Bond Market Matters
Searching for Yield: At Any Cost?
by Kieran Osborne CFA on Wed, 8 Sep 2010
In an environment with historically low interest rates, fixed income investors have been pouring money into longer-duration securities, substituting 3 and 6 month T-Bills with 10-year Treasures or bond funds. To an extent, this should not be so surprising: the Federal Reserve’s (the Fed) extraordinary monetary policies have resulted in extremely low yields at the short end of the yield curve. Investors seeking yield have been forced out the yield curve or into increasingly risky investments in an attempt to gain higher investment returns. However, this is not a strategy without risks, both at the individual investor level and for the economy as a whole. Are the Fed’s monetary policies, combined with the government’s decision to issue increasing levels of longer duration debt, having the unintended consequence of stoking the fire for further financial stress?
Comparing Historical Bond Yields to the S&P Composite Dividend and Earnings Yields; and Is Silver Breaking Out?
by Ronald Griess on Wed, 8 Sep 2010
The following chart compares Moody’s Aaa bond yields with the dividend yield of the S&P Composite. Notice that stock yields remained above bond yields from 1929 until the mid 1950’s.
5 Doomsday Scenarios for the U.S. Economy
It's been a brutal summer for the economy. The housing sector, like a balloon batted in the air one last time by the government credit, resumed its inevitable fall. Economic growth slowed to a lead-footed 1.6 percent, and job growth is even more anemic. Meanwhile, consumers are cranky, the trade gap is gaping.
Most signs point to a slow and steady recovery, but what if the pessimists are right, again? What if the United States isn't in the slow-lane to recovery, but rather on the precipice of another decline -- a double dip?
To see where this re-recession might begin, my colleague Dan Indiviglio and I imagined five financial earthquakes, each with a single epicenter: housing, consumers, toxic assets, Europe, and the debt. The following five scenarios are listed in order of likelihood.
Europe Lighting the Fuse on Powderkeg of Debt
The Financial Times is reporting that "Fears are begining to rise as EU nations aim to raise borrowing.
We are speachless. Don't they have a financial crisis that based almost entirely on sovereign debt? Didn't leverage their economies on borrowing and now have to put in place drastic austerity measures in order to remain solvent? To the article:
Moving into Bonds: From Frying Pan to Fire
In light of the recent articles we have published on the problems with bonds, our friends at Casey Research put out a brief (but good article) on the subject.
Should US government debt be rated junk?-Fortune Magazine
In a recent article by CNNMoney/Fortuney Magazine , the investment research firm Hedgeye asks the question if the United States debt should be down grated to junk status. We have discussed such a thing ad Nauseum, but find it interesting that main stream media is finally catching on.
Fed Looking to Ramp Up the Printing
In today's New York Times, the economic lead article chips in on how the Fed is going to take bolder steps:
read more...Rating Agencies Start to Warn About U.S. Debt
Yesterday, Bloomberg reported that Morgan Stanley views that a government default on U.S. debt is inevitable.
Investors face defaults on government bonds given the burden of aging populations and the difficulty of increasing tax revenue, according to a Morgan Stanley executive director.
read more...
California Delaying 2.9 Billion in School Payments Due to Budget Impasse
We can't make this stuff up. Yesterday we reported How Do Cities Go Broke? By Building $578 Million Dollar Schools. Late last night Bloomberg reports that California delays 2.9 billion school and county payments due to budget impasse.
read more..."California will delay paying $2.9 billion of subsidies to schools and counties in September, a month earlier than projected, to save cash amid an impasse that has left the state without a budget for 54 days.
The state’s top financial officials -- the controller, treasurer and finance director -- told lawmakers today that the 90-day deferrals need to start next month instead of October to make sure there’s enough money to pay bondholders. The amount is in addition to $3.2 billion the state pushed back in July.
