The Fed's misguided policies have not done a thing for small businesses, the unemployment rate, or the real economy in general but they have induced a mad dash for yield in junk bonds, easily in a bubble state right now. “You don’t want to stand in the way of the search for yield,” said Alberto Gallo, a global credit strategist at Goldman Sachs in New York. “But on the other hand it is a very... [more]
The Fed's misguided policies have not done a thing for small businesses, the unemployment rate, or the real economy in general but they have induced a mad dash for yield in junk bonds, easily in a bubble state right now.
“You don’t want to stand in the way of the search for yield,” said Alberto Gallo, a global credit strategist at Goldman Sachs in New York. “But on the other hand it is a very volatile part of the market. And it can be particularly sensitive to a further slowdown in the economy.”
Yields on U.S. investment-grade debt fell to a record low of 3.55 percent this month, the lowest borrowing cost on record in data going back to October 1986, according to Bank of America Merrill Lynch index data. For CCC bonds and lower, yields dropped to 11.63 percent yesterday, the lowest level since November 2007, the data show.
The Greenspan Fed ignored the dot-com bubble, even encouraged it because of misguided Y2K fears and belief in productivity miracles. When that bubble burst, the Fed promptly embarked on creating a second, far bigger bubble in housing and debt.
Now the Fed is actively promoting still more bubbles as a solution to god knows what, since the Fed's policies are not helping the real economy one iota.
In fact, the Fed's policies are helping neither the real nor unreal economies unless you consider creating another opportunity for Goldman Sachs and select hedge funds to short at the opportune time, appropriate "help".
http://globaleconomicanalysis.blogspot.com/2010/10/thanks-to-fed-bubble-builds-in-junk.html[less]
Response by freewilly
about 15 years ago
Posts: 229
Member since: Sep 2008
Seems more like a story of money trying to find a home. Institutions bought up junk bonds after reflating the equity market with their dollars. Other institutions played catch up upon hearing polished sales lines suggesting scarcity and urgency by Goldman bond salesmen. Too bad bonds aren't really for the individual investor. What I want to know is what the next bubble is. Don't know about greed, but bubble is good. As Soros said about gold, yes it's a bubble, that doesn't mean I'm not going to invest in it.
Ignored comment.
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Response by Riversider
about 15 years ago
Posts: 13572
Member since: Apr 2009
To Summarize
1) Long-term data suggests that higher debt levels are
not correlated with higher GDP growth rates.
2) Therefore, lowering rates to encourage more debt is
useless at the second derivative level.
3) Lower rates, however, certainly do encourage
speculation in markets and produce higher-priced
and therefore less rewarding investments, which tilt
markets toward the speculative end. Sustained higher
prices mislead consumers and budgets alike.
4) Our new Presidential Cycle data also shows no
measurable economic benefi ts in Year 3, yet point to
a striking market and speculative stock effect. This
effect goes back to FDR, and is felt all around the
world.
5) It seems certain that the Fed is aware that low rates
and moral hazard encourage higher asset prices and
increased speculation, and that higher asset prices
have a benefi cial short-term impact on the economy,
mainly through the wealth effect. It is also probable
that the Fed knows that the other direct effects of
monetary policy on the economy are negligible.
6) It seems certain that the Fed uses this type of stimulus
to help the recovery from even mild recessions, which
might be healthier in the long-term for the economy
to accept.
7) The Fed, both now and under Greenspan, expressed
no concern with the later stages of investment bubbles.
This sets up a much-increased probability of bubbles
forming and breaking, always dangerous events.
Even as much of the rest of the world expresses
concern with asset bubbles, Bernanke expresses
none. (Yellen to the rescue?)
8) The economic stimulus of higher asset prices, mild in
the case of stocks and intense in the case of houses,
is in any case all given back with interest as bubbles
break and even overcorrect, causing intense fi nancial
and economic pain.
9) Persistently over-stimulated asset prices seduce states,
municipalities, endowments, and pension funds into
assuming unrealistic return assumptions, which can
and have caused fi nancial crises as asset prices revert
back to replacement cost or below.
10) Artifi cially high asset prices also encourage
misallocation of resources, as epitomized in the
dotcom and fi ber optic cable booms of 1999, and the
overbuilding of houses from 2005 through 2007.
11) Housing is much more dangerous to mess with than
stocks, as houses are more broadly owned, more
easily borrowed against, and seen as a more stable
asset. Consequently, the wealth effect is greater.
12) More importantly, house prices, unlike equities,
have a direct effect on the economy by stimulating
overbuilding. By 2007, overbuilding employed about
1 million additional, mostly lightly skilled, people,
not counting the associated stimulus from housingrelated
purchases.
13) This increment of employment probably masked a
structural increase in unemployment between 2002
and 2007, which was likely caused by global trade
developments. With the housing bust, construction
fell below normal and revealed this large increment in
structural unemployment. Since these particular jobs
may not come back, even in 10 years, this problem
may call for retraining or special incentives.
14) Housing busts also help to partly freeze the movement
of labor; people are reluctant to move if they have
negative house equity. The lesson here is: Do not
mess with housing!
15) Lower rates always transfer wealth from retirees
(debt owners) to corporations (debt for expansion,
theoretically) and the fi nancial industry. This time,
there are more retirees and the pain is greater, and
corporations are notably avoiding capital spending
and, therefore, the benefi ts are reduced. It is likely
that there is no net benefi t to artifi cially low rates.
16) Quantitative easing is likely to turn out to be an even
more desperate maneuver than the typical low rate
policy. Importantly, by increasing infl ation fears,
this easing has sent the dollar down and commodity
prices up.
17) Weakening the dollar and being seen as certain to do
that increases the chances of currency friction, which
could spiral out of control.
