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Some good news amidst the panic...
Old 10-06-2008, 09:31 AM   #1
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Some good news amidst the panic...

Dollar Strengthens: http://www.nytimes.com/2008/10/06/bu...PXGASx50xR7f5g

While all of the equity investors are running around screaming, as a bond investor I seem to live in an alternative, much more calm and peaceful universe (for now ).

From my perch, as long as the dollar maintains its purchasing power and the yield curve doesn't get too far out of whack, I'm not overly concerned. The entirely deserved collapse of Wall Street will hit Main Street, and innocent people will suffer. However, as long as the gov't acts to strengthen the foundation of the economy - the taxpayer - rather than the parasitic and fragile superstructures built on top of the taxpayer, I'm not too worried. Eventually the gov't may come around to my point of view.

My favorite links:
Bloomberg.com: Key Rates
Bloomberg.com: Government Bonds
Bloomberg.com: Corporate Bonds
Bloomberg.com: Benchmark Currency Rates
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Old 10-06-2008, 09:33 AM   #2
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I called this many months ago when people were bailing out of the dollar in droves. It seemed obvious to me that the EU had many of the same problems as the U.S. economy and currency, and in some cases worse.

This is much less a bull run for the dollar as it is the tanking of the Euro and other currencies that momentum guys went into a few months ago.
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Old 10-06-2008, 09:44 AM   #3
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This is much less a bull run for the dollar as it is the tanking of the Euro and other currencies that momentum guys went into a few months ago.
Yes, the stunning misgovernment we've seen in Washington these last few weeks (months? years?) has me a bit worried. Is the U.S. gov't capable of trashing its currency as it tries to deal with the 'crisis'? Let's hope not. I don't see any such fears reflected in the current yield curve, which is steep but not unreasonably so by historical standards.
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Old 10-06-2008, 09:47 AM   #4
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Currently though the cost of insuring 1 million of US government debt has really gone up to where it is now $40,000 to insure for 1 year against default. Up from $30,000 on Friday. The idea that the Fed can buy it's way out of this is going to be sorely tested.
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Old 10-06-2008, 10:03 AM   #5
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At the rate the Fed is injecting money, I wouldn't be too confident about the strong dollar lasting.
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Old 10-06-2008, 10:12 AM   #6
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At the rate the Fed is injecting money, I wouldn't be too confident about the strong dollar lasting.
I don't think the Euro will be any better. Again, I don't think the dollar will be strong against precious metals and commodities, but I think it will hold its own relative to other fiat currencies in a liquidity crisis.
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Old 10-06-2008, 11:24 AM   #7
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The dollar should get stronger - interest rates are now not in sync.
The US Fed rate was lower than others - dollar weak
The others will be lowing their interest rates - dollar gets strong
The recession will end in the USA first - fed will raise rate - dollar gets stronger because the others will not at the same time as the US - they don't want to risk derailing their recovery.
Buy the euro when it is close to parity with the dollar - they will begin to raise rates - and the dollar rates will remain constant.
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Old 10-06-2008, 03:12 PM   #8
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Bill Gross argues below that the threat of inflation exists in the long-term but not in the short-term. I'm not so certain.

PIMCO - Investment Outlook Gross October 2008 Fear

My worry is the 'slippery slope'. After recklessly deciding that one course of action would 'fix' the American financial markets, the gov't may continue down this course far longer than it should, racking up gargantuan debts in the process.
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Old 10-07-2008, 08:31 PM   #9
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I don't see any such fears reflected in the current yield curve, which is steep but not unreasonably so by historical standards.
I forgot to mention something that has already been discussed on the ERBs elsewhere - the extremely high interest rate available from (for example) Vanguard's Tax-Free Money Market Fund: 5% as of today (5.5% yesterday). This isn't normal. What's strange is if you walk out along the muni yield curve, everything looks normal. It's just the extreme short end where we go highly inverted.

I'd like for muni short rates to get back to normal, indicating we've returned to a normal, liquid, short-term muni market. I expect modest increases in intermediate and long term rates, reflecting the current financial turmoil. I don't want any spikes in the intermediate or long rates, though.
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Old 10-07-2008, 10:45 PM   #10
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The other good news is that gasoline prices are down.
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Old 10-15-2008, 05:54 PM   #11
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Other good news: Both McCain and Obama suggested allowing retirees to remove $$ from an IRA or 401K penalty free. Although I think it's a lousy idea in general, if it's what it sounds like*, you could just remove the money when your tax bracket is low, and never pay much tax on it. Like a Roth conversion, only better.

