Bond Market Bubble?
Offline We are nearing the end of the feds "twist" program I talked about back in September. As expected the program has flattened the yield curve in the bond market slightly raising short term yields and lowering long term yields. For the most part, the economy has made a big shrug-
GDP grew an uninspiring 2.2% the first quarter of 2012 a significant slow down from the 3% growth rate seen the fourth quarter of 2011 and well below most projections made by the "experts". Unemployment and lack of private investment remain persistent issues while inflation remains steady at 2.65% making most Americans poorer in terms of purchasing power. Residential real estate remains anemic, however, I do believe that we have hit the bottom in most areas.
Now what?
http://finance.fortune.cnn.com/2012/04/23/federal-reserve-rates-bubble/
Sheila Bair wrote an interesting article suggesting that we are in a bond bubble and the fed should start deflating it now gradually before it bursts. This idea isn't anything new, several economists outside of the mainstream have been harping about the bond market bubble for several years now and are generally brushed off as crazy doomsayers by the "experts", the same "experts" who told us housing prices could never collapse.
I believe we have been in a bond market bubble for about five or six years. It will collapse when inflation occurs at a quick enough pace that the fed has problems controlling it. This will be a significant problem for companies that are heavily invested in bonds such as banks. Since the fed has shown no indication of doing anything to deflate the bubble, and even doing quite a bit to inflate it, I think it is only a matter of time before the bond market bubble bursts and probably send us into another recession.
Unlike many of the people predicting this, I don't believe it will be worse than the housing/credit bubble because the bond market is fundamentally different. However it is salt on the wound of a struggling economy and our banks which have been struggling to remain solvent. The sad part is that the problem can be solved, but rather than making any serious attempt to deal with our financial problems our leaders are fighting over the stupid shit, pointing fingers and settling for short term measures that only patch things up a few months at a time.
Meanwhile, Americans will continue to live their lives in ignorance believing that these issues will magically disappear. I wish I knew a way to get Americans to want to learn how our economy works so that they would hold our representatives responsible come election day. Sometimes I just want to scream "WAKE UP" to our entire ignorant country. We live very comfortable lives right now, there is no guarantee that we will continue to do so in the future, especially when we continue to elect politicians who are either ignorant, negligent or corrupt.
If, if a white man puts his arm around me voluntarily, that's brotherhood. But if you - if you hold a gun on him and make him embrace me and pretend to be friendly or brotherly toward me, then that's not brotherhood, that's hypocrisy.- Malcolm X
- Login to post comments
First off, "bubble" in economic terms has happened many times throughout history. There was the Airline bubble in the 80s, the dot com bubbles in the 90s and a triple whammy with the housing/bank/ car bubble, that some black guy bailed them out of, his name escapes me.
So now you warn of a new "bubble".
HERE IS THE FUCKING CURE
Not in terms of conspiracy but in terms of climate. THE CLIMATE at the top has to change. It cannot be all about share holders and marketing and Ceos. It has to invest and build. It cannot rely on the top "guessing" and gambling and betting on both sides of the coin.
Your fucking attitude is so stupidly simplistic. "Get the government out of the way" which, when the people who have the money promote that idea and pay off the lawmakers who have set up the mess that we are in.
You advocate privatized profits and socialized losses, which is what "bubbles" end up costing the tax payers.
"We are a nation of Christians and Muslims, Jews and Hindus -- and nonbelievers."Obama
Check out my poetry here on Rational Responders Like my poetry thread on Facebook under Brian James Rational Poet, @Brianrrs37 on Twitter and my blog at www.brianjamesrationalpoet.blog
Yes, a bubble is when assets are artificially valued more than they are worth. It happens for a variety of reasons that cause investors to malinvest. In this case, as was the case in the housing/credit bubble one of the main drivers of the bubble is the low interest rate policy being pursued by the fed.
Lol, and you call my attitude "simplistic". Do you agree there is a bond bubble? Do you have a fucking clue of what the financial effects will be to you and the country in general if it pops? Saying "change the climate" means nothing. What actions should government do or stop doing to prevent the bubble? The article I linked to listed a specific action that I happen to agree with and have been supportive of for over a decade now.
