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John Paulson Lecture: "Bonds Are Wrong, Stocks Are Right"
John Paulson is now 'all in' that for the first time in history bonds are wrong and stocks are right... We'll take the other side of that bet. Of course, this also means that David Tepper is across the table as well. Oh well, we do like to live dangerously. Full notes from Paulson's lecture at the University Club, to a standing audience. Then again, if anyone suspected that JP was actually on the same side of the bet as us, it wouldn't really work now, would it...
Here is today's permabullish elixir from the man who has a $30 billion reflation bet on.
1. What Happened – We all know what happened in 2006, 2007, and 2008. By end of 2008 they had completely covered their mortgage CDS and had started to buy high-yield Corporates into 2009. They averaged in at under 55c on the dollar for most of those bonds and sold most over par. There is not much opportunity in high-yield at this point.
2. Equities – They are now think one of the best places to be is equities, with a strong focus on distressed equities. Paulson’s case for equities in general focused on the discrepancy between equity earnings yields of about 7% to 8% now compared to the 10-year yield at 3.6%. This is one of the highest dislocations since they started tracking these numbers. As such, some equities he owns offer superior returns to long-dated bonds: JNJ: 3.8% yield, 7% earnings growth; KO: 3% yield, 8% growth, PFE: 4% yield, 3% growth. On distressed equities, they look at bankruptcies and major restructurings. The most well known examples are his holdings in financials like C and BAC. They also own STI and RF. They follow every bankruptcy and will buy the debt in interested. As the companies come out of bankruptcy, they’ll convert the debt to common stock. He gave the example of K-Mart, which went into bankruptcy with billions in debt, emerged at $10 a share and debt-free, then eventually went to $190. Paulson thinks he’ll find more of these over the next few years.3. Bonds – The purchase of long-dated bonds, either treasuries or Corporates, should turn out to be a horrible trade. Rates are at record lows and the economy is turning should continue to churn higher. Paulson expects roughly 2% GDP growth for both 2011 and 2012. Quantitative easing should contribute to significant inflation over the next few years, with inflation possibly hitting low-double digits by 2012. This is bad for the 10- and 30-year and bad for the USD. The USD should fall and the yields on long-dated US Treasuries should rise. Paulson has been buying 5 and 7 year calls on the 30-year bond yield.
4. Homes – This is the best time 50 years to buy a home. This thesis is the exact opposite of his thoughts on bonds. You don’t want to own long-dated debt, you want to issue it. Buying a home (an asset) with a 30-year mortgage (issuing debt) is exactly that. Home prices will rise with a better economy and with inflation. Your debt and interest payments get locked in at record lows. The price of your home will rise.
5. Gold – The price of gold has moved in correlation to the monetary base for as long as they have tracked the two data items. As the Fed prints more money, gold should rise. If the Fed were to increase the monetary base by 100% over the next 3 years, Gold should increase by that same amount. Additionally, as inflation accelerates, investors tend to push gold higher than its correlation, like in 1980 when it increased an additional 100% above the correlation. So if gold is at $1,200 now, it should hit $2,400 on the monetary expansion alone, then $4,000 as investors flee inflation. Additionally, he has offered his investors the ability to hold their investment in his fund in either US Dollars denominated or in gold denominated. Paulson himself has 80% of his assets gold denominated.
Let the debate begin
h/t Mike
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When have bonds ever been wrong? The big boys control F.I.
With the markets as distorted as they are now it's hard to tell who is right. I just know it will all blow up in the end.
I was wondering why the market ramped up at 1pm on a non-POMO day
Bernanke came right out and said he will not let the market down whatever the costs. Yes, he directly said that in public, so you KNOW the Fed will support the market ramp. So yes, stocks and not bonds.
Better still, due to massive dollar printing to keep the market up, get physical gold/silver due to dollar devaluation.
What's this OR shit? It's AND. Both. Everything goes up, until SHTF.
In a market where the technicals are manipulated by the PPT, today's ramp is simple; on friday, despite the huge move, transports "failed to confirm" dow move. PPT will not let that failure continue. So ramp market to get dow theory confirmation. Pathetically obvious.
