How can buying a 30 year treasury bond at 3.25% be a winner?
MGLICKER
Posts: 7,995 ✭✭✭
I get the money has to go somewhere argument, and certainly their are buckets of it to go around.
We have a fed that for the foreseeable future is bent on hitting a 2-2.5% inflation target. Most of us agree that the real rate is higher than that, maybe even triple that amount. It is a pretty good bet that in the next decade, inflation will not go negative.
The best that you can do then is earn a percent over the advertised cola rate, the worse that you can do is get slaughtered in a continued high inflation environment.
Time to allow rates to normalize.
We have a fed that for the foreseeable future is bent on hitting a 2-2.5% inflation target. Most of us agree that the real rate is higher than that, maybe even triple that amount. It is a pretty good bet that in the next decade, inflation will not go negative.
The best that you can do then is earn a percent over the advertised cola rate, the worse that you can do is get slaughtered in a continued high inflation environment.
Time to allow rates to normalize.
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Comments
It is a pretty good bet that in the next decade, inflation will not go negative.
Inflation is the largest financial bubble ever created.
Knowledge is the enemy of fear
If the 30 year treasury bond goes to 2.5%, it will be one heck of a winner. If it goes to 1.68% or 1.982%, it will be an even bigger bonanza for the bondholder.
That's the "how" it can become a winner.
I'm not saying it couldn't happen, because a lot of improbable things seem to be happening with regularity.
I knew it would happen.
<< <i>If the 30 year treasury bond goes to 2.5%, it will be one heck of a winner. If it goes to 1.68% or 1.982%, it will be an even bigger bonanza for the bondholder. >>
Good point. I was errantly basing my assumption on free market metrics. Those days are long gone.
<< <i>Hmmm. I have to wonder when "those days" ever existed except in economic textbooks. >>
Pre Bernanke.
Pre Davos.
Pre Executive branch holding closed meeting with 19 bankers.
I do not in my lifetime recall the federal reserve holding interest rates at zero. We are into our sixth year of this stupidity.
This link goes back to 1971.
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<< <i>As for interest rates at zero and the long bond at benign levels, thank goodness, otherwise the fiscal stability of this government would blow up pretty much overnight. And while doom and gloomers like yourself would probably be all giddy about that doing the happy dance around your small stash of precious metals, the country and folks like YOU (and everyone) would really be screwed. >>
Make no mistake, the continual kicking of the can down the road will blow up. The consequences of postponing corrective action in 2008-2009 with quick fix delays will be much more serious than the pain of facing the problem head on. Volker demonstrated that the fix (raising interest rates in his case), while painful, was better in the long run.
Natural forces of supply and demand are the best regulators on earth.
<< <i>As for interest rates at zero and the long bond at benign levels, thank goodness, otherwise the fiscal stability of this government would blow up pretty much overnight. And while doom and gloomers like yourself would probably be all giddy about that doing the happy dance around your small stash of precious metals, the country and folks like YOU (and everyone) would really be screwed. >>
Balanced budget through the last 40 years would have prevented this chaos. Instead we elect dolts (on both sides) that have little regard beyond the next election.
Yeah, we will all be screwed when this house of cards crumbles. I have enjoyed a good and prosperous life. Owned a couple small businesses and did not have a boss ruining my life. Always looked forward to Monday morning. How about you baseball?
Tragedy is the under 30 crowd that are trying to get a decent start in life with an economic anchor around their ankle. On the other end of the equation, the older folks that are receiving a negative real return on savings and an annual real decrease in SSI benefits. Guess they deserve it though as they have been voting for the wrong folks longer than the younger citizens.
<< <i>There are clearly A TON of problems today. I'm not disputing that. And it's been a long time in the making and a lot of people deserve blame, including maybe all of us. >>
Agree!
<< <i>There is no "painful" remedy the Fed can take from a monetary standpoint. I only see one viable path out of this mess for the longer term and it has NOTHING to do with letting interest rates rise in the near term. >>
Agree, they started burning those bridges in 2009. A return of Glass-Stegall and a breaking up of anything too big too fail would be a good start. Removing corporate control of economic and political matters would be another.
Natural forces of supply and demand are the best regulators on earth.