Where have I ever advocated a socialized loss? I never supported any of the bailouts. I thought all the companies and banks we bailed out should have been allowed to go bankrupt.
If, if a white man puts his arm around me voluntarily, that's brotherhood. But if you - if you hold a gun on him and make him embrace me and pretend to be friendly or brotherly toward me, then that's not brotherhood, that's hypocrisy.- Malcolm X
RIGHT and by not bailing them out, the people who merely work for the assholes who caused the mess would be the ones who would have paid for it. So you'd be willing to kill the hostages. Don't bail them out, millions of innocent workers lose their jobs over the crimes of those at the top. Bail them out and we pay for it. IT IS advocating a blackmail system where you win even when you lose.
Name me one car or bank or wall street CEO who has been arrested. Name me the last time any of these big three were broken up through anti trust anti monopoly laws?
You are so unaware that your utopia bullshit "government always bad" does not work.
Your problem is and will aways be your stupid utopia delusion that the private sector will always do the right thing.
You keep pontificating about not liking either party but all you are to me is Libertarian strain of tea party and I hope you NEVER get to any semblance of power.
I didn't like the bailouts either, but the carnage that would have happened would have made the great depression look like Happy Days. The key is to look forward and prevent it from happening again. Under our current climate your attitude of "less government" wont work because idiots of your ilk are the ones who went around saying "trust me" which caused the mess in the first place.
No more of your bullshit, no more of your con game. No one is buying your bullshit anymore. I keep telling you that direct investment in higher wages and investment of health care to the worker and investment in local communities and lowering the pay gap is what will work. The only thing stopping that are deluded people like you who think the world will end if you have less of a profit. You want government off your back, THAT is the way to to it.
You "If I cant hold you hostage, I'll kill all the hostages", that is your economic view jackass, not mine. You advocate no rules no limits and "every man for themselves".
GAWAAAAA GAWAAAAH GAWAAAAH crybaby.
Stephen King is rich and he took advantage of our open market, just ike John Stewart and Stephen Cobert. I think once you get to that level, they know how to balance a checkbook as well as you. Stephen King is not poor and he is now on the growing bandwagon of "QUIT YOUR FUCKING BITCHING WHEN YOU ALREADY HAVE MORE THAN YOU NEED JACKASS"
QUIT YOUR FUCKING BITCHING!
You want me to shed a tear for you, boo and fucking hoo, sorry, wont happen. I vote to and I am tired of money owning our political system, so my jackass boss who owns two houses and an Audi can cry about how he cant afford to give me enough Hours.
Would you like a little whine with your cheese crybaby?
"We are a nation of Christians and Muslims, Jews and Hindus -- and nonbelievers."Obama
Check out my poetry here on Rational Responders Like my poetry thread on Facebook under Brian James Rational Poet, @Brianrrs37 on Twitter and my blog at www.brianjamesrationalpoet.blog
I'm going to skip over the unsurprising Brian Vs Beyond stuff and ask a question pertaining to the OP.
What precautions would you recommend for the average person to avoid any further hardships when the bubble pops?
Enlightened Atheist, Gaming God.
The most likely cause of a run out of the bond market will be inflation surpassing the interest rate that you can earn in bonds, which I argue is the case right now with US treasury bonds. Last year the inflation rate averaged 3.16%, this year it has fallen slightly to an average annualized rate of 2.82% but it is quite reasonable to expect it to continue rising. Currently, the only US treasury bond that has a higher interest rate than inflation is the 30-year at 3.125%. If you invest in a 10 year bond you are only getting a 2.5% return, which is below the current inflation rate so you are virtually guaranteed to lose purchasing power.
So why are people investing in bonds in record numbers? Because they are scared and believe bonds are safe. Which in a sense they are; the US government isn't going to default so you will get the money promised. The only question is whether that money is worth anything. There are plenty of investors in bonds right now who know they are losing money, they are using bonds simply as a place to park cash until they feel secure enough to invest in more profitable ventures.
When investors do start to leave bonds, the interest rate will have to rise because the government is still going to need to borrow money. Being unable to borrow enough money at below inflation rates, the government and corporations will be forced to offer bonds at higher interest rates. To some extent, the fed might continue to attempt to buy bonds from the treasury, but that has its limits and encourages inflation because it can only be done by increasing the monetary supply.
