Macs opinion

[DOTR]

Mac1958 you said you were willing to answer some questions in a non political debate. I would like your opinion on a few related issues.
Wealth-X reports and even Credit Suisse annual summaries keep talking about “a world awash in capital”. Huge amounts of capital sloshing around seeking ever shrinking yields. Do you see it that way? If so where is it coming from? Central banks?
With these huge sovereign wealth funds we now have to deal with nation state investors as well.
Do you think yields are going to continue to shrink? And I’m ignoring capital gains Ponzi schemes and speaking strictly of yields.
Is there that much an excess of capital?

 

[Mac1958]

Mac1958 you said you were willing to answer some questions in a non political debate. I would like your opinion on a few related issues.
Wealth-X reports and even Credit Suisse annual summaries keep talking about “a world awash in capital”. Huge amounts of capital sloshing around seeking ever shrinking yields. Do you see it that way? If so where is it coming from? Central banks?
With these huge sovereign wealth funds we now have to deal with nation state investors as well.
Do you think yields are going to continue to shrink? And I’m ignoring capital gains Ponzi schemes and speaking strictly of yields.
Is there that much an excess of capital?

First and foremost, I don't know.

On one hand, you could argue that shitty yields have played a large role in the run-up of the stock market, particularly regarding dividend stocks and preferreds. I have clients who are so sick of chasing yields in fixed income that they throw up their hands and ask about all kinds of crap that is not in their best interest. I spend more time analyzing yield structures than anything else right now.

Sovereign funds investing for themselves are no better at it than anyone else, and from what I've heard, they're contributing to the cash glut because they don't know what the hell to do right now, either. So yes, as I understand it, there's a ton of cash sitting in a hole somewhere. Sovereigns, institutional investors, central banks. But some of the institutional investors, and I'm thinking of insurance companies for example, have to put the money to work, so they bend over for long term bonds.

I don't know if the cash glut is as bad as it was a year or two ago, though.

The global economy is fairly soft. The American economy can't break through. So while some numbers look great (unemployment, obviously), there is just no push right now. So that brought bond yields down, and then the bond market freaked and pushed even harder.

If I had to bet -- and I do not -- I'd think rates will increase moderately here.
.

 

[DOTR]

I know the threat of negative rates is out there. In which case buying bonds is fairly reasonable. But I’m like your clients...can’t stand the low yields. So I’m 100% stock. Has paid off so far but...I know the music stops eventually. And you can’t squeeze much out in dividends.
I guess my point, and question is...is this time really different? Have QE, ZIRP, negative bonds combined with huge tubs of cash like SWF such as Norway’s and even the Calpers fundamentally changed how this works?
I was always taught to look at interest rates as an indicator but with rates being driven into the ground who knows now.
I don’t think the feds “dual mandate” helps.

 

[Mac1958]

I know the threat of negative rates is out there. In which case buying bonds is fairly reasonable. But I’m like your clients...can’t stand the low yields. So I’m 100% stock. Has paid off so far but...I know the music stops eventually. And you can’t squeeze much out in dividends.
I guess my point, and question is...is this time really different? Have QE, ZIRP, negative bonds combined with huge tubs of cash like SWF such as Norway’s and even the Calpers fundamentally changed how this works?
I was always taught to look at interest rates as an indicator but with rates being driven into the ground who knows now.
I don’t think the feds “duIal mandate” helps.

I don't know your situation, but if you can handle the volatility then I have no problem with 100% equities for long term investors. I tell my clients, "I'm going to stay as aggressive as you can sleep at night. If I have to talk you off the ledge now and then, I'll do that". Diversification is for pussies. I don't say that in public.

This time is different, but I swear I can't tell you how. Something is broken somewhere. The low domestic unemployment numbers should have ignited both growth and inflation two or three years ago. The inflation should have been worse because of the Fed's unwinding.

My guess, worth zero, is that the changing economy has created a great deal of underemployment. And while wages have increased (THAT ALSO should have helped) nicely, there's just not enough net positive economic activity. And now we're seeing some contraction. That's why there's so much cash, that's why bond yields are so low.
.

