This will be a brief but hopefully helpful column. For some time, I have been explaining that the new Fed operating framework for monetary policy, in which the FOMC essentially steers interest rates higher by fiat rather than in the traditional method (by managing the supply of funds and therefore the resulting pressure on reserves), is a really bad idea. But in responding to a reader’s post I inadvertently hit on an explanation that may be clearer for some people than my analogy of a doctor manipulating his thermometer to give the right reading from the patient.
Right now, there is a tremendous surplus of reserves above what banks are required to hold or desire to hold. With free markets, this would result in a Fed funds interest rate of zero, or even lower under some circumstances, with a substantial remaining surplus. In this case, the Fed funds effective rate has tended to be in the 10-20bps range since the Fed started paying interest on excess reserves (IOER).
So what happens when there is a floor price established above the market-clearing price? Economics 101 tells us that this results in surplus, with less exchange and higher prices than at equilibrium. Consider a farm-price support program where the government establishes a minimum price for cheese (as it has, actually, in the past). If that price is below the natural market-clearing price, then the floor has no effect. But if the price is above the natural market-clearing price, as in the chart below where the minimum cheese price is set at a, then in the market we will see a quantity of cheese traded equal to b, at a price of a.
But what also happens is that producers respond to the higher price by producing more cheese, which is why the supply curve has the shape it does. In order to keep this excess cheese from pushing market prices lower, the government ends up buying c-b cheese at some expense that ends up being a transfer from government to farmers. It can amount to a lot of cheese. This is the legacy of farm price supports: vast warehouses of products that the government owns but cannot distribute, because to distribute them would push prices lower. So the government ends up distributing them to people who wouldn’t otherwise buy cheese, at a zero price. And eventually, we get the Wikipedia entry “government cheese.” https://en.wikipedia.org/wiki/Government_cheese
Now, this is precisely what has happened with the artificial price support for overnight interest rates. Whatever the clearing interest rate is with the current level of reserves, it is lower than the 0.25% IOER (and we know this, among other ways, because there are excess reserves. If the price floating to the actual clearing price, then there would be no excess reserves, although the mechanism for this result is admittedly more confusing than it is for cheese). So the Federal Reserve is forced to “buy up the surplus reserves” by paying interest on these reserves; this amounts to a transfer from the government to banks, rather than to farmers in the cheese example.
You should realize too that setting the floor rate higher than the market-clearing rate artificially reduces the volume of trade in reserves. The chart below, which comes from this article on the New York Fed’s blog, illustrates this nicely.
Creating such a floor also causes the supply of excess reserves themselves to increase beyond what it would otherwise be. This confusing result derives because while the Fed supplies the total reserves number to the market, banks can choose to create more “excess” reserves by doing less lending, or can create fewer excess reserves by doing more lending. Of course, banks aren’t deciding to create excess reserves per se; they are deciding whether it is more advantageous to make a loan or to earn risk-free money on the excess reserves. A higher floor rate implies less lending, all else equal – and, as I have said in the past, this means the Fed could cause a huge increase in bank lending by setting IOER at a penalty rate. This would create the conditions necessary for these lines to cross in negative nominal interest rate territory, with much higher volumes of credit and much lower levels of excess reserves being the result.
In this environment, and as recognized by the Sack-Gagnon framework that is now the presumed operating framework for Fed policy, raising IOER is the only way to change the overnight interest rates unless the Desk undertakes to shift the entire supply curve heavily to the left, by draining trillions in reserves. But raising IOER, just like raising the floor price of cheese, will create more imbalances: bigger excess reserves, less lending, and a bigger transfer from government to banks.
(Note: this is subtly different from what I have said before, which is that raising IOER will have no effect on the growth rate of the transactional money supply. Depending on the shape of the supply curve, it will reduce lending which in turn may reduce the growth rate of the monetary aggregates that we care about, such as M2. My suspicion is that the supply curve is in fact pretty steep, meaning that banks are relatively insensitive to small changes in rates, and thus loans and hence the monetary aggregates won’t see much change in the rate of growth – or, more likely, any change will be the result of other effects beyond this one such as the effect of general economic prospects on the quality of credits and the demand for loans).
