world by a mile, pumping out over 13 million barrels per day and accounting for nearly a fifth of the world’s total oil production. Indeed, the US is now producing more oil than any country in history.
“A similar story can be told for US natural gas production, which has also been setting record highs since recovering from the pandemic in 2021. As of 2022, the US exported far more natural gas than it imported – the bulk of which has been converted to liquified natural gas (LNG) and gone to Europe to ease the energy shortage created by the cutoff of Russian supplies in the wake of Vladimir Putin’s invasion of Ukraine.”
So next time we hear from the troll choir, remember, it’s not just me. Ian Bremer says they’re lying, too.
ghostinthemachine
Any books on central banks and their effects on market, published before 1912?
Tons of others, not hard to find, especially if you have a few bucks to plop out. That one happens to be free.
Macroduck
Excellent recommendation.
Moses Herzog
For the record, there are books published after 1912 that discuss the period before 1912, if that makes any difference. I have one here in the house which discusses the British debt markets going pretty far back but I’ll be damned if I know where I put it, probably sitting next to Prof Chinn’s book. I will try to find it online and put the link up but I have a feeling it will be hard to find there also. I think it was written by some East Indian dude. It was good reading but when my Dad got ill a few years back I lost track of it.
Moses Herzog
@ ghostinthemachine
I found the book I was talking about online. I was wrong. I would have bet my left arm it was written by an East Indian guy or Persian/Arab. And I would have had my left arm chopped off it looks like. I get different things mucked up in my mind. Don’t know if it’s specifically what you’re searching for but it is a very well written book and moves along well for that type of topic: https://shorturl.at/bux89
Rick
Moses,
Do you have Professor Chin’s book in a shrine–on a pedestal under glass with a light illuminating it?
Moses Herzog
I suspect it’s in my messy closet in a hard to reach spot. But as soon as I find it, you’ve given me a terrific idea. Possibly right underneath my NKJV Bible, in arm’s reach. What do you think?? Fluorescent orange highlighter for all the sections that illuminate what a total fraud Reagan was??
pgl
So the Volcker period was a 300 year outlier.
Steven Kopits
That’s the implication. That’s the period of the global population explosion, which started in 1950 and peaked around 1980. Right now, we are unwinding that period, with populations falling back to their 1950s level across the globe by 2100, plus or minus. Therefore, as the 1950-1990 period represented an incredible population growth anomaly in human history, so will the decline of global populations to 2100. The thinking, therefore, would that the interests rates will tend to be low if not negative for the balance of the century.
Steven Kopits
I am not at all convinced that very low interest rates are behind us. How does one maintain high interest rates in a world with a declining population? If the value of your property or factory will be lower in ten years than it is today, how does that translate into positive interest rates?
Pgl
Maybe you missed the entire AI thing and all the business investments it is creating
Steven Kopits
So you think AI is going to raise interest rates?
Macroduck
DeLong agrees with you. Only two cautions are –
1) DeLong has made some serious mistakes in forecasting
2) Interest rate forecasts, even among professionals, tend to be backward-looking. Other forecasts, too, but certainly interest rate forecasts.
Steven Kopits
You could have higher interest rates if you had phenomenal rates of increase in productivity, ie, cars become so cheap we buy two of them, which swamps the effect of declining population. Doesn’t show in the productivity data, though. More the opposite, with productivity growth low-to-negative over a decent bit of the last 10-15 years.
Interesting – very interesting. He sure hire only the best people.
baffling
off topic, Bloomberg noted that trump as spent over $50 million dollars so far from rnc and trump political coffers to cover his legal fees. that is wonderful! $50 million less to spend on campaigns, and growing. imagine how much will be spent by trump on his legal fees before the election. I hope there is no limit to how much trump can scam from the maga political class to cover his legal fees. and once he is found guilty of those felonies, all that money will be wasted down the trump drain. trump really is draining the swamp, it is just that most maga folks did not realize they were the swamp.
Pgl
Could low interest rates return. We’ll if Central Banks get us back to 2 percent expected inflation and if the recent rise in r star reverses itself then yea
Total factor productivity (TFP) in the private nonfarm business sector increased 0.7 percent in 2023, the U.S. Bureau of Labor Statistics reported today. (See table A.) The 2023 increase in TFP reflects a 2.6-percent increase in output and a 1.9-percent increase in the combined inputs of capital and labor. Capital input grew by 2.8 percent and labor
input–which is the combined effect of hours worked and labor composition–increased by 1.2 percent. The 2023 growth in TFP is in close range with the average annual growth experienced in the pre-pandemic 2011-19 period.
pgl
During the first half of 1981 the Volcker FED kept the Federal Funds rate near 19%. Now I wonder – was he following some early version of the Taylor rule? After all – what was r* and what was the expected inflation rate back in those days?
An advanced question for the adults here (which means trolls like Princeton Steve and JohnH should stay the eff out of this discussion) – how does modern day Russia compare?
