For the past few weeks there has been increasing chatter about bonds being in a bubble. I've put together a few links I think are more insightful on the topic (they also reveal when I stand on the issue):
http://globaleconomicanalysis.blogspot.com/2010/08/question-are-stocks-screaming-buy.html
http://pragcap.com/is-it-time-to-get-out-of-bonds
http://pragcap.com/the-myth-of-the-great-bond-bubble
https://ems.gluskinsheff.net/Articles/Breakfast_with_Dave_081910.pdf
http://www.ritholtz.com/blog/2010/06/on-the-treasury-bubble/
http://behaviouralinvesting.blogspot.com/2010/08/bond-bubble-sterile-debate-on-semantics.html
For a historical perspective, yes, US interest rates have been this low before:
http://www.bespokeinvest.com/thinkbig/2010/8/26/how-low-are-bond-yields-really.html
And no, the world did not end and the US economy did not collapse when rates began to rise.
For those of you screaming that it's different this time! It might well be, we are experiencing a debt deflation environment. And maybe the bond vigilantes will finally arrive at our shores. But more likely, they won't any time soon, if ever. If we're truly at the glue factory, the U.S. is still the best looking horse for investors to bet on. The U.S. is not Greece, or Spain, or Italy, or Portugal, or Ireland, or Mexico, or Brazil, or Argentina. In fact, all of their GDPs combined are only about 50% of the U.S. I'm not saying the U.S. can be complacent on the deficit, but I am saying the U.S. does get to play by a different set of rules than most other countries. For individual players, the world tends to be relative long before it becomes absolute.
And for those of you who think the US yield curve can't possibly flatten even more I encourage you to go look at year over year changes in Japan's yield curve beginning in 1990. In the 1990s the no-brainer, can't miss trade of the decade was shorting the Japanese long bond. Traders are still waiting for that trade to pay off. I'm not saying the US is Japan, but I am saying it is absolutely absurd to take the position it can't happen here.
Where does this leave us? Moderation in all things. Much like this article suggests:
http://advisorperspectives.com/commentaries/oak_081910.php
And when rates do finally start to rise (because, someday, they will), it won't be nearly as damaging as you think. Bond bear markets are not equity bear markets. Read about it here:
http://www.vanguard.com/pdf/icrrol.pdf
Finally, Wayne Whaley has put together how equities perform in different interest rate environments:
http://www.tradersnarrative.com/what-do-rates-rising-from-zero-mean-for-equities-3287.html
Kind of makes you bullish on equities, doesn't it?
Wednesday, September 1, 2010
Thursday, February 11, 2010
Yes, No, Maybe, So, Oh, Yes, No, Ugh, Yeah, Nah.......
There are quotes all over net right now, waaaaaay too many to post, from one government official of a member EU country to, wait for it...... two hours later, another government official from another EU member country to, wait for it...., yet another EU government official all contradicting themselves on what can and cannot legally be done and who's willing to do what in regards to Greece.
As an outside observer, it looks kindergartners trying to agree on pizza toppings.
When I was an undergrad econ student I had to write a position paper on a macro economic topic. I choose the Euro, which was close to becoming a reality, and argued that it would ultimately fail. The paper was written about 10 years ago (the Euro came into circulation about 2 years later on Jan 1, 2002). It seems like such a long time ago, but it is fact very short on the time line organized European history. Modern day European countries have traditional and organizational roots going back to at least the fall of Rome in the 5th century. So, the Euro hasn't even participated in 1% of European history.
The basis of my argument was the countries are fundamentally and in many cases fiercely independent, mistrust each other, have centuries of warring and cheating and lying with each other. They grow up in households where grandpa bad mouths the French, the English, the Germans, the Greeks, etc. It's ingrained in them much the same way we have ingrained biases here in the US. Deep inside most Europeans is a secret desire to see another country fail.
What's going on with Greece, and what's to follow after Greece with other weak EU member countries will be bringing to the table is a huge test that may ultimately prove my paper right.
------- UPDATE TO ABOVE POST --------
Here's a link to what I've seen as the highest ranked EU government official quoted (or in this cause, it's what she didn't say) yet:
http://market-ticker.org/archives/1961-Angela-Merkel-Clanks-When-She-Walks.html
If Germany really refuses to sign on, then it makes me wonder if other entities like the IMF and the US will have to step in. Or maybe Germany only signs on with back door funding from these outside players.
As an outside observer, it looks kindergartners trying to agree on pizza toppings.
When I was an undergrad econ student I had to write a position paper on a macro economic topic. I choose the Euro, which was close to becoming a reality, and argued that it would ultimately fail. The paper was written about 10 years ago (the Euro came into circulation about 2 years later on Jan 1, 2002). It seems like such a long time ago, but it is fact very short on the time line organized European history. Modern day European countries have traditional and organizational roots going back to at least the fall of Rome in the 5th century. So, the Euro hasn't even participated in 1% of European history.