<< <i>
<< <i>There is no "painful" remedy the Fed can take from a monetary standpoint. I only see one viable path out of this mess for the longer term and it has NOTHING to do with letting interest rates rise in the near term. >>
Agree, they started burning those bridges in 2009. A return of Glass-Stegall and a breaking up of anything too big too fail would be a good start. Removing corporate control of economic and political matters would be another. >>
Not to mention getting the hell out of the healthcare business, entirely.
I am not holding my breath.
The financial stability of this government is already damaged, don't think it's not. Happy dance? Giddy? What makes you think so? I haven't read a post for a long time by anyone who is hoping that the whole shebang blows up. Where are you getting this from? Try to be a bit more objective here. We know that your bias is stocks. So be it. Nothing wrong with that.
Volker operated in a completely different time. Globalization was still in its relative infancy, and the national debt was not only a much lesser problem, but household debt was at much lower levels. There isn't anyone that can explain whether what Volker did was ideal or detrimental.
Globalization has been to our advantage and now it's turning to our disadvantage because the US is trashing friends left & right, making new adversaries out of old allies and enemies out of formerly neutral players. Lots of plotting & planning going on.
This much we DO KNOW. If interest rates were to rise to more "normal" levels (whatever that may be), and the 10 year bond was at 2.5-3.0 times it's current level, we'd talking about almost $500 billion in extra interest payments. That would further exacerbate every year's deficit, and QUICKLY add additional fuel to the fire (otherwise know as the national debt). I don't see how letting that spiral out of control in such an accelerated fashion is a good thing.
Yeah, we agree on the problem. Why don't you see that a rise in interest rates and money creation to suppress interest rates are exactly the same thing? Either way, it's happening, except that you get the near-term stock market juice (but that's about done as well). Being an accountant, don't you see any impact from the $17.5 trillion (and growing), not to mention the UNFUNDED liabilities that will INEVITABLY be either discounted, defaulted upon, or services cut - as being a MAJOR part of the problems, not just the debt service on $17.5 trillion? Being a CPA, I'd have figured that you knew all of that.
A return of Glass-Stegall and a breaking up of anything too big too fail would be a good start. Removing corporate control of economic and political matters would be another.
Truer words have seldom been said.
Not to mention getting the hell out of the healthcare business, entirely.
Yeah, I'm still waiting for my $2,500 decrease in healthcare costs, instead of the $2,500 INCREASE in healthcare costs that they dumped on me. But I don't belong to a protected class of special people.
I knew it would happen.
<< <i>I'm actually on the other side of that fence. I think the government needs to consolidate as much as it can. >>
The VA!
Obamacare = unholy fascist union of big government & big corporations.
I knew it would happen.
Great that the home and auto buyer can finance at unusually low rates. Forgotten is the reduced spending by retirees that might take a pass on the last luxury car or second home on the golf course.
No sympathy for those guys and of course at 80 they should have been smart enough to toss all their money towards Wall Street, but from a macro sense, we have stolen from Paul to pay Peter.
<< <i> None us can reasonably articulate which path is better, but there is no doubt for the near term that the government is SUBSTANTIALLY better off with these lower rates >>
Is your near term 6 or 7 or 10 years, or longer? This scheme began in 2008.
We have done virtually nothing to get our fiscal house in order. If anything we have skidded in the other direction by placing an expensive, divisive and impossible ACA program on the books. Rather than any real cuts to spending, DC has artificially pumped up the stock market and counting on the capital gain tax dollars. May have been patch in 2013 but not working so well in 2014.
I really do not see how the average American is better off today than in 2008. Worse off as she now owes another $20,000 as her share of the national debt. Anyone entering the work force for the first time, unless she has specific, in demand skills, will be underemployed for perhaps a decade.
Until removed a productive America will not get the needed investment
Natural forces of supply and demand are the best regulators on earth.
My mistake. I kinda agree with you on cash to an extent. At least now, for the time being. But not totally.
If you're in the camp that thinks rates increasing in the near term would somehow solve or improve anything, let alone making them materially worse, then we just disagree on the matter completely. I've shown the simple 2nd grade math that proves my concerns.
