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Posted 08 March 2003 - 02:26 AM
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Going Down?
short-term rates
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#2
Pigeon Drop 
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Posted 08 March 2003 - 03:39 AM
They are pricing in 25bp down on fed funds. The thing is, the lousy money market funds, the ones with high expense ratios, usually offered by full service brokers and low volume fund families, are currently yielding under 50bp. After this change, they would be yielding close to zero. The interest collected would be equal to the expenses. So they would need to either close the fund or cut their expenses. Bill Gross has talked about this and said Alan G doesn't really want to put them out of business, but that is what it would do. Hard to sell someone a money market with a negative nominal return if it came to that, better to close the fund.
It may get to a point where we have to start paying someone to keep our short term cash safe for us, negative interest rates on demand deposits?
It may get to a point where we have to start paying someone to keep our short term cash safe for us, negative interest rates on demand deposits?
#3
ThorAss
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Posted 08 March 2003 - 04:12 AM
Time to buy Gold and silver. Not going to be on sale at these prices for much longer. As the dollar continues it's plunge the l10 year bonds will have to go up to attract capital. When that happens we are going to start to unravel fast. Get ready!
Like Hyper the Tiger says "Fill your tank now!"
Like Hyper the Tiger says "Fill your tank now!"
I have many opinions; but I strive not to act on them.
#4
DogBoy
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Posted 08 March 2003 - 12:16 PM
Tha JAPS have been putting their money in something they call "the post office".
You put your money there and pay a small fee to store it.
It never goes anywhere or gets loaned to anyone.
They have BILLIONS of yen just parked there.
The IMF said last year that JAP money hording is a problem.
They tried to devaule the YEN but middle aged jap men started pulling their Maximas up to gold dealres and walkin with kilo bars of the stuff.
Gold soared last spring because of JAP buying and then Da Boyz decided they didn't like what they saw and the Yen magically strengthened again.
The BIG question is what Americans will do with their dollar when Uncle B starts croaking ?
If they buy Gold even in small numbers Gold could go to "Da Moon Alice".
As for the Gold market I can't imagine a more explosive upside potential given what's going on in the world.
To most people it isn't logical that Gold could go to something like $1500/oz but then in the early 90's you'd have been laughed at if you said the NAz would go to 5000.
In runaway Bull markets there is no logic to it ---- if stop and think about it too long you'll miss it.
That's probably the main reason that many folks (even on this site) will completely miss the Bull market in Gold --- they just think too much.
If you would have thoughtfully considered the merits of the NAZ in the early stages of that Bull market you'd have never pulled the trigger and bought it.
I saw a ABC 20/20 program a few years ago where simple folks like mailmen and plumbers became millionaires by just accumulating tech stocks thruout the 90's.
Babwa intervied them and I can tell you that they werre anything BUT market experts.
You can be dumb as a rock and make money in a secular bullz market --- in fact that's probably the most likely wayto make money in a bull market.
Betting on things going down however is HARD --- it's tough work and risky.
You put your money there and pay a small fee to store it.
It never goes anywhere or gets loaned to anyone.
They have BILLIONS of yen just parked there.
The IMF said last year that JAP money hording is a problem.
They tried to devaule the YEN but middle aged jap men started pulling their Maximas up to gold dealres and walkin with kilo bars of the stuff.
Gold soared last spring because of JAP buying and then Da Boyz decided they didn't like what they saw and the Yen magically strengthened again.
The BIG question is what Americans will do with their dollar when Uncle B starts croaking ?
If they buy Gold even in small numbers Gold could go to "Da Moon Alice".
As for the Gold market I can't imagine a more explosive upside potential given what's going on in the world.
To most people it isn't logical that Gold could go to something like $1500/oz but then in the early 90's you'd have been laughed at if you said the NAz would go to 5000.
In runaway Bull markets there is no logic to it ---- if stop and think about it too long you'll miss it.
That's probably the main reason that many folks (even on this site) will completely miss the Bull market in Gold --- they just think too much.
If you would have thoughtfully considered the merits of the NAZ in the early stages of that Bull market you'd have never pulled the trigger and bought it.
I saw a ABC 20/20 program a few years ago where simple folks like mailmen and plumbers became millionaires by just accumulating tech stocks thruout the 90's.
Babwa intervied them and I can tell you that they werre anything BUT market experts.
You can be dumb as a rock and make money in a secular bullz market --- in fact that's probably the most likely wayto make money in a bull market.
Betting on things going down however is HARD --- it's tough work and risky.
#5
speculator
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Posted 08 March 2003 - 03:28 PM
Americans will not buy gold because the dollar tanks. Why would they? Most americans dont even think about currency issues (unlike other nations). The US dollar is the worlds reserve currency most americans think its real money.
The only way americans will buy gold in mass is when the mainstream financial planners start to use gold as an investment again. Dont hold your breath.
The only way americans will buy gold in mass is when the mainstream financial planners start to use gold as an investment again. Dont hold your breath.