In a market where the technicals are manipulated by the PPT, today's ramp is simple; on friday, despite the huge move, transports "failed to confirm" dow move. PPT will not let that failure continue. So ramp market to get dow theory confirmation. Pathetically obvious.
Agreed. His thesis is BS, sure bonds will get hammered in the inflation case, but hey J.P. if it wasn't for extreme availability of cheap money the past two decades, stocks wouldn't have gone anywhere (no credit fueled consumption - nothing!). Now he's ramping stocks in an inflationary environment... Zzz
Equities are dead, who even cares about them anymore. When QE2 is finally announced there will be very little upside left. 'Til then feel free to ride the AAPL and BIDU hockeysticks...
Do you guys hear yourself. POMO buy stocks POMO buy stocks. The bond market is the stock market and the stock market is the bond market. Microsoft sells 4 billion in bonds to pay stock dividends to avoid repatriating cash that it would have to pay taxes on.
So my dear friends. The stock market crashes the bond market crashes, the bond market crashes the stock market crashes. Now let's move on to the lightening round. Where there is death without ressurection.
http://www.youtube.com/watch?v=zRvPoCWElOc
+1M
that was a pretty powerful video, gave me goosebumps. never seen it before but knew the song. WOW.
You should definitely take the time to watch that movie. The Wall is a classic.
http://www.youtube.com/watch?v=VxNM7j_ppHI
ok, thanks a lot. i guess i get christmas every day now.
Well, at least he batted 1-for-5. Almost good enough for the majors.
Edit: Take that back, he invests in GLD for a bulk of his gold holdings(I believe).
The Hinderberg Omen headline was used to get the shorts on board while cronies like Tepper and Paulson were buying like a shopping spree. Now these guys are saying stocks are the way to go because they are up to their chins with them and wants to take them off the table. THey need to round up the suckers to pile in and what better way than to show your face on the farce known as CNBC. If these guys are telling you to buy, I am sure they are doing the opposite, or else how could they always end up making money and staying in this rigged game.
Exactly what I'm thinking.. Even when Tepper on CNBC basically said that it was a no-brainer in early 2009 to buy financial stocks/bonds, in fact I can vividly remember that most people at the time were thinking armageddon. Now with the POMO's and anticipated QE2, it does feel like you can simply front-run the Fed and make an easy buck. Which makes me think, gotta sell this market. There is no such thing as a free lunch. Period.
well, yeah, if inflation is expected to be in the low double digits (!) then bonds are wrong.
But, I think Ber-spank-me is aiming for more like 3 or 4% inflation.
"Paulson himself has 80% of his assets gold denominated."
what does that tell you.
He spent 80% of the article talking about 20% of his assets.
I'll go for the gold part. Given a very inflationary environment, I'd also suggest silver, liquor, tampons and weaponry.
+1
"...liquor, tampons and weaponry..."
Is there an ETF for that????????
I bet the perspectus is an interesting read
There is,soak the Tampoons in liquor,tie onto and pull thru the fouled bore........most excellent idea Ted!.
I believe part of the perspectus states: "The variance in equity risk can be dramatically compounded during specific (and unstated) time periods in a given month. Also investor returns or losses can potentially be highly leveraged and volatile."
The ETF tickers for the fund you seek are WMYN, WSKY, and GUNZ.
At least during the given month time periods the ETF's won't rip you a new asshole when you say "how was your day?"
Do I have the right to take delivery of my GUNZ or WSKY? Would I want to? Different kinds of whiskey and guns are not what I call fungible.
I don't understand how all these hedge fund managers are super long gold due to coming (double digit?) inflation and super long equities. High inflation = higher input costs, lower relative disposable income and ultimately a compression of corporate earnings. Why does noone talk about this?
Because he's probably betting that "investors" will pile into equities since the mantra is that stocks outperform inflation. All the 7% blah...blah...sounds like bs from a salesman.
