Prepare for Higher Interest Rates - But When??

[Virgil Showlion]

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VirgilBot TP v0.01 Started Thread Port on 12/24/2010

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[Virgil Showlion]

PoorandUgly
Message #1 - 10/13/10 09:37 PM

Marc Faber sees interest rates going up within three months

Posted on 13 October 2010 with [www.arabianmoney.net/gold-silver/2010/10/13/marc-faber-sees-interest-rates-going-up-within-three-months/#comments] 2 comments from readers

One of the wisest and most trusted investment advisors in the world, Dr Marc Faber says that interest rates will be going up within three months after the bond market passes ·an important inflection point·.

This is exactly the opposite of what the US Federal Reserve is promising, and is bound to turn global financial markets upside down. Higher interest rates will strengthen the dollar rather than weaken it, while the value of bond holdings all over the globe will be decimated.

Stock market impact

Stocks look to be a winner until you consider the impact of higher interest rates on an already weakened global economy, particularly the US, Japan and Europe. For one thing real estate prices will fall sharply and bank balance sheets will be once again seriously impaired. Stock markets will therefore come down. Rising interest rates are not good news for equities.

A rise in the cost of money is the last thing that the US central bank wants to achieve right now. However, interest rates can only be artificially held at record lows for so long. Eventually the weight of new money entering the system becomes too much for it to bear any longer and there is a tipping point for bonds.

Professor Niall Ferguson, the celebrity historian is another leading financial pundit to take this view, and it is no surprise that Dr Marc Faber is also an ardent student of history. For this bond market reaction is nothing new. It has happened many, many times before.

Basically money creation will always eventually overwhelm the very instrument used to create it. The pattern that follows is first a very sharp deflation of real asset prices and then later a hyperinflation of asset prices which in extreme scenarios · like Weimar Germany · requires the issuing of a new currency.

Faber·s usually right

Dr Marc Faber·s track record for calling such major market moves has been outstanding in the decade that he has been known to ArabianMoney. Sometimes he is like the boy in the parable of the emperor with no clothes, and what he says should be blinding obvious but nobody will admit it.

Today the bond market is an obvious bubble. Interest rates are perilously low and this completely distorts the investment world leaving savers with little income. But this sort of financial conjuring trick only works for so long and the saucerer·s plates eventually all come tumbling down.

Then savers get their interest again. Real estate, stocks and bonds take a big hit from higher interest rates. The dollar at first will surge in value, probably depressing precious metal prices too in the process, although they are increasingly just another currency, albeit one that pays no interest.

Fed response

But the Fed response to this crisis will be to learn nothing and print even more money, and that will finally result in runaway inflation. Only then will you want to be invested in stocks to rise with this tide.

This looks like being a very tough phase to be invested in any major asset class so the main advice seems to be to stay liquid, ironically being long the dollar seems the best defense against Fed action specifically designed to weaken the greenback.

But you would want to convert that cash back into real assets like gold, silver, houses and stocks before the great inflation. In any case that is ArabianMoney·s interpretation of how rising interest rates will play out, assuming that Marc Faber is right again.

However, for the record Dr Marc Faber has stock markets correcting in October/November in his latest newsletter and does not see stocks as a good investment now as suggested in an inaccurate Bloomberg report yesterday.

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PoorandUgly
Message #2 - 10/13/10 09:45 PM

I pretty much concur with the thoughts of the aforementioned analysis although not completely. I too still think however, there will be a run of interest rates (as benchmarked, say in the 10 year) to make a low matched and/or superseded by the one in 2008 maybe soon enough before surging upward. I still hold to my January 2011 prediction based on my analysis. But thereafter possibly watch out.

Like I said, simple solution to make your life as pleasant and simple as possible with minimal headaches in this upcoming period is to remain liquid, mobile and flexible, minimizing future entanglements whenever and wherever possible with tax and other public policy. Let's face it: Taxes are the biggest future inflation outcome that gold or nor any other asset class cannot necessarily protect against if not confiscated from if govt so chooses it. The purest future inflation hedge in that case is MOBILITY to protect yourselves and your families. Humans have been practicing this in one form or another for thousands of years due to natural and man made reasons. It is no different this time around.

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neohguy
Message #3 - 10/14/10 11:40 AM



I pretty much agree although I refrain from putting a time frame on events. I had some money in moderate growth bond funds for awhile but they performed like junk bonds on steroids. I got out recently and I think I'm going to sit on my hands for awhile and see what happens. Prechter also agrees with staying liquid and going long the dollar for the time being. He thinks that the bond market is in a huge bubble and people chasing yield may land up losing their principal.

I find it interesting that The Fed was saying mission accomplished just a few months ago is now implementing a rather desperate policy. Even more interesting that the majority of the country isn't aware of it.

This is the first time I've ever seen a buy anything mania. It's going to be interesting the next few years.

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AEKara
Message #4 - 10/14/10 11:51 AM

I find it interesting that The Fed was saying mission accomplished just a few months ago is now implementing a rather desperate policy. Even more interesting that the majority of the country isn't aware of it.

That is why I don't agree with Faber but I am not going to trade on it also. Bottom line the FED knows they can't afford to let interest rates go up so they will monetize everywere they can to keep it from happening. The Price action in Precious Metals is showing us this.

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PoorandUgly
Message #5 - 10/14/10 01:32 PM

I pretty much agree although I refrain from putting a time frame on events.

Timing is a btch. Heavens, many know this all too well.

I find it interesting that The Fed was saying mission accomplished just a few months

Sounds like something some past President said a long time ago back in 2003 only to discover how many years later it was not!!!!!!!!!

Bottom line the FED knows they can't afford to let interest rates go up so they will monetize everywere they can to keep it from happening.

Yes, but I believe the overall markets perceive this can go on indefinately without consequence. They are gravely and financially mistaken imho. To a large extent, pm's are a pure function on this endless "printing" too of course. Including stocks and other financial asset classes shows why all correlations of everything but cash has an r of almost 100%. (r meaning correlation of performance between 2 or more different types of securities.) Usually very rare and it makes diversification all the more futile or powerless as a defense mechanism. All asset markets are inflating as a function of disgraceful, fraudulent, and flawed existence and policy of private central banking in Federal Reserve among other westernized ones. It will cost nations and the public dearly. Hopefully, in the end, we can only hope violent strife of whatever kind is not the ultimate price. Unfortunately, history has shown otherwise.

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sangria
Message #6 - 10/14/10 03:34 PM





People must be treating bonds like stocks then, not planning to hold until maturity. If you're holding until maturity, then you really don't care about the day to day price. One other factor will be whether we see more municipalities default on their bonds. That happens from time to time, but you don't hear much about it.

Trading in bonds - sounds like a contradiction.

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PoorandUgly
Message #7 - 10/14/10 03:43 PM

If you're holding until maturity, then you really don't care about the day to day price.

I agree. The only issue, assuming of course no credit default risk, is that your interest income will be lower relative to interest payments on new coupon issued securities in the future if and when interest rates rise. At end of term, you will recoup principal back at par but possibly forfeiting higher income because the cash was otherwise locked into the older municipals versus in newer higher yielding coupon securities that are issued hence forth. The pundits and elitists refer to this and sell you on the greed/fear of this in what is called "Opportunity Cost".

But as long as you ignore that "envy", then the issue should be moot. And worst case for municipalities if they default, will, if need be, have to be bailed out. If they bailed out AIG and other Wall Street fascist sons of btches, then they have to bail out these guys. Moral hazard is a btch.

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Driftr
Message #8 - 10/14/10 03:47 PM

If you're holding until maturity, then you really don't care about the day to day price.

True for me and mine although as the price starts to fall and the yields start to rise I expect that five years from now I'll be looking back on this years purchases and wondering why I thought 3-3.5% had any chance of keeping me even close to real inflation. Time'll tell. I know it's a risk. I accept it. Should still get where I want to go by the time I want. We'll just see in 10 years if the place I wanted to go was good or if the journey needs to continue. Read as current retirement target may not be end up being enough if inflation really gets a good head of steam.

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Garp
Message #9 - 10/14/10 07:29 PM



Try a bond ladder approach. A CPA from Arthur Anderson taught me this right before they went bankrupt. The idea is to stagger your bonds according to maturity. Get a few that mature in the next year or so, even though they likely will yield less. Then, get some that mature two years out, but pay a higher yield. Likewise, get some with three and four year maturities. This way, even if interest rates skyrocket all you have to do is hold on to your bonds to maturity in order to get back to par. Hmm, I wonder if that CPA is working for the Fed now???

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PoorandUgly
Message #10 - 10/14/10 07:42 PM

I see some confuse this period with say the beginning of the secular bull that started in 1982 which lasted around 25 years (depending on who you talk to) and imho they could not be more wrong. Again it relates to this thread specifically and here is why:

Back in 1982, interest rates were at their historic highs from the 70's under Volker's policy of breaking the back of inflation. They were so high, there was only one direction from there in which they headed which was down providing the beginnings of the cheap credit boom. Also, the baby boomers were then beginning to enter their sweet spot in their careers. So over the next 25 years, you had the perfect recipe of very high interest rates coming in at a nice steady gradual downtrend while baby boomers were emerging in family formation expanding their spending and investment capacity along the way. This is all not withstanding the favorable debt issues we faced with govt, private business and individuals nor the structural issue in speedily declining manufacturing industrial base etc... of then vs. now btw, so I am being conservative.

Now what do we have?? We have back breaking lower than the bottomless pits of hell cost of money with 0% interest rates, baby boomers and others flooding the retirement roles out of their peak productive spending and investment years, and unfavorable debt issues going forward for govt, private business and individuals here. The secular direction in time we go from here is opposite to the secular one we went from 1982 to 2007. It is like a needed eternal duality or yin yang that somehow restores the balance. There is only one direction we go from here opposite to the one starting in 1982.

Sometimes acknowledging the truth is painful and is the right thing to do because the pain is telling us something is wrong and to accept it with at the very least humility and grace, not greed, fraud and inflated denial. How we respond to the dark realities is what makes a champion. Unfortunately, unlike the Greatest Generation, for myself and many others in the generations that followed theirs of which we now rely on this generation to "control" all facets of our lives, I see nothing but losers. And in general, you can take that to the "bank".

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flow5
Message #11 - 10/14/10 08:51 PM

October 2010 Daily Treasury Yield Curve
Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr 10/01/10 0.15 0.16 0.19 0.26 0.42 0.63 1.26 1.90 2.54 3.40 3.71 10/04/10 0.15 0.13 0.19 0.26 0.41 0.62 1.23 1.86 2.50 3.39 3.71 10/05/10 0.14 0.12 0.18 0.25 0.41 0.60 1.21 1.83 2.50 3.41 3.74 10/06/10 0.14 0.13 0.17 0.24 0.38 0.57 1.16 1.77 2.41 3.34 3.67 10/07/10 0.15 0.13 0.17 0.23 0.36 0.54 1.14 1.76 2.41 3.38 3.72 10/08/10 0.14 0.12 0.16 0.21 0.35 0.54 1.11 1.75 2.41 3.39 3.75 10/12/10 0.14 0.13 0.17 0.21 0.37 0.59 1.14 1.77 2.44 3.44 3.80 10/13/10 0.14 0.13 0.18 0.22 0.37 0.57 1.13 1.77 2.46 3.48 3.84 10/14/10 0.15 0.14 0.17 0.22 0.38 0.60 1.18 1.83 2.52 3.54 3.91



The 20 & 30 year rates are already backing up.

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Driftr
Message #12 - 10/14/10 08:58 PM



So are the 2, 3, 5, 7, & 10.



Show me it weekly over the next couple months and I'll believe it's for real this time. If not, it's just a bump in the Uncle Ben highway to QE-infinity.

[Virgil Showlion]

flow5
Message #13 - 10/14/10 08:58 PM

PPI comes in @ + .4% for Sept. Dollar dives. Gold new highs. Can the FED really do QE2 without destroying the markets?

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PoorandUgly
Message #14 - 10/14/10 09:04 PM

They have helped to destroy our economy and are currently destroying the markets. All asset prices as well as commodities are going up as a function of this 0% bound/ QE infinite policy being jawboned and/or continually implemented.

It is ravaging the real bond. That is the bond of trust. So much for one's word is his bond.

Maybe there will be another sit down on Bubblevision entitled "How to restore the trust, Part Infinity". LMAO. Maybe by then the fascist elitists will have finally discovered that there is nothing left to pillage and plunder. Just maybe, but who knows. When is it ever enough?

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decoy409
Message #15 - 10/14/10 09:06 PM

Today the bond market is an obvious bubble. Interest rates are perilously low and this completely distorts the investment world leaving savers with little income. But this sort of financial conjuring trick only works for so long and the saucerer·s plates eventually all come tumbling down.

Professor Niall Ferguson, the celebrity historian is another leading financial pundit to take this view, and it is no surprise that Dr Marc Faber is also an ardent student of history. For this bond market reaction is nothing new. It has happened many, many times before.

Basically money creation will always eventually overwhelm the very instrument used to create it. The pattern that follows is first a very sharp deflation of real asset prices and then later a hyperinflation of asset prices which in extreme scenarios · like Weimar Germany · requires the issuing of a new currency.

You could see the plays before they were happening after it was set off. A fine wine needs to age with time.

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PoorandUgly
Message #16 - 10/14/10 09:13 PM

I think the rate as benchmarked in the 10 year is still set to push lower into 2011. So while right now it backed up to 2.5% or so, this may be temporary and is set to try to go back down imho. This is a short term bet. Over the long term, of course you know what the direction will be.