 

[Toddsterpatriot]

I know the threat of negative rates is out there. In which case buying bonds is fairly reasonable. But I’m like your clients...can’t stand the low yields. So I’m 100% stock. Has paid off so far but...I know the music stops eventually. And you can’t squeeze much out in dividends.
I guess my point, and question is...is this time really different? Have QE, ZIRP, negative bonds combined with huge tubs of cash like SWF such as Norway’s and even the Calpers fundamentally changed how this works?
I was always taught to look at interest rates as an indicator but with rates being driven into the ground who knows now.
I don’t think the feds “duIal mandate” helps.

I don't know your situation, but if you can handle the volatility then I have no problem with 100% equities for long term investors. I tell my clients, "I'm going to stay as aggressive as you can sleep at night. If I have to talk you off the ledge now and then, I'll do that". Diversification is for pussies. I don't say that in public.

This time is different, but I swear I can't tell you how. Something is broken somewhere. The low domestic unemployment numbers should have ignited both growth and inflation two or three years ago. The inflation should have been worse because of the Fed's unwinding.

My guess, worth zero, is that the changing economy has created a great deal of underemployment. And while wages have increased (THAT ALSO should have helped) nicely, there's just not enough net positive economic activity. And now we're seeing some contraction. That's why there's so much cash, that's why bond yields are so low.
.

The inflation should have been worse because of the Fed's unwinding.

Fed unwinding is deflationary.

 

[DOTR]

I know the threat of negative rates is out there. In which case buying bonds is fairly reasonable. But I’m like your clients...can’t stand the low yields. So I’m 100% stock. Has paid off so far but...I know the music stops eventually. And you can’t squeeze much out in dividends.
I guess my point, and question is...is this time really different? Have QE, ZIRP, negative bonds combined with huge tubs of cash like SWF such as Norway’s and even the Calpers fundamentally changed how this works?
I was always taught to look at interest rates as an indicator but with rates being driven into the ground who knows now.
I don’t think the feds “duIal mandate” helps.

I don't know your situation, but if you can handle the volatility then I have no problem with 100% equities for long term investors. I tell my clients, "I'm going to stay as aggressive as you can sleep at night. If I have to talk you off the ledge now and then, I'll do that". Diversification is for pussies. I don't say that in public.

This time is different, but I swear I can't tell you how. Something is broken somewhere. The low domestic unemployment numbers should have ignited both growth and inflation two or three years ago. The inflation should have been worse because of the Fed's unwinding.

My guess, worth zero, is that the changing economy has created a great deal of underemployment. And while wages have increased (THAT ALSO should have helped) nicely, there's just not enough net positive economic activity. And now we're seeing some contraction. That's why there's so much cash, that's why bond yields are so low.
.

I agree. It’s almost like a stepford wives economy. Something weird. I am in for the long term. How long? Forever (at least measured by my lifespan). I’ll have a pension that will do fine for me and my health care will always bd paid. What I’m investing is for my grandchildren. I’ll never spend a penny of this and the investment horizon is 65 years from July this year (newest grand baby )

 

[DOTR]

I know the threat of negative rates is out there. In which case buying bonds is fairly reasonable. But I’m like your clients...can’t stand the low yields. So I’m 100% stock. Has paid off so far but...I know the music stops eventually. And you can’t squeeze much out in dividends.
I guess my point, and question is...is this time really different? Have QE, ZIRP, negative bonds combined with huge tubs of cash like SWF such as Norway’s and even the Calpers fundamentally changed how this works?
I was always taught to look at interest rates as an indicator but with rates being driven into the ground who knows now.
I don’t think the feds “duIal mandate” helps.

I don't know your situation, but if you can handle the volatility then I have no problem with 100% equities for long term investors. I tell my clients, "I'm going to stay as aggressive as you can sleep at night. If I have to talk you off the ledge now and then, I'll do that". Diversification is for pussies. I don't say that in public.

This time is different, but I swear I can't tell you how. Something is broken somewhere. The low domestic unemployment numbers should have ignited both growth and inflation two or three years ago. The inflation should have been worse because of the Fed's unwinding.

My guess, worth zero, is that the changing economy has created a great deal of underemployment. And while wages have increased (THAT ALSO should have helped) nicely, there's just not enough net positive economic activity. And now we're seeing some contraction. That's why there's so much cash, that's why bond yields are so low.
.