Earnings yield 7 / 8 % ? Buahahahahahahahahahaha. You must be kidding me, John ! Guys, do yourself a favor and get out of the stock market. There is only one interpretation possible for this humbug : Paulson is trying to liquidate his portfolio. STRONG SELL.
exactly my thoughts. I read somewhere recently (probably DB) that his funds were down for the year. He's probably making an end of year effort to get his performance up, because if he doesn't after incredible returns in '08 and '09, investors may question who was pulling the strings at Paulson (considering Pelligrini left last year to set up his own shop only to realize correlations amongst asset classes were too much in line to really make money for his investors) So this is Paulson's shot at telling investors, "I was responsible for '08 and '09, not mr. psqr." Of course if he finishes down next year, do we begin to see redemptions? old clients may stick around, newer clients may bail. Either way, if you have a guy like Paulson trying to exit equities and insiders selling shares at ridiculous rates vs buying, that should be all the lack of confidence in the market you need. (and btw L ellison probably thought, i get $1 a year in salary and there's just no way my shares are going any higher bc this is just too rough of a business environment, so let me cash out right now before it's too late)
The whole notion of some rich asshole giving a lecture on how to be a fat cat like me is patently stupid. Guys like Soros, Buffet, and Paulson are so full of shit it makes my colon envious. Buy gold, silver. Take delivery. These fuckers are at the end of their ropes.
From the Financial Times: Brazil warns of ‘currency war’
It seems everyone wants to devalue to export more.
"so full of shit it makes my colon envious"
classic!
colon bitch
What was the question? If it is, "Which is broke, the equity markets or the USA?" Then the answer is, "Yes," and both bonds and stocks are wrong.
Proof for this? Chart?
This? - http://dollardaze.org/blog/
Um, I don't see anything that seems like correlation between the monetary base and the price of gold on that site.
Is there some evidence of a correlation some place else?
Read this:
http://seekingalpha.com/instablog/119508-thomas-noon/94553-the-gold-suit-index
Sorry, that has nothing to do with it.
I'm just looking for a chart of the gold price against a measure of the monetary base that shows correlation. I'm not trying to make an argument get into an argument. I'm looking for data.
I understand, no argument sought. i am trying to find anything remotely close to such a chart. Would be worthy along with the fridge art collection from my kiddos.
Total credit bubble size from 1915 to now (note the flattish area from 1970 to now):
http://nowandfutures.com/images/m3_plus_credit_and_debt_long.png
Inflation-adjusted gold price (note the sharp peak during high inflation in the late 70s):
http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation.jpg
I think you can make much better arguments for the gold price tracking inflation (since that's when people buy it as a hedge against same) than any correlation to M1-M3 per se.
Um, I thought that if interest rates rise, home prices would really tank. What am I missing?
If you are in the market for a home there is no time pressure as long as rates remain low.As soon as rates begin to rise the buyer becomes motivated to "lock in" before borrowing costs go up. This is the only way I can see rising sales and is dependent on how many are in the market and the rate of increase.It will certainly have a diminishing effect,and then prices tank.
Chart: DX
Stocks or bonds? Let the USD decide.
http://99ercharts.blogspot.com/2010/09/dx.html
"for the first time in history bonds are wrong and stocks are right... We'll take the other side of that bet."
Tyler, we aren't comparing apples to apples here.
Historically, bond and equity pricing were not nearly as manipulated by PPT-HFT-POMO-Shitsorm as it is today.
So, all the market's signals are wrong--we are flying blind since both bonds and equities are artificial constructs of our politburo.
In other words, "ya pays your money, and ya takes your chances." "Step right on up, folks! Take your chances on the market from hell!
Right or wrong, the DOW is green and if it holds this week at this rate, we are heading into shortsqueezes all around the board.
Short squeeze ? http://noir.bloomberg.com/apps/cbuilder?ticker1=BDIY%3AIND
I'll repeat what I said: Right or Wrong, if green for this week, major shortsqueezes around the board
http://www.bloomberg.com/apps/quote?ticker=INDU:IND
I guess there remains an acute shortage of shopping malls, office buildlings, retail centers, etc.
Yet another new high for Jones Lang LaSalle.
Not in Florida there isn't. Half of em are closed weed factories, You know what an eyesore is?
Weeds are good for florida. The weeds that grow there process silica. They are slowly converting sandy soil. I think flordians will learn that sea grapes are edible just not very tasty.
I can tell you these guys stay awfully active and busy in China ;)
Gambling Fever is running amok.
No amount of economic distress can keep Joe Six from the gambling dens.
heavy volume too
Maybe the NY can do 600mm today including HFT.
LVS has become the bellweather of this economy.