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sangria
Message #17 - 10/14/10 09:53 PM





PoorandUgly, your post # 7 was very good. I agree, I am offended by the sale of "opportunity cost." It is as offensive as "don't cancel your worst credit cards because your credit score will go down."

It is difficult for me to believe investors respond to this. There are different kinds of investments. Long haul income generating investments are CD's, bonds, T-bills. We own these knowing maybe we'll get tweeked by inflation, but that is never a reason to sell below par. The interest rate on the next bond you buy will be higher. And the return on your stocks will be entirely different too. That's why we own stocks and bonds (and real estate and commodities). Each investment serves a different purpose.

What would be ball-bouncingly funny would be if the Fed hesitated at bailing out failed cities, counties, or states, in the case of bond defaults. That would make for some cranky mayors and governors.

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Veteran_Lender
Message #18 - 10/14/10 09:55 PM

LOL... the "30" just hit 4.19%... lowest since the early 1950s... no one can sell their home so no one will be buying.

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PoorandUgly
Message #19 - 10/14/10 10:19 PM

What would be ball-bouncingly funny would be if the Fed hesitated at bailing out failed cities, counties, or states, in the case of bond defaults. That would make for some cranky mayors and governors.

Cranky mayors and governors would be the least of the problems for the establishment.

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sangria
Message #20 - 10/14/10 10:34 PM





New federal rule: You can sell your home if you can prove you own it.

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dendl
Message #21 - 10/15/10 12:43 AM



If Faber is correct, and he may be, then prepare for rapid and destructive asset deflation. The world will suddenly be dirt poor.

Chad in CO

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PoorandUgly
Message #22 - 10/15/10 01:34 PM

If Faber is correct, and he may be, then prepare for rapid and destructive asset deflation. The world will suddenly be dirt poor.

Or maybe, just maybe, savers and prudent capital allocators will be rewarded once again, god for bid. But we can't have any of that can we? Let's just continue to tie in a permanent knot the bow of chaos and never learning hard lessons in the lending/borrowing markets of real estate and other asset markets rewarding robber barron lenders and reckless borrowers/investors with more easy drug money without the accompanying responsibility or accountability to anyone or anything but themselves risk-free, taxpayer guaranteed. I wish Uncle Ben was my father b/c his message would be "Look son, you see, money does grow on trees. So here, take some of this and start a gang war with all who stand in your way!"

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rovo
Message #23 - 10/15/10 01:41 PM

There is an ETF with the symbol TBT and this ETF is -2X Long Term Treasuries. A rise in TBT indicates a rise in interest rates because rising rates cause bond prices to decline. I'm not advocating a purchase of TBT but by watching the value of TBT you can get a good indication of where interest rates are expected to be heading.

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973beachbum
Message #24 - 10/15/10 01:49 PM

Dr Marc Faber says that interest rates will be going up within three months

Isn't this also the same thing that helped killed the S&L industry in the 80's? In the 80's the S&L's had made mortgage loans with low interest rates for 30 year terms. Then the interest rates went up. The S&L's balance sheets were locked in with these low interest loans that they had made. The deposits that they took in were getting paid a higher interest than the S&L were getting on the loans they had made.

Couldn't this also happen to the banks today? If they keep making mortgages for 30 years at ridiculous rates and interest rates go up then the banks are going to be locked into a losing proposition.

[Virgil Showlion]

Driftr
Message #25 - 10/15/10 02:01 PM

Couldn't this also happen to the banks today? If they keep making mortgages for 30 years at ridiculous rates and interest rates go up then the banks are going to be locked into a losing proposition.

I think today the banks securitize and sell those loans to pension funds so they don't need to worry about rising rates.

Also worth noting that rates may never be 'allowed' to rise again. I remember a couple years ago reading about bond vigilantes and how they'd eventually come out and force the USG to live within its means. Well, it's two years later, the bond bubble has simply gotten bigger, and rather than allow any rise in treasury yields, Ben has decided to buy them himself to devalue my USDs and suppress yields. Will the world allow us to do this forever? Heck if I know, but I suppose we'll find out when it's time to roll the debt over. My guess is the world will slowly their USTs and we'll just keep expanding the Fed balance sheet until we own all our own debt, a gallon of gas actually costs $10, and Mid can go buy a new house for a tube of Eagles, but I am certainly no economist. Just a frustrated saver.

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PoorandUgly
Message #26 - 10/15/10 02:07 PM

Excellent point 973beachbum. However, 1. many lenders are not making loans now to many at these rates now anyway b/c either banks themselves are insolvent with losses on their books and/or demand is not there from job loss/low incomes and/or many would-be proper borrowers do not qualify outright b/c of no collateral, job, etc.... Moreover, it was the dawn of the securitization market/shadow banking system after the S&L crisis that helped solve that problem making the cheap credit, irresponsibly sold off ponzi scheme continue til it exploded in 2007.

Pricing in future risk is not necessarily a bad thing, that is a good thing as Martha Stewart would say. This is the opposite of those times now where it is a foolishly, expensive future solution to continue to add more cheap debt on top of existing bad, unidentified, defaulting existing debt between parties (both lenders and borrowers) to just keep the status quo of the ridiculous game of musical chairs going. Velocity occurs at a rewarding price of capital allocation between responsible parties, not a bailout, tax or guarantee between ones like robber barrons and reckless ones. Doing this inflating game over and over and over again is just insane!! One upon a time, a great man of science named Einstein would have labeled this example as such. And it cannot last imho. So sooner or later we will learn. Question is when and by how hard a lesson is the 64 billion or quadrillion question. Is it 3 months or 3 years? Contrary to above, I believe the 10 year rate will make a run down into 2011 and then that's it.

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973beachbum
Message #27 - 10/15/10 02:40 PM

I think today the banks securitize and sell those loans to pension funds so they don't need to worry about rising rates.

So what happens to those products that will have to go down in value? Not to mention that they were sold in droves to public pensions and such. So when those pension funds value goes down the taxpayer,ME!! , will have to make up the difference between what assets are worth and what their contractual obligations to it's pensioners are.

IMHO I think no matter how this shakes out we, the taxpayers, will be screwed.

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PoorandUgly
Message #28 - 10/15/10 02:49 PM

IMHO I think no matter how this shakes out we, the taxpayers, will be screwed.

Vote with your feet. Pick up and move to where you hopefully don't have to pay the price for others.

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Driftr
Message #29 - 10/15/10 02:54 PM

So what happens to those products that will have to go down in value?

Nothing if they're held to maturity.

Not to mention that they were sold in droves to public pensions and such. So when those pension funds value goes down the taxpayer,ME!! , will have to make up the difference between what assets are worth and what their contractual obligations to it's pensioners are.

People expecting their pension payments to keep up with inflation will be hard hit if all their pension owns are securitized MBSs.

IMHO I think no matter how this shakes out we, the taxpayers, will be screwed.

You're probably right. Something is going to have to give way at some point. Just wish I knew for sure what'll give way or more importantly when it'll give.

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decoy409
Message #30 - 10/15/10 02:56 PM



Sangria, good morning to you! As to your post #6. I do believe things are worse than being told in the BOND market and I am calling it across the board. I believe the BOND market has been held hostage just as the Residential and Commercial property market has been, for the most part silent as to what is actually up. The following is not what I base my thought from but just a little clarification,

Sept.25,2010

States and Cities on the Verge of Bankruptcy

[www.ft.com/cms/s/0/4c563be4-be98-11df-a755-00144feab49a.html] The Financial Times of London (the best sources for news of the American economy are all British) tells us: ·The state of Pennsylvania has stepped in to help its capital city Harrisburg avoid a default by advancing next year·s state aid so that the money can be used to make a $3.3m bond interest payment due this week. On Sunday, Ed Rendell, the governor of Pennsylvania, announced a $4.3m cash transfer and said missing the bond payment was not an option·.Harrisburg·s strains have been closely watched as other US local governments and states struggle to close gaps in their budget amid falling tax revenues in the downturn.

Note that this is just to pay interest. Not to rebuild bridges or provide anything useful like firefighters or sewage treatment or electricity. It·s not even to repay the loan itself. This cash transfer is being done only to pay interest. Harrisburg was recently listed in a Top Ten Declining American Cities article on the Huffington Post. Even liberals are writing it off as a lost cause and basket case.

you sure don't want to let them dowm as the CBO report stated this past spring! Quote from above,

·The state of Pennsylvania has stepped in to help its capital city Harrisburg avoid a default by advancing next year·s state aid so that the money can be used to make a $3.3m bond interest payment due this week.

But the year JUST STARTED! At least states waited a couple months before they took from the up coming new year budget! I don't think one should be paid until the work has been done, but times did change.

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973beachbum
Message #31 - 10/15/10 03:00 PM

Pick up and move to where you hopefully don't have to pay the price for others.

But I don't want to live in South America.

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decoy409
Message #32 - 10/15/10 03:05 PM



973beachbum, maybe we can all live on the Bush property there!



When will interest rates go up? As to #30

Sept.25,2010

States and Cities on the Verge of Bankruptcy



One thing at a time. First HISTORICAL TAXES in the U.S. Jan.1,2010

Let the good folks come up with those first. Give them 45-60 days. Then slap them with VAT tax.



With states already burning up and borrowing more before the new season, why it will be a Grand Picnic Party! Go TAXPAYERS Go!

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PoorandUgly
Message #33 - 10/15/10 03:10 PM

But I don't want to live in South America.

I hear Brazil is not only booming, but their beaches and women are just splendid, especially this time of year.

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decoy409
Message #34 - 10/15/10 03:17 PM



Is it possible that interest rates will not be needed to be raised as when Residential and Commercial dance together and the full power of them is unleashed a STAR is born?

When reserve constraints on banks are removed, it does take the banks time to make new loans. But given sufficient time, they will make enough new loans until they are once again reserve constrained. The expansion of money, given an increase in the monetary base, is inevitable, and will ultimately result in higher inflation and interest rates. In shorter time frames, the expansion of money can also result in higher stock prices, a weaker currency, and increases in commodity prices such as oil and gold.

online.wsj.com/article/SB124458888993599879.html

And we have most certainly have been on the 'Shorter Time Frame.'

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sangria
Message #36 - 10/15/10 03:30 PM





Good morning decoy, you are right. We must save the ta ta's and we must save the bonds. Every municipality knows if they miss an interest payment (not defaulting on the redemption par, just missing one coupon), they will never sell another bond. It's too bad that that kind of investor wisdom doesn't carry over to when General Motors goes public.

[Virgil Showlion]

Driftr
Message #37 - 10/15/10 03:34 PM

It's too bad that that kind of investor wisdom doesn't carry over to when General Motors goes public.

I hope and pray that it does. I know I'll do my part and stay away from anything they could be a part of.

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decoy409
Message #38 - 10/15/10 03:36 PM



Z, there ya go! Hope you feel better now. Tried to get the post in quick before it got burried.



Z, ever hear of 'Theft by Fraud' it's a great one! William Black will explain it to you. Taking money and spending it but not performing the duty in which it's purpose was paid for.

I like to call it raiding cookie jars. Then you get 'Double Jeopardy' to go along with it being charged for the same crime twice (which is illegal in a court of law) however you are the court so just make some new laws to cover the trail of 'Theft by Fraud.'

Now maybe you like paying for it twice but you our outnumbered by those that know once it has been paid it should not be re-collected again and again and again.

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Ž
Message #39 - 10/15/10 04:04 PM



No problem. When I saw that you went back and cited the source and gave the author credit then I deleted my post. I believe you have said that you went to college. I don't know about where you went but in my Literature and Composition courses it was made very clear that plagiarism is wrong.

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decoy409
Message #40 - 10/15/10 04:18 PM



Z, agreed.



Sangria,

Good morning decoy, you are right. We must save the ta ta's and we must save the bonds. Every municipality knows if they miss an interest payment (not defaulting on the redemption par, just missing one coupon), they will never sell another bond. It's too bad that that kind of investor wisdom doesn't carry over to when General Motors goes public.

Saving bonds as well as the rest on the sinking ship? How many life jackets do you think are left? That is if they are using the correct vest for the occupants weight. I see it as a childs vest rated at 50lbs. being put on the 800lb. gorilla.

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973beachbum
Message #41 - 10/15/10 04:33 PM

I hear Brazil is not only booming, but their beaches and women are just splendid, especially this time of year.

Well I do like the beach. And I speak Portuguese, but I'm a girl so the last part really doesn't interest me much.

I have been thinking of moving to DE. Not sure it is near far enough to get away from this mess. I heard of towns in Norway who ended up with sliced and diced parts of the banking mess in their portfolios.

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Driftr
Message #42 - 10/15/10 04:39 PM

If I were going to move the family, Sweden/Norway/Germany would all be great places to live IMO and in that order. Just remember though, if you move to Norway or Sweden, stay away from the lutefisk. It'll put hair on your chest regardless of whether you're male or female.

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sangria
Message #43 - 10/15/10 05:12 PM





Savings bonds will be safe, we've got printing presses to make good on those.

We have a lot of 800 lb. gorillas in Washington, D.C.

We've talked before on these boards about when states will start issuing their own currency. Casinos are way ahead on that one.

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PoorandUgly
Message #44 - 10/15/10 08:39 PM

I have been thinking of moving to DE. Not sure it is near far enough to get away from this mess. I heard of towns in Norway who ended up with sliced and diced parts of the banking mess in their portfolios.

Oh, the home of corporate america. Just be sure before you do that DE doesn't get Michelle O'Donnell has their next Senator. I hear she will wip up a good potion from her witch spells to make that place truly whack a doo.

