Morning Report: Bill Gross talks Monopoly 7/6/16

Stocks are lower this morning as markets fret about the Italian banks and the Japanese 20 year bond went negative overnight. Bonds and MBS are up. The US 10-year hit 1.32% overnight and is trading at 1.36% at the moment. The German Bund now yields -18 basis points.

The FOMC minutes from the June meeting will be released around 2:00 pm EST today. Brexit has pretty much made these pretty much irrelevant for July meeting which is in 3 weeks. Still, there is always the possibility that something surprising could come out of it, so just be aware.

Mortgage applications rose 14.2% last week as purchases rose 4.3% and refis increased 20.8%.

The June ISM services index jumped to 56.5 from 52.9 in May.

Hillary Clinton will not face criminal charges over the email investigation. This should stick a fork in Bernie.

Bill Gross compares the current state of the economy to the game of Monopoly. In the beginning of the game, you get $1,500 and begin buying properties (investing). You also get $200 for passing go. However, the game always ends in a credit crunch where your opponents go bankrupt. He then imagines the game where the amount you get for passing go increases as the game progresses. He likens the income from passing go as credit growth. If you look at credit growth over the past several years, it has been much less than the previous decades. His advice to Janet Yellen is to stop worrying about the Taylor rule and inflation and worry more about slow economic growth. While QE and negative interest rates should have helped create credit, they aren’t really doing that, and the current economy is like the end of a monopoly game, where all the property has been bought, and conservation of cash becomes the name of the game. This is a recipe for stagnant growth.

Bank of America is forecasting a 1.25% 10 year yield by the end of September as pension funds embrace the “lower for longer” thesis and build their holdings of Treasuries. Roughly 6% of pension fund assets are in Treasuries, about half the allocation they were in 1980. Of course Treasuries represented true value in 1980, and now they are simply a momentum trade. The 100 largest pension funds in the U.S. have a shortfall of $400 billion, which has doubled over the past year. Pension funds have been the biggest victims of ZIRP, as the actuarial tables couldn’t care less that interest rates are zero. In fact, it makes their liabilities appear even worse because the rate used to discount them is lowered.

27 Responses

  1. Frist! That is all.


  2. The key is the railroads and the mortgaging all your non-monopoly properties so you can sink that cash into houses and hotels as quickly as possible.


    • Just remember to pass go, collect your $200, and don’t go to jail . . . then everything will be fine!

      I purposely lose at Monopoly because I don’t want the game to go on forever. It’s easy to do. I buy everything I land on. I spend money willy-nilly. I am soon bankrupt.


  3. Question: isn’t slow economic growth inevitable? With governments at every level taking increasingly more, especially in the most economically robust (or previously so) areas, and the ever-increasing regulatory burden slowing down innovation, and everything from patent rights to imminent domain and copyright law to you-name-it rigged in favor of a few multi-billion dollar companies by the government because, you know, justice or some shit, how are we ever going to have a rapidly growing economy . . . unless a miracle occurs?


    • racist

      Liked by 1 person

    • That’s one argument. The counter argument that the Keynesians and their fellow travelers make is that due to marginal propensity to spend, government spending and income redistribution actually increase economic growth.

      I don’t see it based on Japan’s results so far. I think the old closed industrial economy models are out of date.

      It’s really hard to make sure that only the right people benefit from economic growth, so the government redistribution impulse is at odds with the risk taking necessary to drive private sector growth.

      Why mortgage the house to start your own business if you loose all the upside to taxes to fund someone else’s entitlements even if you manage to be successful?

      And I’d argue that this is the result of that sort of thinking and the current incentives:


      • I don’t see it based on Japan’s results so far. I think the old closed industrial economy models are out of date.

        That is point no. one.

        Point no. two is that having run deficits for so long, deficit financing has lost its ability to stimulate. In a Keynesian model, boom = surplus and bust = deficit in a counterbalancing way, but it doesn’t predict what happens when both boom and bust are met with deficits.


  4. PL is a lot more tolerable with certain posters absent for most of the day. It really is one or two people who trash the whole place.