Cramer just pumped Gold and Silver...more toward Silver.
Look out below!
Let's hope it is a short mini-correction, then. Corrections are healthy in the context of a long-term bull market.
Gold will go down a bit to correct, maybe back to 1250 but after that straight up again. Nothing goes up in a straight line.
I want gold back to $1,200 and silver to $19.50. Then the upward movement can begin again. What the past few weeks has shown is what is possible. In other words, we've now seen that gold and silver can continue to go up regardless of whatever else is happening in the markets. The next time that happens, hopefully after a pullback, I want to be fully loaded. Right now, I'm not fully there.
I'm curious to see how Au/Ag hold up today on op-ex and tomorrow on comex futures expiry.
That will give you a hint if you are EVER going to see your $1200 Au / $19.50 Ag in your lifetime...
I've read a couple of the "experts" are expecting a pull back, i.e. Clive Maund, Bob Hoye, but it wouldn't surprise me to see the upward trajectory continue unabated given what's going on.
SilverIsKing
John Williams is proposing a Politburo slam down on Gold.
Basically he's saying they are going to throw the kitchen sink at this, anything they have to do to keep it afloat.............
Go ahead,slam down.What a buying spree worldwide that will be..........
I doubt Gold will go much below $1275, if that. I think a push through $1300 this week is more likely.
But I'd still like to see a chart to back up this claim for a correlation between the gold price and the monetary base.
Given the on-going currency war, and the desire to dump the dollar from all of the other CB's, I don't think they would venture to try to tamp down gold. That train has left the station, and I'm guessing we could see a massive breakout on gold prices as the liquidity crisis begins anew. IMHO, there is a large bid under the gold market from the CB's, large investors, etc. Pullbacks will be shallow and well bid.
What time is the close for op-ex and tomorrow for comex?
Dunno what time: prolly 1:30pm EDT or so.
Per Ed Steer: There's options expiry in the OTC market in both gold and silver on Monday... and options expiry on the Comex on Tuesday... last notice day for delivery into the September silver contract on Wednesday... and first day notice for delivery in the October gold contract on Thursday the 30th.
Great if Cramer is pumping Gold and Silver we can expect a pull back in the days to come, guess I can add to my position then.
I can't stand the guy.
SHIT!
for billionaires like Paulson, it is PATRIOTIC to be bullish. They already made billions, so want to be good US citizens and pump stocks. It is part of the propaganda machine.
Yep, to do otherwise casts them in the role of villain. Look at Steve Wynn, he is probably as bearish as I've heard from a billionaire and he was assaulted for his statements. Well Steve Balmer too. Made a statement a while back that Microsoft had to look at moving operations overseas because of regulations and taxes, not much was made of that though.
This guy is parroting Grantham and laying low after his huge, once in a lifetime, Goldman designed score in 2008-09. 8pc earnings yield goes under 7 after tax with new divvy rates. Terribly incongrous concepts but perhaps he is hedging?
At least the (plate?) Spinners had 2 hits to the OJs one!
http://www.youtube.com/watch?v=ZVC2j_Kdw8c&feature=related
that be an O J , they got away with it.
Why would anyone want to believe what this guy says publicly. He is the King of Schtups. Lean over my countrymen and letteth my Abacus penetrate thine backsides...
He's a schmendrik schmecklehead
didn't Harley Davidson have a schmecklehead engine?
For all you inflation guys out there......let's get this straight..... INFLATION IS A HEDGE AGAINST DEFLATION.... NOT INFLATION. Gold is a store of value during infaltionary periods. WOW....how many times do I really need to say this????
It's Both...............
Chevy Chase: "New Shimmer is both a floor wax AND a dessert topping!"
Dan Akroyd: "Tastes great, honey!"
Gilda Radner: "And just look at that shine!"
Still one of the best commercial parodies of all time!
Gilda Radner: "And just look at that shine!"
she was a true goddess of satire.
"I also like to live dangerously.." - A.P.
As if stocks aren't being propped up and only bonds are... Where would those dividend yields be WITHOUT POMO interference right now? Dividends aren't coupons my man. Top line earnings growth JP? How much of that is acquisition? Looking to rally the crowd so we can lighten up eh? Smashing baby!
