The FED and coming collapse:
The fed blabbs about the shape of the yield curve- BUT with the 30 year T-Bond at 3% I fail to see how "shape" is relevant. It's flat as a pancake as far as I'm concerned from an investment perspective. If short rates move up to 2% and 30 year moves to 4% the "curve is flatter"... but long dated treasuries have lost 33% of their value!!! Now yea, these ARE the same bonds the fed is buying hand over fist, make no mistake... they're gonna get freakin CREAMED.
Further "helping borrowers" is an interesting term, since it's really helping "borrowers that can borrow". I made 3 loans on 3 properties in 2012 at 50% loan to value (first trust deeds, IO)... I got 10% the first year, and 8% the next 2 years with a prepayment penalty such that I would at least get the first years interest even if the banks loosened up and they got a cheaper loan. The bank wanted all sorts of paperwork, said it would take 6 months (the guy is upgrading one property and needed to get moving before cold weather set it) for approval and funding and wanted all sorts of guarantees about where the money went, etc. This is going on all over the country from what I understand as folks with high net worth and the wherewithall essentially "de couple" from the system. Sadly, what MOST people do is buy whatever DUMB ASS stock and bond fund their dopey investment advisor tells 'em to. "Reaching for Yield" they used to call it... now they just call it getting a freakin dime for their money. This could get unthinkably ugly if foreigners decide the game of musical chairs is about to end... I wonder what song will be playing when the music stops... "god bless America" one would hope... we'll need it.
So Bernanke hasn't helped these guys out AT ALL really.... he's basically allowed those that CAN borrow, and (savy people with money to loan)ie. banks and corporations and big money to make fatter profit margins because they get to borrow from the small savers have to lend them all money at stupid low rates!!!! THIS is what is going on... small savers get paid shit so that corporate borrowers can have better margins in their importing businesses (build in China and sell here). Now, of course we have the homeowner who is arguably benefiting be re-fi and ability to keep their home... BUT that is actually due to the FED buying mortgages and FNM and FRE (owned by the fed so to speak)... without the FED homeowners would also be paying 6-8% for loans. So the fed is essentially pretending to be god with an unlimited bank account... if the markets start to melt again and they try and support it.... SWEET JESUS, watch out.
You see, in one time and place (30 years ago) low fed rates may have actually helped out MUCH MORE... because what was good for business margins was (more arguably) good for America... but in another time and place (now) what is good for business margins is good for business but NOT NEARLY AS GOOD for America in general...simply because the typical business imports product to sell here... in fact, with so many baby boomers with "nest eggs" we can argue that low rates are BAD FOR AMERICA in many ways.
The cost of artificially low rates is actually incalculable... and WAY MORE expensive than Obama's "stimulus play". Every day millions or tens of millions of dollars flow from savers to companies and governmental agencies that SHOULD go to individual savers, pension funds (including SS), and other entities that are essentially forced by zero rates to take crummy returns.
DAK |
