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If the whole country is in debt how come........
Old 04-29-2004, 02:12 PM   #1
 
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If the whole country is in debt how come........

Money is so cheap. I have been thinking about this today in light of the basic law of Supply and demand.

So, if the whole country is in record debt (with the exception of us ER's), why are interest rates at record lows? There are no bargains in the Stock Market as it seems to be expensive as ever. So I am asking where is all the money coming from?

In pondering this question, I am wondering if the top 1% of the country is richer than ever and in essence are competing for a return on their money. Because it seems like everyone else is in debt.

Can anyone answer this Macro Financial Question?
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Re: If the whole country is in debt how come......
Old 04-29-2004, 04:28 PM   #2
 
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Re: If the whole country is in debt how come......

I don't know if I can answer your question, but I do know that money is so cheap I could borrow my way
through the remainder of my life easily. With my net worth plus my available credit, I can't imagine any way
I will not sail comfortably until my demise. It's raining
money folks. Enjoy it while it lasts.

John Galt
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Re: If the whole country is in debt how come......
Old 04-29-2004, 05:25 PM   #3
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Re: If the whole country is in debt how come......

Quote:
It's raining
money folks. *Enjoy it while it lasts.

John Galt
John,

Put a couple of old buckets out there for me, please. I'll pay the UPS charge for you to send it on to me.
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Re:  Ladies & Gentlemen, start your screeners.
Old 04-30-2004, 12:09 AM   #4
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Re:  Ladies & Gentlemen, start your screeners.

While I agree that it's not easy, it's not impossible.

We don't do much with mutual funds so I only have one recommendation there. Tweedy, Browne Global Value (TBGVX) is up about 50% off its 2003 low but they're still finding low-P/E stocks with low turnover. It's dropped a bit this week so it might be worth a look.

Novartis (NVS) just stopped chasing a French medical firm (Aventis) and rebounded nicely this week. This is one of the world's best drugmakers, on par with Pfizer, only not so subject to U.S. legislative issues. It's undervalued.

CostCo (COST) just initiated a quarterly dividend and some of their numbers look much better than Wal-Mart. It doesn't have Ben Graham's "margin of safety" but IMHO it's got a better moat than Wal-Mart, especially when you look at employee turnover & new store openings.

Speaking of going down, I wonder when Wal-Mart's burgeoning backlashes are going to cause more trouble than profits. It's like the NASDAQ-- you know it has to go down eventually but you can lose your shirt picking the dropoff date.

I just closed out a short on Janus (JNS) but it might be worth jumping back into for a drop from $15 to $13.

Infrasource spun off from Exelon last fall and is holding their IPO on 6 May. I have high hopes for this electrical-utility builder after last year's blackouts.

And let's not overlook the Google IPO!

There are 10,000 U.S. stocks out there, more U.S. mutual funds than that, and another 10,000 international stocks. If we weren't already fully invested, and on margin with CostCo, I'd be buying small-cap value index ETFs (like the S&P 600 value, IJS) and more Berkshire Hathaway. But there are dozens of ways to play this market-- I don't care whether it goes up or down, as long as it moves. And if it doesn't move, now we can collect cheap dividends!

John Galt, I guess this won't do much for you. But it's hard to believe that there's not vacant land somewhere that someone will want to build on someday.


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Re: If the whole country is in debt how come......
Old 04-30-2004, 04:09 AM   #5
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Re: If the whole country is in debt how come......

Quote:
Money is so cheap. I have been thinking about this today in light of the basic law of Supply and demand.

So, if the whole country is in record debt (with the exception of us ER's), why are interest rates at record lows? There are no bargains in the Stock Market as it seems to be expensive as ever. So I am asking where is all the money coming from?

In pondering this question, I am wondering if the top 1% of the country is richer than ever and in essence are competing for a return on their money. Because it seems like everyone else is in debt.

Can anyone answer this Macro Financial Question?
The Fed has been flooding the market with liquidity....they have the means to take care of the "supply" part of the equation. The cost ultimately might be higher inflation which will send long rates higher. I surely wouldn't want to have paid up for long dated treasures & corporates in that scenario...which I believe is already unfolding.
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Re: If the whole country is in debt how come......
Old 04-30-2004, 07:17 AM   #6
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Re: If the whole country is in debt how come......

Quote:
So, if the whole country is in record debt (with the exception of us ER's), why are interest rates at record lows?
Because high demand for *buying* debt means debt *prices* go up, which means interest rates go down.