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PoorandUgly
Message #45 - 10/15/10 08:42 PM

Casinos are way ahead on that one

Yeah, and at least they also know how to deal with degenerate gamblers by NOT BAILING THEM OUT.

BUST!!!!!!!!!!

Marker over hear please!

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sangria
Message #46 - 10/15/10 09:11 PM











"I'm telling you, you got to be careful. The sheriff out here is a real cowboy. Even the cops aren't afraid to bury people in the desert."

---

PoorandUgly
Message #47 - 10/15/10 09:36 PM

Hit me again!!! Yeah, that's right. Keep looking back at him. If you had any heart, you would be out there stealing for a living! Hit me again!!!!!!!

(Sorry I can't help myself.)

---

sangria
Message #48 - 10/15/10 10:40 PM





"Would you mind taking your feet off of the table?"

[Virgil Showlion]

J 453
Message #49 - 10/15/10 11:21 PM



[rds.yahoo.com/_ylt=A0S020y74bhMqQQA6BWJzbkF;_ylu=X3oDMTBqb3U5bmQ4BHBvcwMzOQRzZWMDc3IEdnRpZAM-/SIG=1mq7rebo3/EXP=1287271227/**http%3a//images.search.yahoo.com/images/view%3fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dfree%252Bgovt%252Bmoney%252Bbook%2526b%253D22%2526ni%253D21%2526ei%253DUTF-8%2526xargs%253D0%2526pstart%253D1%2526fr%253Dyfp-t-701%2526fr2%253Dtab-web%26w=480%26h=366%26imgurl=www.zoomilife.com%252Fimages%252FGovernment-Waste.jpg%26rurl=http%253A%252F%252Fwww.bloggersbase.com%252Fpolitics-and-opinions%252Fmore-department-of-energy-loans-and-foibles-tesla-aptera-and-more%252F%26size=32KB%26name=Government-Waste...%26p=free%2bgovt%2bmoney%2bbook%26oid=9fc44879513b0ecd527a3329b84146cb%26fr2=tab-web%26no=39%26tt=20500%26b=22%26ni=21%26sigr=13kftiagr%26sigi=11dmkho2v%26sigb=141tcr806]



Here's your QE 2. Down the same drain as QE1.

---

PoorandUgly
Message #51 - 10/19/10 03:25 PM

One catalyst that may call in this unlimited 0% bound easy money is China itself. They seem to have some control as of today since they raised a benchmark rate of their own. However, I do know that their urban property market is out of control still, especially having seen it myself first hand earlier this past year. If that market should pop unexpectedly and cause cascading problems over there, they may have to call in loans elsewhere (meaning some over here) to cover themselves. Consequently, that could possibly put pressure on our rates to go up. But this is just one possibility that needs further research into timing etc.. Nonetheless, it is important to consider b/c there are so many variables out there that affect us all.

---

PoorandUgly
Message #52 - 10/20/10 01:10 PM

It is rather pathetic to say the least that the markets on Oct. 19 sold off b/c China raised their interest rates a measly .25% over there. Can you just imagine how it will be perceived and/or handled if DOMESTIC interest rates over here go up not only .25% but 1% or 2% +??

Give me a break. This market cannot handle market interest rates at all anymore because of all the hot air in the system and the fascists in Fed, Wall Street, and Washington know it. Pricing money accordingly to starve the beastly sons of btches of capital is a non-starter. Heaven for bid real allocators of capital called savers and law abiding risk takers are rewarded fairly once again.

This whole system gives degenerate gamblers a bad name.

---

PoorandUgly
Message #53 - 11/04/10 05:59 PM

It will be so pathetic when there is a mere rise in interest rates, controllably or not, of just probably 1%-2% in time here in US. The threshold or bar is set so low now, it doesn't take much at all for the real pain to cascade. The effects will be so pathetically puzzling and everyone will be like "What???!!"

LMAO. Don't forget to thank Uncle Ben and Fed and others for that! The blame game will start anew and will make for especially good theatre on tv and all will be saying why, why; why did we allow this? ........... That's the future though. Who cares about that now? Whether that's 3 months or 3 years from now, who cares? Live for the moment, like in 2000 with Time Warner - AOL, internet bubble, 2001 with Greensnore low rates after 9-11, 2002 tech bust, Enron and Worldcom fiasco, 2007 subprime disaster, 2008 JP Morgan Freddie Fannie Washington Mutual and Lehman disasters etc...

Some never learn. Oh well. And the beat goes on and on and on ................ We're resilient damn it!!!!!!!! Please see "record debt, deficits, taxes, foreclosures, unemployment, poverty, joblessness" as synonyms for "resiliency" in your thesaurus class.

---

PoorandUgly
Message #54 - 11/16/10 05:12 PM

The QE 2 in earlier November has fired a shot at the long end of the curve. Since the Fed is not focusing anymore significant purchases on 10 year +, those yields quickly shot up as a consequence. The future is already telling us to stop the reckless borrowing and digging a deeper hole if anything. Cost push inflation expectations let alone the best case scenario of miraculous booming future growth pales in comparison to the best reflection and reason for higher rates - too much existing bad debt in the system! Too much debt comes at a price and that is higher interest rates. It is a long term cleansing process from the last 20-30 years of credit build up at ever lower rates. It was taken for granted in climax fashion at the end. Ironically and depending upon how you look at it, higher borrowing costs will ultimately help correct for better savings, investment and capital allocation instead of profligate past unproductive waste instead.

---

neohguy
Message #55 - 11/16/10 05:50 PM



MI_for_me posted this link on the tsunami thread (#1689). I'm still chuckling a few days later.



[] Quantitative Easing Explained

---

PoorandUgly
Message #56 - 11/16/10 06:00 PM

I know, I saw it too. Any video made like that always makes me laugh regardless of subject.

---

PoorandUgly
Message #57 - 11/18/10 01:47 PM

Bond Vigilantes Ride Again

by Randall W. Forsyth
Wednesday, November 17, 2010

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After real interest rates rise, equities and commodities tumble. Take that, Ben.

The bond vigilantes are back and they've restored some disinflationary order.

Bond yield have shot up in almost unprecedented fashion since the Federal Reserve announced its plan to purchase $600 billion of Treasury securities two weeks ago·precisely the opposite effect the monetary authorities intended from QE2, the second phase of its quantitative easing.

More from [us.lrd.yahoo.com/SIG=118q03ktj/**http%3A//online.barrons.com/home-page] Barrons.com:

· [us.lrd.yahoo.com/SIG=138hrvba9/**http%3A//online.barrons.com/article/SB50001424052970203676504575618641119312522.html%3Fmod=BOL_hps_dc] An Affordable Play for Ford Bulls

· [us.lrd.yahoo.com/SIG=1387glldj/**http%3A//online.barrons.com/article/SB50001424052970204076004575616722748977234.html%3Fmod=BOL_hps_dc] The Technicals on Tech Stocks

· [us.lrd.yahoo.com/SIG=137fvt7nv/**http%3A//online.barrons.com/article/SB50001424052970203676504575618700808695366.html%3Fmod=BOL_da_bt] Are Saks and TJX Priced to Buy?

From a low of 2.48% on Nov. 4, the day after the announcement of launch of QE2 by the Fed, the 10-year note yield began to rise and then shot up in the past week, to a peak of 2.96% Monday, amid a barrage of withering criticism that was largely political in nature.

"The Fed decision drew criticisms from many parties that share little in common, people within the Federal Reserve, the Republicans, the Tea Party, Germans and Chinese," writes Bin Gao, rate strategist for Bank of America Merrill Lynch.

In addition, some 23 luminaries in the political, financial and economic spheres signed a letter calling on Fed Chairman Ben Bernanke to reconsider and discontinue QE2, which appeared as a full-page advertisement in Tuesday's Wall Street Journal. Central-bank officials, clearly back on their heels, were forced to counter these verbal assaults. Both Vice Chairman Janet Yellen and New York Fed President William Dudley in separate interviews denied QE2 would debase the dollar and lead to an unwanted surge in inflation.

Against the backdrop of this uncharacteristic criticism of the U.S. central bank·and equally uncharacteristic defensiveness on the part of the Fed·the bond market had been in virtual freefall. The sharp, nearly-half-point rise in yields translated into steep price losses of 6% for the iShares Barclays 20+ Year Treasury Bond exchange traded fund (NYSEArca: [finance.yahoo.com/q?s=TLT] TLT - [finance.yahoo.com/q/h?s=TLT] News), a popular way to participate in the long end of the market. That would equal to nearly a 700-point drop in the Dow Jones Industrial Average, or 200 points more than the Blue Chip gauge's actual decline from its peak only a week and a half ago.

Yet, for all the inflation hysteria provoked by QE2, the bond market's severe back-up in the past couple of weeks reflected something else all together·a leap in "real" interest rates, that is, the level after deducting expected inflation. This perceptive observation comes from James O'Sullivan, chief economist at MF Global.

The real yield comes from the 10-year Treasury Inflation Protected Securities yield, which has risen even faster than the nominal note's yield. The difference between the TIP and the nominal yield is the "break-even" inflation forecast derived from the market, and that's actually rolled over as the rhetoric about the Fed's policy has heated up.

Tuesday saw a marked reversal. Treasury bonds rallied and yields tumbled amid a sharp sell-off in risk assets, notably stocks and commodities. U.S. equities slid 1.6% while metals prices fell 5% and crude oil dipped 3%. Gold, meanwhile, has lost about $85 an ounce since its peak just last week, to $1335, hardly inflationary action.

So, the long-complacent bond vigilantes appear to have pushed up real yields sufficiently to exert deflationary pressures on equities and commodities and effectively deflated the alleged inflationary effect of QE2. Anybody thinking of trying to pick the bottom in mortgage rates to refinance now may want to rethink their plans.

To be sure, the vigilantes had help, notably the Chinese, which actually face a clear and present inflation problem that will likely result in further interest-rate hikes.

The European sovereign debt crisis cont

---

PoorandUgly
Message #58 - 11/18/10 01:48 PM

The European sovereign debt crisis continues to deepen as the EU appears to be preparing a bailout for Ireland, whether it wants one or not.

Elsewhere, some emerging markets economies are talking about imposing capital controls to contain the upward pressures on their currencies. That would obviate the need for their central banks to sell their currencies and buy dollars to stabilize exchange rates, which would curb the growth of their money supplies.

From the rise in bond yields to the European crisis to the threat of EM capital controls, each disparate development is disinflationary. So, these market forces are thwarting the Fed's expansionary efforts. In other words, Bernanke & Co. seem no match for the bond vigilantes.

---

PoorandUgly
Message #59 - 11/18/10 01:56 PM

Point is, the Fed is not ultimately in control at the end of the day. In the short term and at best intermediate term, you can argue whether to fight the Fed or not. In the long term, the bond vigilantes are in control. The bond market eruption of 2007 which really cascaded things downhill into 2008 can happen all over again at any moment. Thinking endless QE's will inflate everything away to infinity is a pipe dream imho. For many others, I see the side effects all around from many who are just downright arrogant, invincible, if not outright dumb, stupid and reckless, especially since the depths of early 2009. Just like a repeat of the housing bonanza before. Moreover, if it weren't everything being thrown but the kitchen sink at the debt vortex to date, many would have already and many in the future unfortunately will be singing a different tune. It is just a matter of time though. When will we learn? What will it take?? Who knows for sure. Either way, it is all tragic and pathetic. Oh well.

---

PoorandUgly
Message #60 - 11/19/10 08:30 PM

Excerpt from a Wall Street Journal Article of today:

When bonds fall, yields rise. Higher yields are bad for stocks as well as bonds. Why? First, they make it more expensive for companies to borrow money. That's a cost borne by equity holders. Second, they make bonds more attractive, putting pressure on stocks. And third, higher interest rates make future profits less valuable in present day terms. What should you do? Be aware that there is a distinct chance we could be in for some serious turbulence. This is not a prediction, but a caution. Could you handle it? In these circumstances I would only want to hold assets in which I had plenty of faith. There is always the risk you may need it.

What trend do you want to bet on for the next 20+ years? Same as the last 20 where interest rates had long trending decline. Can it go much lower than zero bound? For how long will it stay here? You can only stretch a rubber band out for so long before it eventually snaps.

[Virgil Showlion]

PoorandUgly
Message #61 - 11/19/10 10:04 PM

Why Rising Yields Are a Concern for a Precious Metals Investor

By [www.minyanville.com/gazette/bios.htm?bio=319] Jeb Handwerger Nov 19, 2010 3:30 pm

Rising interest rates have a direct influence on corporate profits and prices of commodities and equities.

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PoorandUgly
Message #62 - 11/19/10 10:05 PM

Every precious metals investor should be concerned about China, one of the world's fastest growing [www.minyanville.com/businessmarkets/articles/gold-precious-metals-silver-qe2-quantitative/11/19/2010/id/31261?camp=syndication&medium=portals&from=yahoo#] economies, raising its rates and rising yields. Changes in the rates affect stock prices. China is leading the world and we can see the fears are profound as sell-offs this week were much stronger than any of the relief rallies. If China·s market corrects then the commodity market, which was fueling the equity market, could experience a severe correction. It's a domino effect.

