Posted on 10/27/2010 8:56:49 AM PDT by WebFocus
Bill Gross of PIMCO has attacked quantitative easing as a "Ponzi Scheme," and charged the American public and our politicians, not Ben Bernanke, with fault.
Gross writes:
"The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need – as with Charles Ponzi – to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not. This one is so unique that it requires a new name. I call it a Sammy scheme, in honor of Uncle Sam and the politicians (as well as its citizens) who have brought us to this critical moment in time. It is not a Bernanke scheme, because this is his only alternative and he shares no responsibility for its origin. It is a Sammy scheme – you and I, and the politicians that we elect every two years – deserve all the blame."
While Gross isn't sure if QE 2 will work due to our liquidity trap predicament, he is sure who to blame for getting us into this mess. Gross targets the politics of the country at large.
Gross writes:
"Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isn’t a choice between chocolate and vanilla folks, it’s all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath."
(Excerpt) Read more at businessinsider.com ...
What does T.Rowe have as far as energy? Actually T. Rowe does have a good one. I think it is New Era Fund. Oil, forest, minerals, precious metals. US and international stocks.
Over 100 years - forest was one of the best asset classes.
New Era’s historical return going back to inception 1-20-1969 (41 years) is 10.6%, which is very good. 10 years 10.5%. This is from their web site.
“New Era Fund”
That choice is not offered in my plan. Maybe I need to talk with them directly.
First thing that comes to my mind is extortion. Why pay the protection money? Because they’ll burn you out if you don’t, and you’re not strong enough to fight back.
That’s a pretty graphic example meant to convey my point that maybe it’s just the best outcome available. If I want the “safety” of Treasuries, at least with TIPs I won’t lose AS MUCH as I could in an inflationary environment.
Just my opinion, I don’t do this for a living.
Without Freedom, Liberty and Security... ther can be no economy. Sometimes these idiots get lost in the numbers.
LLS
I wouldn’t buy them I know what your saying I think there is way too much corruption and risk myself. It was explained to me this way about TIPs.
One of the reasons investors are willing to buy TIPS at a negative yield is that TIPS pay a premium when inflation goes up. So if you believe, as these investors must, that inflation will eventually go up over the next 5 years, the current investment at a negative yield could still pay off nicely.
Another thread explains it better..
TIPS most people understand. They’re “Treasury Inflation Protected Securities,” meaning that the Treasury adjusts your principle for inflation.
If you don’t understand how TIPS work in an inflationary environment, google “how TIPS work” and you’ll see a couple of great examples.
OK, but why a negative yield? Why would someone pay a premium for these?
Well, there are two explanations:
1. Investors in these are expecting inflation. That’s simple enough.
2. Investors are expecting inflation or deflation. That’s not so simple. The normal Treasury debt (bill, note or bond) just pays you the coupon based on your principle investment. If there is inflation, that eats into your yield, and if there is deflation, your coupon looks better due to the negative rate of inflation. Remember that the real rate of yield is nominal yield minus the rate of inflation, and if inflation is negative (deflationary), then you have a higher, not lower, real yield.
OK, so TIPS are asymmetric - the Treasury adjusts your principle if there is inflation, but leaves it alone if there is deflation. If you don’t know whether there is going to be inflation or deflation, you’re better off buying TIPS than Treasuries, because now at least you’re protected on the upside, assuming that the CPI captures the inflation. Which isn’t necessarily a safe assumption these days. Investors know right now that the CPI is effectively at rock bottom, and the Fed has openly declared that they’re trying to cause inflation.
So investors bid up the option of being protected from inflation.
http://209.157.64.200/focus/news/2614309/replies?c=1
I wouldn’t buy them I know what your saying I think there is way too much corruption and risk myself. It was explained to me this way about TIPs.
One of the reasons investors are willing to buy TIPS at a negative yield is that TIPS pay a premium when inflation goes up. So if you believe, as these investors must, that inflation will eventually go up over the next 5 years, the current investment at a negative yield could still pay off nicely.
Another thread explains it better..
TIPS most people understand. They’re “Treasury Inflation Protected Securities,” meaning that the Treasury adjusts your principle for inflation.
If you don’t understand how TIPS work in an inflationary environment, google “how TIPS work” and you’ll see a couple of great examples.
OK, but why a negative yield? Why would someone pay a premium for these?
Well, there are two explanations:
1. Investors in these are expecting inflation. That’s simple enough.
2. Investors are expecting inflation or deflation. That’s not so simple. The normal Treasury debt (bill, note or bond) just pays you the coupon based on your principle investment. If there is inflation, that eats into your yield, and if there is deflation, your coupon looks better due to the negative rate of inflation. Remember that the real rate of yield is nominal yield minus the rate of inflation, and if inflation is negative (deflationary), then you have a higher, not lower, real yield.
OK, so TIPS are asymmetric - the Treasury adjusts your principle if there is inflation, but leaves it alone if there is deflation. If you don’t know whether there is going to be inflation or deflation, you’re better off buying TIPS than Treasuries, because now at least you’re protected on the upside, assuming that the CPI captures the inflation. Which isn’t necessarily a safe assumption these days. Investors know right now that the CPI is effectively at rock bottom, and the Fed has openly declared that they’re trying to cause inflation.
So investors bid up the option of being protected from inflation.
http://209.157.64.200/focus/news/2614309/replies?c=1
The American Idle.
My money’s on Bristol Palin!
Jets in 2010........
Nah, we're not even up to March of 1938 (Austrian Anschluss).
I'm in the same exact fix with TRP and unless I retire and get my hands on my 401K to get it out of there, I can see it all going up in a puff of smoke when the next financial market bomb hits. It's like watching a train bear down on me in slow motion and being tied to the tracks with little hope of getting loose in time.
Anybody have a favorite IRA we can roll this into?
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