Posts
![[Most Recent Quotes from www.kitco.com]](http://kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
![[Most Recent Quotes from www.kitco.com]](http://kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
![[Most Recent USD from www.kitco.com]](http://www.weblinks247.com/indexes/idx24_usd_en_2.gif)
Biderman: Bond inflows "scary"
Friday, March 05, 2010
Charles Biderman of TrimTabs was on CNBC yesterday to talk about the most recent fund flow data and he characterized the continuing movement of money into bond funds as "scary", noting that many retail investors don't realize that bond funds aren't a one-way bet.
Yes, it's yet another unintended consequence of ZIRP (Zero Interest Rate Policy) where investors look at money market and CD yields of less than one percent and go searching for yield - after being burnt by stocks in 2008, the logical alternative is bonds.
5 comments:
I have always believed that keeping the interest rate so close to zero is the equivalent of giving the finger to savers everywhere. If you have money and you don't want to lose it to inflation, what are your options? No small wonder that everyone started buying stocks...
After the 73-74 bear market, mutual fund investors were so traumatized that they withdrew money from funds for 8 long years. Until Volker finally fixed the problem by taming inflation.
This time, the problem is too much debt, and too many poorly collateralized derivatives based on that debt. Unprecedented printing may add the additional problem of hyper inflation to the mix.
The goal of the bank is to discourage domestic savings, to compensate for too much overseas savings. This means US savers are going to be persecuted by the bank for a long time to come. There is no way for them to win (unless they vote to get rid of the bank, and inflation along with it).
Gold...
But in the last Great Depression all the Bond holders were wiped out.
That's back when $ was backed by gold.
In this case I can't decide if Bonds will be wiped out or the printing press will just go into overdrive (like it isn't already). Probably the printing press will bail out all the Federal, State, Local, City, Corporate/etc. etc. bonds.
Total Moral Hazard
The regular joes(also called the retail investor) ALWAYS gets in at the top and always sells at the bottom.
Only few seem to realise that (most) governments are technically bankrupt and that investors are not buying because of AAA ratings but simply as long as they can hope the bond can at maturity once be successfully "rolled over" so that at least they get paid back this time. However, as the Greek crisis and the ballooning US debt have shown, this game is slowly coming to an end and bond holders will then suffer from one of two effects: either lower value due to rising (longer term) interest rates that cannot be influenced by quantitative easing or lower value due to rising bond default rsiks or both.
Post a Comment