Despite the Fed·s enthusiastic plan to monetize debt and artificially keep interest rates low through bond purchases, yields have risen aggressively for the last 13 weeks. The QE2 program was designed to lower interest rates to improve borrowing and liquidity. Instead the opposite occurred, QE2 is initiating higher borrowing costs. I don·t believe it is coincidence that Ireland·s debt problems surfaced following QE2. (See also [www.minyanville.com/businessmarkets/articles/ireland-economy-ireland-bailout-debt-crisis/11/19/2010/id/31195] The Week in Ireland's Debt Crisis.) China is now on the verge of raising rates to combat imported cheap dollars to bid up Chinese assets, which is putting pressure on markets globally. Rising rates kills [www.minyanville.com/businessmarkets/articles/gold-precious-metals-silver-qe2-quantitative/11/19/2010/id/31261?camp=syndication&medium=portals&from=yahoo#] equity and commodity markets, which are heavily built on margin borrowing.The Long Term Treasury [www.minyanville.com/businessmarkets/articles/gold-precious-metals-silver-qe2-quantitative/11/19/2010/id/31261?camp=syndication&medium=portals&from=yahoo#] ETF ([finance.minyanville.com/minyanville?Page=QUOTE&Ticker=TLT] TLT) broke through the trend it had from May until the end of August. This previous trend was largely a result of a deflationary crisis where investors ran from risky assets like the euro to the dollar, and long-term Treasuries were pushing yields to ridiculously low levels. As fear in the markets decreased, due to a temporary stabilization in Europe and the US, investors ran to equities and [www.minyanville.com/businessmarkets/articles/gold-precious-metals-silver-qe2-quantitative/11/19/2010/id/31261?camp=syndication&medium=portals&from=yahoo#] commodities.

International reaction to QE2 has not been positive. There is an increased risk of emerging markets combating inflation, which may slow down the global recovery. Fears of China and emerging markets raising rates make investors unsure where to turn.

Asset classes have reacted negatively to China·s expected move. Distribution is apparent through many sectors and many international markets. Rising interest rates have a direct influence on corporate profits and prices of commodities and equities.

When studying interest rates it's not the level that is important, it's the rate of change. Interest rates have had a dramatic increase these past two months and we may see that affecting the fundamentals in the economy shortly.

The recent downgrade on US debt from China, who is our largest creditor, signals demand for US debt has been waning. I·ve been highlighting the decline in long-term Treasuries since the end of August. This rise in interest rates puts further pressure on the recovery as the cost of borrowing increases. Economic conditions are worsening in Europe and emerging markets in reaction to quantitative easing and imported inflation. Concerns of sovereign debt issues are weighing in Europe. As yields rise so do defaults and margin calls. (Also read [www.minyanville.com/businessmarkets/articles/liquidity-sovereign-debt-equities-financial-bubble/11/18/2010/id/31211] Will the "Bowl of Liquidity" Flow From Sovereign Debt Into Equities?)

If the 200-day is unable to hold the bond decline and we continue to collapse, then rising interest rates could negatively affect the [www.minyanville.com/businessmarkets/articles/gold-precious-metals-silver-qe2-quantitative/11/19/2010/id/31261?camp=syndication&medium=portals&from=yahoo#] economic recovery. Borrowing costs to insure government debt are reaching record levels internationally. Ireland is expected to take a bailout. Greece, Spain, and Portugal are in danger as well.

Commodities have significantly moved higher along with the equity market for September and October as investors left Treasuries to return to risky assets due to the fear of debt monetization through QE2. Global equity markets have been rising. But the question is, how long? This makes investors reluctant to take on debt, which is the exact opposite of what the Fed·s goals were. Rising yields could lead to a liquidity trap and deflationary pressures.

---

PoorandUgly
Message #63 - 11/19/10 10:09 PM

Interest rates have had a dramatic increase these past two months and we may see that affecting the fundamentals in the economy shortly.

If the long end of the curve did not even go up no more than .75 basis points at most from such low levels (granted that can be considered a sharp change in short order), imagine what the repercussions could be when it goes up by larger amounts from higher levels in the future!

It is pathetic and sad what is going on from these levels with these changes. Good god.

---

PoorandUgly
Message #64 - 12/08/10 06:37 PM

Bond Vigilantes May Thwart Tax Deal

by Randall W. Forsyth
Wednesday, December 8, 2010

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Higher interest rates could offset effect of proposed fiscal measures.

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The biggest losers in President Obama's deal with the Republican on taxes aren't the Democrats. It's the bond market.

Yields soared in the wake of the plan that will add upwards of $900 billion to the federal deficit, sending bond prices tumbling, especially in the municipal market.

The question then might be asked if higher borrowing costs, especially for the beleaguered state and local government sector and housing market, will offset the thrust from fiscal policy.

Notwithstanding how it was being played in the media, there was no "extension of the Bush tax cuts" in the deal made by Obama with Congressional Republicans. The tax-rate increases slated to take effect on Jan. 1 were staved off for two years, as most forecasters had assumed would happen. So, no surprise there.

For investors, the favorable 15% tax rates for long-term capital gains and qualified dividends also were extended. In addition, the proposed bipartisan calls for the estate tax to resume at 35% with a $5 million exclusion on Jan. 1, instead of the 55% rate on estates over $1 million, as current law calls for.

The other key parts of the deal were a one-year, two-percentage-point reduction in Social Security withholding taxes (FICA on your pay stub) and a 13-month extension of emergency unemployment benefits. Both are designed to spur the economy by increasing the tax-home pay of those who work and maintain spending by those who aren't.

But it's unlikely to help solve that crucial economic problem. Extending jobless benefits pays people to be unemployed, so more of them will be, all else being equal. Nomura chief U.S. economist David Resler estimates the jobless rate may be a full percentage point higher than what it would be absent the long-term benefits, according to a Bloomberg interview. Also, the FICA reduction affects the employee's portion, not the employer's share. Had this cost to employers been reduced, they would have more incentive to hire. So, it's likely that these proposals will fall short of spurring employment.

What is certain is that the tax proposals is the federal budget deficit will be higher than previous estimates, most of which assumed that the current tax rates would continue and the scheduled increases would not be imposed while joblessness hovered near 10%. JP Morgan's economists project a $1.5 trillion shortfall for the current fiscal year, up from their previous $1.2 trillion forecast. For fiscal 2012, their projection is up to $1.2 trillion, from $1.1 trillion, as the two-point-cut in payroll taxes is reversed.

Economists reckon the tax package will add one-half to a full percentage point to real growth in 2011, with estimates now falling in the 3%-4% range. The better growth prospects from the fiscal proposals reduce the chances the Federal Reserve will purchase more than the $600 billion in Treasuries it currently plans; indeed, the central bank could buy less if the economy picks up.

The potential for the Treasury to sell more securities to fund the larger deficit, plus the likelihood that the Fed could buy fewer notes, in more robustly growing economy sent yields soaring. The benchmark 10-year Treasury's yield jumped 24 basis points (hundredths of a percentage point), to 3.17%, a five-month; its price fell nearly two points, or $20 per $1,000 note.

Conversely, one of the day's big winners was the ProShares UltraShort 20+ Year Treasury fund (TBT), an exchange-traded fund that provides two times the inverse of the daily return of the long end of the Treasury market, which gained 4% on more than twice its daily average volume.

Especially hard hit again was the municipal marke

---

PoorandUgly
Message #65 - 12/08/10 06:39 PM

Especially hard hit again was the municipal market, which suffered from an omission from the tax deal · the expected extension of the Build America Bond program, which expires at year-end. BABs are taxable securities issued by state and local governments that receive a 35% federal interest subsidy.

In the 19 months since the program started, some $164 billion of BABs has been issued, according to the Bond Buyer. BABs had siphoned that new-issue supply from the traditional market of tax-exempt muni bonds, thus bolstering their prices and lowering their yields. That prop will be removed after Jan. 1, which sent muni prices tumbling Tuesday.

The BABs program had proven to be an inefficient and costly subsidy for the federal government. Over the next 30 years, Washington may pay out upwards of $100 billion of interest subsidies on BABs. The original cost probably assumed taxes paid on the BABs' interest payments would offset the cost of the subsidies. But the bulk of BABs were purchased by investors who don't render taxes unto the Treasury · retirement funds, endowments and foreign holders.

Traditional tax-free triple-A munis yielded 4.60% Tuesday, up sharply from 4.48% a day earlier, according to Ken Woods, head of Asset Preservation Advisors in Atlanta. That compares with 4.39% on a federally taxable 30-year Treasury. To a taxable investor in a combined 40% federal and state tax bracket, a 4.60% fully tax-free yield is equivalent to a 7.67% taxable yield · significantly higher than medium-grade corporates.

Tax-free yields of 7% and more again became available from leveraged closed-end muni funds, the most aggressive vehicle for participating in the sector. That's equivalent to an 11.67% taxable yield for an investor in a 40% bracket · vastly higher than junk corporates and greater than the historic return from riskier equities, and more than commensurate with the risks posed by the widely publicized pension-fund deficits in states such as Illinois and California.

The sharp rise in bond yields potentially could blunt the impact of the fiscal thrust from the tentative bipartisan tax deal. The 10-year Treasury yield is up a sharp 70 basis points, which is likely to push a 30-year fixed-rate conventional mortgage back toward 5% from 4.67%. Historically low mortgage rates did little to stimulate housing, and refinancings have slowed already.

States and localities, already reeling under budget pressures, hardly need higher borrowing costs. Every basis point rise in Treasury yields also translates into real bucks with trillion-dollar-plus deficits. Only corporations, which already having taken advantage of ultra-low borrowing costs and are flush with cash anyway, would be immune from an uptick in bond yields.

Perhaps the deadening effect of rising bond yields is what took the winds out of the stock market's sails Tuesday. The major averages had been up nearly 1% early in the session but gave back those gains as the fixed-income sector sank.

The bond vigilantes may undo some of what Obama and Congressional leaders have tried to accomplish.

---

PoorandUgly
Message #66 - 12/08/10 06:55 PM

Money is not free forever nor can we print forever (unless there are enough trees) nor QE's can go on forever either. There are CONSEQUENCES TO BE HAD. What did your parents always used to say? Look son, money doesn't grow on trees. (Unless you had Uncle Ben for a father, LMAO.) The article above is giving us a taste of the COST OF MONEY.

The Fed is trying to get the Treasury its money before the good get going. Again, dual mandate is crapola. Discussion is a waste of time. As for corporations, they borrowed a lot already while it was cheap too. That is why pundits keep touting that in general corporations have $2 Trillion "cash" on their balance sheets. They got in while the getting is good too. But borrowing money in time should only get more expensive for everybody else. Perversely and a silver lining in all this is price of money SHOULD go up to STOP THE RECKLESS BORROWING AND CONTINUE THE ULTIMATE DELEVERAGING PROCESS OF EXCESSIVE BAD DEBTS OUT THERE.

The remnants of free markets are calling on their what I like to call "self defense" mechanisms. Think of a baby who drinks too much milk. What happens next? The baby gags, chokes and cries to get the excess out. On the other hand, madly putting the bottle of milk back in the baby's mouth to drink on will KILL HER/HIM!!!!!!!! It is not rocket science folks!

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PoorandUgly
Message #67 - 12/08/10 07:02 PM

States and localities, already reeling under budget pressures, hardly need higher borrowing costs. Every basis point rise in Treasury yields also translates into real bucks with trillion-dollar-plus deficits. Only corporations, which already having taken advantage of ultra-low borrowing costs and are flush with cash anyway, would be immune from an uptick in bond yields.

Wall Street, Treasury and big Corporations have been using the Fed to get money cheaply BEFORE the inevitable. This charade can continue for only so long at great cost to everyone else. How sad many others are blinded by this in one way or another let alone advocate for greater deficits to continue to support such status quo madness still going forward!!!!!!!!! It is beyond belief that true conservatives have no problem letting $700 - $900 billion be added to our already dealthy sick deficits oblivious to any ramifications otherwise. PAID FOR MY ARSE!!!!!!!!!!

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PoorandUgly
Message #68 - 12/09/10 02:55 PM

I don't know about anyone else but when the yield or interest rate as benchmarked on the 10 year moved about 35 basis points from 2.95% to 3.3% in only 2-3 days, that made me go WOW.

It seems like no great shakes to many out there. Just like a Twilight Zone episode, it will only hit many and be understood by most in the end or in time.

I think I have an idea what is going to happen if and when there is another QE in the next cycle if possible.

Good luck.

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neohguy
Message #69 - 12/09/10 08:36 PM



articles.moneycentral.msn.com/Banking/HomeFinancing/news.aspx?feed=AP&date=20101209&id=12496555 Mortgage rates hit 4.61 pct.; refi's could slow

NEW YORK (AP) - Rates on fixed mortgages rose for the fourth straight week this week. The surge could slow refinancings and further hamper the housing market.....

The 30-year rate rose to 4.61 percent from 4.46 percent last week. That is well above the 4.17 percent rate hit a month ago · the lowest level on records dating back to 1971.

The average rate on a 15-year fixed loan, a popular refinance option, rose to 3.96 percent. Rates hit 3.57 percent last month · the lowest level since 1991.....

Rising mortgage rates are chilling the market for refinancing, especially among those who were seeing rates fall a few weeks ago and thought they might get a better deal. Refinance activity fell for the fourth straight week last week, according to the Mortgage Bankers Association.

"Our business has been cut by 30 percent in four weeks," said Michael Moskowitz, president of Equity Now, a direct mortgage lender in New York.....Low mortgage rates did little to boost the struggling housing market. However, the increase in rates may have convinced some homebuyers who were waffling to go ahead and make a move.....Mortgage brokers and real estate agents agree that a sustained rise in mortgage rates eventually will sideline potential buyers who started to think of historically low rates as a given.....

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PoorandUgly
Message #70 - 12/09/10 08:48 PM

A rising trend in interest rates, sustained and especially from rock bottom levels is not only bad for bonds, but stocks and home prices too in general.