The basis of my argument was the countries are fundamentally and in many cases fiercely independent, mistrust each other, have centuries of warring and cheating and lying with each other. They grow up in households where grandpa bad mouths the French, the English, the Germans, the Greeks, etc. It's ingrained in them much the same way we have ingrained biases here in the US. Deep inside most Europeans is a secret desire to see another country fail.
What's going on with Greece, and what's to follow after Greece with other weak EU member countries will be bringing to the table is a huge test that may ultimately prove my paper right.
------- UPDATE TO ABOVE POST --------
Here's a link to what I've seen as the highest ranked EU government official quoted (or in this cause, it's what she didn't say) yet:
http://market-ticker.org/archives/1961-Angela-Merkel-Clanks-When-She-Walks.html
If Germany really refuses to sign on, then it makes me wonder if other entities like the IMF and the US will have to step in. Or maybe Germany only signs on with back door funding from these outside players.
Tuesday, February 9, 2010
Sovereign Debt Off-Balance Sheet Financing
Came across a Felix Salmon post at Reuters detailing just one financing deal between Greece and GS. Basically, Greece is further in debt then their balance sheet indicates. Apparently this is old hat for countries (examples are given in the post). And this is just one deal. In one country. Who knows how much is really out there.
http://blogs.re
And this is how contagion works....
http://online.wsj.com/article/BT-CO-20100209-718854.html
http://blogs.re
And this is how contagion works....
http://online.wsj.com/article/BT-CO-20100209-718854.html
Because Spending Comes First....
"The burden of government is not measured by how much it taxes, but by how much it spends." - Milton Friedman
Monday, February 8, 2010
U.S.AA.
Faber Says U.S. Would Be Rated Junk if It Were a Company
http://www.bloomberg.com/avp/avp.htm?N=av&T=Faber%20Says%20U.S.%20Would%20Be%20Rated%20Junk%20if%20It%20Were%20a%20Company&clipSRC=mms://media2.bloomberg.com/cache/v9feFJPBWjm0.asf
Geithner Says US Will 'Never' Lose Aaa Debt Rating
http://www.businessweek.com/news/2010-02-08/geithner-says-u-s-will-never-lose-aaa-debt-rating-update1-.html
Anemic growth could threaten US Aaa rating--Moody's
http://www.reuters.com/article/idUSN0317992520100203
Regardless of the doom and gloom, arrogance, and saber rattling presented here it is important to remember this is all a confidence game. As John Mauldin says, "The dollar may be the worst currency in the world, except for all the others." So just keep paying attention to those Treasury auctions. The only exception I'd place on Mauldin's statement, assuming it was given in the context of being able to choose amongst all asset classes, is gold may be better than the dollar.
The problem with gold, though, is it is extremely difficult to value. It pays no dividends, has no cash flows, produces nothing tangible. So how can you assess its true value? The value of gold is only as strong as what the next guy in line is willing pay (or kill) for it. On the plus side, it is tied to no country. Which is why, as history's steamrollers have rolled by, every powerful civilization that has walked the earth has killed, pillaged, and raided for this metal. We all value it. Always have, always will.
http://www.bloomberg.com/avp/avp.htm?N=av&T=Faber%20Says%20U.S.%20Would%20Be%20Rated%20Junk%20if%20It%20Were%20a%20Company&clipSRC=mms://media2.bloomberg.com/cache/v9feFJPBWjm0.asf
Geithner Says US Will 'Never' Lose Aaa Debt Rating
http://www.businessweek.com/news/2010-02-08/geithner-says-u-s-will-never-lose-aaa-debt-rating-update1-.html
Anemic growth could threaten US Aaa rating--Moody's
http://www.reuters.com/article/idUSN0317992520100203
Regardless of the doom and gloom, arrogance, and saber rattling presented here it is important to remember this is all a confidence game. As John Mauldin says, "The dollar may be the worst currency in the world, except for all the others." So just keep paying attention to those Treasury auctions. The only exception I'd place on Mauldin's statement, assuming it was given in the context of being able to choose amongst all asset classes, is gold may be better than the dollar.
The problem with gold, though, is it is extremely difficult to value. It pays no dividends, has no cash flows, produces nothing tangible. So how can you assess its true value? The value of gold is only as strong as what the next guy in line is willing pay (or kill) for it. On the plus side, it is tied to no country. Which is why, as history's steamrollers have rolled by, every powerful civilization that has walked the earth has killed, pillaged, and raided for this metal. We all value it. Always have, always will.
