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Things That Make You Go Hmmm... Like Central Banks' "Must-Win Confidence Game"
Are the markets ready (and, more importantly, able) to withstand higher rates? Well, with the Fed tapering another $10 bn last week to a chorus of "meh" from the markets, it certainly seems to suggest that this whole taper thing is going to trundle along harmlessly until it's been completed without disruption, but Grant Williams has a very nasty feeling about all this.
Those higher rates will not be something the Slip 'n' Fail Mutts will CHOOSE — but inflation could force them into a rather nasty corner. That must be avoided at all costs, and these people genuinely believe they can do so.
Essentially, the central bank heads all around the globe are engaged in a must-win confidence game. They HAVE to make people believe that everything is under control and getting better, BUT at the same time they must ALSO make them believe that the accommodative policies currently in place will be here, essentially, forever (forever in market-time is normally about 18 months to two years).
If the general consensus becomes that they are wrong about either of those statements (or, God forbid, both) then they — and by extension, we — are in for a world of hurt.
On the other hand, if they do manage to convince people they are right and that they will ultimately be successful, then the inflation genie will burst forth from the bottle in which it has been imprisoned as the great credit deflation runs its course; and with the massive amount of kindling heaped on the fire in the shape of QE, the conflagration will be enormous.
But just in case you were still harbouring (yes I put a u in harbouring. I'm English. That's how we roll) a misguided faith in official CPI statistics, check this out:
Bernanke gave us ZIRP; now Draghi — damned by his own lack of earlier action — has been forced to add NIRP to the acronym lexicon of modern finance.
One central bank is fighting deflation by forcing banks to pay interest on their deposits, another is fighting the same (potential) battle by doing the exact opposite.
Think both strategies can be successful in fighting the same enemy?
Inflation whispers are EVERYWHERE right now, and those whispers are all it may take to fuel expectations of future rate hikes — and THAT is the road to perdition.
The Slip 'n' Fail Mutts know that.
In reality, it's not about Zero Interest Rate Policy or, for that matter, Negative Interest Rate Policy.
It's about Broken Interest Rate Policy.
BIRP!
Full Grant Williams Letter here...
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Hey Tyler, Nodebt etc. sorry for OT this is a pretty good read..
http://hbr.org/2014/07/the-crisis-in-retirement-planning/ar/1
seems like a good blueprint for the next crisis that ends up with .gov backed indexed annuities.
I suspect that when the next crisis rolls around that retiring will be the least if our worries, but if we do recover the MyRa will suddenly become a popular option.
yeah that is pretty much what the article is saying. Funny how clueles he is, he should poke his nose around in the annuity world and see how well zirp is working out with those income promises.
check out my post to LTER below.
Yup those Central Banksters sure do have everything under control...er, not!
The Chinese SHIBOR Panic Everyone Forgot About is BackGrant is gonna get the nail gun out if interest rates don't go up
I just read the whole thing. I've read similar pieces before.
Yeah, let's mandate that 401ks and IRAs be turned into Social Security Mk II. Great idea.
My experience is that any time you see and article framed in terms of "income for life" there's an insurance company behind it, hawking a product. Political talking points follow similar "we'll take care of you for life" themes. This is the kind of shit they would LOVE to make into a mandate.
If all you want is income put aside to take care of you in your retirement and you don't give a crap about leaving anything to your kids, buy an annuity (which pays for life but is GONE the minute you die). And then watch as even that meager promise is ripped to shreds by (already) understated inflation.
I'm the last person a guy like that wants to talk to. Because I'll tell the truth- there's no magic investment bullet and what you can take out later depends mostly on what you put in now. 'Returns' usually run in 2nd place.
But it doesn't matter what I think. We're so far off the mark at this point I don't think the government's got much choice but to confiscate all retirement accounts. No, they won't just take the money. They'll be your buddy and exchange what you got for nice, safe, USTs 1-for-1 while eliminating all tax advantages of contributing to those accounts in the future. They're all dead man walking. How they kill 'em is almost irrelevant. They WILL be killed.
Then we'll be back to the "old old days" where everything is taxable and I'll once again mutate into an Investment/Tax Advisor instead of just an Investment Advisor.