Rates. Yeah, let's talk about rates. What you mean by "solving or improving" anything probably doesn't mesh with what I think would solve or improve anything. But for the record, it doesn't solve or improve anything to jerk businesses and individuals around with artificially-fixed rates or anything else. What it does is to screw up investment and forward planning. When you screw up investment and forward planning, you stay out instead of venturing in. Period. Nothing good about rate manipulation, except that it benefits the insiders. Nothing new there.
Your's are just the same old complaining at a generalized level not knowing why.
lol, yeah right. 2nd grade math, funny. My masters in finance and 40 years in business is as valid as your CPA, donch'a think?
None us can reasonably articulate which path is better, but there is no doubt for the near term that the government is SUBSTANTIALLY better off with these lower rates and are still in a position to possibly correct things from a fiscal stability standpoint. IMO, if bond rates were at more historical rates, that "chance" wouldn't exist and the government would already be screwed.
Let me articulate it for you then. These lower rates AREN'T being used to possibly correct anything. What they ARE doing is to allow the government to continue piling EVEN MORE debt on us, INSTEAD of cutting government. Oh God no! Don't EVER cut a government program! Ain't ever gonna happen. Are you kidding me? You don't think we're already screwed?
The higher rates alone would have meant TRILLIONS more debt today (JUST on the interest), and TRILLIONS more going forward and constantly compounding and spiraling out of control. So what I'm saying is that this was the only viable path forward.
You really think that the Budget is at issue? You DO realize that there's MORE than just a few $TRILLIONS in off-budget commitments in addition to the $TRILLIONS in debt, do you not?
Apparently, you give gov.com a lot more credit than I would. Well, at least we've had this little chat.
I knew it would happen.
Considering the massive number of laws on the books and regs that multiply faster than fruitflies, it's impossible to navigate as an individual or as a small business. It's NOT fixable. It's way too far gone. NOT fixable. Too many vested interests and too many career bureaucrats.
All low interest rates do is cause business to continue liquidating. At least higher rates would weed out the loosers and provide some incentives to the innovators. Otherwise, math won't solve the problem. Having a pair might, but nobody does. What we have is a weak dictator, and we certainly don't need a strong one. I don't see the solution. Let me know if you come up with something.
I knew it would happen.
<< <i>I don't see how a higher interest environment solves ANY of the things you so passionately complain about. >>
For one, it puts more spendable income in the pockets of savers. Two, it would have prevented the bubbles in the stock and bond markets.
Mistake to assume that the fed has absolute control of medium and long term rates, though it has appeared so during the Bernanke/Yellen era. Once the bond market collapses, no amount of fed printing will save an economic collapse. 6 years have been wasted.
Accusing those who oppose your views as defeatist confuses those that acknowledge a looming problem with those that choose to bury their heads in the soil.
I'd write more, but have been working hard lately, thx for carrying torch
Liberty: Parent of Science & Industry
<< <i>Interesting conversation... next thing you know, they'll be referring to "baseballville" although that doesn't have quite the same ring to it.
I'd write more, but have been working hard lately, thx for carrying torch >>
The currency of Baseballville!
<< <i>The "spendable income" you refer to is a relative pittance and that only even assumes they actually spend it all, which is VERY unlikely and I would posit that they wouldn't even spend most. >>
You are partially correct, but mostly incorrect. Plenty of retired folks live in Tucson.
Many would return to Northern climates to visit family and avoid the hot desert summers. That has diminished quite a bit as a lot of these folks play it safe and are seeing only a $5000 annual return on their half million dollar nest egg, rather than the $25k that they had anticipated.
Again, had they been in the secret meeting with the economist in chief and his 19 banker buddies, maybe they would have been in on the game and bet on Nasdaq, but they were not and did not.
That is the problem with a rigged system, no matter how falsely benevolent, every winner throws off a loser.
There are a heck of a lot of people on this board secretly hoping it does happen.
At this point I see deflation just as likely as inflation. And whichever occurs first, the other will follow shortly thereafter.
Knowledge is the enemy of fear
I don't think that's the case.
At this point I see deflation just as likely as inflation. And whichever occurs first, the other will follow shortly thereafter.
My opinion is similar.