Blog Ground Rules
I have finally reached a point in my life where I think I really know where I stand on enough issues and beliefs that I can write intelligently about most subject matter I've thought about. There are still areas that I am working through or have not considered, and new issues and new information always arise. So I reserve the right to change my mind. I will try to be honest with you and myself as I state my positions and perspectives, and reason my way through them.
I will try to have as few rules as possible regarding my blog, but the right to change a position will be the first rule. The second rule is I will not tolerate hate mongering. Posts are for intelligent discussion of positions, beliefs, ideas, and entertainment. If you absolutely reject the content of a post or a response, then simply state that without personal attacks. Hash it out, but don't kill each other. We don't have to like one another, but we should respect respect one another.
I once worked with guy from England, he had a PhD in physics. Brilliantly smart (some times too smart), highly informed ideas and opinions. Given enough time, this guy could out research and model anybody in the department. When he thought you were completely off your rocker he'd simply say in a sincere British accent, "I fundamentally disagree with you." It's about the nicest, most professional way I've ever heard somebody say, "I think you're an idiot."
What I hope happens is all sides can be respectively considered and heard, to argue and intelligently debate in the hopes of bringing understanding and maybe enlightenment to the subject at hand. Don't tread me or contributors. And, it's OK to agree to disagree.
I once worked with guy from England, he had a PhD in physics. Brilliantly smart (some times too smart), highly informed ideas and opinions. Given enough time, this guy could out research and model anybody in the department. When he thought you were completely off your rocker he'd simply say in a sincere British accent, "I fundamentally disagree with you." It's about the nicest, most professional way I've ever heard somebody say, "I think you're an idiot."
What I hope happens is all sides can be respectively considered and heard, to argue and intelligently debate in the hopes of bringing understanding and maybe enlightenment to the subject at hand. Don't tread me or contributors. And, it's OK to agree to disagree.
One qualifier I'll make to the above stated is beliefs are just beliefs. They are not fact or law, and should not be treated as such. That should be kept in mind by all contributors. You may feel strongly about something, but that does not mean everybody else does and it doesn't have to impact their lives as it impacts your's. Now, start and win a revolution over your beliefs and you've got something.
Other rules may follow... but hopefully not. Oh, lets not forget, there are exceptions to every rule. Lets just try to keep the discussion free, open, and on a higher level than most college freshmen.
Failing is a Great Education
I came across a great quote yesterday:
"The ultimate result of shielding men from the effects of folly is to fill the world with fools." - Herbert Spencer
A Reconing is Coming for Some of Us
I was catching up on some very old email today when I came across this link sent to me, http://www.zerohedge.com/
The following dialog ensued:
ME: Obesity, in all its forms, ultimately leads to a painful premature death.SENDER: Finally, I am starting to hear little statements here and there by elected officials that the status quo cannot be sustained. For example, the newly elected county exec here in Westchester recognizes the insanity of public employee benefits and is trying to get non-union workers to contribute toward their health insurance premiums as a first step.
ME: Meanwhile, organized labor opposed the Obama Health plan because it would have taxed/penalized the gold plated Cadillac plans union members so richly enjoy.
My point in all of this is: if you are a public servant, union member, or recipient of a generous corporate benefit then what you think you have you do not, what has been promised to you will not be there you attempt to claim it, and what you think you are entitled to is unsustainable and no longer deemed acceptable, reasonable, nor responsible by many of your fellow citizens.
I suggest you start saving much more of your income and get comfortable with the fact you are not entitled to much more than the opportunity to survive (much like the rest of us). If I were in your shoes I'd start demanding more freedom of choice in your benefits since those who have made you grand promises have failed you.
This is hilariously ironical......
Mortgage Bankers sells headquarters at a loss
Feb 8 (Reuters) - The U.S. Mortgage Bankers Association (MBA) has agreed to sell its headquarters building in Washington to CoStar Group Inc for a loss, the Wall Street Journal said.
CoStar Group, a commercial real estate data provider, said it had agreed to buy MBA's 10-story headquarters building for $41.3 million, well below $79 million the trade group agreed to pay for it at the peak of the real estate bubble in 2007, the paper said.
The sale price is well short of the $75 million of financing that the industry group got from a group of banks led by PNC Financial Services Group Inc for the purchase, the daily added.
The Mortgage Bankers Association is the national association representing the real estate finance industry, an industry that employs more than 280,000 people.
Friday, January 8, 2010
The Government Is Here To Protect You
I'm just beside myself on this one. Talk about a law rife with potential for unintended consequences....
http://www.npr.org/templates/story/story.php?storyId=122362876
http://www.npr.org/templates/story/story.php?storyId=122362876
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