No taper

[CA renter]

[quote=SK in CV][quote=CA renter]
That’s not to say that there shouldn’t be regulations and restrictions on the supply side, but those products would not have been as prevalent, nor as damaging, if the Fed hadn’t poured on the gasoline and spurred demand.

[/quote]

Just one question. How do lower interest rates spur demand for investors in interest bearing securities? It should be just the opposite. Do investors chase after lower yielding dividend paying stocks? Lower the dividend, higher the demand?[/quote]

Like spdrun said, it stokes the demand for **riskier** products that offer higher yields.

[scaredyclassic]

Cash is trash.

Even a skinflint like me gets the message.

[SD Realtor]

SK we have been in agreement on to many issues lately, this one being another one of them. Low rates are the mechanism for entry into the market. Underwriting guidelines are the gatekeeper. When the guidelines were ignored, obfuscated, or when outright fraud occurred, the results can be a disaster.

Additionally, don’t confuse low rates or high rates with downpayment barriers. A much higher downpayment barrier would have prevented a significant amount of entry into the market as well. This would also have reduced demand and kept price increases more moderate.

[SK in CV]

[quote=CA renter]

Like spdrun said, it stokes the demand for **riskier** products that offer higher yields.[/quote]

With underwriting standards that existed before the bubble, those products wouldn’t have been “riskier”. S&P and other ratings agencies called them low risk. Not the Fed.

[spdrun]

Cash is trash.

Even a skinflint like me gets the message.

Not so sure. A lot of corrections and bears have happened during (or despite) periods of loose monetary policy. You might be very glad to have held on to some cash when the stock bubble blown up by Mr. B.S. Bernanke pops.

Dow down 40 yesterday, down 55 today. Up ~135 on the initial “no taper” news — could the market be becoming immune to Fedspeak and tracking the fundamentals?

Anyone who doesn’t keep some cash around is in danger of being burned hard.

[SK in CV]

[quote=spdrun]

Cash is trash.

Even a skinflint like me gets the message.

Not so sure. A lot of corrections and bears have happened during (or despite) periods of loose monetary policy. You might be very glad to have held on to some cash when the stock bubble blown up by Mr. B.S. Bernanke pops.

Dow down 40 yesterday, down 55 today. Up ~135 on the initial “no taper” news — could the market be becoming immune to Fedspeak and tracking the fundamentals?

Anyone who doesn’t keep some cash around is in danger of being burned hard.[/quote]

If you’re confident that stock bubble is going to blow up soon, there are many ways to take advantage of it and reap huge rewards. How confident are you?

[spdrun]

I’m not confident that it will blow up soon, but the law of gravity still does apply. I’m a simple SoB. I don’t go short either 🙂

[Jazzman]

I’m confused about which bubble we’re talking; the bond bubble, or as someone termed it RE bubble II? Notwithstanding the recent comments about the postponements of tapering, I don’t know why anyone would still be in bonds, given the clear market signal in June of this year. Fixed income seekers were pushed into them, and again got their fingers burnt. Rotating out of them is fictional. Nobody talks about the silent minority, presumably because they are judged to be better able to cope. It’s now been six years since the bubble burst and the Great Recession. What have we got to show for it, and what are the lessons learnt? Nothing but more bubbles? I see no real signs for hope, just a diminishing pool of alternatives. It is not so much a transfer of wealth as a black hole.

[SK in CV]

[quote=Jazzman]I’m confused about which bubble we’re talking; the bond bubble, or as someone termed it RE bubble II? Notwithstanding the recent comments about the postponements of tapering, I don’t know why anyone would still be in bonds, given the clear market signal in June of this year. Fixed income seekers were pushed into them, and again got their fingers burnt. Rotating out of them is fictional. Nobody talks about the silent minority, presumably because they are judged to be better able to cope. It’s now been six years since the bubble burst and the Great Recession. What have we got to show for it, and what are the lessons learnt? Nothing but more bubbles? I see no real signs for hope, just a diminishing pool of alternatives. It is not so much a transfer of wealth as a black hole.[/quote]

The bond bubble predates the most recent RE bubble by more than 2 decades. It started in 1981. It “burst” in ’83, only to resume and recover more than it lost until it burst again in ’86, only to resume and recover more than it lost, with that pattern repeating itself no less than 6 times over the last 30 years, most recently in 2008 and again in 2010. Yields are still lower than any other time in the last 30, save for a few days in 2010 and a few months in 2008. The market signals actually began about 15 months ago, but it’s hard to fault anyone for not believing them. Those signals have deceived before more than a half dozen times over the last 30 years. I know of a guy who has bet and lost 10’s of millions over the last 5 years that bond bull market was over. Is this really when it’s going to happen? I dunno. Maybe.