@ fonz,
Thanks for the link. Uncommonly clearly written for a Nobel prize recipient. Good stuff but ultimately Merton has only utopian wishes to offer:
"So what should retirement planners be investing in? The particulars are, of course, somewhat technical, but in general, they should continue to follow portfolio theory: The investment manager invests in a mixture of risky assets (mainly equity) and risk-free assets, with the balance of risky and risk-free shifting over time so as to optimize the likelihood of achieving the investment goal. "
Exactly. What do you think old-school pension funds invested their money in? A mixture of stocks, bonds and other investment vehicles, based on.... Modern Porfolio Theory. Shocker, right?
There is nothing new under the sun. Same shit repackaged and put in a different wrapper, called something else.
The REAL problem with DB pension funds had little to do with their investments. It had to do with the fact that companies could use that money like their own personal piggy bank. So they stole from it. A LOT. Then go into bankrupcy or "reorg" and dump the liability on the PBGC (taxpayers).
The fewer people you can have touch or control your money, the better. Period. You're better off on your own using your crazy uncle Ernie for investment advice than you are relying on somebody else's worthless future "promises".
As Doc knows and probably some others out there, insurance companies (some very specific ones at the moment) are choking on the promises they made to the boomers and it's just getting warmed up. this guaranteed income nonsense is just cover in case the market blows up...or is detonated to allow .gov to grab those juicy assets.
Yep lots of annuity companies are offering lucrative buyouts right now to get out from under their obligations. What gets me is the advisors who tell their clients not to take the buyout because the income benefit is so good. Uhmmmm hellooo... The insurance companies are offering buyouts because they can't meet their obligations McFly. Big red flag there.
I'll pick on TIAA-CREF here for a moment, because learning how to work with them has been the bane of every "investment advisor's" life. They're freaking impossible to deal with, but I broke the code a couple years ago and been swimming around in that oddball "land of the lost" world for some time now.
An insurance company retirement plan for a buncha school teachers who have NO CLUE how investments work. But in their haste to capture that market they kinda shafted themselves. Their "guaranteed account", which is basically their company's general account, they made the mistake of pegging the interest rate paid on investments in it LOCKED FOR LIFE PER DEPOSIT, and their accounts follow them everywhere in the TIAA-CREF world for their entire careers, regardless of which institution they work for.
So, if you got a teacher who's been putting money away in the TIAA-CREF guaranteed account since, say, the 1980s, they may have early deposits into those accounts that were pegged around 9-12%! EVERY SINGLE YEAR, BY CONTRACT. You know that's gotta hurt the bottom line.
Yeah I have several clients who fall in that category. When is comes time to retire they want to know what I can offer them to compete and all I can do is laugh and say " nothing".
Your point's well taken about the "one-time cash offer", though. If TIAA-CREF ever makes such an offer (they haven't so far), I'll recomment all my clients take it. Up to now, I've only seen those offers against company-sponosored DB retirement plans, not directly from an insurance company on a given fund or annuity.
yeah but it's so funny...they screwed themselves with the rate but they locked the funds up in the retirement annuities. if they client has liquidity needs they are fked. can only get the money out through the TPA over 10 years. nobody had that explained to them so in the instances where people did not know that and need/want money they get unbelievably pissed offf. amazing TIAA got away with that.
i have never seen so much gobbly gook and ridiculous red tape to a companies guidelines in my life.Coupled with academia who are absolutely the dumbest group of people when it comes to understanding investments.
Well done, Fonz. I was going to add that the "offset" to that monstrous interest rate is a 10-year-out from the fund, but I already went too long on my post so I decided not to try to explain every detail. But you're absolutely correct.
One of the things I've learned along the way was that there was ALWAYS a parallel TIAA-CREF fund that worked the same way, paid a slightly lower interest rate, but no 10 year stipulation. Nobody had ever heard of it. Naturally.
Look at who owns and who invests in TIAA-CREF
They will NEVER be allowed to fail. They will be propped-up till the very end.
Merton is talking his book -
I saw that, too. I'm shocked. OK, maybe not really so much shocked as I am.... whatever this feeling is that I have every day that tells me everyone, everywhere is bought-and-paid-for with the purpose of stealing the fruits of my labor.
Nothing better than a good birp. Except, maybe, . . .
Hmmm... The U.S.of A. has screwed up just about everything lately. Almost seems intentional.
Usury was once banned in the Bible - still is in the Koran.