#6
machinehead
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Posted 08 March 2003 - 04:06 PM
If you compare the 1.1% T-bill yield to the 2.6% increase in CPI over the past 12 months, the real interest yield on the T-bill is MINUS 1.5% ... PRE-TAX.
For a taxable entity, the government will heap insult on injury by taxing away another 0.45% of that pitiful 1.1% yield, delivering an after-tax return of just above MINUS 2%.
Why would anybody "invest" with the expectation of losing 2% of their purchasing power? The only answers I can propose are "manipulated market," "flight to safety," and "lack of alternatives."
Practically speaking, the negative 1.5% real yield is similar to the levels that prevailed in 1973 and in 1976-80 (see chart below). Those were lousy years for stocks, but great, great years for gold and real estate.
A negative real yield means that if you can invest in something that offers a return as high as the CPI (+2.6%) or better, you can make huge arbitrage profits. Treasury bonds do that without credit risk, but they certainly have principal risk, as does virtually everything else with decent yields.
Nevertheless, despite principal risk, if people think real assets will offer positive total returns and a hedge against rising inflation, then a negative real yield is a flashing neon sign saying "LEVERAGE UP AND BUY REAL ASSETS FOR NOTHING DOWN."
image courtesy of: http://www.martincapital.com
For a taxable entity, the government will heap insult on injury by taxing away another 0.45% of that pitiful 1.1% yield, delivering an after-tax return of just above MINUS 2%.
Why would anybody "invest" with the expectation of losing 2% of their purchasing power? The only answers I can propose are "manipulated market," "flight to safety," and "lack of alternatives."
Practically speaking, the negative 1.5% real yield is similar to the levels that prevailed in 1973 and in 1976-80 (see chart below). Those were lousy years for stocks, but great, great years for gold and real estate.
A negative real yield means that if you can invest in something that offers a return as high as the CPI (+2.6%) or better, you can make huge arbitrage profits. Treasury bonds do that without credit risk, but they certainly have principal risk, as does virtually everything else with decent yields.
Nevertheless, despite principal risk, if people think real assets will offer positive total returns and a hedge against rising inflation, then a negative real yield is a flashing neon sign saying "LEVERAGE UP AND BUY REAL ASSETS FOR NOTHING DOWN."
image courtesy of: http://www.martincapital.com
"GOLD -- it's not just for misers anymore."
"Dollahs -- fire-starters for the K-wave winter." - Drano
"Three humps and a dump." - anotherone, 21 SEP 2004
"No gold was harmed in the making of this movie." - Bizarro Greenspan
[i]"Da Track. Da place where Morons bet on Animals Controlled by Criminals." - our jickiss
"Dollahs -- fire-starters for the K-wave winter." - Drano
"Three humps and a dump." - anotherone, 21 SEP 2004
"No gold was harmed in the making of this movie." - Bizarro Greenspan
[i]"Da Track. Da place where Morons bet on Animals Controlled by Criminals." - our jickiss
#7 Guest_yobob1_*
Posted 08 March 2003 - 05:53 PM
Quote
"LEVERAGE UP AND BUY REAL ASSETS FOR NOTHING DOWN."
In a "safer" environment I'd be right in there swinging with you. Unfortunately revenue streams to service the leverage are questionable for most people. I simply won't take on any debt right now or in the foreseeable future. There is also the risk you choose the wrong real asset. Doing so with leverage would almost guarantee you receiving a royal screwing at your own hands. No, that does not qualify you to receive the Master Baiter position on a fishing boat.
In reading the classified section today ran across two practically new motor homes for sale. Both were over priced and probably reflected the amount owed more than any realistic attempt to mark to market. Reason for selling? Laid-off. Oddly many units were also offered for sale due to poor health. Yeah like the're sick of making payments on an asset that's worth less than the pay-off. Tons and tons of late model stuff for sale. Trucks, boats, RV's, ATV's etc., etc. There's a payment book behind every one of them I'll bet you and most can't be sold for enough to cover the pay-off. Wait till spring arrives and the selling fever really hits. Oddly there are almost no jobs offered that pay more than about $8 an hour and not many of those. Hmmm...wonder what's going on?
#8
Bird D Durr
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Posted 08 March 2003 - 06:18 PM
Can't wait to buy a $250K house for around $75K in about 18 months or less....................
What a joke....................buy some silver...............and wait..............
What a joke....................buy some silver...............and wait..............
#9
Yoshaviah
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Posted 08 March 2003 - 10:21 PM
If I am reading this right gold has been gaining against bond yields, which means that it has been losing against the principal. The only way the US has been able to protect itself from a selloff in US Treasuries is by lowering rates and dumping gold. The longer the real rate stays in the negative the more investors will be likely to look for other alternatives. Notice how the US has made sure its stock market does not fall faster than those in rest of the world. This they do to offset the effect of a falling dollar.
#10
Pigeon Drop
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Posted 09 March 2003 - 12:09 AM
Seems if you believe we will have hyper inflation then you can simply buy TIPS or I-bonds and get a guaranteed real return above inflation, whatever it is. If there is no inflation you get the paltry real return only. If there is deflation you are further protected in that you get your money back.