Probably. For what reasons?? Don’t know
Off topic – trade settlement:
https://www.ft.com/content/4769556f-6ee2-427b-b5c1-b19627f21a1b
In May, settlement of financial trades will go from two days to one day. We mere mortals have only one reason to care about the settlement of financial trades – “time is risk” as the FT puts it. All else equal, the longer a trade is in settlement limbo, the greater the risk it will fail. We mere mortals should care about trade failure because trade failure can lead to cascades of failures – a liquidity event. Otherwise, it doesn’t affect us.
Much of the FT article is about how all else is not equal. At least in the short run, one-day settlement is likely to lead to an increase in failed trades. Changing processes, increasing demands on staff, distrust of counter-parties readiness to transact over night – could be fun.
I’m curious as to the effect on repo trade. Will shorter settlement times mean less demand for repo finance? A reduced risk of failed trades, all else equal, should lower the cost of repo. If repo dealers think borrowers have done a good job preparing for the shift to T1 from T2 settlement, repo won’t tighten in May. If they have doubts, repo is likely to discriminate between the big guys and the rest.
As an oldtimer who remembers when Charles Schwab was cutting edge (if you were an individual investor wanting to make your own decisions and do your own homework (sometimes at the library with the BULKY/HEFTY “Valueline Investment Survey” and pray no one else was using it when you wanted it) and then eventually “TD Waterhouse”, blablabla I’m sympathetic on a nostalgia level. But mostly it just sounds like whiny/whimpering Brits. The Brits probably miss the teenage boys running around on exchange floors with pink sheets.
I agree repo bears watching. Hopefully “FT” and WSJ etc, will give us a heads up on things as we go along
I think its the whiny brits part. Settlement lag hurts day traders , keeping funding locked up in the interim. Big business essentially gets a short term loan, which used to be three days. Anybody griping is simply upset they lost access to this cheap short loan. Thisbis good for the investor. The article has some valid concerns, but they are not insurmountable. We have technology to solve these issues, so spend the money and implement. It should only impact profit slightly. If that turns negative it probably means you are not well run to begin with.
Off topic, but whatever happened to the Econbrowser NCAA tournament challenge that JDH used to manage?
Good question. I just assume he lost a little enthusiasm for it, or maybe he just decided to isolate it to his classroom students. No one would get angry with him for that. I was running 2nd place one year up to like the last 2 rounds and then I went down like a B-17 in flames.
Tell the God’s honest truth, I’m more excited about Caitlin Clark than ANYTHING going on in men’s college basketball. The glory days to me were the days of Jerry Tarkanain, Billy Tubbs, Abe Lemons. 98% of the head coaches who captured my imagination and my heart are long gone. The only two basketball coaches I can think of that I even halfway like anymore is Shaka Smart at Marquette and James Larranaga at Miami, and I can rarely catch either’s games where I live.
So you are not on that damn UConn bandwagon?
Heh, never liked UConn. I don’t even know who I would pick to win it all now. I don’t follow it as well as I used to. I got some kind of stats blog that sends “newsletters” to my email, I suppose I could flip through there and see if there’s a team I like. I hate “favorites” so it would be unlikely to be a number 1 seed if I picked one. and I HATE Kansas, so they are out as well.
If you held a gun to my head, I’d pick Iowa State to win it all. The rest I’m too lazy and cowardly to breakdown.
Houston has a really strong team this year, and best coach in the country. I am a duke fan. But money is on houston.
“Best coach” is highly arguable. He cheated at Oklahoma and broke very basic recruiting rules, Then was given probably the best job in basketball and…… cheated again. The man gives lip-service to ethics and every phony slogan in the book. He’s a royal jackass.
https://www.indystar.com/story/sports/college/indiana/2014/04/02/indiana-hoosiers-basketball-kelvin-sampson/7225617/
Some of the perennially worst recruiting violators (including Kansas’ Bill Self) have never gotten the “show cause” penalty. Sampson got the five-year “show cause” penalty. The man can’t coach offense worth a sh*t.
Is his current team very talented?? Yes they are.
One thing i like about sampson is that he is the antithesis of the blue bloods. Since i am a duke fan, that may sound hypocritical. But he is having sustained success with low ranked recruits. He may cheat, but so do the others. The fact that he is still in the tourney and Kentucky went home is great for the sport. Gives us average folks hope we can make it as well.
We are occasionally treated to accusations from the troll choir that President Biden is waging a war on fossil fuels, energy producers and so on. This is, of course, just mindless aping of GOP talking points:
https://www.gop.gov/news/documentsingle.aspx?DocumentID=724
In his latest newsletter, Ian Bremer takes on this bit of GOP hackery:
“Today, the US is the largest crude producer in the world by a mile, pumping out over 13 million barrels per day and accounting for nearly a fifth of the world’s total oil production. Indeed, the US is now producing more oil than any country in history.
“A similar story can be told for US natural gas production, which has also been setting record highs since recovering from the pandemic in 2021. As of 2022, the US exported far more natural gas than it imported – the bulk of which has been converted to liquified natural gas (LNG) and gone to Europe to ease the energy shortage created by the cutoff of Russian supplies in the wake of Vladimir Putin’s invasion of Ukraine.”
