Another day another blog post with a lot of comments left so thank you for that. Working its way into yesterday's comments was a little bit more humor than the previous couple of days. So maybe a 6% lift in the last hour on Friday did do a lot to improve people's spirits.A couple of weeks ago I made a reference or two to a concept brought up by Dr. Brett called hindsight bias. An example of hindsight bias would be to look back over the last couple of years and say "well of course there was going to be a fill in your own description of the current mess."
A hindsight bias in the making might be what is being done to try to fix the various problems that exist. There is an article in this week's Barron's that goes down this path some; Has the Fed Mortgaged Its Own Future? The article is a look at the balance sheet of the Fed now versus before this started.
The first things I think of are inflation and higher interest rates. By extension then a weak dollar.
We are printing money which has consequences. Our status in the world could soften the blow that another country doing the same thing might face but soften the blow does not mean no blow whatsoever.
Lately the dollar has of course rallied and treasury yields have gone lower. This has been a reaction to the crisis and the mess that is every other part of the fixed income market besides treasuries. The willingness to buy dollars during a crisis and accept all time low yields supports to the idea of a softer blow.
This is far from a certainty as the Barron's article points to one warning sign that the debt issued to pay for all the bailouts and other acronyms may have a longer maturity. Toby Smith made a comment on Bulls and Bears about our kids and grand kids being the ones to bail us out not the US government. You've probably read things in the past about our debt being to big to ever pay off and now all the more so with what has been done and what is still to come.
Sort out your thoughts on these things and prepare for some portfolio changes over the next few years.
On a lighter note we are heading to Maui for a couple of days this morning. Anyone reading this blog for a couple of years may know of my fondness for a particular sporting event that occurs during Thanksgiving week. I hope to have a couple of interesting pictures in the next couple of days. Today's picture is from Molokai.
8 comments:
Roger--Be sure to read Bonds May No Longer Rule from Doug Kass over at thestreet.com. He lays out how he sees the stars aligning on these issues. FWIW, I think he's got it right.
"We are printing money which has consequences."
If it's like the 80's doesn't that
mean much higher interest rates?
Also, don't we have to retest the
New lows?
We have always lived below our means also, but I hit a new
"below" the other day. Checking
out of Building 19 (since you
are from Boston, I thought you
would enjoy this comment) I
looked in my little basket an
asked myself if I really NEEDED
everything in it. LOL
Enjoy the islands Roger, we have
been there many times...never tire
of the beauty.
Roger: Can you pleae tell us what you think of the ETF 'GLD'? Is Gold a good place to park our cash instead of keeping it in cash?
Kind of a what did you know and when did you know it problem.
Credit default swaps pretend to be connected to securities with some value as collateral. They aren't. They are pure gambling.
A CDS does not have a real connection to a security with real collateral behind it. That security and the collateral do exist - a securitized collection of subprime mortgages, for example - but, the CDS has no claim to the security that it tracks. CDS looks like a fantasy football league where every player can be replicated endlessly.
So, when the subprime mortgage based securities blew up the entire fantasy market blew up, too. That market is many times the size of the real market.
Who knew? When Lehman failed it was a grenade in the CDS market. Hindsight says Lehman should have been saved but, who knew the extent of the fantasy CDS market? Even Dick Fuld, sitting on top of Lehman didn't know. He watched his personal fortune of $708 million drop to zero in less than six months.
Looking at this with back of envelope, pencil, and slide rule (I'm old school, OK?) most to all of the subprime mortgages could have been bought with the money we are going to spend fixing the CDS mess.
Subprime is a mess but, it took the smartest guys in the room to work out the financial engineering that made it into a world altering mess.
Geez, we get a little 500 point bump and everybody disappears.
Nah, just a heavy drinking weekend to compensate for the volatility.
I fear the government has only yet begun to spend. Sen. Shumer floated the idea of a $500b-$700b stimulus package this weekend, the Treasury is poised for another (Citigroup) huge bailout, abd the big 3 is likely to get a $25b downpayment before the end of the year. Keep in mind President-elect Obama's campaign promise of a trillion more in government spending.
There has to be an inflationary backlash at some point in the future, but when?
I'm getting madder by the minute......
I remember years ago when our CEO was replaced by a high-finance MBA. He had no background in engineering. I thought "this is the beginning of the end". Needless to say, the company was taken over, the CEO made millions, and 35% of the staff lost their jobs.
Now we are witnessing the high-finance types that have wreaked havoc on the world. They led us to believe they were smarter than the average person....and they had computer programs to back-up their assumptions. That is like going to a doctor and having him operate on your brain for the first time by computer instructions. The government provided no protection because of the mantra "free economy" (in other words...do what you want and you'll probably get away with it.....especially if there are "rewards").
United States.....welcome to Germany..where the proverbial wheelbarrel of money became the norm. We now have our hands tied. I don't know if there is way out of this.
By the way.... I watched a special on China over the weekend....it's very eery how the communist party and the fight for power of the republicans and democrats are rather similiar. Whoever has the power...can get their way with the masses.
Post a Comment