So what you need to prepare for is increased inflation combined with rising interest rates. There is also a risk that a year or two of inflation is followed by deflation caused by companies being unable to access capital in the form of loans. I think that risk is minimal since our government is so obsessed with avoiding it that they would simply create money by fiat.
Therefore, the first thing a person should do to prepare themselves is to pay off any variable debt they might hold ASAP. Since interest rates are likely to rise, you want to avoid your payments reaching a point where you can't make them, especially since your wages are likely to grow slower than inflation.
Second, you want to keep yourself fairly liquid so that when interest rates do rise you can take advantage of them while avoiding being stuck in long term contracts. If you are going to invest in bonds I would recommend shorter terms, under five years for sure and preferably less than three. Even though you will probably have to accept a lower interest rate.
The only long term US bonds I would consider purchasing would be TIPS (Treasury Inflation Protected Securities), these are bonds that are tied to the inflation rate so as inflation goes up, the yield goes up. I wouldn't be intending to hold them until they mature, instead I would seek to sell them for a profit when fear of inflation increases. I haven't bought any, I prefer higher risk investments, but if you don't have enough for riskier investing parking in a TIPS would be better than a regular bond imo.
If you really desire the security of a sovereign government bond but want a respectable return your best option out there right now is probably Australia but you have to invest enough to make up for the higher costs of international transactions. Fucking lucky Aussies, their government hasn't discovered what great crack low interest rates are.... and most importantly, they are about as independent financially from the US as any developed country can be, meaning that when the shit hits the fan here they don't notice it as much as say Canada.
Other options for savings that I am exercising is investing in blue chip stocks that offer high dividends. Many large stable companies are offering dividends in the 2-3% range. While there is increased risk because stock prices dropping is more likely than government default, there is also a much larger chance of gain. I look for companies that have low debt compared to their cash flow, high amounts of cash on hand, sell products that are fairly recession proof, will benefit from inflation and have competent management.
The reason is simple, if interest rates do rise companies that are in a position where they do not need loans have a competitive advantage over those that do. Industries that benefit from inflation include the energy sector, household products, food suppliers etc. because their products are essential to day to day living regardless of how expensive the product becomes. High inflation can actually lead to higher profits, which means higher stock price in addition to the dividend. So you are talking companies like Exxon, Johnson & Johnson, American Electric Power, Verizon etc. These companies aren't disappearing any time soon and are fiscally strong enough to survive or even thrive in another recession.
With the stock market there is always the risk of running into a Worldcom or a full market crash, but we know that bond yields can't get lower, they are guaranteed to be a bad investment. There is very little potential benefit and a fairly significant potential downside. We don't know which direction the stock market will go, but at least it has a chance to have good gains and I believe if you exercise due diligence and invest in financially stable companies the risk of any substantial losses are low.
Another option for those who live in areas hit hard by the deflation in the housing market is to buy a house. I am convinced that the market has hit bottom or close enough to it. If you live in an area with depressed home prices and have the ability to get a loan at these extremely low interest rates, right now would be a great time to take advantage. Make sure you do research in your area first though because real estate is very local and your area doesn't necessarily reflect the market as a whole. But with interest rates this low it is worth considering especially with rent costs rising.
If you already own a home and have the financial resources, it is also a great time to consider buying cheap properties to rent. If you are willing to fix them up there is good money to be made, but be warned- being a landlord is a pain in the ass and a lot of work. Which is why I don't do it.
If, if a white man puts his arm around me voluntarily, that's brotherhood. But if you - if you hold a gun on him and make him embrace me and pretend to be friendly or brotherly toward me, then that's not brotherhood, that's hypocrisy.- Malcolm X
If we didn't bail them out they would have declared bankruptcy....exactly like they did except the union contracts would have been renegotiated and the bondholders wouldn't have gotten screwed. About the same number of people would have lost their jobs, maybe fewer since the renegotiated contracts might have made it possible to maintain a larger workforce.
Name one CEO that you believe broke the law and tell me exactly which law they broke.
Do you have any evidence to support that claim? Or even some kind of logical explanation as to why denying the bailouts would have led to a deeper recession?
