Wednesday, March 31, 2010

Article by Bill Gross

A good article by Bill Gross. He seems pretty bearish on gov't debt, which is rare for bond guys.

Rocking Horse Winner [PIMCO]

Of most concern:
" In the U.S. in addition to the 10% of GDP deficits and a growing stock of outstanding debt, an investor must be concerned with future unfunded entitlement commitments which portfolio managers almost always neglect, viewing them as so far off in the future that they don’t matter. Yet should it concern an investor in 30-year Treasuries that the Congressional Budget Office estimates that the present value of unfunded future social insurance expenditures (Social Security and Medicare primarily) was $46 trillion as of 2009, a sum four times its current outstanding debt? Of course it should, and that may be a primary reason why 30-year bonds yield 4.6% whereas 2-year debt with the same guarantee yields less than 1%.

The trend promises to get worse, not better. The imminent passage of health care reform represents a continuing litany of entitlement legislation that will add, not subtract, to future deficits and unfunded liabilities. No investment vigilante worth their salt or outrageous annual bonus would dare argue that current legislation is a deficit reducer as asserted by Democrats and in fact the Congressional Budget Office. Common sense alone would suggest that extending health care benefits to 30 million people will cost a lot of money and that it is being “paid for” in the current bill with standard smoke, and all too familiar mirrors that have characterized such entitlement legislation for decades. An article by an ex-CBO director in The New York Times this past Sunday affirms these suspicions. “Fantasy in, fantasy out,” writes Douglas Holtz-Eakin who held the CBO Chair from 2003–2005. Front-end loaded revenues and back-end loaded expenses promote the fiction that a program that will cost $950 billion over the next 10 years actually reduces the deficit by $138 billion. After all the details are analyzed, Mr. Holtz-Eakin’s numbers affirm a vigilante’s suspicion – it will add $562 billion to the deficit over the next decade. Long-term bondholders beware."

Friday, March 12, 2010

America's AAA Rating in Jeopardy

Hmmm...weird, who would think after adding a couple trillion to our national debt our rating would be in jeopardy??

S&P issues warning over America's top-tier rating [Financial Times]

Tuesday, March 9, 2010

Mark Madoff: Back in the Game

I'm sure we all feel bad for him:

Mark Madoff: Back in the game []

Happy 1st Birthday

Happy 1st birthday to this Bull market. It was exactly 1 year ago today that we hit the diabolical 666 on the S&P 500. Today intraday we are at 1142.

What a difference a year can make:
* The VIX was 50, not 17.
* The yield on the 10-year Treasury note was 2.9%, not 3.7%.
* The budget deficit was $900 billion, not $1.5 trillion.
* Baa spreads were 540bps and tightening, not 260bps and widening.
* The market was 20% ‘cheap’ as per Shiller P/E ratio, not 25% overvalued.
* Oil was at $47/bbl, not $82/bbl.
* Equity PM cash ratios were at 5.5%, not 3.6%.
* Market Vane bullish sentiment was at 32%, not 53%.
* Real GDP was -6.4%, not +5.9%; and the ISM was 36, not 57.

Wednesday, March 3, 2010

These people run our country??

Footage of Ben Bernanke testifying and getting "grilled" on monetary policy by Maxine Waters. Bernanke has to sit through this and actually answer these questions? Can't they just send a high school senior to answer these?

It's scary that people with this little monetary knowledge are helping to run the country. No wonder we are where we are.

I'd hate for the 25bps increase in the discount rate to affect mortgage rates...

Monday, March 1, 2010

Goldman Sachs Daily Trading Revenues

Here are the charts of the daily revenues made by GS trading.

Totals (Both Q3&4 - 134 Trading days):

Days over $100MM: 38%
$75MM -$100MM: 14%
$50MM-$75MM: 15%
$25MM-$50MM: 18%
$0-25MM: 8%
$(25)MM-0: 6%
$(50)MM-$(25)MM: 1%

I think I would take those odds, this begs the question...has the easy money already been made?

Quarter 3:

Quarter 4:

Tuesday, February 16, 2010

Variable Annuities: Death Pay

So here's a new scheme that may seem morbid, but actually works: Investors Recruit Terminally Ill to Outwit Insurers on Annuities (from WSJ)

In short, the investor pays the terminally ill to enter a V.A. (i.e. $2,000) and then the investor puts $1,000,000 into the annuity, which pays the beneficiary after the terminally ill person passes away. Worse case scenario the investor loses $2,000, best case is infinity return, as the VA is guaranteed to pay the initial $1MM at the time of death.