JP fails to understand that QE is nothing more than an asset swap. Exchanging interest bearing bonds for non-interest bearing cash deposits.....that's somewhat deflationary.
Very clever way to think about the matter, Hondo.
"The University Club." Sounds like a pretty exclusive place. I guess only those who went to a university can join. LOL!
Somebody betting on QE2 for november...??
Somebody praying for QE2...
The price of a home will surely not rise, but, the value of the debt you "issue" on it may very well crash. I can't live in Paulson's world where both sides of that equation are working for the homeowner though I do lean in favor of his idea that granting a mortgage is issuing debt that will be debased on your behalf. Let Ben do the work.
GG
yeah, old JP, solo now, trying to talk his book, ..ah trying to SELL HIS BOOK! It seems he run out of "strategies" this time around, hehehe, GS has to look out for themselves so dear JP you have to "short" all by yourself now, eh!
It would be really sweet to see these
wiseguys get caught holding the bag!!!!!
CNBC now busting the PGN trades!! LOL
Mr. Paulson is half right on his statement.
Neither stocks nor bonds are right. Both are denominated and subject to the rapidly collapsing world of paper (you think a house of cards is unstable, try a whole PLANET).
Gold is right. Most everything else is a broken clock. One or the other might be "right" in the short term, but both look terrible at current prices.
Why is gold right? I happen to think it's not, we have seen a lot of evidence on this very website to show it's manipulated. The big boys have a full court press on (most if not all major markets) so why should we think that any one specific market will be right and forecast properly?
XAU is pulling back and getting ready for its next assault on the highs of 2008. ($210) should be very interesting to see how it turns out...
Ok, ok, it's pointing in the right direction. Better?
;)
I like how he compared stock earnings with bond yields in point # 2. It seems everyone is focused on earnings and not dividend payouts to the shareholders. I wonder why...
.
What I want to see, is how Once unleashed, Burnakae,keeps Inflation at 3-4%?.
My Arse.
Freight train...................^^^^^^^^^^^
In the shuffling madness
Of the locomotive breath,
Runs the all-time loser,
Headlong to his death.
He feels the piston scraping --
Steam breaking on his brow --
Thank God, he stole the handle and
The train won't stop going --
No way to slow down.
Killing 'em Softly...
This person looks spot on, His angle is inflation I agree and QE II will help stoke that, Just the hint has tanked the dollar, If or when inflation is above 5% or 10% bonds yielding 1% should be no more, Locking in home loans at todays levels for 30Years with ripping inflation looks smart over the longterm.
Regarding stocks hes recommending selective value stocks not the market per say sounds fair,
Clearly nothing is for sure including inflation and QE II But the Fed will do whatever it takes to stoke inflation and this guy is betting accordingly I think hes correct.
FDIC Board Proposes Rules on Temporary Unlimited Deposit Insurance Coverage for Noninterest- Bearing Transaction Accounts
The Federal Deposit Insurance Corporation (FDIC) Board of Directors today approved the issuance of a proposed rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act to provide depositors at all FDIC-insured institutions unlimited deposit insurance coverage on noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012.
"In October 2008, the FDIC instituted a program providing unlimited protection for noninterest- bearing transaction accounts at participating banks and found it to be highly successful in providing stability at those institutions during one of the most severe economic downturns in our history," said FDIC Chairman Sheila C. Bair. "The Dodd-Frank provision is different from the FDIC's program but continues the purpose of that program as we emerge from the economic crisis."
Under the proposal, the FDIC will create a new, temporary deposit insurance category for noninterest-bearing transaction accounts. These accounts are primarily checking accounts used by businesses for payrolls, accounts payable and other purposes.
Unlike the FDIC's voluntary Transaction Account Guarantee ("TAG") Program, which will expire at the end of this year, the Dodd-Frank provision will apply at all FDIC-insured institutions and it will cover only traditional checking accounts that do not pay interest. The proposed rule emphasizes that, starting January 1, 2011, low-interest consumer checking accounts and Interest on Lawyer Trust Accounts (IOLTAs) (currently protected under the TAG Program) will no longer be eligible for an unlimited guarantee.