Price supports, as any economist can tell you, are an inefficient way to subsidize an industry. And in fact, I don’t think the Fed is really interested in subsidizing banks at this stage in the cycle: they seem to be doing just fine. But they are taking on all of these imbalances, creating all of this government cheese, because they believe the effects I talk about parenthetically above are quite large, rather than vanishingly small as I believe. And the ancillary effect, by raising interest rates, is to spur money velocity – an unmitigated negative in this environment, as it will push inflation higher.
Now, all of this discussion may be moot since the current betting is that the Fed won’t raise interest rates any time soon. But it is good to understand this mechanism as clearly as we can, so that we can prepare ourselves for those effects when they occur.
 It is really hard to say how low interest rates would go, and/or how much surplus would remain, because we have no idea at all what the supply and demand curves for funds look like at sub-zero rates. Most likely there is a discontinuity at a zero rate, but how much of one and the elasticities of supply and demand below zero are likely to be “weird.”
 In fact, in high school I won an economics prize for my paper “That’s a Lotta Cheese.” No joke.
Yesterday, I mentioned the likelihood that a recession is coming. The indicators for this are mostly from the manufacturing side of the economic ledger, and they are at this point merely suggestive. For example, the ISM Manufacturing Index is at 50.2, below which level we often see deeper downdrafts (see chart, source Bloomberg).
Capacity Utilization, which never got back to the level over 80% that historically worries the Fed about inflation, has been slipping back again (see chart, source Bloomberg).
Now, we have to be a bit careful of these “classic” indicators because of the increased weight of mining and exploration in GDP compared with the last few cycles. A good part of the downturn in Capacity Utilization, I suspect, could be traced to weakness in the oil patch. But at the same time, we cannot blithely dismiss the manufacturing weakness as being “all about oil” in the same way that Clinton supporters once dismissed Oval Office shenanigans as being “all about sex.” Oil matters, in this economy. In fact, I would go so far as to say that while historically a declining oil price was a boon to the nation as a whole (which is why we never suffered much from the Asian Contagion: the plunge in commodity prices tended to support the U.S., which is generally a net consumer of resources), in this cycle low oil prices are probably neutral at best, and may even be contractionary for the country as a whole.
Whether we have a recession in the near term (meaning beginning in the next six months or so) or further in the future, here is one point that is important to make. It will not be a “garden variety” recession, in all likelihood. That is not because we have boomed so much, but because we are levered so much. There are no more “garden variety” recessions.
Financial leverage in an economy, just as in individual businesses, increases economic volatility. So does operational leverage (which means: deploying fixed capital rather than variable inputs such as labor – technology, typically). And our economy has both in spades. The chart below (source: Bloomberg) shows the debt of domestic businesses as a percentage of GDP. Businesses are currently more levered than they were in 2007, both in raw debt figures and as a percentage of GDP.
Investors fearing recession should shift equity allocations (to the extent some equity allocation is retained) to less-levered businesses. But be careful: some investors think of growth companies as being low-leverage but tech companies (for example) in fact have very high operating leverage even if financial leverage is low. Both are bad when earnings decline – and growth firms typically have less of a margin of safety on price. I tried to do a screen on low-debt, low-PE, high-dividend non-tech companies with decent market caps and didn’t find very much. Canon (CAJ), Guess? Inc (GES) to name a couple of examples…and neither of those have low P/E ratios. (I don’t like to invest in individual stocks in any event but I mention these for readers who do – these aren’t recommendations and I neither own them nor plan to, but may be worth some further research if you are looking for names.)
On the plus side, economically-speaking, relatively heavy personal income taxation also acts as an automatic stabilizer. On the minus side, this is less true if the tax system is heavily progressive, since it isn’t the higher-paid employees who tend to be the ones who are laid off (except on Wall Street, where it is currently de rigueur to cut experienced, expensive staff and retain less-experienced, cheaper staff). Back on the plus side, a large welfare system tends to be an automatic stabilizer as well. On the minus side, all of these fiscal stabilizers merely move growth from the future to the present, so the deeper the recession the slower the future growth.
And, of course – there is nothing that central banks can really do about this, unless it is to make policy rates negative to spur additional extension of negative-NPV loans (that is, loans to less-creditworthy borrowers). I am not sure that even our central bank, with its unhealthy fear of the cleansing power of recession, thinks that’s a good idea.
There is some good news, as we brace for this next recession: while overall levels of debt are higher for businesses, financials, and households, the debt burden compared to GDP is lower for households and especially for domestic financial institutions (see chart, source Bloomberg).