If you want to have such a defeatist attitude about the country, then so be it. I'd rather we go down fighting than in a state of utter self pity and finger pointing.
I'm not even sure how I would characterize the country today, other than in a state of disbelief and/or denial. Your aire of superiority duly noted.
Interesting conversation... next thing you know, they'll be referring to "baseballville" although that doesn't have quite the same ring to it.
Nah, there's nothing quite like Baleyville. I just had a great class reunion there and I still might move back someday.
how could I have been so blind in my assumptions.
Regardless of what "system" is in place, there will always be winners and losers. What's scaring me is the position you and some others want to take leads us down a path where virtually everyone will be a "loser".
Explain how you are so comfortable with a system that rewards people (on both ends of the economic scale) who game the system, and then punishes hard work with higher taxes. Please explain that. It's not the fact that there are winners and losers, it's the way that they are both treated by "the system" that even you should worry about. Or maybe not. I don't know you.
Obamacare is just icing on the cake, but it's an absolute classic example of the problem. Why are there so many exemptions for a law like obamacare if it's so great? The system does stink, and I don't have to be happy about it. If that's self pity and finger pointing, so be it.
I knew it would happen.
<< <i> I haven't read a post for a long time by anyone who is hoping that the whole shebang blows up.
There are a heck of a lot of people on this board secretly hoping it does happen. >>
And there is at least one publicly warning that it could easily happen, do not think they are one and the same.
While there may be those that hold PMs in hopes of a currency collapse, I believe that most here hold PMs because they see the seeds have been planted that can cause that collapse.
Former Director of the Office of Management and Budget under President Ronald Reagan sums it up best: Wall Street Isn’t Fixed: TBTF Is Alive And More Dangerous Than Ever
Natural forces of supply and demand are the best regulators on earth.
<< <i>With such anecdotal evidence, and Tucson being the population epicenter of this country, how could I have been so blind in my assumptions. >>
It is impossible to debate someone with a polar opposite ideological view of the world. You see the government as the solution to all of the nations and worlds problems and I see it as often being the cause.
Considering the recent problems with the NSA, IRS, HHS, VA and of course the ACA, how much trust and income do you want to put in the folks that run these institutions. Is 40% of your income not enough? Is 60% better? Why not just turn it all over and collect a small by fairly distributed stipend?
Do you trust an ex president that is now worth $200,000,000 even though he was flat broke 13 years ago. Ever wonder who paid off this esteemed leader that was obviously above reproach?
What about an ex fed chief that had the power to create great wealth for one entity while snuffing another all with a couple clicks of a mouse.
He is collecting $250,000 an evening to schmooze with the winners. The losers I suppose don't want to schmooze so much.
My guess is that with your impressive education and successful career, you are playing the devils advocate and just trying to razz those that are a bit more hard line than you. If that is the case, you have suceeded.
If not, I guess this type of backwards logic explains the paucity of leadership in this nation.
Liberty: Parent of Science & Industry
<< <i>I'm sure when it comes to fiscal conservatism, I fall to the right of almost all sane individuals. >>
Oh yeah...your desire for socialized medicine puts you squarely in the Goldwater camp.
of a double post.....
more than once a day...
at most......
I never said that I was comfortable with anything. I stated that under the circumstances of the financial crisis, this is what the government and the Fed were left with. No choice but to do what they did. You constantly talk in vague generalities about how poor people and rich people are somehow getting what is due YOU in some misguided, yet again, self pitying display. It seems YOU are the one with the blatant sense of entitlement. Where is "hard work" being "punished...with higher taxes"??? Could you be more simplistic? And completely misguided quite frankly.
"Explain" what exactly? Put together a coherent thought and I will be happily to explain anything you'd like because you seem to need the help. But don't go on some generic political diatribe as if YOUR take on the world is somehow fact and the world owes you some sort of explanation.
I'll be specific. The prez and Congress are violating our Constitution repeatedly. These are technically criminal acts and a violation of public trust in my opinion. I'm not the one pissing all over. For example, you don't issue 71 separate exemptions by Executive Order to a tax law that unethically gets jammed down people's throats in the first place. That's pissing all over, and it's emblematic of what this is all about. It's a major tax that was sold as a benefit and the purpose was never to provide health care. Go ahead and defend it. Be ridiculous.