The proposed rule requires insured depository institutions to provide notice and disclosure requirements to ensure that depositors are aware of and understand the types of accounts that will be covered by this temporary deposit insurance coverage. To comply with the disclosure and notification requirements, institutions must: post a notice in their main office, each branch and, if applicable, on their Website; notify customers currently covered by the FDIC's TAG Program that, beginning January 1, 2011, low-interest checking accounts and IOLTAs no longer will be eligible for unlimited guarantee; and notify customers individually of any action they take that will affect the deposit insurance coverage of funds held in noninterest-bearing transaction accounts.
The FDIC will be accepting comments on the proposed rule through October 15, 2010. The shorter than usual comment period is necessary to give insured institutions adequate time to implement the notice and disclosure requirements by December 31, 2010.
http://www.youtube.com/watch?v=-8_bZkhNEfc
So I will have to forgo my current 0.01% interest rate on my checking account to receive unlimited coverage? I don't know if I could part with the huge return I am getting.
Not that I care. My checking account is just a conduit to buy gold/silver.
"Bonds are wrong, stocks are right"
Translation - "YOU are wrong and I am right"
Tyler, I'll take that trade too ... but
I gotta say, I only disagree w/#2 .... ok, and #4 because I expect RE to continue to collapse. As for #3,the problem w/our trade, is he's showing up to the table w/Ben and Guttenberg. It's just a little too early to short TSYs, for now.
FUCK PAULSON.........he wins via inside information and screwing investors.
LONG LIVE PRECHTER!
Inside information? Last newyear, I bought CITI while he did... I got my ass creamed! He must have lost hundreds of millions on that trade.
deleted
Anyone following Pretcher would be left to be raped.
the bottom line is that if bonds tank and yields go up, ASSET PRICES COLLAPSE
so there!
Spot on with very few words needed. I'm still amazed that many believe a yield getaway is anywhere on the menu at the Fed. A getaway means an economic mushroom cloud....transcontinental. End of game.
Bonds are right about what? There is no inflation premium, but there is also no risk premium. I hate to say this, because it's the last thing I want to see, but to the extent there is a legit bond market left, bonds are predicting a long nasty Japan style zombie period - no depression, but no growth either. That's the only way these rates make sense.
JP is now "Paulie" you know who, heheheh at least he does his business like one! he would be a great asset to the "boardwalk empire"...ya' know?!?!
Bank of America -2.65 % today. Who is one of the largest investors ? Yeah, John Paulson. There is more room for some nasty sell off.
I've been bullish stocks for perverse reasons since March of 2009 for
the record .
At that time I predicted 10,000 here on ZH and Seeking Alpha when it was 6,500 on the DJIN {CBOT neaest future}.
I am now predicting that the .618% fibonacci retracement at 11,280 {CBOT neaest future}.will be
destroyed and the 14,280 top of 10/12/07 will be matched or exceeded.
Technical analysis is my forte' and has been as a profession .
I'm the best on Earth.
Executive summary:
"Told ya so, Nyah, Nyah!"
We are glad you decided to share. We realize that in your globe-trotting adventures there isn't much time to share information with random people on the internet. Truly gracious gesture -- for a world-class douchelord.
Paulson is 100% right. I follow his logic. stocks I will get out in Jan 2011
There is no "thesis" here at all. It's just a marketing trick. Paulson has his investments "gold-denominated." This means that there's 1:1 gold futures "hedge" with the fund. In other words, if the fund goes up 10% (in dollars) and gold (in dollars) goes up 20%, the "gold-denominated investor" gets 30%. However, it is still not kosher for a fund like Paulson's to be involved in 50%+ gold bullion. That's why he has a separate gold fund. Because, what if gold went down? He would be crucified for being both weird and wrong. He has to put on the show of picking stocks, because that's what his investors want and expect. If you have a "gold bull outlook" but you have to choose between stocks and bonds, you choose stocks. If stocks go up and gold goes down, Paulson looks good. If stocks go down and gold goes down, then he simply made the same mistake as everyone else, and besides it seemed sensible at the time. If stocks go down and gold goes up, then he can publicly regret his bad luck while ringing the cash register on his person "gold denominated" hedges.
I like coke!
How does one go about buying 5-7 year calls on yields?
Bonds are always right? just like the Greek, Irish, Spanish and Portuguise bonds markets 6 months before they required ECB / IMF bailouts?