Our banks are in relatively good health, compared with their condition headed into the last downturn. So this will not be a calamity, as in 2008. But I don’t expect it to only be a “mild” recession, either – as if any recession ever feels mild to individuals!
The Employment Report on Friday was bad – but it wasn’t the unmitigated disaster that the consensus seems to have spun it into. It is true that there were no bright spots. It is true that the net number of new jobs added was worse than consensus and indeed worse than some of the more pessimistic expectations. But 142k new jobs is not a recessionary collapse (yet). Let us remember that one or two months every year fall below that figure (see chart, source Bloomberg).
Folks, it’s just not a robust recovery and never has been. It has been slow and steady, and now it is probably petering out, but…let’s not jump off the buildings just yet. In fact, one of my favorite indicators during this period while the Unemployment Rate has been falling but the general perception of the employment picture has been poor has been the “Not in labor force, want a job now” series, which shows people who are discouraged enough to not be looking for work, but would take a job if it was offered. As the chart below shows, that number is far above the lows from the last couple of expansions, and so has been a good check on the improvement in the Unemployment Rate. Now, however, we must also recognize that it is near the recent lows.
So not all of the “job market internals” are flashing red. True, none of them are exactly flashing green, either! Nor have they really ever been, in this cycle.
At the same time, it is incredible to me that the ex-Chairman of the Fed is taking a victory lap, claiming in the Wall Street Journal today that his policies led to a non-inflationary decline in the unemployment rate. Surely a professional economist ought to know the difference between correlation and causality. It is absolute madness to claim that the Fed’s policies did nothing for the price level but had a huge effect on the real economy. That is almost exactly opposite of what generations of monetary policy experience teaches us: that monetary policy has almost no effect on real variables but only affects the price level. A more thorough retort will be given in “What’s Wrong with Money?”, which you can pre-order now! (If you prefer, send a note to WWWM@enduringinvestments.com and I will email you when it is published).
The unemployment rate declined for two reasons: the first is that just as no tree grows to the sky, no hole is bottomless. Eventually, even without any intervention at all, the business cycle takes over and recessions end. The second reason in this case is that the federal government ran (and continues to run) massive fiscal deficits, which demonstrably affect near-term growth. Yes, those deficits merely rearrange growth, stealing growth from the future to improve growth today, but if current growth is given by Y=C+I+G+(X-M) there is no way that the Fed can claim what is the biggest contribution over the last few years, percentage-wise. Madness, I say.
Is the economy headed for recession? In all likelihood, yes. But this employment number was not the first nor even the best sign of that possibility.
So now we have all noticed that the Fed eschewed tightening a week and a half ago, and we have digested all of the analysis of the “negative dots” which indicate some member of the Fed projected not just unchanged rates but actually negative rates.
(Incidentally, here is a good article in The Telegraph about Sweden’s negative rate regime. One of the observations worth pondering is that in a cashless society, there is no zero-percent floor on interest rates: normally, rates below zero percent shouldn’t be possible since someone can always earn zero percent by holding cash. Unless there is no cash. That is simultaneously a deep thought and a terrifying thought – if there is no cash, and all of your money is in electronic deposits at financial institutions, then there is no limit to how much you can be robbed of – or in popular financial parlance, no limit to the “financial repression” that can be visited upon you.)
And we have read all of the analysis of Yellen’s coughing spell after she appeared to express a desire to tighten in 2015 anyway, as long as it is later, and as long as – well, you know, as long as things work out. The NY Fed’s Dudley today echoed Dr. Yellen; but Chicago Fed President Evans (father of the eponymous rule) opined that further delay is acceptable and desirable.
In other words, we are just exactly where we usually are. It depends. One of the great imponderables, of course, is “on what does it depend?”
For what it is worth, which to be sure isn’t much, I think the Fed is terrified about that first step. If the Fed tightened and the world didn’t end (and indeed, I don’t think it would end; or, alternatively, judging from the stock market’s behavior recently it may already be ended before that), then I think they would tighten again…and again, and again. And I think they would keep tightening until markets cracked and/or the economy swooned, whereupon they would begin a panicky easing campaign. That is, after all, the record of the last three decades or so.