More specifics. There have been zero prosecutions of the lenders who falsified documents that allowed unqualified buyers to get in way over their heads and then to default on their own commitments, which is part of the 2008 financial crisis you say that the Fed was left with no options about. The obvious specific fix is to hold the cheaters accountable, from A to Z. You don't just start handing out money to the perpetrators to "fix" the problem. Bill Black assisted in over 2,000 prosecutions from the Savings & Loan debacle during the late '80s. But in this financial crisis - none - zero prosecutions. Do you not get that? Do you see the lawlessness yet? That's the nice way to say "criminal". Whoops, so much for being PC.
Self pity. That's funny. I'm using my own retirement money to support an adult who hasn't yet figured out life herself (and maybe never will), another adult who never could integrate into the real world and exists in a motel room, and a 4 year old kid that deserves better since his deadbeat sperm donor father never gave a passing thought to his existence. These people are the ones I don't mind helping, and what makes me angry is that more than 50% of my earnings are consumed by taxes that get wasted on government crap. It's funny that you'd mistake anger for self-pity. What kind of velvet-lined world do you live in?
Do you actually work for a living or did you get a CPA and finance degree just to manage your trust fund? Your attitude seems to indicate the later. I've worked solid for about 45 years, and the only thing that I feel entitled to is to keep some of my savings for retirement. To be specific, my complaint is that the earnings from my own hard work is being used by the government to fund crap for lazy people who don't work, don't wanna work, ain't ever gonna work, and expect to get free stuff from gov.com. So, have you ever had to work for a living? Just curious.
To be specific, working for what you earn isn't an entitlement and never has been. I don't see why you think so, unless you have absolutely no idea of how things get done or what motivates people. Getting FREE STUFF from someone else's tax contributions IS entitlement. See the difference? Maybe you don't really understand entitlement or work, and in that case I have pity for you. That's not my problem, it's yours.
I've always enjoyed being here, and at this point I'm pretty much done returning your jabs. cya.
I knew it would happen.
<< <i>Maybe this helps explain some of it What a great headline >>
"Grumpy Old Boomers are a big drag on America's Economic Mood"
"This biggest jump in pessimism – to 82% from 64% two years earlier -- came among respondents between ages 50 and 64. Anxiety over the future also surged among those 65 and older, with 86% saying they were less confident over the prospects of younger generations, up from 69% in 2012."
Pessimism doesn't equate to grumpiness. Misleading headline to attack those that do get it. Tow the line or be cast out. Perception is the controlling factor of most all markets. Control the perception and you control the market.
Sorry, but I refuse to buy the false optimism. Put me in the "grumpy" crowd.
Natural forces of supply and demand are the best regulators on earth.
<< <i>Pessimism doesn't equate to grumpiness. Misleading headline to attack those that do get it. Tow the line or be cast out. >>
There are pills to control the grumpiness. Unfortunately there are none that will fix 3 generations of stupid governance.
Best to just eat a big mac, wash it down with 32 ounces of corn syrup flavored Coca Cola, watch TV and let the economy crumble with a vacuous grin on ones face.
I did a long time ago.
The majority of boomers have had it way too easy. They never fought in war or suffered an extended recession. They were benefactors of their own population bubble, massive increases in technological productivity, and the integration of 100s ofillions of new consumers due to the end of the cold war. Advances in medicine have increased their life expectancy by a decade. Now the going gets a little tough and they can't cope.
Knowledge is the enemy of fear
The life expectancy increase is problematic for boomers. They probably hoped to fleece the system then drop dead before they could be held responsible
<< <i>Consider that Medicare will be a HUGE chunk of the fiscal outlays with each passing year, it's imperative that the government get that cost under control. >>
That could and should be done immediately with an elimination of the poorly conceived and executed program. What was meant as a safety net for the old timers is now a free ride for a bunch of 80 year patients that are falling apart and think that a guy in a white coat with a magic wand and a bottle of pills can fix them up and make them dance a jig while singing zip a dee doo dah.
Why the hell do I need to pay for my neighbors health care so that he can buy a Winnebago and zip off to the Salton Sea, while everyone else is busting their keaster to cover their own out of control medical costs as well as the retiree with a low 7 figures in the bank.