Think about it: if you could borrow money from the fed at 1% and buy somebody else's debt that yields, say, 5%, would you? Of course you would, and those who can do. There's a tremendous amout of leverage in the system right now, which will add to volatility down the road.

Quote:
There are no bargains in the Stock Market as it seems to be expensive as ever.
Actually, everything's a bargain right now. P/E ratios have compressed (i.e., earnings have gone up this year, but stock prices haven't).
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Re: If the whole country is in debt how come......
Old 04-30-2004, 08:23 AM   #7
 
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Re: If the whole country is in debt how come......

I've read your response 6 times, I still don't understand it.
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Re: If the whole country is in debt how come......
Old 04-30-2004, 08:47 AM   #8
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Re: If the whole country is in debt how come......

Re: where to invest:

Value is in the eye of the beholder. Things are not as cheap as they were last year, but I have been putting some money to work lately. I think SGU is getting trashed somewhat unfairly and it looks quite attractive now, with a yield of over 10% and tax-advantaged to boot.

If you have a thick skin and can stand volatility, I think PPD is a steal. I just bought some more and it is now my largest position.

Look around and you will find places to invest if you are so inclined.
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Re: If the whole country is in debt how come......
Old 04-30-2004, 08:58 AM   #9
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Re: If the whole country is in debt how come......

C-T, I'm not sure which part you didn't understand or if you were even refering to my post, but I'll take a shot in the dark....

If you were to buy a treasury bond, you'd be buying debt of the US government. * The price you pay is a function of net supply and demand. * When demand exceeds supply, prices rise, as you would expect.

The effect of a higher bond price is a lower yield.

Currently bond yields are low. * Meaning prices are high. *Meaning demand is high.

Edited to add one more clarification:

You seem to be asking if loan demand is high, why are interest rates low and where is the money coming from. * For the most part, the answer is that consumer loan demand is irrelevant to interest rates, the money comes from banks who can borrow from the fed at 1%, and the money supply from the fed is infinite -- they just print more as needed.
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Re: If the whole country is in debt how come......
Old 04-30-2004, 11:18 AM   #10
 
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Re: If the whole country is in debt how come......

Quote:
The effect of a higher bond price is a lower yield.

Currently bond yields are low. Meaning prices are high. Meaning demand is high.
This is what I was talking about. If most everyone is in debt, why would the demand be high for bonds? Everyone seems to be borrowing not lending
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Re: If the whole country is in debt how come......
Old 04-30-2004, 01:16 PM   #11
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Re: If the whole country is in debt how come......

The US govt is the largest debtor. *When you buy a bond, you're lending the govt money. *The demand for treasury bonds establishes the baseline interest rate of concern to most of us: the risk-free rate.

The demand for treasuries is high. *Why? * Because foreign central banks buy our debt in order to keep our currency value high (so we can buy more trinkets from them). *And because banks hedge their mortgages by buying treasuries. * And because various investment houses use leverage by taking on cheap short-term debt and buying treasuries at a higher yield, taking in the spread.
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Re: If the whole country is in debt how come......
Old 05-01-2004, 04:38 AM   #12
 
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Re: If the whole country is in debt how come......

Well, here is my deal. I am basically a lender, not a
borrower. The only exception is where I can borrow
and reinvest, pocketing the spread. Also, I am
loaded up with real estate now, close to 50% of
total net worth. I know someone will make money
on all of it. It would be nice if that someone was me.
Anyway, I am quite comfortable with my position.
The other day I saw an ad for a small piece of land
nearby which I know well. Called the realtor just out
of curiosity. When I got off the phone my wife implied
that there would be marital discord if I bought it.
I opted for peace on the home front

John Galt
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Re: If the whole country is in debt how come......
Old 05-05-2004, 02:38 PM   #13
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Re: If the whole country is in debt how come......

Quote:
So, if the whole country is in record debt (with the exception of us ER's), why are interest rates at record lows?
It is not a free market. *Borrowers do not have to borrow from people who save money, the fed just prints more money and loans it out. *This creates inflation, which is why the dollar is worth only about 2 or 3 cents compared to when the fed was first started. *Most people don't bother saving any more because they get ripped off when they put money in the bank. *Banks don't have to pay enough interest to provide a real return after inflation and taxes because they don't really need depositors' money. *They can just borrow more newly printed money from the fed, and loan that out at a higher interest rate than the fed charges them.
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