This is just my opinion, of course (and this is a good place to remind readers both new and old that I endeavor to raise the right issues, and don’t care as much about whether I have the right answers), but I believe if the Fed met today they wouldn’t tighten rates. This isn’t terribly shocking, since we are only eleven days removed from when the Fed last skipped such a step, but the salient point is that nothing about time passing should change the decision. Unless the economy displays more strength, which I doubt it will, or the FOMC abruptly decides to focus on better measures of inflation like Median CPI, which I doubt it will, there is no reason for the Fed to tighten in 2015 just because it happens to be 2015. Ergo, I don’t think the Fed will tighten in 2015.
That being said, I think they will continue to talk about tightening until a short time before they decide to ease. The hurdle to ease may be higher than it was for QE3, but it is still much lower than the hurdle for tightening. But they will talk like hawks because for some reason the Federal Reserve believes that talking about tightening gives them credibility.
Now, there is no reason to actually do any more QE. If the Fed wanted some more stimulus, then the right approach is to do what the “negative dots” imply, and that is to lower the interest paid on excess reserves to a penalty rate. I want to point out that I first wrote about this in 2010 in an article entitled “Being Negative Might Be A Positive.” So it isn’t a new idea. Do I think the Fed will lower IOER to a negative rate? Not really, but either this or another round of QE is likely if the Fed becomes convinced that the economy is turning south. Historically-speaking, of course, the Fed tends to arrive fairly late to that conclusion so I don’t expect QE very soon!
I will give the Fed this much. Although they have historically been lousy forecasters, I think that at least a few of them may be dovish at this moment not just because they are always dovish, but because they believe there is a legitimate reason right now to be dovish. That is, they are afraid that the recent global retreat in equities is not merely a correction from lofty multiples – it is that, at least, of course – but signs of something more fundamentally amiss. Heck, a member of the FOMC suggested in the most-recent “dot plot” that negative policy interest rates may be appropriate this year and next year!
Probably, China scares them quite a bit; I am not sure it should because I think China’s impact is generally exaggerated in terms of its effect on the US, given the relatively small amount of trade that we do with China, but it is reasonable to be concerned about that large economy right now.
The recent plunge in domestic manufacturing indices may also be disconcerting. While many of these are relative indices (are conditions better or worse than they were last month?) rather than absolute indices (how are conditions now, compared to what they were in some fixed base period?), it is difficult to ignore that today the Richmond Fed index dropped to -5 from 0, when +2 was expected, which puts it at the lowest level in a couple of years. Actually, the Richmond Fed Index alone would be quite easy to ignore, but last week’s surprise in Empire Manufacturing (-14.67, versus expectations for a bounce to -0.50) made back-to-back months that were the worst since 2009; the Philly Fed Index fell to -6 when +6 was expected (and -6 is the lowest level since 2012); and both Capacity Utilization and the Michigan Sentiment index have continued their decline from highs set late last year.
At some point, even if these are all small fry, one begins to sense a pattern. Even if one has a Ph.D. in economics and works at the Fed!
So I will give the Fed credit, or perhaps I ought to say the benefit of the doubt, that they are delaying tightening because they perceive weakness on the horizon. I believe that they are likely correct in that. In my view, this does not mean the Fed ought not to tighten but merely means they are so far overdue that they completely missed the opportunity to normalize policy during the expansion and now face another recession with no bullets. Policy still needs to be normalized, but in this case that perhaps means returning rates not to the mid-expansion norm but the recession norm (say, 3% on Fed funds rather than 5% on Fed funds). However, I will give them credit at least for recognizing at last that they are in a box. I wonder how long it will take them to understand that the box is of their own making; that the Fed ought long ago to have led the world’s central banks in raising rates rather than pursuing more and bigger QE to do what monetary policy cannot do well, if at all: buoy real variables.
And I will give credit to Governor Bullard, who is not always perhaps the sharpest knife in the drawer (why is it that whenever I give credit to the Fed it doesn’t sound like a good thing?) but was spot-on when he dissed Jim Cramer on CNBC on Monday. Not that Jim Cramer is the only cheerleader for permanent easing to permanently support equities, but he certainly is a standard-bearer. Bullard said:
“I’ve got a message for your friend Jim Cramer. The Fed cannot permanently raise stock prices. The idea that the Fed is going one way or the other, and this is what’s driving the stock market, is not true. He’s one of the great people at looking at businesses, how good is this business, what’s the profitability of the business, what’s this thing worth? And to have him cheerleading for lower rates 24-hours a day is, I think, unsavory.”