The inflation should have been worse because of the Fed's unwinding.

Fed unwinding is deflationary.

Sometimes it takes the expectation of deflation. Thus one reason to punish people for saving is to get them spending and inflating.
Inflation is a set of expectations.

 

[Mac1958]

I know the threat of negative rates is out there. In which case buying bonds is fairly reasonable. But I’m like your clients...can’t stand the low yields. So I’m 100% stock. Has paid off so far but...I know the music stops eventually. And you can’t squeeze much out in dividends.
I guess my point, and question is...is this time really different? Have QE, ZIRP, negative bonds combined with huge tubs of cash like SWF such as Norway’s and even the Calpers fundamentally changed how this works?
I was always taught to look at interest rates as an indicator but with rates being driven into the ground who knows now.
I don’t think the feds “duIal mandate” helps.

I don't know your situation, but if you can handle the volatility then I have no problem with 100% equities for long term investors. I tell my clients, "I'm going to stay as aggressive as you can sleep at night. If I have to talk you off the ledge now and then, I'll do that". Diversification is for pussies. I don't say that in public.

This time is different, but I swear I can't tell you how. Something is broken somewhere. The low domestic unemployment numbers should have ignited both growth and inflation two or three years ago. The inflation should have been worse because of the Fed's unwinding.

My guess, worth zero, is that the changing economy has created a great deal of underemployment. And while wages have increased (THAT ALSO should have helped) nicely, there's just not enough net positive economic activity. And now we're seeing some contraction. That's why there's so much cash, that's why bond yields are so low.
.

I agree. It’s almost like a stepford wives economy. Something weird. I am in for the long term. How long? Forever (at least measured by my lifespan). I’ll have a pension that will do fine for me and my health care will always bd paid. What I’m investing is for my grandchildren. I’ll never spend a penny of this and the investment horizon is 65 years from July this year (newest grand baby )

Very good - EXTREME long term investing. Absolutely no reason to tap the breaks, then.

I haven't seen a lot of discussion within the industry about this dislocation in the economy. Maybe everyone else is perplexed, too. The numbers don't add up.
.

 

[Mac1958]

I know the threat of negative rates is out there. In which case buying bonds is fairly reasonable. But I’m like your clients...can’t stand the low yields. So I’m 100% stock. Has paid off so far but...I know the music stops eventually. And you can’t squeeze much out in dividends.
I guess my point, and question is...is this time really different? Have QE, ZIRP, negative bonds combined with huge tubs of cash like SWF such as Norway’s and even the Calpers fundamentally changed how this works?
I was always taught to look at interest rates as an indicator but with rates being driven into the ground who knows now.
I don’t think the feds “duIal mandate” helps.

I don't know your situation, but if you can handle the volatility then I have no problem with 100% equities for long term investors. I tell my clients, "I'm going to stay as aggressive as you can sleep at night. If I have to talk you off the ledge now and then, I'll do that". Diversification is for pussies. I don't say that in public.

This time is different, but I swear I can't tell you how. Something is broken somewhere. The low domestic unemployment numbers should have ignited both growth and inflation two or three years ago. The inflation should have been worse because of the Fed's unwinding.

My guess, worth zero, is that the changing economy has created a great deal of underemployment. And while wages have increased (THAT ALSO should have helped) nicely, there's just not enough net positive economic activity. And now we're seeing some contraction. That's why there's so much cash, that's why bond yields are so low.
.

The inflation should have been worse because of the Fed's unwinding.

Fed unwinding is deflationary.

Sometimes it takes the expectation of deflation. Thus one reason to punish people for saving is to get them spending and inflating.
Inflation is a set of expectations.

I didn't put that very well. My point was that the Fed unloads its balance sheet it would create upward pressure on interest rates as prices fall in response to market supply. That's what the market has been waiting for since QE ended - interest rate pressures. And, if inflation were simultaneously increasing due to organic economic growth, the two conditions could exacerbate each other. And yeah, as you said, a component of that is psychological.

Yet, it's just not happening. Very little growth-push inflation, interest rates staying low, even with unemployment this low. Weird.
.

 

[DOTR]

Can we really say QE ended when the balance sheet is so loaded?

 

[DOTR]

Do you do any work in trusts in your capacity?