I just read this and I agree with a lot of it (not all!).
Message 27655986
From John Mauldin:
Excerpt:>>>>> .......Before I comment, let’s look at what Bill Gross had to say in the Financial Times:
“The front end of the curve has for all intents and purposes become inert and worst of all flat as opposed to steeply positive. Two-year yields are the same as overnight fund rates allowing for no incremental gain – a return that leveraged banks and lending institutions have based their income and expense budgets on. A bank can no longer borrow short and lend two years longer at a profit…
“By flooring maturities out to two years then, and perhaps longer as a result of maturity extension policies envisioned in a forthcoming Operation Twist later this month, the Fed may in effect lower the cost of capital, but destroy leverage and credit creation in the process. The further out the Fed moves the zero bound towards a system-wide average maturity of seven to eight years the more credit destruction occurs, to a US financial system that includes thousands of billions of dollars of repo and short-term financed-based lending that has provided the basis for financial institution prosperity......Second, high rates are not the problem with the housing market. Rates are already historically low. The “problem” is that bankers now want 20% equity at reduced prices to grant a mortgage. Imagine, bankers wanting to get paid back! Even very creditworthy refinancings cannot get done, because borrowers must bring cash to the table, even as their home values have fallen.......... <<<<<
TO's comments:
The money trap our country is in has caused (and will continue to cause-at least in the short run) the reduction of investments into stocks. One major note is that the US banking system is in relatively good shape after all the money that has been funnelled into it over the past 3 years. Unfortunately, the banks have gone from loving risk to despising it!
To get back to the stock market, I think we are getting closer to a real, clear market bottom. Those of you sitting on cash and waiting for the proper setup are going to get your wish real soon (next 2 to 3 months at the most, imo). The US economy, while sluggish at best, is starting to show true signs of stability at the least, and some pockets of strength. Sure, there are plenty of areas that have not turned the corner yet. Anyone associated with these weak segments will probably disagree with the concept that our economy is improving, no doubt. Europe is a train wreck and that will cloud many people's minds and prevent them from seeing what is happening here in the US. They will continue to be worried that Europe's troubles will prevent the US from seeing improvements, and, in my opinion, they will be wrong----and end up sitting on the sidelines when they should be starting to leg into this market!!
jmo
TO
EDIT---> YIKES - sorry about the dyslexia in the last post...oops!! |