A the least, I can empathize with the Fed’s dilemma. They have missed a whole cycle by over-easing the last time around. Okay, that was all in the past. “Mistakes were made.” So now what? What does the Fed do with growth evidently slowing, but inflation at the target and employment below the target?
What they should do, probably, is tighten with all due haste, but as I said above tighten to what is still an easy policy. The problem, as I have pointed out before, is that (a) this will cause a further acceleration in inflation, by tending to raise money velocity without a corresponding decline in money growth, and (b) there isn’t a chance of them actually doing that. At this point, they may be stuck. Ray Dalio may be right. More QE…more disastrous QE…may be the next step. But let us hope that, having tried and failed by doing too much, our central bankers might attempt to succeed by doing as little as possible.
Administrative Note: For those who missed my appearance on Bloomberg TV’s “What’d You Miss” program last Wednesday, here is a link to my segment: http://bloom.bg/1Jo7DDb Hope you enjoy!
Below is a summary of my post-CPI tweets. You can (and should!) follow me @inflation_guy or sign up for email updates to my occasional articles here. Investors with interests in this area be sure to stop by Enduring Investments. And sign up to receive notice when my book is published! The title of the book is What’s Wrong with Money?: The Biggest Bubble of All – and How to Invest with it in Mind, and if you would like to be on the notification list to receive an email when the book is published, simply send an email to WWWM@enduringinvestments.com.
Also note that I have been invited to be a guest on “What’d You Miss?” today at 4pm ET. Catch it!
- Core CPI +0.1%, but y/y stays at +1.8% as it was a “soft” 0.1%. Specifically 0.07%, weaker than expected.
- Core services remains +2.6%; core goods -0.5% y/y.
- The -0.5% drag in core goods remains about what we can expect from the dollar’s current strength.
- But remember core goods is the smaller part of core inflation (and the more volatile part).
- Bottom line on Fed has been: plenty of argument either way. This number doesn’t affect the argument either way. Doves will be doves.
- No idea if Fed hikes tomorrow, but SHOULD have removed extraordinary accommodation when extraordinary risks were past. Years ago.
- Speaking of housing: Primary rents 3.62% from 3.56%; OER at 3.02% from 3.00%. This acceleration will continue.
- Lodging away from home is a small piece (0.8% of total CPI) but always fascinates me. 1.7% y/y versus 5.7% six months ago.
- Medical care was unch, 2.47% vs 2.49%, but pharmaceuticals was 3.5% vs 3.2% while professional services 1.7% vs 2.1%.
- The weakness in medical care continues to be the main story holding down core vs median, since 2013.
- Motor fuel of course a big drag on headline, but New and used motor vehicles also still weak (a dollar effect): -0.1% vs +0.2%.
- I actually think Median stands a decent chance of an 0.2% month, based on my back-of-the-envelope calculation.
- If I am right, then Median may be at the highest level since the crisis ended. Currently 2.28%; 2012 high was 2.38%.
- We won’t know for a few hours and my calculator doesn’t seasonally adjust the regional housing indexes so don’t take that to the bank.
- But even if median just stays at 2.3%, that’s consistent with PCE inflation being at the Fed’s target.
- Really looking forward to this: On Bloomberg TV at 4pm ET with Joe and Alix.
- Good time to mention my book “What’s Wrong with Money: The Biggest Bubble of All” due out in Feb. Can preorder: http://amzn.to/1YbJT0p
- We don’t even have cover art yet! But the manuscript is done.
- Much more interesting discussion [than OER] is medical care. MUCH harder to measure than OER, because consumers don’t pay for it directly.
- We all know insurance costs are going up, but part of this is a price effect and part is a utilization effect.
- Part of the effect of the ACA is to get people to consume less health care by making them pay for smaller costs directly.
- …of course, that lessens overall welfare since your tradeoffs are worse. But I don’t want to get too ‘inside baseball’ in 140 char.
- BTW, it occurs to me I never mentioned y/y core CPI is 1.83% from 1.80%, so it rose a smidge even though a weak core #.
