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Buffett hints at bond bubble
Old 10-05-2010, 03:18 PM   #1
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Buffett hints at bond bubble

Buffett hints at bond bubble - Street Sweep: Fortune's Wall Street Blog


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Buffett, speaking Tuesday at Fortune's Most Powerful Women Summit in Washington, said it's "quite clear stocks are cheaper than bonds" now. He added that he "can't imagine" the rationale for adding bonds to your portfolio at current prices.
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Old 10-05-2010, 06:20 PM   #2
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I wouldn't mind seeing a stampede to stocks. Or, are we already seeing that?
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Old 10-14-2010, 05:44 PM   #3
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I agree with Buffett. My port is sitting pretty much at 70% stocks and 30% fixed income. Today there is far more downside to owning bonds vs stocks. When interest rates go up (i.e. bond prices get cheaper) I´ll sell stocks and buy bonds.
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Old 10-14-2010, 05:47 PM   #4
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Originally Posted by temsike View Post
Today there is far more downside to owning bonds vs stocks.
Do you have the ability to see the future with absolute certainty, or is the above a statement of your personal opinion?
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Old 10-14-2010, 05:48 PM   #5
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Today there is far more downside to owning bonds vs stocks.

I thought so too, until lately.

Now I started to worry about the Mortgage foreclosure crisis costing another few trillion $ and bringing the economy to it's knees. in that case stocks may lose big time.

Nothing is safe anymore. I think I'll go dig a hole to live in.
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Old 10-14-2010, 05:59 PM   #6
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Does this mean I should rethink my plan to max my Roth on Jan 2nd with all of it going to Wellesley?
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Old 10-14-2010, 06:04 PM   #7
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Does this mean I should rethink my plan to max my Roth on Jan 2nd with all of it going to Wellesley?
I guess it depends on where you think interest rates are going and how the fund managers are invested. Maybe Wellington would be a better choice.
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Old 10-14-2010, 06:12 PM   #8
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I thought so too, until lately.

Now I started to worry about the Mortgage foreclosure crisis costing another few trillion $ and bringing the economy to it's knees. in that case stocks may lose big time.

Nothing is safe anymore. I think I'll go dig a hole to live in.
I took some profits yesterday and put the proceeds into CD's. As Will Rogers once said: "I'm more concerned with the return OF my money than the return on my money."
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Old 10-14-2010, 06:15 PM   #9
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Is this the DMT thread?
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Old 10-14-2010, 06:49 PM   #10
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I took some profits yesterday and put the proceeds into CD's. As Will Rogers once said: "I'm more concerned with the return OF my money than the return on my money."
Would this be the same money that is being created out of thin air at mind boggling rates to prop up a sputtering GDP number while loosing it's value and credibility along the way?
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Old 10-14-2010, 08:53 PM   #11
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I took some profits yesterday and put the proceeds into CD's. As Will Rogers once said: "I'm more concerned with the return OF my money than the return on my money."
I understand what you are saying. But man, CD rates are some kind of bad. I am so grateful to have stumbled on Pen Fed's 5% special they were running just a short time ago. Fortunately, that will take care of some cd's maturing in my brokerage account. But next year, who knows............
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Old 10-14-2010, 09:54 PM   #12
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Originally Posted by temsike View Post
I agree with Buffett. My port is sitting pretty much at 70% stocks and 30% fixed income. Today there is far more downside to owning bonds vs stocks. When interest rates go up (i.e. bond prices get cheaper) I´ll sell stocks and buy bonds.
There are some financial professionals who believe that the 10-year will get down to yielding 1.6% before finally hitting the lowest rate. If so, bonds will continue to appreciate for a while.

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Old 10-14-2010, 10:56 PM   #13
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I have my eye on this as well...since I've been holding bond funds the last year or so as well as 60% in CD's paying 5%. Started rotating some into stocks at the end of August. and am wondering whether to do more.
Looks like the FED is going to buy about 500 billion in Treasuries with a 2nd push of easing hoping to drive the yield down a bit further. Their goal is to get people out of Treasuries and into buying stocks. Why? Because when stock prices go up, we consumers will feel more wealthy and begin to spend. I suppose some might but others of us have a different spending plan. The Feds effort along with the November mid terms makes me think November is likely to be a huge stock month.
I wouldn't put it past the Fed or the Administration to have asked Buffett to come out with those statements to "help" stimulate the economy a little bit.

But ...it may not work or may only work temporarily. The Fed really doesn't know..
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Old 10-15-2010, 04:53 AM   #14
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Looks like the FED is going to buy about 500 billion in Treasuries with a 2nd push of easing hoping to drive the yield down a bit further. Their goal is to get people out of Treasuries and into buying stocks. Why? Because when stock prices go up, we consumers will feel more wealthy and begin to spend. I suppose some might but others of us have a different spending plan. ...