I suspect that like me, your boss with the two houses and the Audi pays attention to things like bubbles and how they are created so we can position our finances in a way that will be beneficial. Not crying about it, just stating my prediction for what the economy is going to do in the next few years. You can agree with the prediction or not- there are plenty of big name investors/analysts that think the idea of a bond bubble is absurd. Those who agree with me think it is absurd for anyone to believe that the government can borrow infinite funds, print infinite money and buy its own bonds forever without causing inflation and being forced to raise interest rates.
You are a perfect example of the willfully ignorant American who is so caught up with my disagreement with you over whether or not we should have a welfare state that you are apparently utterly incapable of even considering the economic realities of how to pay for it. You willfully ignore the blatant negligence of the politicians you vote for when it comes to managing our federal finances simply because you like the issues they support. Republicans do exactly the same thing, they continue voting for blatantly negligent politicians simply because they like the talk during the campaign.
I am more than happy to debate the topic if you care to present a case that I am wrong about a bond bubble or that I am wrong about the cause of the bond bubble or that I am wrong in what I think people should do in response to it. But whether or not we should have a welfare state is irrelevant to examining how our government is currently managing our economy and the effects that we can predict.
If, if a white man puts his arm around me voluntarily, that's brotherhood. But if you - if you hold a gun on him and make him embrace me and pretend to be friendly or brotherly toward me, then that's not brotherhood, that's hypocrisy.- Malcolm X
And like my boss instead of caring about the people who make him rich to "look out for trouble" he takes it out on us by cutting our hours and our pay. That is robbery! I didn't go up to him and say "hey dude, cut my hours, I feel like starving".
You make it harder on those with less and that creates MORE instability. It never fucking occurs to you that the MORE you give directly to society, the more stable that society is, the less government intervention is needed.
"ME ME ME ME ME ME MINE MINE MINE MINE MINE"
Why should I give one fuck about him or you when people like you do everything to labor to fuck them over as the default way to save money.
Your utopia script bullshit that only money matters and those with less should put up with being pawns and numbers on a page simply so you can make money is absurd. Like I said, I vote and I will do everything I can to stop the bullshit you sell.
We have had 30 years of big money and big business getting all the tax breaks and all the political power and not a damned thing has improved as far as pay or jobs. Trickle down does not work. I don't want to here shit about your fucked up "every man for themselves" economics.
BUSINESS OWNERS are not the only class in this country, fuck the workers over enough and it will bite you in the ass. Keep it up crybaby. There are more of us than there are of you.
And again, you are to fucking dense to see that the issue has NEVER been about inequity or business ownership, but CLIMATE, and lack of self introspection by people with your mindset. There are plenty of business people and economists I have mentioned in prior posts who get it, unfortunately they are not the norm otherwise we never would be in this mess.
Over the past 30 years the difference between the top and the bottom has exploded and you are a fool to think that gap is sustainable long term.
Warren Buffet would call you a crybaby. Suzi Orman sees the gap as a huge problem. Robert Reich is an economist. Not to mention the other RICH PEOPLE I mentioned in this thread.
You want people to care about your rights but don't want to do a damned thing to SHOW those working under you that you care other than to say "I got mine, fuck you".
Sorry, we've had 30 years of money monopolizing our government and all it has gotten us is less stability, less jobs, less hours, exploding pay gap, and exploding cost of living. And when the top fucks up we pay for it. NO MORE.
"Less government" doesn't mean it cant be monopolized by money too. MONOPOLIES OF POWER will always create gaps and instability for those outside the monopoly. "Less government" wont change that if the mindset doesn't change.
"We are a nation of Christians and Muslims, Jews and Hindus -- and nonbelievers."Obama
Check out my poetry here on Rational Responders Like my poetry thread on Facebook under Brian James Rational Poet, @Brianrrs37 on Twitter and my blog at www.brianjamesrationalpoet.blog
I can answer that for him, get another job, become an indentured slave, be a slave to work. You have no rights if you don't live your life to make someone else rich.
He has no fucking clue long term how his mentality will eventually hurt him too.
