The venerable Goldman Sachs is pounding the table for another round of quantitative easing (QE)—see here. The bank thinks more QE is necessary because the recent slowdown in economic activity is more than a temporary phenomenon. While the economy may be weakening, the efficacy of such a remedy is suspect. Credit conditions are nowhere near distressed, interest rates are at or near record lows, and there is over $1 trillion in excess reserves that lay dormant on bank balance sheets. Another round of QE is unlikely to encourage a sustainable economic recovery. Even Goldman admits as much. The … [Read more...]
Archives for September 2010
More Trouble in the PIIGS Pen
Despite the best efforts of European policy makers, the CDS of the Euro-area’s PIIGS countries continue to signal severe stress. Ireland is the latest country to come under pressure from financial markets. Irish CDS have recently reached a new high. The market is anticipating that a default may be the only sustainable solution for some of these countries. … [Read more...]
A Risk Worth Taking
In today’s environment of low interest rates, there are few places to turn to add yield to your portfolio. Sure, you can tie up your money in 30-year Treasury bonds to lock in a 3.70% yield, but you will take it in the neck when interest rates rise. A 1% increase in interest rates will result in a devastating 20% price decline in 30-year coupon bonds. Not exactly the type of risk most fixed-income investors are looking to take. A better strategy for adding yield to your portfolio is to take prepayment risk on mortgage-backed securities (MBS). I am not talking about the toxic private label … [Read more...]
You, Me and WB: Warren Buffett’s Most Important Advice
Becky and I refinanced our house this week, locking in a 15-year rate. This should be great news, since we will be paying less interest over the life of the loan by retiring the 30-year, and our monthly payment is close to what it was. Yet, somehow, it doesn’t feel like a great move, especially after waving goodbye to a sizable chunk of cash to get the deal done and signing a mountain of documentation. Since when do you have to sign a copy of a copy just to make sure they can prove you got the copy? That was new to us, and we hesitated and then continued signing away with the enthusiasm of a … [Read more...]
Japan’s Lost Decade
Japan’s ‘Lost Decade’ Wins Fresh Attention – James Mackintosh, Financial Times “The 1990s were certainly bad for Japan. Gross domestic product rose at half the rate of slow-growing France and a third that of the US. The Nikkei 225 index halved from its peak above 36,000…On paper, the 2000s too look dire: GDP rose only 10 per cent from 2000-08, just over half the UK or US level, even after Japan belatedly addressed its troubled banking system and embraced limited quantitative easing. But as economist Andrew Smithers points out, the ageing of the population affects the data. GDP per person of … [Read more...]
Gold Nears All Time High
Up 14% YTD, gold is once again on the verge of hitting another all-time high. … [Read more...]