I'm not a religious person, but if you find wisdom somewhere, you shouldn't write it of because you disagree with some of the other stuff.
I'm not religious either, but I could not agree more that there's a lot of wisdom in the teachings of these books that comprise the cumulative experience of humans over thousands of years.
LTER check this out...
According to Finra's 2013 annual report, which was issued last Friday, the average compensation and salary for the 3,400 Finra employees last year was $197,000, excluding certain severance and pension costs.
Finra, meanwhile, continues to post operating losses. In 2013, it was $73.4 million, compared with $89.2 million the year before. On a positive note, its total assets increased $68.1 million — or 3.2% — to $2.26 billion in 2013. Net income last year was $1.7 million, down from $10.5 million in 2012, due to lower investment performance.
http://www.investmentnews.com/article/20140623/BLOG03/140629971#
Hilarious. So these watchdogs of the industry manage to pay themselves big bucks, while bankrupting their underlying organization. How apt. Fuck FINRA.
"Usury was once banned in the Bible"
Was once banned,...Who rewrote the Bible? Progressives? It wouldn't surprise me.
Sometimes you make little sense logical man.
The Bible like all great books of history has some real nuggets in it. For example I really like Matthew 7:6:
EtymologyFrom the Bible "Give not that which is holy unto the dogs, neither cast ye your pearls before swine, lest they trample them under their feet, and turn again and rend you." – KJV, Matthew 7:6
Verbcast pearls before swine
- (idiomatic) To give things of value to those who will not understand or appreciate it.
Synonyms- preach to deaf ears
Usagehttp://en.wiktionary.org/wiki/cast_pearls_before_swine
;-D
You forgot to add real wages in that chart, the one that drops by 50% for most real working people.
ZIRP is here to stay...NIRP is on the US's horizon. Get over it and plan accordingly. I mean you really don't expect the pols and the banksters to fix anything do you? I'd be very happy if they just left everything alone. Hey pass me that hotdog...
They can't raise rates. Rising interest on the debt will bury this country.
"Inflation whispers are EVERYWHERE right now"
More like loud guffaws when me and the checkout people at Publix talk about the inflation which supposedly isn't.
Taper? Prove it! And let them prove that they are not buying equities with those tapered funds.
...or sending the money to Belgium, koff koff,
just sayin'
;-D
All I have to say about the potential for the fed to raise rates is; 100 trillion in unfunded liabilities. Go ahead raise rates... I dare you.
"Not in my lifetime."
-Ben Bernanke (FedReserve 2002-2014)
http://www.zerohedge.com/news/2014-05-17/bernanke-shocker-no-rate-normal...
We've passed the point of no return, the event horizon, Wile E. looked down, yadda yadda yadda, blah blah blah... Rates will not go up from here. Next stop oblivion and the failure of the dollar. On the other side of the black hole is a whole new universe of wonder.
The economic recovery that the media and talking heads have been bantering around does not exist and is just a myth. A manipulated stock market distorted by recent economic policy hides and mask the real truth, in many ways it is ground zero in the war to convince us all is well.
The American people and Main Street will tell you they are far from convinced that it is smooth sailing ahead. Huge weakness in the economy has been shown by numbers that barely get by even after record amounts of stimulus. Fact is if QE or the massive government deficit spending that props up our economy is removed it will fold like a cheap umbrella.
Recent changes in how the GDP is figured , which boosted growth thus reducing the debt to growth ratio, and attempts to spin poor numbers regarding employment have been met with skepticism. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/10/myth-of-economic-recovery.html
When you don't produce anything....when it's all about the skim, then Bullshit reigns supreme.
Insurance companies weren't even regulated until early 1920 but by then it was too late. They almost never paid claims back then and by the time regulation hit they were rich. Ha! Then the banksters butt fucked them and the race was on....to see who could steal more...insurance companies or banks. Rude, eh? Add in corporate attorneys and the froth is complete.
That loud noise? Just collision speed, don't worry.
Grant Williams, are you a billionaire? Would you like to earn higher yields on your billions?
Well, sucker tough luck. They will pay you more on your money if you agree to get a haircut you Hippie!
Higher interest rates. What is this? A trip to Woodstock? Geez, does this guy get paid for his "advice"?
And Mario coughed modestly into his hand and said, "Excuse me, I have to BIRP."