    • i rarely go there anymore…


    • Cons_Frapped? And his various sock puppets? I don’t figure in the trolls, as they mostly post the same thing, over and over again, but don’t stalk and harass the way certain people do, actively trying to chase people away or stop conversations.

      Until the post is Front Paged. Apparently WaPo has a lot of incoherent drunks waiting to share all their numerous opinions on a post, once it hits the front page.


  5. Speaking of PL conversations, anyone have any idea that the percentage of police shootings are for black vs. white suspects, and what the percentage of “wrongful death” type convictions or decisions are made in such cases, white vs. black? Trying to figure that out, as the issue is almost always presented at PL as “if the suspect who was shot was black, he was obviously innocent and, anyway, the police don’t shoot white people, and the cops will get away with it because cops get to shoot innocent black people because their black because of AMERICAN INJUSTICE! And slavery.”

    Found this:

    Which gives a least a few examples of the police shooting white dudes.

    Apparently, the FBI will start keeping real-time statistics in 2017 . . .


    • Love all the commenters calling the guy who wrote the article a bigot and a racist. Humans mystify me. Dude wants less people getting shot. Racism!


      • Balko is the one guy in this country who has been advocating for reforms and knows more about this issue than anyone.


        • But he’s not parroting the “It’s all about racism” mantra, so he’s guilty of heresy.


  6. Mark:

    I’ve gone back and re-read your posts regarding our previous conversation, and I am still trying to get my head around your position. You said:

    As I said, in this case, I would have ruled with the Appellants, for exactly the reason it appears that the trial court did. But had the facts been that the customer was forced to drive 60 mi each way to get medicine I would have ruled consistently and said the religious exception cannot weigh Appellant’s “conscience” so heavily as to dictate someone else’s behavior.

    Let’s put aside for the moment the idea that a failure to stock a certain drug could be deemed to be “dictating someone else’s behavior”, and focus on your agreement with the trial court. The trial court ruled that the requirement to stock and sell the drug rather than provide referrals represented an unconstitutional restriction on the pharmacist’s 1st amendment rights. So if you agree with the trial court’s ruling, you must then agree that the law is an unconstitutional restriction on free exercise.

    Do you agree that it is an unconstitutional restriction on 1st amendment rights?

    I am going to assume, based on the logic above, that your answer is yes, which brings me to the second part, in which you seem to say that if the facts were different, specifically if the failure to stock the drug created a certain degree of inconvenience to potential buyers, then the restriction become constitutional.

    Now, from the point of view of the pharmacist, the nature of the restriction doesn’t change regardless of the inconvenience to potential customers. It is just as much of an imposition on his religious freedom if the next closest pharmacy is 60 miles away as it is if the next closest pharmacy is across the street. Therefore it is not the effect of the law on the target of the restriction, the pharmacist, that transforms it from an unconstitutional to a constitutional restriction. It must, instead, be the effect on the target’s customers that transforms the restrictions from an unconstitutional restriction into a constitutional one.

    So this is what baffles me.

    How is it possible for the relative convenience of obtaining certain drugs to potential customers to transform an unconstitutional restriction of 1st amendment rights into a constitutional restriction of 1st amendment rights? There is only one way I can think of that could do so, and that is if potential customers are deemed to have a right to a certain level of convenience.

    In the absence of such a right, there is nothing to weigh against the pharmacist’s already acknowledged first amendment rights, and those rights must then surely be prevail. But if such a right does exist, then we have a clash between the right to free religious practice and the right to a certain level of convenience in obtaining certain drugs, and it therefore is possible that the latter right could weigh more heavily than, and hence prevail over, the former.

    However, plainly there is no constitutional right to a certain level of convenience in obtaining drugs. (Indeed, there is no constitutional right to get drugs at all…the government routinely puts various restrictions, up to and including outright bans, on all kinds of drugs.). So if a right to a certain level of convenience in obtaining certain drugs exists at all, it can only be a statutory right. Which means that, in order to conclude as you do, you have to believe that a mere statutory right can trump a constitutional right.