So next time we hear from the troll choir, remember, it’s not just me. Ian Bremer says they’re lying, too.
Any books on central banks and their effects on market, published before 1912?
https://oll.libertyfund.org/titles/bagehot-lombard-street-a-description-of-the-money-market
Tons of others, not hard to find, especially if you have a few bucks to plop out. That one happens to be free.
Excellent recommendation.
For the record, there are books published after 1912 that discuss the period before 1912, if that makes any difference. I have one here in the house which discusses the British debt markets going pretty far back but I’ll be damned if I know where I put it, probably sitting next to Prof Chinn’s book. I will try to find it online and put the link up but I have a feeling it will be hard to find there also. I think it was written by some East Indian dude. It was good reading but when my Dad got ill a few years back I lost track of it.
@ ghostinthemachine
I found the book I was talking about online. I was wrong. I would have bet my left arm it was written by an East Indian guy or Persian/Arab. And I would have had my left arm chopped off it looks like. I get different things mucked up in my mind. Don’t know if it’s specifically what you’re searching for but it is a very well written book and moves along well for that type of topic:
https://shorturl.at/bux89
Moses,
Do you have Professor Chin’s book in a shrine–on a pedestal under glass with a light illuminating it?
I suspect it’s in my messy closet in a hard to reach spot. But as soon as I find it, you’ve given me a terrific idea. Possibly right underneath my NKJV Bible, in arm’s reach. What do you think?? Fluorescent orange highlighter for all the sections that illuminate what a total fraud Reagan was??
So the Volcker period was a 300 year outlier.
That’s the implication. That’s the period of the global population explosion, which started in 1950 and peaked around 1980. Right now, we are unwinding that period, with populations falling back to their 1950s level across the globe by 2100, plus or minus. Therefore, as the 1950-1990 period represented an incredible population growth anomaly in human history, so will the decline of global populations to 2100. The thinking, therefore, would that the interests rates will tend to be low if not negative for the balance of the century.
I am not at all convinced that very low interest rates are behind us. How does one maintain high interest rates in a world with a declining population? If the value of your property or factory will be lower in ten years than it is today, how does that translate into positive interest rates?
Maybe you missed the entire AI thing and all the business investments it is creating
So you think AI is going to raise interest rates?
DeLong agrees with you. Only two cautions are –
1) DeLong has made some serious mistakes in forecasting
2) Interest rate forecasts, even among professionals, tend to be backward-looking. Other forecasts, too, but certainly interest rate forecasts.
You could have higher interest rates if you had phenomenal rates of increase in productivity, ie, cars become so cheap we buy two of them, which swamps the effect of declining population. Doesn’t show in the productivity data, though. More the opposite, with productivity growth low-to-negative over a decent bit of the last 10-15 years.
https://fred.stlouisfed.org/series/MFPNFBS
https://fred.stlouisfed.org/series/PRS30006042
To my point:
https://www.yahoo.com/news/world-population-fall-first-time-060000004.html
Hey dummy. It is raising investment demand. I would ask you to model this out but we all know you suck at economics
A Trump lawyer was absolutely against (even willing to go to jail) having her fingerprints entered into the system.
https://www.cnn.com/2024/03/21/politics/stefanie-lambert-pro-trump-lawyer-arrest/index.html
Interesting – very interesting. He sure hire only the best people.
off topic, Bloomberg noted that trump as spent over $50 million dollars so far from rnc and trump political coffers to cover his legal fees. that is wonderful! $50 million less to spend on campaigns, and growing. imagine how much will be spent by trump on his legal fees before the election. I hope there is no limit to how much trump can scam from the maga political class to cover his legal fees. and once he is found guilty of those felonies, all that money will be wasted down the trump drain. trump really is draining the swamp, it is just that most maga folks did not realize they were the swamp.
Could low interest rates return. We’ll if Central Banks get us back to 2 percent expected inflation and if the recent rise in r star reverses itself then yea
Total factor productivity, 2023
https://www.bls.gov/news.release/prod3.nr0.htm
Total factor productivity (TFP) in the private nonfarm business sector increased 0.7 percent in 2023, the U.S. Bureau of Labor Statistics reported today. (See table A.) The 2023 increase in TFP reflects a 2.6-percent increase in output and a 1.9-percent increase in the combined inputs of capital and labor. Capital input grew by 2.8 percent and labor
input–which is the combined effect of hours worked and labor composition–increased by 1.2 percent. The 2023 growth in TFP is in close range with the average annual growth experienced in the pre-pandemic 2011-19 period.
During the first half of 1981 the Volcker FED kept the Federal Funds rate near 19%. Now I wonder – was he following some early version of the Taylor rule? After all – what was r* and what was the expected inflation rate back in those days?
An advanced question for the adults here (which means trolls like Princeton Steve and JohnH should stay the eff out of this discussion) – how does modern day Russia compare?