After WW2 our tax rate was 90% at certain points, after all the breaks the top would end up paying 50%. We had less of a pay gap, smaller government, virtually free college education, and the taxes used to build highways and damns public projects went to private contractors to build those things.
Reducing the size of government wont fix a damned fucking thing if it is still corrupt. It won't do a damned thing if the pay gap continues to explode.
He wants government off his back but doesn't want to do a damned thing about the selfish mentality that has corrupted our government that caused this mess in the first place. Then the crybaby bitches when people like me vote. Too fucking bad. He thinks government is merely there to protect him and his desires, fuck the people that work for him.
"We are a nation of Christians and Muslims, Jews and Hindus -- and nonbelievers."Obama
Check out my poetry here on Rational Responders Like my poetry thread on Facebook under Brian James Rational Poet, @Brianrrs37 on Twitter and my blog at www.brianjamesrationalpoet.blog
What did he rob from you? Does he have a legal or moral obligation to hire you to work hours that are not needed?
You told me it was about inequity a million times. And climate? You are the one proclaiming you are going to vote for Obama- how does that change the climate? I can't think of any single event that would radically shake the climate of D.C. more than a third party candidate winning or at least being seriously competitive in the presidential election. If you are so concerned about climate you should vote 3rd party like me, you can vote communist if you want but if you think voting democrat is going to substantially change our economic policy you obviously haven't been paying attention.
Nice to have your token rich people. I have poor friends.
I pay them- every two weeks regardless of whether or not I made money those weeks.
Do you ever read any of my posts? I have suggested to you multiple times that you quit your job rather than be a slave to work. Quite frankly I think you are a complete dumbass to continue working if your boss is as much of a prick as you make him out to be. I freely offer advice on how to make money without being reliant on such pricks. For example, this thread- warning of a potential upset in the market. Either you will lose money, or you will make money. Correctly predicting bubbles and allocating whatever resources you have appropriately is a great way to make money without being a slave to your work.
If, if a white man puts his arm around me voluntarily, that's brotherhood. But if you - if you hold a gun on him and make him embrace me and pretend to be friendly or brotherly toward me, then that's not brotherhood, that's hypocrisy.- Malcolm X
Oh I forgot, I own a business myself so I can afford to say "fuck my boss". Let me clue you in, MOST people don't have that luxury dumbass. I think your are a dumbass for thinking life is a script and everything works the way you think it does.
WE WE WE WE WE WE outnumber YOU. Keep forgetting that and it will bite you in the ass. I don't want that biting to go beyond the voting booth and that is where right now, WE I think can win. But dig in as much as you like, YOU WILL LOSE, just like the jackasses who caused the great depression.
"We are a nation of Christians and Muslims, Jews and Hindus -- and nonbelievers."Obama
Check out my poetry here on Rational Responders Like my poetry thread on Facebook under Brian James Rational Poet, @Brianrrs37 on Twitter and my blog at www.brianjamesrationalpoet.blog
I am sure you have poor friends. I have had rich friends, so the fuck what? My x landlord voted democrat owned 3 apartment complexes and would have voted for Obama. I didn't see him as someone with money. I saw him as a friend. And when we worked together he was one of the best bosses I had worked for. EVEN after dumping paint down his driveway of one of his complexes. I thought for sure he would get upset and kick me out of my apartment, but he laughed and took it all in stride.
Title and paycheck don't mean shit to me so do not expect me to be impressed with what you own or who you are. I also know plenty of poor people whom I would trust far more than Trump. I regret my old boss selling the place, but his age and health conditions I understood. But I don't think he would have sold it to the current prick who bought it if he knew how fucked over we got.
"We are a nation of Christians and Muslims, Jews and Hindus -- and nonbelievers."Obama
Check out my poetry here on Rational Responders Like my poetry thread on Facebook under Brian James Rational Poet, @Brianrrs37 on Twitter and my blog at www.brianjamesrationalpoet.blog
Have you taken any action whatsoever to attempt to find a new job? Have you taken any action that would allow you to get yourself into a position where you can say "fuck my boss"? I was employed once, I know what it is like and how incredibly irritating it can be to work for a jerk.