[FlyerInHi]

Car, like spdrun, you’re not too objective. Don’t confuse what you want with what’s the best course of action for the economy.

Your family is in the public sector and is more or less insulated from mass layoffs.

Faced with inaction from congress on the fiscal side, what’s the fed to do? Bernanke did a masterful job holding down interest rates to benefit mortgage debtors and businesses who can borrow and invest.

Housing has partially recovered and the automobile market is doing well. Both are pillars of the economy. Tech has easier funding.

The economy is credit based and we need to keep credit flowing.

Yes, the easy money is flowing around the world and being invested in places like Turkey. Savers in developed economies should be investing in higher growth emerging markets.

Anyway, you may not like what the Fed did. But that ship has sailed. Adapt to the new environment.

[livinincali]

[quote=FlyerInHi]
Faced with inaction from congress on the fiscal side, what’s the fed to do? Bernanke did a masterful job holding down interest rates to benefit mortgage debtors and businesses who can borrow and invest.
[/quote]

Did businesses borrow to invest or did they borrow to pay special one time dividends and/or do share buybacks. If businesses were borrowing to invest don’t you’d think you see an significant improvement in earnings and corporate growth 3 years into this policy. Did banks or other short term traders borrow to speculate in assets prices. Does that speculation grow the economy?

Bernanke made borrowing easier and people did so. The problem is that many people borrowed and invested in things that produced asset price inflation rather than growth. There’s going to be long term consequences to this action, we just haven’t seen them yet.

[spdrun]

I speak from both self-interest and public interest.
(a) the Fed will have to exit at some point
(b) it ain’t gonna be pretty (think of the early 80s with 10+% rates)
(c) the Fed may have already lost control of markets and rates (people are talking about an 0.1-0.25% drop in mortgage rates vs the ~1.25% rise in May). Dow also plunged 220 points in the last two days — even before the budget vote, the Dow was down 40 points yesterday. QE was novel in 2009; now it’s the status quo.
(d) I have no desire to invest in third-world “emerging” pestholes — lack of rule-of-law and widespread corruption means that I don’t know what is really happening with my money. No thanks. I’ll stick to US property when opportunities with the appropriate cap rate present. And there are still many, more to come as well.

[all]

[quote=Jazzman]I’m confused about which bubble we’re talking; the bond bubble, or as someone termed it RE bubble II? Notwithstanding the recent comments about the postponements of tapering, I don’t know why anyone would still be in bonds, given the clear market signal in June of this year.[/quote]

What’s the alternative if you have few hundred K’s in a 401k account and no cash or cash-equivalent option?

[FlyerInHi]

Livin, businesses would borrow and invest more is there were more demand.

For example, demand for housing is increasing now so you see boulders getting back to work, even in hard hit markets like Las Vegas. More construction will lead to a better economic outlook.

Monetary policy would work better if there were matching fiscal policy to help growth.

Bernanke is using his tools to counteract the harm being done by congress. He pretty much said so.

Perhaps there will be long term ramifications to current fed policy. But Bernanke has to weight helping the economy now vs. retrenching later. He’s saying that boosting the economy will make tapering easier in the future, in a better growth environment.

[flyer]

Regardless of who is “right” or “wrong” IMO, one of the true tests of our country’s economic/financial policies of late, will be how well future generations (our kids and grandchildren, etc.) fare.

I realize most of us on this board are in a position to try to make sure our kids achieve their dreams with regard to careers, housing, financial security etc., etc., as most of us have, but, the stats indicate only a very small percentage of the population is in a position to do so. Not a pretty picture on the macro level.

[Author]

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