That is an old, old concept called Capitalism, baseball. It worked here for a couple of hundred years. It was so good that folks including my grandparents came freely with little more than the clothes on their backs to start a new life where they could work hard, raise a family and prosper.
If you wish to be a Socialist, baseball, there is nothing I can do about that. At least acknowledge that you prefer the Soviet style of life and call it what it is.
Will be enjoying the cool mountain air this weekend. The air is tax free!
<< <i>You just want to complain away that everyone is being stupid. >>
I have never called anyone here stupid, that is your ken.
Actually those that are driving us to a Soviet style Marxist existence are quite intelligent, ruthless and insidious.
At least that is true at the higher level of DC politics, the second and third layers are generally rather simple.
Let's keep the jabs above the belt. Or not…………..
MJ
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
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<< <i>
<< <i>You just want to complain away that everyone is being stupid. >>
I have never called anyone here stupid, that is your ken.
Actually those that are driving us to a Soviet style Marxist existence are quite intelligent, ruthless and insidious.
At least that is true at the higher level of DC politics, the second and third layers are generally rather simple. >>
I'm talking about everyone in government, not here on boards, or even me for that matter. I admit that you are very civil and generally a good guy as far as I can tell.
Justacommeman, no offense taken. I realize that my delivery is, to put it kindly, sometimes blunt. I don't mean to be as harsh as I am sometimes but in the stream of consciousness, I'm just not thinking in a PC manner. I write as it comes and sometimes it comes quickly (no pun intended). At the end of the day, I don't mean any offense to anyone. >>
I'm the same way. Carry on. I was being facetious on the realist comment.
MJ
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
<< <i>What gets lost in the artificially rigged low interest environment is the diminished effect on spending by those that are getting hammered on returns on savings.
Great that the home and auto buyer can finance at unusually low rates. Forgotten is the reduced spending by retirees that might take a pass on the last luxury car or second home on the golf course.
No sympathy for those guys and of course at 80 they should have been smart enough to toss all their money towards Wall Street, but from a macro sense, we have stolen from Paul to pay Peter. >>
At 80 they have been collecting social security a long time ! Most have homes paid for.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
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<< <i>I don't see how a higher interest environment solves ANY of the things you so passionately complain about. >>
For one, it puts more spendable income in the pockets of savers. Two, it would have prevented the bubbles in the stock and bond markets.
Mistake to assume that the fed has absolute control of medium and long term rates, though it has appeared so during the Bernanke/Yellen era. Once the bond market collapses, no amount of fed printing will save an economic collapse. 6 years have been wasted.
Accusing those who oppose your views as defeatist confuses those that acknowledge a looming problem with those that choose to bury their heads in the soil. >>
I haven't buried my head in the soil. I own stocks!
You had your chance to buy bonds when rates were much much higher in late 2008. Also the Meredith Whitney scare drove rates absurdly
higher in fall and late 2011.
MGlicker and JMski52 did you do anything about it? I bought municipal bonds out 10-20 years like crazy!
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i> I haven't read a post for a long time by anyone who is hoping that the whole shebang blows up.
There are a heck of a lot of people on this board secretly hoping it does happen.
At this point I see deflation just as likely as inflation. And whichever occurs first, the other will follow shortly thereafter. >>
My guess is that when the whole shebang does blow up the people on this board waiting for it to happen will not recognize it and will be deer in headlights and won't act.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
MGlicker and JMski52 did you do anything about it? I bought municipal bonds out 10-20 years like crazy!
Congrats on your winning bet! Sorry, but I think paper promises are too risky, these days.
At this point I see deflation just as likely as inflation. And whichever occurs first, the other will follow shortly thereafter. >>
My guess is that when the whole shebang does blow up the people on this board waiting for it to happen will not recognize it and will be deer in headlights and won't act.
I've already been acting for years. Do you think anything is going to blow up?
Here's what I think. I think that Bernanke promised the markets that he wouldn't allow another destructive deflation to take place, as it did in the Great Depression. At the time of Bernanke's remark (and since), the risk of a deflationary implosion was greater than the risk of runaway inflation, so consequently all of the Fed's moves ever since have been geared to combat deflation.