    Is this what you believe? If not, where has my analysis gone wrong?


    • Scott –

      Like any law restricting free exercise of of someone’s religion it may well be permissible under the Constitution if other criteria are met. For instances, it may be a criminal law or a public health law that the legislature deems from actual evidence is necessary for public health and safety.

      However, when under a fact situation the free exercise of the religion of a citizen or a lawful resident alien does not actually interfere with the operation of a valid law of general application then an accommodation for that person’s free exercise is generally made.

      Suppose your town in CT adopts a noise ordinance of general application. These ordinances are typically lawful, but sometimes music venues challenge them, claiming commercial damage. Suppose your local Mosque challenged, because its loud call to prayer violated the ordinance and thus limited its free exercise of religion.

      There are, of course, other possible limitations on free exercise of any right, including the free exercise of religion. Do you see the distinction between not permitting a teacher led prayer in a public school while permitting a pastoral prayer at a public HS football game?

      This may hearken back to your view that rights properly understood cannot be in conflict, and mine, that rights must often come into conflict, and are all limited by the effects of the associated conduct. This may be stated in another way. I think no rights are absolute and without definitional exceptions created by circumstances, and over time. You think that a philosophical right, correctly defined, is absolute.


      • Mark:

        You use the phrase “valid law of general application”, but whether or not this law is “valid” is precisely the issue under dispute. One cannot assume that it is valid when trying to determine if it is. You seem to think that any law “of general application” is presumptively “valid”. I don’t think that is a reasonable assumption. As I pointed out the other day, laws of general application can quite easily be designed, deliberately or otherwise, to restrict the freedom of religious exercise.

        In my view, the first question to ask is whether or not the law actually does restrict the freedom of religious exercise. If it does not, then the question ends there. If, however, it does, then since the constitution explicitly says that “congress shall make no law” prohibiting the free exercise of religion, the law must be presumptively unconstitutional, and that presumption can only be altered by particular context or circumstances (or in your terms some “other criteria), such as the existence of a competing right that will remain unprotected in the absence of the law, or some danger to the public at large in the absence of the law, protection against which is precisely why the government exists in the first place.

        In the case at hand, we have a law that does indeed restrict the free exercise of religion. So we must immediately begin with the presumption that the law is “invalid”, and only if we can come up with some “other criteria” that represents a legitimate constitutional reason why this particular restriction on the freedom of exercise must be allowed can we then say that the law is constitutional.

        So in your mind what circumstances or conditions or “other criteria” exists that makes this presumptively unconstitutional restriction on freedom of religion constitutional? Does the law protect some other presumed right (such as a certain level of convenience in accessing drugs) that has greater weight than the right to freedom of religion? Does the public at large face some danger in the absence of the law? What exactly is this “other criteria”?

        On a separate issue, I think it is notable that all of the analogies and examples you present involve a prohibition on action, rather than a prohibition on inaction, as in the case at hand. As I said at the very beginning of this thread, I think there is a significant difference between prohibiting action and compelling it. It is easy to see how a law of “general applicability” which prohibits certain action that might have religious implications for some could be necessary in order to protect others from those actions. It is much more difficult to see how a law of “general applicability” which compels certain actions that might have religious implications for some people could be necessary in order to protect others from those inactions. People do not need to be “protected” from the absence of action, except in extremely rare circumstances like disease contagion.

        Finally, on this:

        This may hearken back to your view that rights properly understood cannot be in conflict, and mine, that rights must often come into conflict, and are all limited by the effects of the associated conduct.

        Perhaps, but I think our disagreement on this is deeper. I draw a distinction between natural rights and legal rights. Legal rights can of course conflict, because they derive from man-made laws and men are capable of passing conflicting laws. However, I do maintain that natural (moral) rights, the inalienable kind that the Founders were talking about in the Declaration, cannot conflict by definition. If they could, then they would not be “inalienable”. And with regard to these natural, moral, inalienable rights, if I understand you from past discussions, you don’t simply think they can conflict, you reject their existence entirely.


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