*A big if.
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Old 10-15-2008, 06:00 PM   #12
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Other good news: Both McCain and Obama suggested allowing retirees to remove $$ from an IRA or 401K penalty free. Although I think it's a lousy idea in general, if it's what it sounds like*, you could just remove the money when your tax bracket is low, and never pay much tax on it. Like a Roth conversion, only better.

*A big if.
If you come across a link, I'd be interested in reading about it.

In related good news, I read that McCain suggested that those who are running into RMD's after age 70.5, should be permitted to not withdraw for a while until their stocks can recover. That way they won't have to sell low. I dont' have the link either, but I think it was the Washington Post.
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Old 10-15-2008, 06:02 PM   #13
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In related good news, I read that McCain suggested that those who are running into RMD's after age 70.5, should be permitted to not withdraw for a while until their stocks can recover. That way they won't have to sell low. I dont' have the link either, but I think it was the Washington Post.
In reality, a properly constructed portfolio shouldn't have to draw the RMD from stocks, but I guess that's beside the point. I think retirees should always have several years of withdrawals in "safer" stuff, and in times when the stock market is beaten down they can withdraw from the less volatile assets.

Someone who needs to sell stocks to meet an RMD in a bad market is *probably* invested way too aggressively.
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Old 10-15-2008, 06:05 PM   #14
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Good news! Paulson is on CNBC. He avoided saying we are in a recession, instead he said "we are clearly in a very difficult time." He's very confident the steps he has taken so far will stabilize the banking system. I'm so happy to hear that!

But, by the way, before the interview started Paulson was caught on camera waiting. He looked absolutely terrified. No kidding. I would be in his position.
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Old 10-15-2008, 06:12 PM   #15
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In reality, a properly constructed portfolio shouldn't have to draw the RMD from stocks, but I guess that's beside the point. I think retirees should always have several years of withdrawals in "safer" stuff, and in times when the stock market is beaten down they can withdraw from the less volatile assets.
Amazingly, right now it seems that many bond funds are getting their (ahem) kicked just as stocks are. Few might have had the foresight to predict that there would be such a decline, and the consequent run to treasuries.
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Old 10-15-2008, 06:14 PM   #16
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Good news! Paulson is on CNBC. He avoided saying we are in a recession, instead he said "we are clearly in a very difficult time." He's very confident the steps he has taken so far will stabilize the banking system. I'm so happy to hear that!

But, by the way, before the interview started Paulson was caught on camera waiting. He looked absolutely terrified. No kidding. I would be in his position.
Thanks! Tuning in. Yes, I would be too if I were him.
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Old 10-15-2008, 06:14 PM   #17
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Good news! Paulson is on CNBC. He avoided saying we are in a recession, instead he said "we are clearly in a very difficult time." He's very confident the steps he has taken so far will stabilize the banking system. I'm so happy to hear that!
This is EXACTLY when Paulson, Bush and Bernanke should be opening their mouths: when the U.S. market is CLOSED. The markets clearly have no faith in ANY of them as evidenced by the market routinely tanking as soon as they speak.

And it was already a foregone conclusion that today's action on Wall Street is going to tank Asia anyway, so you might as well have him talk when carnage is inevitable anyway.
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RIP to Reemy, my avatar dog (2003 - 9/16/2017)
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Old 10-15-2008, 06:21 PM   #18
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This is EXACTLY when Paulson, Bush and Bernanke should be opening their mouths: when the U.S. market is CLOSED. The markets clearly have no faith in ANY of them as evidenced by the market routinely tanking as soon as they speak.

.
Not just the markets. I wonder really if there is any American who wants to hear one more word from any Bush admin official, much less from the President himself.

Whoops! Sorry! this is supposed to be the happy thread.
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Old 10-15-2008, 06:45 PM   #20
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But, by the way, before the interview started Paulson was caught on camera waiting. He looked absolutely terrified. No kidding. I would be in his position.
Why? Do you think he's going to miss any meals over this?
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