Treasury Inflation Protected Securities (TIPS)

Posted on July 8, 2011 by

TIPS are “full faith and credit” US Treasury bonds issued with coupons which are below the market rate for conventional Treasuries of similar maturity, due to their special characteristics. A TIPS bond automatically increases its principal amount annually, according to the inflation rate as measured by the Consumer Price Index in the preceding year. Because an investor’s initial interest return will be lower than for other US Treasury or corporate bonds, one should not invest in TIPS, unless you expect to hold them through a number of years, during which time, you also assume and believe that the cumulative escalation … Continue reading →

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Is PIMCO a Reflection of US Debt and Currency Turmoil?

Posted on April 30, 2011 by

In recent months, the all-time king of the bond-hill, Pacific Investment Management Co ($1 trillion under management), disclosed that its highly popular, consistently market-beating Total Return Bond Fund ($236 billion) had sold all of its US Treasury holdings. In late 2007, PIMCO had loaded up on Treasuries, before the 2008 financial crisis, a maneuver which turned out to be nicely profitable for the fund’s investors. In fact, this fund recently went even further: it moved to a modest short position in Treasuries and has re-deployed some assets into the debt of Mexico, Brazil, Korea and Russia, while taking currency exposures … Continue reading →

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The Lesson of Rome: Fiddling Leads to Disaster

Posted on April 18, 2011 by

In our special November Bulletin last year, we were skeptical to the extreme that President Obama, or either of the Congressional political parties, would give more than a casual look at the [then pending] December 1st recommendations of the National Commission on Fiscal Responsibility and Reform (commonly called the Commission on Debt and Deficits). Created by Mr. Obama in early 2010, the commission was composed of 18 current and former members of Congress and it was given a narrow mandate: Develop a plan for the US to balance its annual budgets (before interest payments) by 2015. The commission accomplished its … Continue reading →

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Deficits Create BIG Implications for US Dollar

Posted on April 11, 2011 by

“If we didn’t have the US dollar as the de facto reserve currency of the world, we’d be Greece. We are broke, bankrupt. REALLY bankrupt.” James Baker III, former US Treasury Secretary and Secretary of State, 4/10/11 The foregoing comment made to Fareed Zakaria on CNN and, hence, heard literally round the world, speaks for itself. As brash as this statement is, Jim Baker was a soft-spoken superstar in both the Reagan and elder-Bush administrations. His appraisal of the current situation reflects his powerful knack for sizing up, clarifying and condensing the complexities of government, while avoiding partisan filters, a … Continue reading →

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Does fiat money drive inflation?

Posted on January 31, 2011 by

China’s disturbing, but logical role The Peoples Republic of China has become, by far the single biggest thorn in the bleeding side of Treasury Secretary Geithner. Despite years of cajoling and shadow-boxing from the US, China has barely responded to the pressure for up-valuing the Chinese yuan against the US dollar, opting instead to keep the yuan closely pegged, while plowing nearly a trillion of those constant-valued dollars back into US Treasury debt securities.  Part of the heat generated by the declining dollar’s purchasing power for world-priced commodities shows up as de-facto de-valuation of the yuan’s purchasing power. Given China’s … Continue reading →

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Getting Down to Business of Federal Debt and Deficits

Posted on January 15, 2011 by

Consensus: present course is unsustainable Does debt matter? There is no shortage of business press and TV coverage about US government and the individuals who hold “power” in it. But, what power is that? Elected politicians do, and always did understand that they simply have no power, means, or tools to create productive jobs. But political speech making, egged on by a cable TV world that needs ongoing themes to feed its 24/7 yack-format had framed the 2010 general election to be all about jobs, jobs, jobs. Voters went to the polls in unusually large numbers and collectively, more or … Continue reading →

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US FED’S Battle Intensifies

Posted on November 20, 2010 by

This piece is intended as a follow-on to our recently published (October 2010) commentary about: (1) the US bond market’s current position, within the context of the last 50 years of its history, and (2) the zero interest rate floor it faces in carrying out massive Federal Reserve money printing activities to monetize the current fiscal year’s (third straight) trillion-dollar deficit. We speculated that Fed Chairman Bernanke’s“unsustainable” characterization of US budgets, on a number of occasions over the past two years was not just so much tut-tutting; that word was and is highly descriptive of the situation. Few Democrats and … Continue reading →

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Likely Scenario for US Stocks and Dollar in 2011

Posted on November 3, 2010 by

Likely Scenario for US Stocks Beginning in August 2010, we began to inform clients that our outlook for the near future of common stocks was decidedly positive. We continue to hold that view, for several primary macro-reasons which, in no particular order are: (1) Stimulative Federal Reserve policy is virtually promised for an extended period. This will eventually become a major problem, but for now, the markets will likely respond favorably. Whenever the debt market ultimately reacts to all of this, it will likely cause downward re-valuation of equities, as traders and investors alike adjust their earnings discount rate. (2) … Continue reading →

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Bonds: A Good Place Not to Invest Now

Posted on October 30, 2010 by

When the US stock market hit its initial 21st Century trauma phase in 2002, Merrill Lynch sought to boost its tanking retail business by blitzing television sets with a simple tag-line: “Buy bonds”, they said. Although at the time that campaign seemed to be more aimed at Merrill’s revenue than investment advice, it proved sound for both purposes. Through September 2010, the Barclays US Long Treasury Index had returned an annualized 8.2% for the past ten years. That figure trounced all popular US and world stock indexes (except emerging markets) by a significant margin. The more generalized Barclays US Aggregate … Continue reading →

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Debtor-Nations Club

Posted on April 30, 2010 by

In 1985, the US flipped from its long-held status as a creditor-nation to that of a net debtor. In March 2010, the Congressional Budget Office (CBO) published its annual 10-year costing-out of the President’s proposed budget. [The CBO’s denominator for budget numbers is % of GDP (which avoids the need to separately forecast and measure the impact of future inflation).] Some facts: 1.  Annual budget US deficits are large: almost 10% of GDP last year; it will be over 10% this year [Greece’s deficit was about 11% of GDP last year] and, even 5 years hence, the US forecast shows … Continue reading →

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