The real stories I can't understand here are the people who think gold is going to $15K per oz, while we have massive deflation in everything else. I can't see massive deflation, all the people out of work, no one with any cash, and gold skyrockets.
The real stories I can't understand here are the people who think gold is going to $15K per oz, while we have massive deflation in everything else. I can't see massive deflation, all the people out of work, no one with any cash, and gold skyrockets.
#11 Guest_yobob1_*
Posted 09 March 2003 - 07:57 AM
The problem with inflation indexed govt. notes is the govt. controls the statistics that determine your rate of return, as well as all inflation adjusted govt. payments such as Social Insecurity. Of course we all know how silly it is to think that our govt. would ever resort to lies, fabrications or distortions to reduce it's obligations.
It remains to be seen where gold goes. The dollar price of gold is irrelevant. Gold is the constant and the dollar is the variable. That said, gold IMO is currently undervalued or "on sale" if you like. Just using the simple facts that at the turn of the previous century when gold and paper were both circulated interchangeably, gold was priced at about $20 per ounce. From that point in time the purchasing power of the dollar has declined by at least 95%. Simple math yields the following result:$20/.05=$400. There is substantial evidence that can be shown that even after FDR devalued the dollar (by raising the price of gold to $35) that the dollar has actually lost at least 95% of it's purchasing power from that point. That equation yields a $700 POG. If you really want to go for broke all you have to do is slightly change your assumption on lost purchsing power (which is not consistent across all commodities or goods) to say 97% and using the same $35 per ounce pricing you find the yield to be $1166.
The price of a new model T in 1927 was $295. Ford's current lowest price car is the Focus with a base price of $13,280. It takes less time to construct the Focus due to advances in technologoy and productiivty. Raw material input is a lower percentage of the vehicle value. I view time(labor) as the ultimate price arbiter so I think even though the two vehicles are vastly different, both represent the value of the dollar in that for each they are the "best" that can be acheived in terms of basic transportation value. Dividing the $295 by the $13,280 = 2% or a 98% loss of purchsing power when gold was priced at $20. This yields a POG of $1,000.
So perhaps gold needs to rise to somewhere in the $1,000 range to equate to the current purchasing power of the dollar. The un-answered question at this point is what happens to the value of the dollar. If deflation is the near term outcome, gold should end up somewhere between $400 and $1,000. If this ends up in hyper-inflation, as it may well when fiat becomes discredited on a global basis, literally the sky is the limit.
In the near term there appears to be room for some appreciation in the purchasing power of gold. The price of gold has been artificially surpressed either through neglect (dominance of fiat) or manipulation. Once it achieves that level ("fair value") it should provide purchasing power stability. The missing part of the equation is the speculative sector which could easily drive the purchasing power of gold beyond "fair value". What one does, should that occur, will depend entirely on personal perspectives, current conditions and immediate needs.
It remains to be seen where gold goes. The dollar price of gold is irrelevant. Gold is the constant and the dollar is the variable. That said, gold IMO is currently undervalued or "on sale" if you like. Just using the simple facts that at the turn of the previous century when gold and paper were both circulated interchangeably, gold was priced at about $20 per ounce. From that point in time the purchasing power of the dollar has declined by at least 95%. Simple math yields the following result:$20/.05=$400. There is substantial evidence that can be shown that even after FDR devalued the dollar (by raising the price of gold to $35) that the dollar has actually lost at least 95% of it's purchasing power from that point. That equation yields a $700 POG. If you really want to go for broke all you have to do is slightly change your assumption on lost purchsing power (which is not consistent across all commodities or goods) to say 97% and using the same $35 per ounce pricing you find the yield to be $1166.
The price of a new model T in 1927 was $295. Ford's current lowest price car is the Focus with a base price of $13,280. It takes less time to construct the Focus due to advances in technologoy and productiivty. Raw material input is a lower percentage of the vehicle value. I view time(labor) as the ultimate price arbiter so I think even though the two vehicles are vastly different, both represent the value of the dollar in that for each they are the "best" that can be acheived in terms of basic transportation value. Dividing the $295 by the $13,280 = 2% or a 98% loss of purchsing power when gold was priced at $20. This yields a POG of $1,000.
So perhaps gold needs to rise to somewhere in the $1,000 range to equate to the current purchasing power of the dollar. The un-answered question at this point is what happens to the value of the dollar. If deflation is the near term outcome, gold should end up somewhere between $400 and $1,000. If this ends up in hyper-inflation, as it may well when fiat becomes discredited on a global basis, literally the sky is the limit.
In the near term there appears to be room for some appreciation in the purchasing power of gold. The price of gold has been artificially surpressed either through neglect (dominance of fiat) or manipulation. Once it achieves that level ("fair value") it should provide purchasing power stability. The missing part of the equation is the speculative sector which could easily drive the purchasing power of gold beyond "fair value". What one does, should that occur, will depend entirely on personal perspectives, current conditions and immediate needs.
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