The stock prices goal is not my read on it.

Most assets are compared (financial calculations) against the riskless asset (very short treasury is the proxy). So the risk reward trade-off changes which might cause stocks to go up.... "Take the risk for better return". Of course there is speculation around it and the hopes of big gains due to a turn around.


What I read was the QE 2 is to try to grow the economy by making money cheap to borrow.... but the underlying political goal is the hope it will in turn turn around unemployment... which in turn is needed to drive the economy up (consumers buy).

The problem is it is that money is already cheap and cannot get much cheaper.

Some seem to believe that QE 2 will not fix unemployment (in the near term)... they believe we are experiencing a structural realignment (in labor)... The bubble created an artificial demand for certain jobs... those jobs may come back sometime in the future, but it will be awhile. Plus, many of those people cannot shift into the job demand that is available (and will grow), because it requires training which takes time and effort (e.g., health care and technology).


At this point, no one really knows!


While I have optimism that America can pull out of this... the question is; Will it work and how long will it take! Will we stagnate and/or slide into another recession?
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Old 10-15-2010, 07:31 AM   #15
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Those points you made above were also made ...in the Wall Street Journal article and I agree. The stock price appreciation is not the only goal...but it seems to be one of them.
As I read the words...."the Fed hopes to chase investors out of Treasuries and into riskier securities ...like stocks"...hoping as stock prices go up, households will feel richer and business executive perkier so they'll spend more ".
Bernake seems to be thinking our problems are cyclical rather than structural....(or at least he doesn't seem to want to admit publicly we have deep structural problems and who can blame him.)....which is supposedly the only environment in which quantitative easing will work...according to what I read anyway.
I agree with you in that I think it is structual or perhaps a combination of both.
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Old 10-15-2010, 08:57 AM   #16
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I understand what you are saying. But man, CD rates are some kind of bad. I am so grateful to have stumbled on Pen Fed's 5% special they were running just a short time ago. Fortunately, that will take care of some cd's maturing in my brokerage account. But next year, who knows............

To be clear, I only sold a small amount. I had planned to rebalance at S&P 1200 and decided I was close enough at 1172. I have my eyes on some toys in 2011 and decided to raise some cash. I would rather sell into a rally than the reverse.
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Old 10-15-2010, 09:15 AM   #17
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Has anyone heard that different countries are imposing a tax on purchases of their country-issued bonds by foreign investors? Apparently the logic is that if foreign investors are buying a country's bonds, that strengthens its currency and leads to lower exports.
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Old 10-15-2010, 10:39 AM   #18
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Has anyone heard that different countries are imposing a tax on purchases of their country-issued bonds by foreign investors? Apparently the logic is that if foreign investors are buying a country's bonds, that strengthens its currency and leads to lower exports.
Yes, Brazil has that tax and China has exchange controls. Money may find its way around these blocks but with added expenses for retail investors.
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Old 10-15-2010, 11:15 AM   #19
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The stock prices goal is not my read on it.

Most assets are compared (financial calculations) against the riskless asset (very short treasury is the proxy). So the risk reward trade-off changes which might cause stocks to go up.... "Take the risk for better return". Of course there is speculation around it and the hopes of big gains due to a turn around.


What I read was the QE 2 is to try to grow the economy by making money cheap to borrow.... but the underlying political goal is the hope it will in turn turn around unemployment... which in turn is needed to drive the economy up (consumers buy).

The problem is it is that money is already cheap and cannot get much cheaper.

Some seem to believe that QE 2 will not fix unemployment (in the near term)... they believe we are experiencing a structural realignment (in labor)... The bubble created an artificial demand for certain jobs... those jobs may come back sometime in the future, but it will be awhile. Plus, many of those people cannot shift into the job demand that is available (and will grow), because it requires training which takes time and effort (e.g., health care and technology).


At this point, no one really knows!


While I have optimism that America can pull out of this... the question is; Will it work and how long will it take! Will we stagnate and/or slide into another recession?

When I first read this I was wondering what a old big ship had to do with the Fed.... silly me


Now that I have read a few articles.... I saw a line in there that seemed to bring it all to a point with me... they are trying to increase inflation!!! If you think that inflation will be going up, you have more incentive to buy that 'something' now as opposed to waiting and seeing if the price will go down... and if they can get inflation back up to say 5%.... they get to pay off this debt with cheaper dollars... got to love the Fed...
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Old 10-15-2010, 11:38 AM   #20
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Forget what Buffet says about bonds, listen to what Bill Gross says about bonds...........
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