As far as home prices go, for a given amount of total loan afforded for credit worthy homebuyers (however few are remaining now), if rates rise, home buyers will have to ask for more concessions and lower home prices than what they are now getting from existing sellers to afford the same house at monthly mortgage payment for financing the purchase. OR the buyer will have to downgrade to new lower affordable priced home with a totally new home seller and start over simply because the buyer can only afford so much per month given his/her total available loan given to him.

In other words, a $200K home that is matched with a buyer where rate is 4% on mortgages on a $150K loan will have to ask for a lower purchase price on deal if rate on mortgage goes to 5.5 or 6% etc...for same $150K loan. Combined with record inventory existing and excess new shadow inventory eventually coming on stream in conjuction with lack of demand from unemployment etc..., rising rates will be the straw that breaks the camels back.

Granted as one or so others have mentioned, it is true that there could be a new QE to suspend reality in other financial areas. I wouldn't be at all surprised if it is to specifically address this suspension as well. It will only exacerbate things however. BUT THEN AGAIN WHAT ELSE IS NEW?

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neohguy
Message #71 - 12/09/10 09:24 PM



We are definitely living in a period that only occurs every couple of generations concerning home prices. I've been actively looking at residential real estate in my area and am still astounded by the spread in asking price of conventional prices vs financially distressed prices. In Akron, the spread is often 40%-50% or more. I was hesitant on revealing this because the nation wide average is only 32%. I felt somewhat relieved (in believing my observations) when MSN had an article yesterday that said Ohio was 50% or more.

Another observation. Many of the homes for sale, conventional or other wise, were built between 1923-1930. Very few homes were built from 1930-1946. 1930's because of the depression, first half of the 1940's because of war. It's for this reason I'm not buying them left and right. A housing slump can go on longer than what most of us have experienced.

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neohguy
Message #72 - 12/09/10 09:35 PM



This house being offered for sale in the inner ring suburb of Akron (Barberton) for 35k did not look bad from the outside. It would have sold for 75k-80k 6yrs ago.

mls.neohrex.com/scripts/mgrqispi.dll?APPNAME=neohrex&PRGNAME=MLSPropertyDetail $34,900 2 1 (1 0) 1376 0.090 ac (Publ Record Manual) 1925 SingFm 12/9/2010

Beds: 2

Baths: 1 (1 0) (FH)

Sq Ft: 1376

Lot Sz: 0.090ac

Great cape cod with a front porch, an enclosed rear porch, a detached 2 car garage, hardwood flooring and a knotty pine interior on the 2nd floor.

Property Details Style Cape Cod Basement Detail Full, Unfinished Exterior Aluminum Roof Asphalt/Fiberglass Fences Chain Link, Garage Features Detached, Door Opener Driveway Paved Exterior Features Enclosed Patio/Porch, Porch Water/Sewer Public Water, Public Sewer Heating Type Forced Air Heating Fuel Gas Cooling Central Air

[Virgil Showlion]

PoorandUgly
Message #73 - 12/13/10 02:45 PM

It seems, Neo, in your neck of the woods, at some point, can Ohio prices eventually get to Detroit, Michigan levels?

You see where interest rate as benchmarked in 10 year is now 3.35%!!

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PoorandUgly
Message #74 - 12/13/10 03:07 PM

All companies and hence publicly listed ones (equities) in addition to bonds and other securities and "assets" like homes (or liabilities depending on who you talk to) are governed by earnings and income. Sure.

But just like it is all location, location, location, at the end of the day, all of these securities and asset's earnings activity, in general, hence valuations, are fundamentally affected by its top ruler of interest rates, interest rates, and more interest rates. This is a fact.

Uncle Ben knows this. Valuations assuming NON 0% based historical level of interest rates (not taking into account change therein from such bottom basement levels where we currently are!!!) is RIDICULOUS. No one wants to acknowledge this. The consensus is a joke that is biding time. Cool let it go on for however much longer.

Rally on!!!!!!!!!!!!!!!!

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neohguy
Message #75 - 12/13/10 03:59 PM

It seems, Neo, in your neck of the woods, at some point, can Ohio prices eventually get to Detroit, Michigan levels?

My hometown Cleveland, has been confiscating abandoned property that is not being maintained and demolishing them. I wouldn't be surprised if the bank owned ones are still on the books at full value and being sold to reit's. My present home Akron also seizes abandoned homes. They try to sell the decent structures. The blighted ones are scheduled for demolition.

Both cities have been experiencing negative population growth so getting rid of the poor quality stuff is not a bad idea imo.

The Cleveland Fed has actively been encouraging cities to discourage speculators that want to buy vacant land or blighted properties with no intention of making improvements. There are some regional incentives for private owner/occupiers to buy sound structures that may need some repair by providing low down payment loans. Many of these properties in older neighborhoods (Akron) have an asking price of 10k-20k. They often require 30k-35k or more in repairs and improvements. There are plenty of homes available for 55k-60k that don't need repairs so the program has not been very successful.

Most of the people in the US don't realize that the supposedly "booming" US economy from 1980 to 2007 was due to credit, not wealth. The wealth was exported to other countries. The remaining wealth in this country is being increasingly controlled by a smaller fraction of the population that doesn't contribute much to the health of the nation.

Imo, real-estate for much of the country is going to be depressed until we have meaningful job creation regardless of interest rates. Toys r Us and other retailers aint going to cut it. We need to make the toys and that aint going to happen again for awhile. As far as I'm concerned, a successful retail season is benefitting Asia, not us.

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PoorandUgly
Message #76 - 12/13/10 04:21 PM

Imo, real-estate for much of the country is going to be depressed until we have meaningful job creation regardless of interest rates.

No doubt that this is crucial. However, interest rates and money cannot get any "cheaper" from here and there is only one direction going forward, DESPITE the realities now. NET job loss may ultimately in the next cycle continue when rates uncontrollably go back up. Remember,when Uncle Ben says things cannot get any worse in housing, go in the OPPOSITE direction!!!! - He said this in the last 2 weeks. Just like in 2007 saying subprime was contained or in early 2008 that housing and credit contagion was limited (pre Lehman in Fall). And we know how that turned out.

You said it yourself with this below:

Most of the people in the US don't realize that the supposedly "booming" US economy from 1980 to 2007 was due to credit, not wealth.

Exactly. Even though it is moot now, we should have used the opportunity of trending declining interest rates and cheap credit and money over the last 3 decades to reinvest in so many new net jobs and industry in our country by now and put the money to use by investing in real industry, NOT paper pushing transient "wealth". But that time has come and gone. The investment and jobs from cheap money has been turned its back on this country and invested in foreign markets at US expense.

As far in your area, wish you the best. Hopefully jobs come back in your area to support your neighborhoods there. It may however be beneficial to have back up plans if and/or when it may not. Just food for thought. Goes by the old proverb - "An ounce of prevention is worth a pound of cure." That is why I am telling everybody (for the long term) - be flexible, mobile and liquid to go where the future can be certainly brighter and not dimmer in time.

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PoorandUgly
Message #77 - 12/13/10 09:56 PM

Excerpts from Bill Fleckenstein's latest weekly commentary as of 12/13/2010:

....but the bigger news is that yields on U.S. government 10-year debt have risen about three-quarters of a percentage point (from 2.4% to 3.2%) since their lows in October.

Thus, the combination of a crisis in Europe and the Fed's $600 billion bond-buying program, dubbed [www.bing.com/search?q=qe2+quantitative+easing&form=MSMONY] QE2, both of which could have been expected to force interest rates lower, instead produced the opposite result.

The action of the bond market is a sea change and to me suggests that it has seen a top.

In other words, bond buyers now want a higher interest rate to compensate them for the risk of future inflation and/or a weak dollar. Thus they have collectively voted a big "no mas" with their wallets regarding U.S. Treasury debt, just as they did with Greece and Ireland.

That is possibly one reason Bernanke made an unusual [www.cbsnews.com/video/watch/?id=7120553n&tag=cbsnewsMainColumnArea.5] appearance on the Dec. 5 edition of "[tv.msn.com/tv/series/60-minutes/] 60 Minutes," in which he defended QE2 -- and in doing so made the outlandish statement that the Fed was "not printing money." Less than two years earlier, in March 2009, he had described the first round of quantitative easing as printing money.

As I noted at the outset of this article, I expect 2011 to contain some elements of the funding crisis I've been worrying about for some time now, as our bond market comes under considerable pressure. A weak dollar caused by two rounds of quantitative easing (plus potentially more money-printing) will pressure the dollar, and at some point that will increase the pressure on the bond market.

Quite frankly, if the euro were not in so much trouble, the dollar would already be much weaker.

No more printing press for you!

As 2010 winds down, it is not possible to know precisely how all of this will play out. But it is important to be mindful of the fact that if bonds continue to sink in repudiation of (or despite) all the Fed's easing, then the markets will have de facto taken the printing press away from the Fed. That will have ramifications not just for bonds, but for stocks as well.

[www.facebook.com/pages/Money/71394952964]

I don't want to get too far ahead of myself, because at this point that "conclusion" is, in essence, just a theory, not an inevitability.

As longtime readers know, I am always early in worrying about troubles caused by bad policies. But if bonds' best days are over, then next year will certainly see some further developments toward our own funding crisis.

And that won't be bullish for financial assets.

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PoorandUgly
Message #78 - 12/13/10 10:08 PM

It is true. This man, Fleckenstein, is early in cognizance of certain market perceptions which then translate into market actions in time. But better to be early than late to the party, that's for sure. Moreover, the CURRENT CONSENSUS of market perception is still that QE's will protect us all and make any boo boo's go away like a mother chasing away the jackals from her baby cubs. No price to be had. We can blow up the balloon and it will never pop. Fleckenstein is the typical forerunner coming around to the conclusion that bond vigilantes and the bond market rules the roost at the end of the day. And they are in fact the "needle" that will either abruptly pop the bubble or huff and puff and blow the house down in some other fashion. Only time will tell exactly how and when this will unfold.

Bill Clinton, who Obamanation is now using again as a chess pawn to salvage this latest negotiations for more fiscal debt disaster plundering of a STIMULUS package, once had his trusted advisor, James Carville as sidekick in 1994. Carville said if he had to come back from death, he would want to come back as the bond vigilantes of the bond market. This means that it is they who rule in the end, NOT THE FED. They are the ultimate arbiters of the markets. Short and possibly intermediate term - yes, but long term - no.

There are an exceptional one or two on this board who actually had second doubts and real carnal fear in the depths of the decline of 2008 that maybe the Fed couldn't stop the train wreck. Via verbiage in posts on here, I saw the fear first hand or second doubts among those savvy and smart enough with palpable fear in their minds that maybe they won't or can't print forever. But then, especially since early 09 and ever since with QE1 and QE2, they again lost that fear and replaced it with "comfort" and logic (justified based on past pattern of QE sequence extrapolating forward now) that can never happen again.

Just remember - Sean Connery NEVER said he wanted to be BOND again but nevertheless resumed his BOND role in "NEVER SAY NEVER AGAIN" too LOL.

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neohguy
Message #79 - 12/14/10 12:19 PM



Fleckenstein took a lot of heat in the blogosphere 3 yrs ago. Most of the criticism was that it didn't happen "yet". It did. Bill did not claim to know the day or the hour. He just warned that it was coming. He closed one of his bear funds in early 09 because he said not to fight the fed in the medium term. He timed that one pretty good.

I certainly hope this all has a happy ending but it's probably unlikely as far as publicly traded markets go imo. The prevailing rosy view seems to be based on "we always got through this before". We always wake up the next morning and then one day we don't.

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PoorandUgly
Message #80 - 12/14/10 02:43 PM

The prevailing rosy view seems to be based on "we always got through this before"

I couldn't agree more. Absolute complacency of the masses is the 21st century's form of slavery run by the power elites.

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PoorandUgly
Message #81 - 12/14/10 02:56 PM

What Do Rising Interest Rates Mean for the Economy?

Posted Dec 13, 2010 02:18pm EST by Daniel Gross

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In theory, bond investors are supposed to keep the behavior of governments and consumers in check by passing judgment on a nation's fiscal health. If things look bad, they sell, pushing up interest rates, and forcing policymakers and consumers to change course. From the outset of the financial crisis, critics warned that the combination of higher deficits (thanks to increased spending and collapsing tax revenues) and the Fed's easy money policies would ignite inflation, and act as a clarion call to the bond vigilantes.

But for two years, the bond vigilantes seemed to remain in hiding, as interest rates on U.S. government bonds generally fell, and then fell again. But in the past month, after laying waste to Greece and Ireland, the bond vigilantes have finally hit America's shores. In recent weeks, investors fearful about America's long-term financial future have pushed up the interest rate on the 10-year and 30-year bond. The [finance.yahoo.com/echarts?s=%5ETNX+Interactive#symbol=%5ETNX;range=3m] yield on the 10-year bond has risen from 2.48 percent on November 4 to about 3.3 percent today -- an increase of 33 percent. Rates on other government debt have also drifted upward. SmartMoney.com's [www.smartmoney.com/investing/bonds/the-living-yield-curve-7923/] living yield curve provides an excellent month-by-month graphic on how interest rates move over time.

The swift movement raises several questions for consumers, borrowers, and policymakers.

First, why are rates rising now? After all, the rout started after the Federal Reserve [www.federalreserve.gov/newsevents/press/monetary/20101103a.htm] announced on November 3 that it would take new extraordinary measures to keep interest rates low. In the next round of quantitative easing (QE2), the central bank pledges to purchase at least $850 billion in government debt through the end of June 2011.

