timhope

Could the Dow Fall to 1600?

I think you're forgetting that GDP is inflation adjusted while your index returns are not. Since 1970 alone, we've had cumulative inflation of 560%. You should rebase them both to 1950 dollars and re-run the comparison.

50% Returns, No Risk?

Correct me if I'm wrong, but you're completely missing the concept of compounding interest. If you contribute $10,000 and the company matches an additional $5,000, then yes, at the end of year one you have $15,000 and a 50% return on your money. If you do that again in year two, you'd end up with $30,000 on a $20,000 contribution - still 50% more than you put in but spread out over two years. Doing this for thirty years, you'd end up contributing $300,000 with a total match of $150,000 for a grand total of $450k. Not a very good return over a 30 year period. This simple example assumes no interest on you money market account. But even if you earned 2% a year - this would still only come to $621k in 30 years. I hope you do not actually advise this strategy to your clients.

Will COMEX Default on Gold and Silver?

Interesting article Avery. Can you clarify where the counterparty risk lies for the investor. If one goes through a legitimate broker and and the short seller fails to deliver to the broker, is the broker then legally obligated to purchase the gold at the spot price and make good on the delivery? That would seem to imply that an investor's counterparty risk is ultimately with their broker, not the short seller. And if there is a large scale delivery breakdown, how many brokers are well capitalized enough to deal with that situation? I would imagine a vast majority could easily be forced into bankruptcy. Is this generally correct? Thanks.

The Battle of the 'Flations

Although you could argue that the Fed was asleep at the switch for the last decade, you have to give them credit for recognizing the severity of the situation rather quickly. And the Fed is not stupid - they are trying to avoid a deflationary spiral by pumping as much money into the economy as necessary. Bernanke and company are quite openly trying to stoke inflation as they feel its the lesser of two evils. A debased US dollar is essentially the only plausible way to pay down all our debts without defaulting. The question is can they succeed without tipping too far the other way towards hyperinflation. As a side note, I have read a number of Bud Conrad's posts and have generally enjoyed them. Although the blatant plug at the end is really unprofessional.

CLOs are In; CDOs are Out

Although I have not read the indenture or prospectus, I do not believe that Lehman's Freedom CLO is a repackaging of CDOs. Rather, it appears to be a traditional CLO comprised primarily of Lehman's buyout loans including First Data Corp and TXU debt, among others. If anyone knows different, please elaborate.