There wasn’t a lot that was new or different in this figure. Housing continues to be the main strain on consumer budgets, as housing costs continue to rise and, given the rise in housing prices generally, this ought to continue. On the other hand, the main drag to core continues to be in the core goods component, and this ought to continue for a while. However, I don’t believe it will intensify, so for a while core (and more importantly, median) inflation will just creep up gradually. At some point, core goods will revert higher, and at that point core inflation will move with more alacrity. The timing on this appears somewhat far off, however.
That said, two other points need to be made today.
The first point is that the Federal Reserve will either raise rates tomorrow, or they will not, and this number has virtually no bearing on that. This Fed does not care very much about inflation, which is why they focus on a number (core PCE) which is not only the softest of the available series but also currently is very clearly too low based on a number of temporary effects. Core PCE has a lot to recommend it theoretically. But myopic focus on it (and any discussion at all of headline inflation, which is near zero only because of the oil price crash) can only mean that Federal Reserve policymakers are biased to be doves. But we already knew that. Moreover, if the Fed raises rates tomorrow and does it without removing the quantities of excess reserves in the system, they really aren’t doing much. At least, not much that is helpful.
The second point is that the inflation market continues to price dramatically different inflation over the next few years than we are likely to get. Either energy prices are going to continue to crash – in which case buoyant core inflation will still result in low headline inflation, which is what trades in the market – or they are going to stop crashing, in which case inflation expectations are far too low. There is virtually no chance that core inflation declines any time soon. I can make a case that core will only converge to near median, and then go flat, but unless housing collapses suddenly and unexpectedly core inflation is not going lower. (Of course, one-off effects like the medical care effect can still pervert the core numbers from time to time, which is why I focus on median, but this is inherently difficult to forecast and the one-off effects of course might also be in the upward direction).
Whoever is selling stocks these days is really appreciative of those who are pushing the market higher. Thanks to overnight rallies in China and Japan on Tuesday night, US stocks launched higher at the open on Wednesday. Now, neither the modest rally in Shanghai (led by official buying) and the bigger rally in Japan (on Prime Minister Abe’s pledge to cut corporate taxes next year) had the slightest thing to do with items that impact the US, but the rally led a wave that rolled through futures markets around the globe until about seven minutes after traditional stock trading hours opened in New York, when the high of the day was set. The next six-and-a-half hours saw a 440-point decline in the Dow and around 50 in the S&P to a net loss of about 1.4% on the day.
“Gee, thanks!” said the pension fund guys who got to unload stocks about 3% higher than they otherwise would have. Who says the fast money monkeys don’t have salutatory effects?
The clue that today’s rally was not going to be sustained was actually in the energy markets. Prior equity oscillations had been mirrored with quite reasonable fidelity in the last week or two, but this morning energy markets were noticeably flat-to-down. Equities soon joined them.
Now, yesterday I mentioned that real yields are near their highest levels of the last five years, and that nominal yields are essentially in the middle of that range. I didn’t illustrate the latter point; but see below (source: Bloomberg).
So it is clear, to me, where you would rather place your bets in fixed-income: with real yields around 65bps and nominal yields at 2.20, you only want to own nominal bonds if inflation is less than 1.55% for ten years. Note that if inflation is negative, then you do approximately the same with TIPS as with nominal bonds, since in both cases your nominal principal is preserved. So it is a narrow set of circumstances in which you do better owning nominals, and you don’t do much better. On the other hand, there are long tails on the other side: ways that by owning TIPS you will do dramatically better.
I mention this, even though both nominal bonds and TIPS offer poor prospective returns, because it is the time of year when seasonally it is difficult to lose by owning fixed-income. The chart below (source: Bloomberg) shows the average change in nominal 10-year yields over the course of a calendar year for the last 30 years (gold), 10 years (white), and 5 years (red). Note that this isn’t a pure seasonal chart because it doesn’t correct for the average drift over the course of the year, but it suffices to show that buying bonds after the early-September backup has been a good strategy for many years…really, until the last five years, and even then it was a push between mid-Sep and mid-Nov.
So what I want to do in a period of uncertainty, headed into the fourth quarter, is to own TIPS, either outright or via an ETF like TIP. If the market comes unglued, then all interest rates should decline; if the market drops because real growth is weakening, then real rates should fall more than nominal rates (and in any event, owning TIPS gives you the positive tail exposure I mentioned above). If the market turns around and rallies, then energy probably recovers somewhat and this will help TIPS compared to nominals. But in any event, I am reducing risk into a very risky period.