Buffett hints at bond bubble

I wouldn't mind seeing a stampede to stocks. Or, are we already seeing that?
 
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.
 
Today there is far more downside to owning bonds vs stocks.
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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.
 
Does this mean I should rethink my plan to max my Roth on Jan 2nd with all of it going to Wellesley?
 
aaronc879 said:
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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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.
 
MasterBlaster said:
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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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.":LOL:
 
Bikerdude said:
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.":LOL:
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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?
 
Bikerdude said:
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.":LOL:
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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............
 
temsike said:
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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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.

Audrey
 
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..
 
sheehs1 said:
...
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. ...
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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?
 
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.
 
Dawg52 said:
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............
Click to expand...


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.
 
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.
 
Jay_Gatsby said:
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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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.
 
chinaco said:
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?
Click to expand...


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


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...
 
Forget what Buffet says about bonds, listen to what Bill Gross says about bonds...........:)
 
FinanceDude said:
Forget what Buffet says about bonds, listen to what Bill Gross says about bonds...........:)
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IMHO, don't ever listen to what Gross SAYS about bonds, he talks up a blue streak to suit himself, but pay close attention to what he DOES with bonds. He does know what he is doing but you wouldn't know that from his pronouncements.
 
yakers said:
IMHO, don't ever listen to what Gross SAYS about bonds, he talks up a blue streak to suit himself, but pay close attention to what he DOES with bonds. He does know what he is doing but you wouldn't know that from his pronouncements.
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I'd apply the same reasoning to Buffett, too.

The problem with Gross isn't so much what he says, as it is that he says so much*... and I'm pretty sure that most of his vocabulary isn't in the Scrabble Dictionary, either.


*[Yeah, yeah, I know... takes one to know one, OK?]
 
The problem with Gross is that it seems that he may say one thing, while his partner Mohamed El-Erian is doing the opposite. I am curious what people think Gross is saying about bonds now. I really don't know.

One of the talking heads on CNBC was making a pretty good case that we are seeing a sharp uptick in commodities which will soon translate to inflation at the retail level.

On the other hand Schwab just dropped the interest they were paying on their interest checking from .5% to .25% and the savings from .75 to .55%. The new Google price index is showing deflation in the US. I am hard pressed to imagine how the foreclosure mess will lead to anything other than lower housing prices in the intermediate term.
 
clifp said:
One of the talking heads on CNBC was making a pretty good case that we are seeing a sharp uptick in commodities which will soon translate to inflation at the retail level.
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Over the years I've learned to pretty much ignore the talking heads on CNBC. They are really just heads that talk. They don't know much and their future projections are usually way off. CNBC just has to fill air time for their advertisers and will bring on whomever - usually with whatever is the consensus opinion de jour. CNBC quit doing true financial journalism a long time ago (with the exception of David Faber).

By the way - talking heads on CNBC have been warning about commodity prices causing retail for years!

Audrey
 
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