The answer: While the Fed is enormously influential in setting interest rates, it's not the only factor. Ben Bernanke & Co. directly control the Federal Funds rate -- i.e,. the rate at which banks lend to one another on an overnight basis and that serves as a benchmark for short-term credit. The Fed Funds rate hasn't budged at all in recent months, and is unlikely to do so until the Fed decides it's ready to exit this emergency period of ultra-low interest rates. (Investors in Fed Funds rate futures [www.cmegroup.com/trading/interest-rates/stir/30-day-federal-fund.html] predict that won't be until late 2011 at the earliest.)

But the longer the term of the debt, the less direct control the Fed has over the interest rate, and the more other factors and emotions come into play. In recent weeks, there have been two important changes in investor psychology. First, the flow of generally positive economic data has pushed forecasters to increase their projections for growth in this quarter and next year. All things being equal, expectations of higher growth tend to push longer-term interest rates up. Meanwhile, the surprise tax deal between President Obama and Congressional Republicans has (a) reinforced the consensus behind stronger growth for 2011 and 2012; and (b) heightened the concern over deficits. (Deficits for the next few years will be much higher than previously thought if the deal goes through.)

Higher interest rates mean you pay more for your money. But not everybody is going to be paying more. BankRate.com has an excellent [www.bankrate.com/finance/mortgages/interest-rate-roundup-for-dec-9-2010.aspx] module that shows weekly moves in interest rates on a variety of credit products, from credit cards to auto loans.

The most immediate impact of higher long-term government borrowing costs will be seen in the arena in which consumers borrow for the long-term: mortgages. As the [www.bankrate.com/finance/mortgages/interest-rate-roundup-for-dec-9-2010.aspx] chart on Bankrate shows, interest rates on 30-year mortgages have spiked in recent weeks, to near five percent. And so to the potpourri of troubling housing news -- excess supply, foreclosures, a weak job market -- we can now add higher rates. In the absence of what finance types used to refer to as "innovative mortgage products" (you know, exploding ARMs, negative amortization bombs, and other funky products), higher rates will make it more difficult for home sellers to get their askin

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PoorandUgly
Message #82 - 12/14/10 02:58 PM

The most immediate impact of higher long-term government borrowing costs will be seen in the arena in which consumers borrow for the long-term: mortgages. As the [www.bankrate.com/finance/mortgages/interest-rate-roundup-for-dec-9-2010.aspx] chart on Bankrate shows, interest rates on 30-year mortgages have spiked in recent weeks, to near five percent. And so to the potpourri of troubling housing news -- excess supply, foreclosures, a weak job market -- we can now add higher rates. In the absence of what finance types used to refer to as "innovative mortgage products" (you know, exploding ARMs, negative amortization bombs, and other funky products), higher rates will make it more difficult for home sellers to get their asking prices in glutted markets. They're also bad news for home buyers, who will have to adjust their sense of how much house they can afford.

But most borrowing done by consumers and businesses is shorter-term debt. And there hasn't been quite as much movement in this area, in part because that's where the Federal Reserve is now focusing its firepower. The New York Fed, charged with carrying out the program of quantitative easing, [www.newyorkfed.org/markets/opolicy/operating_policy_101103.html] announced in November that 63 percent of its new purchases would be of bonds that mature in 2.5-7 years, while only 6 percent of purchases would be of bonds that mature in 10 or more years. "Under this distribution, the Desk anticipates that the assets purchased will have an average duration of between 5 and 6 years."

And so even though bond markets broadly expect higher interest rates, there's been less movement in the rates for shorter-term credit. Bankrate.com shows that rates on [www.bankrate.com/finance/auto/national-auto-loan-rates-for-dec-9-2010.aspx] auto loans are actually down slightly from the previous week. (Keep in mind: all these figures are national averages.) Rates on [www.bankrate.com/finance/home-equity/national-home-equity-loan-rates-for-dec-9-2010.aspx] Home equity loans, another credit sector pegged to short-term interest rates, haven't changed much either.

For now, companies and individuals with excellent credit who want to borrow money for a few years -- from a bank, or from the bond market -- aren't finding that conditions have changed. With credit cards, there's long been a sense that the interest rates charged bear little relationship to the overall interest rate climate. Individual credit scores, delinquency and charge off rates, the need of banks to goose profits, and banks' relative level of greed/aggression can all be more powerful influencing factors on credit card rates than the shape of the yield curve. The New York Times [www.nytimes.com/2010/12/13/business/13credit.html?_r=1&ref=business] reported Monday, for example, that credit card companies are again pursuing more risky borrowers. For what it's worth, Bankrate.com [www.bankrate.com/finance/credit-cards/national-credit-card-rates-for-dec-9-2010.aspx] says credit card rates were essentially stable during November.

As noted, the shortest-term rates haven't budged much at all. Which means that you and I will continue to lend money to banks at extremely low rates. In the weeks since the bond market rout started, rates on one-year certificates of deposit have [www.bankrate.com/finance/cd/national-cd-rates-for-dec-9-2010.aspx] actually fallen.

So, just as the banks are able to increase the price they charge you for long-term money, they're lowering the price they pay you for short-term cash. Somehow, the banks always seem to win.

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PoorandUgly
Message #83 - 12/14/10 03:07 PM

I suspect and guess that sometime in the new year, Spain's problems will come to the fore and give a pause or correction in the upward current climb of US Treasury yields as benchmarked primarily in 10 and 30 yr part of the curve. But this story should not be too surprising in how it will unfold. Because at the end of the day imho, the IMF (really US Federal Reserve) will give another $300 Billion - $400 Billion of OUR MONEY WE CANNOT AFFORD TO HELP OTHERS WITH LET ALONE OURSELVES. Ironically, after the period has passed with that aid, that itself may help to continue to push rates again higher because it shows the utter stupidity and lack of regard we have for our own deficits and debt, just like with this latest deficit busting package that will be passed by Obamination and his dumbocrats along with the good ole greedy tax solving everything republicants. It was no coincidence how the first step by President in agreement over this package helped push rates up. Bond vigilantes are basically saying: "You have $1.5 Trillion in annual deficits, cumulative total right now of $14 Trillion in debt, your debt ceiling needing to be raised in 2011, and you want to ADD another roughly $1 Trillion of debt with more of the same as over the last 10 years?!!!!!!!!!!!!!!! What do you have, sht for brains?"

IF A HOLE GETS DEEPER, THE FIRST THING YOU DO IS STOP DIGGING!!!!!!!!!!!!!!!!!!!!! YOU DON'T DIG IN SOME MORE!!!!!!!
This country is so fcking myopically stupid, greedy, selfish and hypocritically arrogant, it is beyond tragic and pathetic. I don't totally blame us, the masses, because it is not like we have the power to really get people to represent us in government. We don't get real choice, only the illusion of it. If you want real choice, go to Baskin Robbins - there you get a lot more choices and you can have a taste test to boot!!!!!!!!!! Ice cream is very important after all, ya know what I mean?

Now rally on!!!!!!!!!!

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PoorandUgly
Message #84 - 12/14/10 04:06 PM

10 year yield set to go over 3.4%. Aside from Fed meeting later today, the rise in long term yields are basically giving the middle finger to this latest fiscal package, let alone current and/or more QE Fed pump priming moves. In other words, these are not real solutions for our country. Only more status quo paper pushing gifts to the Gods we call the fascist elites who run this country.

[Virgil Showlion]

PoorandUgly
Message #85 - 12/14/10 08:40 PM

In less than half a day's time, the 10 year yield moved up around 12 basis points from 3.38% to 3.5%!!

Wow!!!!!

Like I said, the middle finger is being given to the QE's and the back breaking debt debilitating fiscal package coming on stream now (after of course it is voted for final approval in Con gress).

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PoorandUgly
Message #86 - 12/15/10 05:19 PM

Excerpt from J.J (Jim Jubak) article posted on 12/13/2010

But I think you can count on the trend now moving toward higher interest rates in the United States no matter what the Federal Reserve does to the short-term rates that are currently locked near zero. Short of a double-dip recession, all that's uncertain is the speed with which bond prices will fall and interest rates will rise.

Another one, like Fleckenstein, slowly but surely coming around to a new found consensus that over the long term, the Fed is 1. not in control and 2. the bond markets and their vigilantes are.

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PoorandUgly
Message #87 - 12/15/10 05:24 PM

The proposal from the Obama White House and Congressional Republicans to add $1 trillion in debt over the next two years to the U.S. balance sheet by extending the Bush tax cuts has just put a capstone to the feeling that the U.S. government doesn't have an inkling of a plan for dealing with the U.S. deficit. And worse, because most bond investors were convinced of that before the deal was announced, the markets now believe that nobody in Washington cares. Take the heat to restore fiscal sanity? You can hear the laughter all the way out to the Lincoln Memorial. (See my post on the proposed deal, "[jubakpicks.com/2010/12/08/wall-street-economists-score-the-tax-deal-1-trillion-in-cost-to-get-0-5-increase-in-gdp-growth-in-2011/] Wall Street economists score the tax deal: $1 trillion in costs to get 0.5% increase in GDP growth in 2011.")

GEEE YA THINK!!!!!!!!!!!?? It is true. The laughter is not only all the way out to Lincoln Memorial. It is far past there the world over. The laughter may stop for a time though once Spain and Italy make the front pages. Spain is the elephant in the room however for now. As that tale unfolds prolly in 2011, there will probably be a significant correction. IMF, via primarily the Fed, will imho come out with a $300 - $500 Billion package for them after all the dog and pony show plays out in the fascist media circus that everyone has their eyes glued to. Rates will at that time decline for a time. After that, rates will resume their trend back up and it will possibly begin to hurt. Ultimately, the trend of rates rising and from such low levels as it is will be payback for the overextended poor status quo of lack of real saving, indebtedness, and poor investing engendered, aided and abetted by fascist robber barron pirates and their reckless wanna be followers and others in between only interested in non productive greed of financial asset paper pushing/chasing profits. At least on the bright side, imho, the next 10 -15 years should have a very nice trend of declining financial services industry organizations ranging from overbloated numbers of hedge funds, mutual funds, brokers, advisors, investment banks etc............. Maybe real investment prospering Main Street can begin once again. That is the hope. But like I said, if not, stay liquid, flexible and mobile to ultimately migrate away from the bull sht to where it the hope is tangible wherever that may be. And be sure to REDUCE potential entanglements with the US government instead of adding to them. Think property tax payer for instance. Cause we all know taxes are sure as hell going to go up over long haul and future will be paying price for that too. Why should it be you or your children paying the past sins of the fathers???

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PoorandUgly
Message #88 - 12/16/10 02:03 PM

Interest rate up sharply in key Spanish bond sale

Spain sees interest rate rise sharply in key bond sale day after Moody's downgrade warning

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Spain's Prime Minister Jose Luis Rodriguez Zapatero, left, talks with First Deputy Premier and Interior Minister Alfredo Perez Rubalcaba, center, and Finance Minister Elena Salgado, right, during a Parliament's plenary session in Madrid on Wednesday, Dec. 15, 2010. Ratings agency Moody's on Wednesday warned it may downgrade Spain's debt because the government is vulnerable to a borrowing crunch next year, when the recapitalization of weak banks could prove more costly than expected for public finances. (AP Photo/Victor R. Caivano)

Ciaran Giles, Associated Press, On Thursday December 16, 2010, 6:29 am EST

MADRID (AP) -- Spain had to pay sharply higher interest rates Thursday to borrow euro2.4 billion ($3.21 billion) from bond markets, despite strong demand, as investors were wary of a possible downgrade.

The central bank said the treasury sold euro1.8 billion in 10-year bonds at an average interest rate of 5.4 percent, up from 4.6 percent in the last such auction Nov. 18. It was obliged to pay a rate of 6 percent to sell euro618 million in 15-year bonds, up from 4.5 percent in October.

Demand was strong, however, almost double the amount on offer for the 10-years and almost triple the sum for the 15-years.

"The auction result has been disappointing in terms of funding costs but largely in line with market expectations," said UniCredit analysts in a note to investors.

Interest rates at Spanish bond sales have soared in recent months amid market speculation the country may need emergency financial help because of its heavy debt burden and its slow recovery from recession.

The government has continually defended the economy, denied the need for help and says it is taking the necessary measures to handle its debt and trim its swollen deficit.

The sale came as European Union leaders were gathering for a summit focusing on the debt crisis and new rules to avoid similar market turmoil in the future.

Ratings agency Moody's warned on Wednesday it may downgrade Spain's debt because the country could face a borrowing crunch next year. The agency, however, said it not believe the government's solvency was in question or that it would need a bailout.

Madrid's main stock index was flat in morning trading after the bond sale. On the secondary market, Spain's 10-year bonds had yields of 5.5 percent, down slightly from Wednesday. This made for a spread of 2.5 percentage points above the benchmark German 10-year bond but still below the euro-era record difference of 3.05 percentage points hit earlier this month.

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PoorandUgly
Message #89 - 12/16/10 02:07 PM

Right on target. However, earlier than I surmised.

Having said that, another lap dog of the fascist elite, Jeremy Siegel, a professor of the factory fascist Ivy League outlet called Wharton School of Business, has justified and thinks Uncle Ben and his fascist Fed's QE's are the right thing to do (yeah, right thing to do - for whom?). In fact, this man says the latest rise in yields shows that the policy is working!

Newsflash or Question for ya Einstein: if rising yields show that things are working, I guess the move in Spain's higher 10 year bond yields from 4.6% to 5.4% in a month's time must also signal that things are "working" or getting better there too, huh??!!!!!!!

Either stop the stupidity or just stop the propaganda already, "Professor", and go back into hiding among your other fellow bought and paid for elite fascist economists in your Ivory Towers, okay? And please leave the truth to others while you are at it.