We know why the risk of a deflationary implosion was high - banking defaults - but we can discuss that in a different thread.
In the process of combating a deflationary implosion, the Fed has pumped free tax money (brought forward, as government bonds) onto big bank balance sheets and it may or may not have made a dent - we'll probably never know. All we really know is that the average maturities of gov.com bonds have been pushed further out while the public debt has ballooned from $8 trillion to $17.5 trillion. In my opinion, this isn't very prudent from a management perspective.
We also know that additional huge amounts of public debt are harder to maintain and that they suck more resources out of the system that would otherwise be available to grow the economy and to generate tax revenues. We know that a huge amount of public debt that is manageable at very low rates will absolutely explode if rates rise appreciably. It's a fairly significant problem for the system, in my opinion.
That's all I know. Maybe you know more. When you buy those munis (or any other longterm paper), you are betting that the system framework stays in place, but you are also betting that gov.com can continue to control the game. Who knows? I don't. Nothing is forever, especially when you artificially deviate from the mean (just ask cohodk). Good Luck.
I knew it would happen.
think it will catch on?
Liberty: Parent of Science & Industry
Would the explosion be inflationary or deflationary? What impact would either have on real estate, PM's or stocks respectively?
Knowledge is the enemy of fear
<< <i>You had your chance to buy bonds when rates were much much higher in late 2008. Also the Meredith Whitney scare drove rates absurdly higher in fall and late 2011.
MGlicker and JMski52 did you do anything about it? I bought municipal bonds out 10-20 years like crazy!
Congrats on your winning bet! Sorry, but I think paper promises are too risky, these days.
At this point I see deflation just as likely as inflation. And whichever occurs first, the other will follow shortly thereafter. >>
My guess is that when the whole shebang does blow up the people on this board waiting for it to happen will not recognize it and will be deer in headlights and won't act.
I've already been acting for years. Do you think anything is going to blow up?
Here's what I think. I think that Bernanke promised the markets that he wouldn't allow another destructive deflation to take place, as it did in the Great Depression. At the time of Bernanke's remark (and since), the risk of a deflationary implosion was greater than the risk of runaway inflation, so consequently all of the Fed's moves ever since have been geared to combat deflation.
We know why the risk of a deflationary implosion was high - banking defaults - but we can discuss that in a different thread.
In the process of combating a deflationary implosion, the Fed has pumped free tax money (brought forward, as government bonds) onto big bank balance sheets and it may or may not have made a dent - we'll probably never know. All we really know is that the average maturities of gov.com bonds have been pushed further out while the public debt has ballooned from $8 trillion to $17.5 trillion. In my opinion, this isn't very prudent from a management perspective.
We also know that additional huge amounts of public debt are harder to maintain and that they suck more resources out of the system that would otherwise be available to grow the economy and to generate tax revenues. We know that a huge amount of public debt that is manageable at very low rates will absolutely explode if rates rise appreciably. It's a fairly significant problem for the system, in my opinion.
That's all I know. Maybe you know more. When you buy those munis (or any other longterm paper), you are betting that the system framework stays in place, but you are also betting that gov.com can continue to control the game. Who knows? I don't. Nothing is forever, especially when you artificially deviate from the mean (just ask cohodk). Good Luck. >>
Corporate bonds were a screaming buy in late 08' and early 09' as well. I had clients lock in great rates for years .........
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i>MGlicker and JMski52 did you do anything about it? I bought municipal bonds out 10-20 years like crazy! >>
Been trading bond futures for several years. Quite successfully.
That has little to do with the discussion though. Point is the fed is putting the squeeze on the wrong folks, trying to bail out of several years of poor decision making.
<< <i>At 80 they have been collecting social security a long time ! Most have homes paid for. >>
Or they sold their home, moved to an apartment or assisted living venue and depend on a decent return on their savings. At least a better return than a negative 5-7%.
<< <i>
<< <i>MGlicker and JMski52 did you do anything about it? I bought municipal bonds out 10-20 years like crazy! >>
Been trading bond futures for several years. Quite successfully.
