My Pocket Just Got Picked

[d]

Quote:

Originally Posted by boont "Can you explain...where this money that was allegedly stolen from you (lower expected returns = theft, apparently) has gone?" Mark Twain Yes, read the Bill Gross essay on the PIMCO website. You are arguing with him, not me. He just explained to me where all that money went. b.

since the expected returns are future returns, apparently they haven't yet been stolen from you.

[d]

Quote:

Originally Posted by chinaco One thing is indisputable. The taxpayer got scr3wed and so did the investor. ... So we bail out the companies that scr3wed up and lowered the value of our investments.

if your reference is to the federal reserve actions over the past couple weeks and months, it ought to be pointed out that the FRS was not using taxpayer or government funds.

[ladelfina]

d, if you are referring to BSC.. the answer is, not yet.

Quote:

CNBC's Steve Liesman reports on a letter from Treasury Secretary Paulson to New York Fed President Tim Geithner. In the letter, Treasury agrees that the Fed can bill Treasury for any losses from the Bear Stearns deal.

Calculated Risk: Treasury Agrees to Absorb any Losses to the Fed from Bear Stearns

[deserat]

I see it as a really simple supply and demand - people are afraid of the higher risk areas due to the (I believe at times self-fulfilling prophetic after reading the WSJ for over a year now) 'crisis,' and so therefore are moving their money to what they consider safer investment areas...money markets - the WSJ has shown now for over a month the amount being invested in MM has continually increased. Higher demand means a lower yield - same a lower risk, lower yield; higher risk, higher yield. Heck, the WSJ has been screaming about the auction rate bond securities (didn't even know they existed) not being able to be priced because insitutions are unwilling to purchase them - people who had invested in those (actually, I think their financial planners or brokers invested in them) believed they were 'safe.' It all comes down to whether or not someone will buy it and at what price. Reminds me of visiting my girlfriend in Sea Ranch - we giggled that the hosue next to her had appraised at over a million and she had bought hers in the beginning for about $345K. We then both looked at each other and said, "well, a million if you can find someone to buy it for that."

[d]

Quote:

Originally Posted by ladelfina d, if you are referring to BSC.. the answer is, not yet. Quote: CNBC's Steve Liesman reports on a letter from Treasury Secretary Paulson to New York Fed President Tim Geithner. In the letter, Treasury agrees that the Fed can bill Treasury for any losses from the Bear Stearns deal. Calculated Risk: Treasury Agrees to Absorb any Losses to the Fed from Bear Stearns

this is very misleading. the Fed earns profit which is sent to the Treasury. should the Fed's profit be reduced (by whatever) the Treasury would receive a smaller distribution. the logic of CNBC quote would suggest that any parent who pays their child an allowance, is havings the parent's expenses subsidized by the child should those expenses occasionally cause the allowance to be skipped.

Quote:

"On behalf of the Department of Treasury, I support this action as appropriate and in the government's interest, and acknowledge that if any loss arises out of the special facility extended by the Federal Reserve Bank of New York to J.P. Morgan Chase, the loss will be treated as an expense that may reduce the net earnings transferred by the New York Fed to the Treasury general fund,"

[ladelfina]

d, the Children are us and the US Treasury.. and the Parent is the Fed!? yikes.

[d]

"the Children are us ": often appears that way

[ladelfina]

good thing our Fed daddies are so smart!

Quote:

Fed's Rosengren Calls Delay in Housing Recovery a `Surprise' By Anthony Massucci April 7 (Bloomberg) -- Boston Federal Reserve Bank President Eric Rosengren said the delay in a rebound of U.S. home sales continues to ``surprise.'' ... Rosengren said it's ``confounding'' that housing shows little sign of recovery after the Fed's six interest-rate reductions since September. Fed officials are in the eighth month of a credit crisis that began with rising delinquencies on subprime mortgages.

Bloomberg.com: Worldwide

[boont]

"I've had trouble understanding his economic-policy logic" Nords

That I don't doubt, he being a billionaire, having made his money understanding these things.

b.

[barbarus]

Quote:

Originally Posted by ladelfina good thing our Fed daddies are so smart! Bloomberg.com: Worldwide

Rosengren isn't stupid, he's lying.

[boont]

Shifting the Burden


"One question is, why investors have been historically willing to hold government bond instruments that have yielded not only relatively low but also highly volatile ex post real rates of return. This source of cheap finance can clearly give governments in advanced countries considerable latitude in postponing needed fiscal adjustment and ultimately shift the burden of future adjustment to holders of such long term instruments pension funds and baby boomers among them. Given the well-known inverse relationship between the bond rates and equity returns, such historically low real rates of return on advanced countries’ long-term bonds also suggests that, by and large, the equity risk premium puzzle effectively boils down to a low treasury bond rate puzzle. Fully explaining the latter thus could well be a critical task for analytical and policy-related work in international finance in the years to come."

Another consequence of low rate distortions occurs in the so called "carry trade".
In a carry trade, a trader borrows dollars from a bank, converts the funds into Icelandic krona, for example, and buys an Icelandic bond for the equivalent amount. If the bond is paying 15%, and the American interest rate is just 2.25%, the trader can make a profit off this differential, a whopping 12.75 percentage points.

Traditionally, the Japanese yen has been the currency of choice for a carry trade because the interest rate is close to zero. But as the Japanese currency has been strengthening, and the Federal Reserve continues to slash rates, investors are now looking at the dollar as a replacement currency. "It is pretty pathetic that the world's reserve currency is now being used as the carry trade currency," an investment strategist at Miller Tabac + Co., Peter Boockvar, said.

boont

[Nords]

Quote:

Originally Posted by boont "I've had trouble understanding his economic-policy logic" Nords That I don't doubt, he being a billionaire, having made his money understanding these things. b.

There's also the possibility that he's made his money by understanding the bond market, not economic policy, and that he's enriched himself by taking a few basis points of a big chunk of money while being the bond equivalent of a coin-flipping monkey. He'd be more like Bogle or Lynch than like Volker or Greenspan, and his writings are more marketing than post-doc thesis work.

Speaking of Greenspan, there's almost as much of a cult following trying to interpret what the heck Gross has said. I don't give smart guys extra bonus points for being obtuse or prolix-- only for explaining themselves clearly. Gross isn't in a position to have a policy-setting record like Greenspan and can only be judged on his writing, which is largely full of flawed analogies and semi-coherent metaphor.

I'm still waiting for his Dow 5000 prediction, too.