LMAO.

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Murphy Martin
Message #90 - 12/16/10 02:19 PM

Either stop the stupidity or just stop the propaganda already, "Professor", and go back into hiding among your other fellow bought and paid for elite fascist economists in your Ivory Towers, okay?

Following Siegel's advice generally leads to wealth. After all, he's a one-trick pony, but with a really good trick: own stocks that increase dividends faster than inflation, and you do well. Not much to object to in that advice.



And why the scare quotes around "professor"? He actually IS a professor, after all.

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PoorandUgly
Message #91 - 12/16/10 02:34 PM

And why the scare quotes around "professor"? He actually IS a professor, after all.

Uncle Ben is a professor too. So is Greensnore. What is your point? No scare anything in that. By definition, a professor has advanced specialized knowledge in a subject. It is true. They have advanced specialized knowledge in stupidity and wanna be Nostradamus prognostication/propagandist lines of work. Buy into that and be hopeful you get ANOTHER bailout!!!!!!!! So it is also true that this is the road for which the super wealthy see as efficacious as of late, especially when it is on someone else's dime like countries and their citizens being forced to pay the tab or just going bankrupt otherwise!!

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PoorandUgly
Message #92 - 12/16/10 03:18 PM

10 year Treasury yield as of now writing this post is 3.55%. It should be interesting to see what happens if and when rates get to and starts to stay above 4% in the future. But like I said, imho, the trend probably in 2011 if not sooner may get interrupted by renewed disaster of Spain's issues. Remember, Spain is the pink elephant in the room. Ireland is child's play next to them. My guess is the usual kick the road down the can approach will ultimately be to come up with ANOTHER bailout package, of around $300 - $500 Billion in IMF funds (American borrowings) to temporarily halt that issue. Thereafter, it will be looked unfavorably over here and rates will back up once again. The bond vigilantes will say "You boys across the pond really must have sht for brains!" LMAO.

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PoorandUgly
Message #93 - 12/16/10 03:30 PM

Some people may be reading and seeing posts on how I see 3.55% and think wow, that is high. But you recall that rates at a time were much higher years or decades ago and think that is nothing so what is the big deal?

I say, ah ahh, that train of thought while logical on the surface is not so in reality. You see, when you have all the larger absolute debt with very insufficient, let alone declining revenue from jobs, taxes etc.. to service it, any little increase to and higher level of interest rates can be all the more devastating and the last thing we need.

So even though, a typical baby boomer in the 70's and 80's had an interest rate in the mid teens on his loan or mortgage back then unlike now where interest rates are single low digits, it was still okay then and could be handled. But why was high interest rates back then not so deadly? Because the debt was manageable both from a job and wages standpoint (growing wages and job availability/stability) AND the accumulated debt was from next to nothing as many had no cumulative debts from before. Many American households were able to form and expand and start from a clean credit slate so to speak. Lenders and borrowers alike, whether private or public were not dealing with insolvency issues. Most parties to a transaction had the wherewithal to borrow and lend and grow and were creditworthy, stable, had collateral etc.........

Spin that around and everything is opposite now - starting from ridiculous levels of absolute accumulated debt over time and lack of job availability/stability along with insufficient wages or growth, hence upward movement in change and level of interest rates can be deadly or the nail in the coffin. Professors, gurus, marketeers, and others with their conflicts of interest don't like to discuss how this can greatly affect what they call in Finance 101, NET PRESENT VALUATIONS. It is a great conflict of interest for Wall Street among others who think the status quo is just FINE AND DANDY. All the Einsteins currently tout P/E's and div yields etc.. But what they fail to consider is AT WHAT INTEREST RATE THOSE METRICS ARE CURRENTLY BASED OFF OF - 0%!!!!!!!!!!!!! (even at 0% they are above historical norm!) Unfortunately, many in the know who are NOT running our affairs knows quite well that the discount rate (interest rate) used for valuation purposes is always a crucial component but many times ignored, especially now. But maybe as some posters suggest, we are now way past the point of turning back now. The Fed will continue to let many drive their lemons not knowing the better of it, for however long is up for debate. I acknowledge that there is a fundamental no-win situation component to all this too. But like I said, lets stop letting those forces dragging this out and acknowledge the pain for what it is now. A strategy of choosing a death by a thousand cuts at many's expense who don't deserve it is a poor and ugly strategy I must say.

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Solar2009
Message #94 - 12/16/10 04:45 PM

This is not how bull markets start. It is how they usually end in climax after a 15 or 20 year steady run up. The biggest rallies in a short time happen in secular bear markets because the market drops so fast and so low that there is a huge bounce off those lows. If you get in at the bottom of that bounce you can make good money but if you get in now you are a loser. This is a trap and there are going to be lots of people going to feel a lot of pain here. Earnings will be wiped out by high commodity prices that cannot be passed onto a weak consumer. Then you will have weak growth and weak earnings and no longer will they be able to hang their coat tails on the cost cutting earnings. The market will have a 30-35% drop when this stupidity ends.

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djrick
Message #95 - 12/16/10 08:18 PM

Significant runaway inflation and currency depreciation result from a government that essentially can no longer fund itself. It starts when the market sees the problem and moves rates higher.

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PoorandUgly
Message #96 - 12/16/10 08:54 PM

It should be interesting to see how the Fed reacts to if and when rates, say as benchmarked in 10 year get above a certain level, say like 4% - 4.5% if not 5%.

I am not going to do the math how that will affect certain borrowers. I will leave that to the smart many others. Either way, higher borrowing costs are inevitable. Only a question of how high and how long a trend. Around 30 years of trend in declining rates is over now or will be over shortly, not without its interim ups and downs from other factors, but overall the trend to new lows is practically over imho. Spain, Greece and others still may stall the trend for a little over here.

Maybe the Fed's next QE will focus on purchases back on the long end of the curve between 10 and 20 year duration? Who knows - UNLESS you are Government Sux of course. Ultimately they will lose control. Wall Street and the Fed are growing cancers on this country now. This country should not get poor and ugly for them. Bail out banks and Wall Street but threaten and tell the rest of the country and their citizens to cut back or drop dead? Sorry, that shouldn't "cut" it.

[Virgil Showlion]

neohguy
Message #97 - 12/16/10 08:58 PM



Stoneleigh (Nicole Foss) from the Automatic Earth is still expecting a deflationary squeeze before inflation. From todays letter:

Stoneleigh: Some time ago, Gonzalo Lira wrote a couple of interesting pieces on hyperinflation, and I promised to respond to them. This has taken me a while, as there is much material to go through, many arguments to pick apart, areas of agreement and disagreement, differences in definitions and matters of timing.

The first article, [gonzalolira.blogspot.com/2010/08/how-hyperinflation-will-happen.html] How Hyperinflation Will Happen, is a long, thoughtful and detailed piece that I found interesting. There are many aspects I fundamentally disagree with, however, some for reasons of substance and others for reasons of timing.

Essentially the central proposition is that the US dollar is in danger of imminent demise due to a widespread loss of confidence, and that treasuries will be dumped en masse within a year, leading to hyperinflation, by which Mr Lira means price spikes. I do not see a loss of confidence in the dollar going forward, at least not soon. We have seen a long slide in the value of the dollar coincident with the rally in stocks. This is a reflection of a resurgence of confidence in being invested rather than being liquid, but this confidence is fragile and subject to rapid reversal. I regard the extremely bearish sentiment regarding the dollar specifically as typical of a bottom. Trends take time to become established as received wisdom, and by the time they come to be generally accepted, they are much closer to an end than a beginning. When everyone is bearish, and has acted upon that sentiment, who is left to carry the trend any further in that direction? Market insiders will be taking the other side of the bet, as they always do at turning points. This is how they make their money - by recognizing and feeding off the sentiment of the herd.

When the market rally tops, I expect people to begin chasing liquidity in earnest - too late for many, as liquidity will get much harder to come by. Only a small minority will be able to cash out at the top. I fully expect the dollar to surge in relation to other currencies when this happens, on a knee-jerk flight to safety into the reserve currency as the least-worst option. At that time, I would not expect the US to have difficulties selling treasuries, because I think they will be regarded as the safest option in a horribly unsafe world. This is not rational, as the US is far past the point of no return on repaying its debt, but rationality is not the point, as herding impulses are never rational.

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neohguy
Message #98 - 12/16/10 08:58 PM



(continued)

I would also expect the purchasing power of the remaining dollars (i.e. physical cash, of which there is actually very little) to increase substantially in relation to available goods and services domestically, as dollars will be both scarce and essential once credit virtually ceases to exist. Central authorities cannot print cash to alter this situation, as this would trigger an enormous increase in the risk premium charged by the bond market. Hence, cash will remain scarce, and people will hoard what little there is, compounding the effect of deflation through a fall in the velocity of money. In this regard, my view is diametrically opposed to Mr Lira's.

I see far more imminent problems ahead for the euro than for the US dollar. I expect the shift from optimism to pessimism, that will define the end of the stock market rally, to lead to a rapid resurgence of fear over sovereign debt default risk in Europe. This can only exacerbate the widening regional disparities, and I think it will widen them to breaking point, for the eurozone and perhaps later for the EU itself.

As I have said before, the austerity measures coming for the whole European periphery are going to be severe enough to amount to political suicide for domestic politicians to implement. I think peripheral countries will choose to leave the euro, however high the cost of doing so, as the cost of staying in the eurozone could be even higher. If this does in fact happen, I think we would see an Argentine scenario, where savings are converted into the local currency (which would probably fall even compared with a falling euro), while debts remain in euros. These unpayable debts would then be defaulted on somewhat later. The level of uncertainty would almost certainly lead to massive capital flight from Europe, to America's temporary benefit.Naturally the dollar, like all fiat currencies, will eventually die, but I would argue that the time for that is not now. A dollar rally could be measured in years, although not many by any means. My best guess is that we would see perhaps a year or two of dollar rally in a world going increasingly haywire. After that I expect an end to the system of floating currencies, with all manner of attempts at competitive devaluation, currency pegs established and rapidly blown away, and beggar-thy-neighbour policies all round. The risk of currency reissue will rise over time, and be highly locational. I think the risk of reissue in the US is not imminent, but in Europe it should be a much larger concern, especially in peripheral countries.

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neohguy
Message #99 - 12/16/10 08:59 PM



(continued)

I agree with this passage from Mr Lira's article:
But this Fed policy·call it ·money-printing·, call it ·liquidity injections·, call it ·asset price stabilization··has been overwhelmed by the credit contraction. Just as the Federal government has been unable to fill in the fall in aggregate demand by way of stimulus, the Fed has expanded its balance sheet from some $900 billion in the Fall of ·08, to about $2.3 trillion today·but that additional $1.4 trillion has been no match for the loss of credit. At best, the Fed has been able to alleviate the worst effects of the deflation·it certainly has not turned the deflationary environment into anything resembling inflation.

Yields are low, unemployment up, CPI numbers are down (and under some metrics, negative)·in short, everything screams ·deflation·.


This has been occurring under the most favourable of circumstances - a major rally during which people are prepared to suspend disbelief and give central authorities the benefit of the doubt. In all this time, and with all its efforts, the Fed has only been able to slow deflation. Once we turn the corner, confidence (and therefore liquidity) will evaporate again, and the headwind against the Fed will get very much stronger.

If they could not stop deflation under favourable circumstances, their odds of doing so under unfavourable ones must be extremely low. Periods of intense pessimism are not kind to central authorities. Everything they do is too little and too late. Every time they try and fail they look more desperate, which only acts to confirm people's pessimism in a self-reinforcing spiral. Deflation has a massive psychological component, which the Fed has no tools to fight.

The second major proposition Mr Lira makes is that commodity prices will spike as a consequence of a meltdown in the treasury market:


At the time of the panic, commodities will be perceived as the only sure store of value, if Treasuries are suddenly anathema to the market·just as Treasuries were perceived as the only sure store of value, once so many of the MBS·s and CMBS·s went sour in 2007 and 2008.

It won·t be commodity ETF·s, or derivatives·those will be dismissed (rightfully) as being even less safe than Treasuries. Unlike before the Fall of ·08, this go-around, people will pay attention to counterparty risk. So the run on commodities will be for actual, feel-it-·cause-it·s-there commodities.

As I do not think such a treasury meltdown is imminent, I do not think such knock-on consequences are imminent either. In contrast, I think we are already seeing evidence of a top in commodities, which typically peak on fear of scarcity. I regard the sentiment indicators as strong evidence of such fear, and am therefore looking for a reversal, roughly coincident with a stock market top and a dollar bottom.

---

neohguy
Message #100 - 12/16/10 08:59 PM



(continued)

We have already seen significant speculative gains in commodities, similar to 2008, and I think that speculation will go into reverse, probably quite sharply. I would then expect a demand collapse to carry prices further to the downside. As I see a speculative reversal followed by a demand collapse setting up a supply collapse, I can see Mr Lira's scenario possibly playing out in the future, quite possibly coincident with a bond market dislocation as he suggests. It is difficult to predict the timing for such an event, but I see it as being much further in the future than he does.

Because of my objection to the timing, I disagree with Mr Lira's next assertion:


People·regular Main Street people·will be crazy to buy up commodities (heating oil, food, gasoline, whatever) and buy them now while they are still more-or-less affordable, rather than later, when that $15 gallon of gas shoots to $30 per gallon.

If everyone decides at roughly the same time to exchange one good·currency·for another good·commodities·what happens to the relative price of one and the relative value of the other? Easy: One soars, the other collapses.

