BondGuy

Hints of Risk Appetite Returning to the Stock Market?

Face it. It's over. Individual investors will not support equities for another generation. That includes index mutual funds, growth funds, value funds, and individual stocks in 401Ks. Trust has been lost, for good reason.Of course, not everything will stop. The hedgies will hedge, leveragers will lever, and prices will still go up and go down, but fundamentally, for the next 20 years, it's a zero sum game.

Why the Muni Bond Market Is in Decline

If this were a risk aversion story, munis would be outperforming corporates, which are far riskier. The muni problem is largely a liquidity story. TARP has been handled by idiots, who have chosen not to do the single most helpful thing they can do to save jobs and economic activity, which would be to support normal state government spending which has been killed by the non-functional muni market.

Muni Bonds: Juicy Opportunity for Investors

Obama has virtually guaranteed he's going to support state infrastructure spending, and Mayor Bloomberg is even pushing for the federal government to guarantee municipal bonds, which would make their values soar. Under these circumstances, how the idea of shorting municipal bonds makes sense is beyond me.

Irrational Stupidity

Maybe you are worried that buying the bonds from, for example, the ninth largest economy in the world, California, backed by one of the wealthiest tax bases in the world, with a constitution that explicitly prohibits defaults on the state's bonds, to be an irrational investment. Most people would consider a state guaranteed taxable equivalent return of 9.5%, a number that is higher than the long run expected return on the S&P 500, to be a once-in-a-lifetime opportunity. You are certainly entitled to disagree with the once-in-a-lifetime opportunity argument, but if you think this is the most irrational bit of exuberance out there, I suggest you try getting out a little bit more. The fact is that the rate of default on high quality municipal bonds is 1/4th that of the highest rated corporate bonds put out by bellwethers like GE and Microsoft. I'd call that type of investment pretty rational.

New Treasury Supply: Did It Already Cost Taxpayers $240 Million Today?

@ Smarty
If excess money creation is the fear, why did the 10 year TIPS under-perform? Please try to make sense. As Jansen explains, this is just too much supply for the market to absorb on one hour notice. End of story.

Munis in the Crosshairs

Don't scare people needlessly. This has almost no relevance to the overall muni market. Jefferson County was trading derivatives, and was ripped off by Wall Street banks. Also, the underlying bond was a "revenue bond," which is more like a corporate bond, as it was paid off by the sewer authority revenues rather than by tax revenues, like a GO muni bond. GO (general obligation) bonds are what most muni investors have, and these bonds are the next safest thing to T-Bills, in that they are backed by the full faith and credit of the state. They are incredibly safe.

Runaway Inflation: Do TIPS Really Help?

However poor a measure of inflation CPI may be, the so-called advantage of stocks, the equity premium over safe bonds, is also measured against CPI. A 10 year TIPS guarantees 1.7% real return over the next decade. Will you be able to beat that with stocks over the next 10 years? If history is a guide, the answer is yes. The equity premium is estimated to be a 5 percent real return over safe bonds, yielding a predicted 6.7% real return The only question is whether history will repeat itself. We all know the answer to that. Don't we?

Foreigners Selling U.S. Stocks: A Good Sign

I agree with 2houndz, it's a stampede from dollar denominated assets. Given the FEDs recent policy moves, it's no wonder, as the FED has created too much currency risk for foreign equity investors. They want a pure play on US equities, but they can't get it without dollar hedging, which is expensive and reductive of yields to an unacceptable extent. So they have quit the market.

Stocks vs. Bonds: The Next Decade

The flaw in this comparison is pretty obvious: Bonds are in a short term bubble making them extremely expensive relative to stocks right now. In 6 months or a year, bond yields are headed up and prices down, making them a pretty decent investment for the regular contributor to an IRA or 401K. On the other hand, in absolute terms, stocks are still expensive, with a ten year trailing PE way above the historic mean. The S&P will have to decline roughly another 25% to put stocks at the historic mean of 16 PE. Until that happens, the projected rate of return on equities seems below that of bonds. Going forward, on a risk adjusted return basis, bonds seem the better deal by a considerable margin.

Bill Miller on This Tough Market

There will come an era when even Warren Buffet will be proved wrong, and financial columnists will no longer reflexively resort to quoting him when they have not a single original thought to offer. I hope that day is nigh; it can't come too soon.

Bill Miller on This Tough Market

The 20th Century was the American Century. We won two wars while the rest of the world was devastated, and went from an agricultural country to the greatest industrialized power in the world. No surprise about the huge returns to the US stock market in that epoch. Now, ask yourself, what are the odds that the 21st century will be equally favorable to the USA, and its stock market? The performance of stocks in 21st century will in all likelihood be MUCH lower than they are telling us.

Bond Expert: Refunding and Treasury Financing

Actually, TIPS are good for locals, because there is relatively little foreign ownership. That means they will not suffer as much as nominal Treasuries in a dollar crisis, nor are yields unnaturally depressed by SWF safe harbor buying, a serious worry with nominals at this point. As a class, they have performed very well historically. The CPI calculation is a negative, but this is a known problem, and thus, the yield/price reflects the somewhat diminished inflation protection. The biggest problem is liquidity -- these should be buy and hold instruments, held primarily as core holdings in retirement accounts due to the unfavorable tax treatment. They won't make you a millionaire, but if you are one already, they insure that you will stay that way forever, after inflation.

Ambac, MBIA Finally Get the Rating They Deserve

Unfortunately, no one cares anymore. The FED has mooted the concept of default-- to say nothing of responsibility, prudence, and fairness.

Where's the 'Protection' in TIPS? Better to Go with Silver and Gold

Your blog is shockingly inept. With 4+% inflation, a 2.75% money market is a lot worse than TIPS. Moreover, 20 year tips are at 1.8% plus inflation, which is a strong case for owning thm at this juncture. Bingo on the point that they are insurance against another Jimmy Carter presidency, which killed Ma and Pa saver. They should be in TIPS instead of the equity portfolios that the mutual fund industry is pushing at retirees. I won't even mention the bad advice dished out by 99% of the commission brokers. Disgraceful.

Memo to MBIA: Now Is Not A Good Time To Fire Fitch

Actually, the grander "truth is stranger than fiction" moment was Spitzer and Danello declaring victory on the Ambac rescue. But this is pretty hilarious, I agree.