18) In almost every respect, adhering to a policy of low
rates, employing quantitative easing, deliberately
stimulating asset prices, ignoring the consequences
of bubbles breaking, and displaying a complete
refusal to learn from experience has left Fed policy
as a large net negative to the production of a healthy,
stable economy with strong employment.
http://www.ritholtz.com/blog/2010/10/night-of-the-living-fed/
Ignored comment.
Unhide
Response by Truth
about 15 years ago
Posts: 5641
Member since: Dec 2009
Riversider: Outside my building last weekend, James Woods.
Guess what part he's acting in the movie "Too Big To Fail".
Ignored comment.
Unhide
Response by Riversider
about 15 years ago
Posts: 13572
Member since: Apr 2009
I can't think right now. what?
Ignored comment.
Unhide
Response by happycomm1
about 15 years ago
Posts: 18
Member since: Oct 2010
Columbiacounty, you need some new material. Go back to comparing auto insurance to protect the OTHER drivers, with health insurance that protects the insured.
'/%3e%3c/g%3e%3c/svg%3e)
Seems more like a story of money trying to find a home. Institutions bought up junk bonds after reflating the equity market with their dollars. Other institutions played catch up upon hearing polished sales lines suggesting scarcity and urgency by Goldman bond salesmen. Too bad bonds aren't really for the individual investor. What I want to know is what the next bubble is. Don't know about greed, but bubble is good. As Soros said about gold, yes it's a bubble, that doesn't mean I'm not going to invest in it.
To Summarize
1) Long-term data suggests that higher debt levels are
not correlated with higher GDP growth rates.
2) Therefore, lowering rates to encourage more debt is
useless at the second derivative level.
3) Lower rates, however, certainly do encourage
speculation in markets and produce higher-priced
and therefore less rewarding investments, which tilt
markets toward the speculative end. Sustained higher
prices mislead consumers and budgets alike.
4) Our new Presidential Cycle data also shows no
measurable economic benefi ts in Year 3, yet point to
a striking market and speculative stock effect. This
effect goes back to FDR, and is felt all around the
world.
5) It seems certain that the Fed is aware that low rates
and moral hazard encourage higher asset prices and
increased speculation, and that higher asset prices
have a benefi cial short-term impact on the economy,
mainly through the wealth effect. It is also probable
that the Fed knows that the other direct effects of
monetary policy on the economy are negligible.
6) It seems certain that the Fed uses this type of stimulus
to help the recovery from even mild recessions, which
might be healthier in the long-term for the economy
to accept.
7) The Fed, both now and under Greenspan, expressed
no concern with the later stages of investment bubbles.
This sets up a much-increased probability of bubbles
forming and breaking, always dangerous events.
Even as much of the rest of the world expresses
concern with asset bubbles, Bernanke expresses
none. (Yellen to the rescue?)
8) The economic stimulus of higher asset prices, mild in
the case of stocks and intense in the case of houses,
is in any case all given back with interest as bubbles
break and even overcorrect, causing intense fi nancial
and economic pain.
9) Persistently over-stimulated asset prices seduce states,
municipalities, endowments, and pension funds into
assuming unrealistic return assumptions, which can
and have caused fi nancial crises as asset prices revert
back to replacement cost or below.
10) Artifi cially high asset prices also encourage
misallocation of resources, as epitomized in the
dotcom and fi ber optic cable booms of 1999, and the
overbuilding of houses from 2005 through 2007.
11) Housing is much more dangerous to mess with than
stocks, as houses are more broadly owned, more
easily borrowed against, and seen as a more stable
asset. Consequently, the wealth effect is greater.
12) More importantly, house prices, unlike equities,
have a direct effect on the economy by stimulating
overbuilding. By 2007, overbuilding employed about
1 million additional, mostly lightly skilled, people,
not counting the associated stimulus from housingrelated
purchases.
13) This increment of employment probably masked a
structural increase in unemployment between 2002
and 2007, which was likely caused by global trade
developments. With the housing bust, construction
fell below normal and revealed this large increment in
structural unemployment. Since these particular jobs
may not come back, even in 10 years, this problem
may call for retraining or special incentives.
14) Housing busts also help to partly freeze the movement
of labor; people are reluctant to move if they have
negative house equity. The lesson here is: Do not
mess with housing!
15) Lower rates always transfer wealth from retirees
(debt owners) to corporations (debt for expansion,
theoretically) and the fi nancial industry. This time,
there are more retirees and the pain is greater, and
corporations are notably avoiding capital spending
and, therefore, the benefi ts are reduced. It is likely
that there is no net benefi t to artifi cially low rates.
16) Quantitative easing is likely to turn out to be an even
more desperate maneuver than the typical low rate
policy. Importantly, by increasing infl ation fears,
this easing has sent the dollar down and commodity
prices up.
17) Weakening the dollar and being seen as certain to do
that increases the chances of currency friction, which
could spiral out of control.
18) In almost every respect, adhering to a policy of low
rates, employing quantitative easing, deliberately
stimulating asset prices, ignoring the consequences
of bubbles breaking, and displaying a complete
refusal to learn from experience has left Fed policy
as a large net negative to the production of a healthy,
stable economy with strong employment.
http://www.ritholtz.com/blog/2010/10/night-of-the-living-fed/
Riversider: Outside my building last weekend, James Woods.
Guess what part he's acting in the movie "Too Big To Fail".
I can't think right now. what?
Columbiacounty, you need some new material. Go back to comparing auto insurance to protect the OTHER drivers, with health insurance that protects the insured.
http://www.urbandigs.com/2010/10/fed_blowing_a_high_yield_bubbl.html
Check out MMFA in the last 20 months! Where did this $1.1Trln go?? Hmmm, can anyone say high yield??
Riversider: The mean top guy at L-Bros.!
Dick Fuld is having nightmares!!!