When people freak out and begin panic-buying basic commodities, their ordinary financial assets·equities, bonds, etc.·will collapse: Everyone will be rushing to get cash, so as to turn around and buy commodities....[..] ....This sell-off of assets in pursuit of commodities will be self-reinforcing: There won·t be anything to stop it. As it spills over into the everyday economy, regular people will panic and start unloading hard assets·durable goods, cars and trucks, houses·in order to get commodities, principally heating oil, gas and foodstuffs. In other words, real-world assets will not appreciate or even hold their value, when the hyperinflation comes.


In my view, by the time we see a commodity price spike, the value of people's financial assets will already have evaporated, they will already have unloaded hard assets, and the dash for cash will already be in the past. I think at that point we will be well into a state of economic seizure, where credit will have disappeared, unemployment will have spiked, incomes will be very precarious, scarce cash will be being hoarded and it will be exceptionally difficult to connect buyers and sellers. Consequently, I do not see most people being in a position to engage in panic buying.



The rest of the discussion can be viewed here:

theautomaticearth.blogspot.com/

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PoorandUgly
Message #101 - 12/16/10 10:13 PM

A lot said there, neo. Interesting good analysis. Too much to give my opinions on any part unless you want to ask specifically otherwise. You will have to check in on the bookie though, Federal Reserve and their lackey Government Sux, as far as timing all the trends with rally in commodities versus stock market versus dollar etc. So much for free markets huh. No doubt the extreme consensus right now is stop complaining, just follow the Fed and their fascist cohorts and hence their goal of stock market rally and all will be well. Focus on me me me and as far as the country is concerned, it will simply get better over the long term on its own blah blah blah. Yeah, and we can all be fat, lazy and stupid trading with utter confidence our stock market accounts. Ergo, anyone can be a part of the 2% rich club and hence your elected officials actually will care about you thereafter blah blah. Somehow this is a fundamental agreed upon solution by many for our country getting better sustainably for the long term. Fat, lazy, dumb, stupid and complacent gorged on the greed from wealth effect of stock market for a time and all will forever be well. Good luck with that. And just remember, there but for the grace of God go I. NO ONE IS IMMUNE to necessarily what others may suffer through. One day, it can be YOU who loses a job, loses all his money, or health etc.. And what if no one gives a damn about you then or says YOU have only yourself to blame. To an extent, I believe in Karma. And it can be a btch.

Pertaining to markets specifically for now, the indicators I am watching are at very very high extremes soon to close in at new all time highs provided the rally manages to get into January if not a little longer into 2011. Like many metrics, there are no guarantees with 100% reliability but there is a good historical track record for these readings I see as correlated with rallies and declines. Timing, especially in the short run can be a killer. Trends can go longer than many think. Many get more arrogant now as the trend continues along up saying just follow this trend. No surprise on any of this. Regardless of debate on short term, long term we have been in a secular bear market since 2000 and all the more reason that it will stay that way regardless what the stock market does in the interim, rally for however many months or year(s) or so otherwise. All because of something very very simple called extreme levels of more and more DEBT with less and less money to support it all. If anyone thinks the status quo can indefinately continue for the better DESPITE all that has already transpired and all the bailouts and everything else supporting this dream world, I have two questions for ya - WHAT ARE YOU SMOKING AND CAN I HAVE SOME??

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PoorandUgly
Message #102 - 12/17/10 12:08 AM

One caveat to above post, if it is not obvious from past threads and posts already - the readings or metrics I vaguely alluded to in last post and any and all fundamental, technical and other metrics as mentioned therein for a time have to be taken with the grain of salt since the financial markets are wholly engineered now post 2008 versus pre 2008 b/c of such activities of QE, POMO etc...

But for this thread, observing, studying and analyzing what is going on in interest rate land is all the more crucial b/c not only of its ultimate impact on everything else but because of the direct link between them and the Fed's past, current and future course of action to respond back. Hence, in the short to intermediate run, interest rates too can be fed engineered (along different parts of the duration curve). However, in the long run, bond market and their vigilantes rule the Fed and the financial markets. And that affects many assets financial and otherwise, one way or another sooner or later.

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neohguy
Message #103 - 12/17/10 01:26 PM

I'll try to post some stuff from this months Elliott Wave Theorist this weekend.

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PoorandUgly
Message #104 - 12/17/10 03:49 PM

Cool.

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dendl
Message #105 - 12/17/10 04:12 PM



Hey Neohguy, et.al.,

As for Lira's premise that a world flooded by existing bonds would create hyperinflation, I take the opposite view. The Fed is selling bonds by creating them - that is inflationary. But a world flooded by bonds I think would drive interest rates up so fast and far that the shock would rather quickly be dreadfully deflationary.

An unintended (or maybe intended) consequence of the Fed is perennial inflation. But I think that the Fed has financially, realistically, and politically (Ron Paul) gone over the top. In short, the party's over because it has become just too expensive.

Time will tell, and not that much time either. We all must anticipate the next shock to the system. It can't be far off, and it won't be the last either.

Chad in CO

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neohguy
Message #106 - 12/17/10 04:27 PM

Hey Neohguy, et.al.,

As for Lira's premise that a world flooded by existing bonds would create hyperinflation, I take the opposite view. The Fed is selling bonds by creating them - that is inflationary. But a world flooded by bonds I think would drive interest rates up so fast and far that the shock would rather quickly be dreadfully deflationary.

Soneleigh (Nicole Foss) from the above article would agree somewhat.

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PoorandUgly
Message #107 - 12/17/10 04:49 PM

I said several years ago and still will continue to say that inflation and deflation are not mutually exclusive events imho. Like I also said too, the world we are in now is having the worst worlds of both. Some who necessarily argue one way or the other tends at times to have a bias whether because it is in their economic or marketing self interests to do so. That doesn't mean one cannot get worse going forward. Actually where I was possibly mistaken is the fact that I thought inflation would happen after the great deflation. It may be just the opposite still going forward!

Having said that, as pertinence to article from neo, the trends of deflation and inflation can happen juxtapose to one another in very strong trends. If you look back at 2008 for instance, aside from the interest rate getting too high (LMAO - it only needed to get to 5-6% in bond markets in August 2007 before rest was history), commodity oil spike to $140 by July 2008 helped put all the more pressure on the real economy and the rest is history as far as your average consumer goes.

Personally, I think as interest rates get higher and higher, it will starve capital out of society for ones who truly want or need it for whatever purpose. Home prices and other financial asset prices will be capped if not decline gradually or drastically from therein. That is deflationary as debt needs to get destroyed gradually (if not defaulted upon which is for another debate). But at the same time, you will have some (think health insurers, taxes etc..) that because their customer base is continually shrinking due to affordability and employment concerns, they will work off of a smaller and smaller base of existing paying customers. As a result, these type of businesses (or governments) will have the power to make up for that loss of past customers by forcing existing customers to continue to pay higher and higher prices for those unavoidable or essential items of health care, food, property taxes, etc.......... After all, why do you think Obamination is trying to legalize this mandate in his health care law?? He knows he needs to bring in a larger pool of paying customers for the health care industry to somehow rein in costs. Not only is this unconstitutional but it makes no sense because a large part of those 30 million future customers already do NOT anyway have the wherewithal to pay existing health insurance out there!! Many are younger who have no disposable income because they either are unemployed or have little disposable income to pay while healthy. Duh!!!!!

Hence, the world is never as black and white as many purport.

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Murphy Martin
Message #108 - 12/18/10 02:02 PM

Uncle Ben is a professor too.

Glad to see you dropped the quotation marks.

[Virgil Showlion]

Murphy Martin
Message #109 - 12/18/10 02:13 PM

After all, why do you think Obamination is trying to legalize this mandate in his health care law?? He knows he needs to bring in a larger pool of paying customers for the health care industry to somehow rein in costs.

This is a tricky issue but one that seems to have a very simple solution: give people the chance to opt out... but if they opt out, they're OUT. Period.



The trouble is that ordinary Americans-- not deadbeats, not homeless people, just ordinary Americans-- are simply out of luck if the insurance companies are allowed to reject customers based on pre-existing conditions (or based on evidence about their genetic predispositions). Granted, we COULD just say that if God intended you to be able to afford medical care, he'd have given you rich parents, or an NBA-worthy jump shot, but if the country wishes to make medical care available to Americans who don't fit into this category, then it has to find a solution: either a public option, which is the evil Democratic choice, or the Republican-friendly option that Republican me prefers, doing it through the private insurance industry.



But if the private insurance industry isn't allowed to tell folks "Sorry: you are a bad risk for us, so we reject you, so die, please", then we have another problem: healthy people who know they're allowed to get insurance even with pre-existing conditions would have every incentive to NOT pay the premium, but wait, and get insurance only if they got sick or injured. Which would, of course, defeat the whole meaning of insurance, and would bankrupt the companies.



And yet... it's not fair, or constitutional, to force people to buy insurance. How to avoid all these conflicting problems?



Simple. Give every American the right to opt out of the "mandate", but with the proviso that if they do so, they are simply OUT and the American citizenry will, justly, stand by and let them die, go bankrupt, or whatever, because it was their choice. This would solve the problem on both ends: insurance companies wouldn't suffer by having to take only sick people, and people who prefer to risk being shut out of health care rather than buying insurance would be free from coercion.



Trouble is: there are too many liberals in America. First time some irresponsible person got cancer after choosing, yes choosing, not to buy insurance, the liberals would insist that it wasn't his fault, we should bail him out, etc. So I doubt the country has the stomach to follow through on this very simple solution.

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PoorandUgly
Message #110 - 12/20/10 02:22 PM

Glad to see you dropped the quotation marks.

My bad. It is called fast typing or making a typo.

Correct version: Uncle Ben is a "Professor" too. Ahh, now I feel better. Thanks for catching that.

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PoorandUgly
Message #111 - 12/20/10 02:47 PM

Excerpts from author Bill Fleckenstein article on 12/17/10:

Treasury misery loves company

A variation of that same theme seems to be what has stopped the bond-market rout from being regarded as bad news.

Apparently, a school of thought has "evolved" that the decline in the bond market is not about the Fed losing control of the printing press, as I have maintained, but about economic activity surging. Thus, the weakness in bonds is (supposedly) good news.

[www.facebook.com/pages/Money/71394952964]

How anyone can conclude that, given the data, I don't know. But even if you agree, you can't escape the reality of higher rates.

So if you really think that bond weakness is linked to the economy catching fire, and you extend that argument out, then you should be expecting even higher rates and more inflation, though the latter is certainly not on the radar of any such Pollyannas.

Bond market bravery: 'It's only a flesh wound!'

Recently, I headlined a column at [www.fleckensteincapital.com/] FleckensteinCapital.com (subscription required), "Party Like It's 1999, Part III," and that is how the equity market landscape looks to me.

After living through the stock and real estate bubbles, you'd think it would be impossible to be surprised by how foolishly people can act. But with the amount of machismo, bravado and downright cluelessness that I see on display, I must admit I am dumbfonded.

Sadly, it seems that the vast majority of Wall Street types have learned almost nothing from the near-death experience they had only two years ago. My guess, though, is that 2011 will reacquaint them (again) with the fact that financial assets can cost you a lot of money.

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PoorandUgly
Message #112 - 12/20/10 02:48 PM

Apparently, a school of thought has "evolved" that the decline in the bond market is not about the Fed losing control of the printing press, as I have maintained, but about economic activity surging. Thus, the weakness in bonds is (supposedly) good news.

[www.facebook.com/pages/Money/71394952964]

How anyone can conclude that, given the data, I don't know. But even if you agree, you can't escape the reality of higher rates.

The above bears worth repeating. And all I have to say is "Amen Bill. Amen."

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PoorandUgly
Message #113 - 12/20/10 02:50 PM

After living through the stock and real estate bubbles, you'd think it would be impossible to be surprised by how foolishly people can act. But with the amount of machismo, bravado and downright cluelessness that I see on display, I must admit I am dumbfonded.

Sadly, it seems that the vast majority of Wall Street types have learned almost nothing from the near-death experience they had only two years ago. My guess, though, is that 2011 will reacquaint them (again) with the fact that financial assets can cost you a lot of money.

And this bears worth repeating too.

Ahhh, next to vanity, pride is my next favorite sin. And with greed on the rocks, it is certainly shaken, but not stirred!

[Virgil Showlion]

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Final post: Message #113 - 12/20/10 02:50 PM

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[vl]

An awful lot is about to happen come late March to April 15th. You can't spend what doesn't exist.

[olderstill]

PoorandUgly


"Give every American the right to opt out of the "mandate", . . . "


Florida mandated sink hole coverage on home insurance, but in two of 63 counties provided for an opt-out privilege. I know of someone with a moderately priced home who exercized that option based on the soundness of his location (coupled with the advice of a professional geologist!) and saved more than 50% on his annual premium.

There is nothing as certain in predicting healthcare as the scientific process of studying records and understanding the underlayment and basic soundness of the ground, so, from that point of view, the same approach may be ill-advised.

However, as you point out, I would agree that there's a flaw in thinking that someone who can't afford insurance should be forced to buy into a plan. That's a program aimed at helping the insurance company who don't need the help, not the individuals who do need help.

What to do? Any answer is going to appear hard-hearted and mean. . . Unless Solomon puts in a late appearance with another blockcuster suggestion.

[vl]

Insurance as an industry has exceeded its capacity to function as a viable service to the basic customer. Some aspects of coverage should become template with extensions purchased at a premium.
Try buying anything these days on a 0% promotion. Notice that you get billed for insurance that is touted as on a "trial" basis but you are required to call to cancel it. The insurer is gambling that most don't call and less engage in a pay-out situation.
America needs actual insurance, not bookie odds and gimmicks.