By 2 Cents on October 21st, 2011 | Category: Economics |  Even nectar is poison if taken to excess.
~Hindu Proverb
If low interest rates are good for the economy, it should be booming by now. After all, rates have basically been falling for 30 years. Over the last 10 years or so, short term rates have been held low by central banks. Just a few weeks ago, the U.S. Federal Reserve announced Operation Twist, which will keep rates at the longer end of the curve low as well.
Yay. Soon we’ll all be basking in the glow of a red hot global economy. So why does it sound like so many governments and pundits are preparing for perdition rather than prosperity? Why isn’t the low interest rate elixir working its magic?
10 Reasons Low Interest Rates Aren’t Helping – And May Be Hurting
Lower rates are supposed to stimulate the economy by encouraging business investment, home [...]
Read on and enjoy … Are Low Interest Rates a Solution or a Problem?
By 2 Cents on February 7th, 2011 | Category: Investing |  [T]hose who live by numbers can also perish by them and it is a terrifying thing to have an adding machine write an epitaph, either way.
~George J.W. Goodman, The Money Game
This is an excerpt of an article that was originally published yesterday on Seeking Alpha as premium content. You can read the entire article there.
PIMCO’s Call to Arms
Is it just me or did Bill Gross just pull the pin on the bond vigilante grenade and lob it in the general direction of the Federal Reserve? I haven’t read any analysis of his recent investment outlook (Devil’s Bargain) that pointed this out directly, so maybe I’m off-base here. I’ll go over what I read and what I understood it to mean. I’m sure someone will be more than happy to correct me if I’m wrong.
It seems to me [...]
Read on and enjoy … PIMCO’s Battle Call to Bond Vigilantes
By 2 Cents on November 5th, 2010 | Category: Economics |  In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment.
~ Jeremy Grantham
Update: This article was included in the Carnival of Financial Planning #165 posted at The Skilled Investor. Thanks!
So the Fed went ahead with more quantitative easing and the market did yet another happy dance. Strike up the band. We’re in for another round of musical chairs. The meth clinic is open. The roulette tables are full. (Pssst … Ben says bet on black. You can’t lose.)
Those in favour of QE, where the Fed prints money to buy U.S. Treasuries, say that Mr. Bernanke and [...]
Read on and enjoy … QE Collateral Damage
By 2 Cents on October 15th, 2010 | Category: Economics |  In my opinion, the crisis and the sharp recession of the past two years and the subsequent rescue packages around the globe did not provide the necessary catharsis that recessions need to bring to economies.
~ George Athanassakos
Update: This article was selected for the Best of Money Carnival #73 posted at Redeeming Riches. Thanks!
I chose a recent article from the Globe and Mail for today’s Friday Food for Thought. This one is by George Athanassakos, a professor of finance. He has been wondering about what the rise in both bonds and gold means for a couple of years now and provides some updated insights in this article: Who Is Right? Bond Bulls or Gold Bugs?
Usually a rising gold price indicates that investors see inflation coming. Rising bond prices, and the accompanying lower yields, usually portend slowing [...]
Read on and enjoy … Can Gold and Bonds Both Be Right?
By 2 Cents on August 30th, 2010 | Category: Economics | Numbing the pain for a while will make it worse when you finally feel it.
~Albus Dumbledore, Harry Potter and the Goblet of Fire
Is the Federal Reserve a hero or a villain? You can find plenty of Nobel Laureates, pundits, and civilians like myself on either side of that debate. Nassim Taleb, author of The Black Swan has been saying for quite some time that the Fed steered us into the ditch and that it’s shameful that the same group that got us here is still in the driver’s seat. Perpetual overspending and record low interest rates have not only failed to solve our problems, but are the major causes of them. It is therefore ridiculous to turn to them to solve our current challenges.
Paul Krugman is probably the most vocal Nobel Laureate who supports the Keynesian spend-till-you-drop/debt-levels-don’t-matter viewpoint. He has been a supporter of [...]
Read on and enjoy … Will the Fed Save the Day?
By 2 Cents on July 30th, 2010 | Category: Investing | A nickel ain’t worth a dime anymore.
~ Yogi Berra
Update: This article was chosen for the Best of Money Carnival, #Sexty-Two at Budgets Are Sexy. Thanks! It was also included in the first ever Carnival of Wealth posted at Personal Dividends. Thank you!
When we looked at the current pros and cons of investing in commodities and real estate, it became quite apparent that there are some pretty good arguments on both sides of the debate. We often hear contradictory truisms. Cash is trash. Cash is king. Which is it?
The correct answer is likely “it depends”. There are times when it’s prudent to hold more cash, and there are times when it makes sense to move more money into riskier assets like the ones we’ve been discussing this week. Today, we’ll take a look at the case for each and [...]
Read on and enjoy … Cash: Is It Trash or King?
By 2 Cents on June 30th, 2010 | Category: Investing | It’s better to stir up a question without deciding it, than to decide it without stirring it up.
~ Joseph Joubert
Update: This article was included in the Carnival of Financial Planning #150 posted at Military Finance. Thank you!
I’m going to try to raise some of the key issues that might affect interest rates over the second half of 2010 and beyond. Like most of the economic and market analysis we undertake here, these will just be the observations of an interested amateur. They are designed to be food for thought, and not definitive investing advice.
Interest Rate Drivers
On Monday we looked at inflation and deflation. Getting the call on that debate right will likely determine the relative success of any portfolio over the next decade or so. It will also have a profound effect on interest rates. [...]
Read on and enjoy … Interest Rates: 2010 Mid-Year Review
By 2 Cents on June 28th, 2010 | Category: Economics | Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.
~ Sam Ewing
Will we have inflation or deflation? This is probably the most important question facing investors right now. There are plenty of smart people who argue convincingly for each. All of them make very good points. But who is right? If you asked me if we should be worried about inflation or deflation, I would probably answer as follows: Yes.
Inflation & Deflation Defined
You know you’re going to have a hard time answering a question correctly when the experts can’t even agree on the basic definition of the terms of the problem. Not only is there a huge and varied debate in the financial community about whether inflation, deflation, both, or neither is a threat, many [...]
Read on and enjoy … Inflation or Deflation: Which Is It?
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