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Investment Research Since 1978

Pay Risk for Pensions and Annuities

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High interest rates are not the problem with the real-estate market. Anyone who bought a house in the ’70s or ’80s can attest to that. The actual problems? Weak appraisals, 20–30% cash at closing, high labor costs, and high input costs for basic materials top my list. So the Federal Reserve’s long-bond-buying binge is a real head scratcher.

As you can see in the following charts, traders jumped on the news, buying up long bonds last week to front-run the Fed buying that will begin in October and last through June 2012. Traders have done quite well.

Annuities and pension funds cannot be thrilled. They invest new money in longer-term bonds to match up liabilities. Thanks to the Fed, they are now left with much lower yields. As a group, they can ill afford such a headwind, and a fabricated one at that. The Fed claims it is trying to help Main Street, yet that is exactly who is hurt most by such low rates.

 

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.

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