That has little to do with the discussion though. Point is the fed is putting the squeeze on the wrong folks, trying to bail out of several years of poor decision making >>
My point is when you get an opportunity in bonds like we
had in 2008-2009 and late 2011, you should lock in some good long term yields.....
A lot of people did that !
I give away money. I collect money.
I don’t love money . I do love the Lord God.
think it will catch on?
It's fewer characters to type. Why is it cynical? At this point, what difference does it make?
<<We know that a huge amount of public debt that is manageable at very low rates will absolutely explode if rates rise appreciably.>>
Would the explosion be inflationary or deflationary?
Ultimately, I don't believe that we are out of the inflationary cycle because the debt hasn't been managed to the point of the economy being able to spin off enough money to pay the interest. Budget deficits always have to be made up with money creation, so any explosion in the debt servicing requirements will ultimately cause pressure for more and more money creation.
What impact would either have on real estate, PM's or stocks respectively?
Well, the impacts that we've seen thus far are mainly dependent upon where the new money is injected, which is clearly a function of whatever government policy is at the moment. I figure that gold isn't on their favorites list, but real estate and stocks are probably still the most likely beneficiaries. Income-producers, you know.
<<"All we really know is that the average maturities of gov.com bonds have been pushed further out while the public debt has ballooned from $8 trillion to $17.5 trillion.">>
The literal statement obviously speaks for itself but what exactly are you trying to imply by making that statement?
I didn't imply anything about the Fed with that statement, but what it implies is that the increase of debt is becoming harder to manage. Pushing out the average maturity only increases the volatility of the whole debt structure (particularly the long bonds) and consequently it also increases the risk of default. That's my observation.
Corporate bonds were a screaming buy in late 08' and early 09' as well. I had clients lock in great rates for years .........
Congrats again, bidask. What are you going to tell those clients when it reverses? Do you have a hair-trigger on the button, just in case?
Oh, and baseball - I'm not retired and never said that I was. I still work.
I knew it would happen.
<< <i>Your newfound use of "gov.com" is noted. Very hip and cynical.
think it will catch on?
It's fewer characters to type. Why is it cynical? At this point, what difference does it make?
<<We know that a huge amount of public debt that is manageable at very low rates will absolutely explode if rates rise appreciably.>>
Would the explosion be inflationary or deflationary?
Ultimately, I don't believe that we are out of the inflationary cycle because the debt hasn't been managed to the point of the economy being able to spin off enough money to pay the interest. Budget deficits always have to be made up with money creation, so any explosion in the debt servicing requirements will ultimately cause pressure for more and more money creation.
What impact would either have on real estate, PM's or stocks respectively?
Well, the impacts that we've seen thus far are mainly dependent upon where the new money is injected, which is clearly a function of whatever government policy is at the moment. I figure that gold isn't on their favorites list, but real estate and stocks are probably still the most likely beneficiaries. Income-producers, you know.
<<"All we really know is that the average maturities of gov.com bonds have been pushed further out while the public debt has ballooned from $8 trillion to $17.5 trillion.">>
The literal statement obviously speaks for itself but what exactly are you trying to imply by making that statement?
I didn't imply anything about the Fed with that statement, but what it implies is that the increase of debt is becoming harder to manage. Pushing out the average maturity only increases the volatility of the whole debt structure (particularly the long bonds) and consequently it also increases the risk of default. That's my observation.
Corporate bonds were a screaming buy in late 08' and early 09' as well. I had clients lock in great rates for years .........
Congrats again, bidask. What are you going to tell those clients when it reverses? Do you have a hair-trigger on the button, just in case?
Oh, and baseball - I'm not retired and never said that I was. I still work. >>
I will tell them to hold what they have and buy more when it reverses..,...... A lot of people are waiting for rates to meaningfully reverse,
I give away money. I collect money.
I don’t love money . I do love the Lord God.
So, you're going to advise your clients to hang on while their principal evaporates and urge them to buy more low yield bonds while rates are going up? Please clarify.
baseball, you infer that I might be forced to retire, but you really don't know my situation. If I'm forced to retire, it will be me forcing myself to retire.
When you couple the inherently high volatility of longer term debt, government or otherwise - you are also hoping that everything is predictable for the next decade or so. That's your hope, isn't it?
I knew it would happen.