The Fed is all over the bond market both MBS and treasuries either directly or through the TBTF, fuck chart that, the charts are meaningless and the bonds are not telling you anything about the economy.
Sure they could go a lot lower, like when the Fed announces QE2, bonds, stocks and commodities are all saying the same thing = THERE IS A SHIT LOAD OF LIQUDITY, THATS IT, NOTHING MORE NOTHING LESS
Ummm.... Why would I trust anything backed by the "full faith and credit" of the United States? Sorry, Paulie, I'm trying to diversify away from money and other IOUs.
I don't understand the "investments denominated in gold" thing.
If the fund is long [some crappy stock] and the price rises due to POMO, I'm fairly sure that when the fund sells it it receives the gain in dollars. Let's say it's up 10% on the year after fees, so like $1 million has become $1.1 million. But if the fund is denominated in gold, and gold was $1000/oz at the year start and $1400/oz at the year end, then the fund denominated in gold has fallen from 1000oz to 785oz, that's a 21.5% fall.
Basically the fund is short gold due to the liability to repay investors in gold, unless the fund has a long gold holding (on top of all its 'regular' investments) to match that liability... in which case one wonders how that is funded, and whether it is holding real physical gold or whether it is some massive swap with some investment bank.
Incidentally - I think I read in FT recently that Paulson funds are down quite a few percent year to date. Which seems odd if he's making 100%+ returns on all his investments...
Who is afraid of a little deflation? Inflation around zero is good if it is driven by productivity gains. Fuck this fear of a little deflation - as long as we have positive population growth, it will not last long. It is just a pitiful excuse to drive up asset prices. With mild deflation, excess capacity will slowly go away and yes it will be painful for some but very beneficial others. Fuck the Fed. They do not know what they are doing
all indications of S&P taking out 1200 this year before 1250 next year and then almighty crash. By then most bears would have have been dead or long asleep.
Foolish bears never make money.
and to add to that. Bulls will keep loading up be it 1100 or 1250. So bulls will lose anyways. Bulls never make any money.
S&P 500 FINANCIALS INDEX - an important chart:
http://stockmarket618.wordpress.com
What has this man smocked, a rotten CMO joint?
So I ought to buy a house becouse cash is for free? And what if I had ten millions of $? Lever it up and buy half of Detroit beaten down homes?
Buying with mortgage is like issue trasuries? If the world is not yet fallen apart, it's because not all J6p have started issuing bonds.
Better....what? when?
And what will do home prices with hyperinflation?
Is he calling the bottom in real estate?
Your wealth will be locked in your bank's hands. Mafia racket guys are rookies in comparison.
What is this, the Goebbel's way of thinking or is he serious?
Whatever you think of his equity call he is blatantly wrong on his housing call.
If you buy a house now (say for $1m) and finance it at 5% (CPI+4%) for 30 years then if inflation rates are 10% as he predicts the finance rate goes up to 14% and you try to sell your house, good luck finding a buyer who can afford to pay almost 3 times your interest rate at the same price.
Housing markets have gone up massively since 1980 as rates and inflation have fallen. Somehow now Paulson expects that housing to go up and inflation and therefore rates - laws of economics in reverse.
This only works if wages go up massively more than inflation (impossible) or the Fed is still lending at a 5% discount to inflation (which is possible - but as the USD will be worth about as much as toilet paper, won't help housing much)
So cute and anachronistic to think in terms of Income versus House Prices. You should travel a bit - nowhere else in the world are house prices linked to average wages - because NOBODY buys houses with 90% mortgages ( That is a US phenomenon). In most of the world , most of the time , Good houses ( not crap cardboard mcmansios in the middle of a desert) - houses are a way to preserve wealth . You save up enough to buy for cash, or your ancestors give you one. Maybe thats what happens in the US. Good , long lasting, well built, well located property will probably do pretty well. Mc ,ansions in deserts will be torn down and be used for fuel or fertilizer.
Churchill’s pre-war poem adjusted
“Who is in charge of the clattering train?
The axles creak and the couplings strain,
and the pace is hot and the points are near,
and sleep hath deadened the driver's ear,
and the signals flash through the night in vain,
for DEBT is in charge of the clattering train.”
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