Life was much more pleasant for me when I could finally say "fuck you" and quit- and I did, many times. It was kind of a running joke among my friends because every six months or so I was working in a different industry. I was always asked "what job are you doing THIS year? Wasn't good for my health insurance benefits or my seniority. However, I did have the opportunity to observe a wider variety of business models and management techniques than most people ever will which I think provides me a large advantage in my current choice of lifestyle.
If you were actively doing something to change your situation I might feel sympathy for you. But based on everything you have said here you are not. If you try to do something, it is possible you will fail (which is ok, in the words of the great Adam Savage "Failure is always an option"
, but one thing can be guaranteed, if you don't even try than nothing is going to change for you.
Most people don't look for new work while they are employed. I believe that is a huge mistake for two reasons- first, employers are more likely to hire someone who is already working, we like people with drive and initiative. Second, your new employer is pretty much forced to offer you a wage that is noticeably higher than what you are currently being paid.
So if your boss is such a huge douche, start sending our resumes.
If, if a white man puts his arm around me voluntarily, that's brotherhood. But if you - if you hold a gun on him and make him embrace me and pretend to be friendly or brotherly toward me, then that's not brotherhood, that's hypocrisy.- Malcolm X
GET OFF YOUR FUCKING SCRIPT BULLSHIT
"Drive and initiative" is BULL FUCKING SHIT
I was dedicated and would have worked every single hour he gave me and busted my ass every single hour. Your problem is you think I want to be him, or that my goal should to be him. No, I was happy where I was at.
I am tired of you thinking everyone wants to be you. FUCK YOU. I will bust my ass for those who appreciate me, and not all of that is about a title upgrade or a pay raise.
LIFE IS NOT A FUCKING SCRIPT ASSHOLE!
I got TWO TWO TWO TWO LET ME REPEAT TWO pay raises WITHOUT ASKING from my prior owners. Do you think I got that for being lazy? And if they never gave them to me, what I valued the most is that THEY CARED and would not let me starve to death and let me be myself on the job.
Incentive isn't ONLY about money or title.
"We are a nation of Christians and Muslims, Jews and Hindus -- and nonbelievers."Obama
Check out my poetry here on Rational Responders Like my poetry thread on Facebook under Brian James Rational Poet, @Brianrrs37 on Twitter and my blog at www.brianjamesrationalpoet.blog
But apparently he doesn't need you to bust your ass every single hour. Maybe your were happy, but you don't seem very happy about it now. So my point stands, if you are unhappy with the situation as it is right now, imo you ought to do something to change it.
I don't care what your goals are. That is up to you. But if you are unhappy with your current employer I would think that finding an employer who you would be happier with would be high on the priority list. If you like being unhappy with and constantly angry at your boss I guess you should stay right where you are
Ultimately, you have no one to blame but yourself since you are doing nothing to change the situation and there are things you can try but are not trying.
I operate my business on the basis that my employees work solely for the money. I never got into that "we're a team, rah rah" shit that became hip in the 90's where you make people sit for hours in stupid meetings doing team building and self esteem exercises or read books like "The Secret". I treat them like adults producing a product I am interested in paying for, just like a store clerk, my barber or any other person I have economic interaction with. They give me Y, I pay them X and otherwise stay out of their lives unless we happen to naturally develop a friendship. It works for me and my employees seem to love it because I leave them alone and trust them to do their job with virtually no oversight.
So when it comes to business the only incentive I offer is freedom and money. If that doesn't give you enough incentive, don't work for me. There are plenty of employers out there with various ideas of what makes a good working environment, find one that suits your needs/desires. But I don't see a reason for you to get all pissy that every workplace doesn't cater to whatever you think they should offer as incentives.
People are different and want different things (LIFE IS NOT A SCRIPT). Apparently, you don't like what your current employer provides, perhaps others do- so take your labor to another employer. If no one likes your current employer he will have turnover problems which will negatively effect his bottom line. Seriously, with your complaints it is like you eat at Taco Bell every day and bitch about them not having cheeseburgers on the menu when there is a Burger King down the block. If you are sick of tacos, go to the BK ffs.
If, if a white man puts his arm around me voluntarily, that's brotherhood. But if you - if you hold a gun on him and make him embrace me and pretend to be friendly or brotherly toward me, then that's not brotherhood, that's hypocrisy.- Malcolm X