PIMCO | Investment Outlook - Run Turkey, Run

PIMCO | Investment Outlook - Run Turkey, Run

Vote NONE OF THE ABOVE!

On Tuesday, get rid of incumbents who have done nothing but swindle the American public for the last decade plus.

Key Sentences: "Democrat or Republican, Elephant or Donkey, nothing much ever seems to change. 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."

"We basically have two bankrupt parties, bankrupting the country."

"We are, as even some Fed Governors now publicly admit, in a 'liquidity trap,' where interest rates or trillions in QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there."

Unanticipated Consequences:

1. Ignorance: The Fed is acting without gathering all the facts; essentially ignoring history and unlearning lessons.
2. Error: The Fed has incorrectly assessed what the barrier is that is preventing the economy from moving forward -- it is not liquidity, it is loss of trust (which no amount of QE will fix - only time can repair it).
3. Immediate Interests: It is beyond me why the Fed of the last 15 years continuously insists on manipulating the stock market in the short term. Whether it is QE or interest rate moves, it more often than not has appeared that the purpose of such policies has been to prop up the stock market in the short term, often at the expense of the economy in the long-term. The Fed's stated purpose is "to provide a safer, more flexible banking and monetary system." Politics and the stock market should have no bearing, yet both seem to creep in and take hold of most decisions -- just one reason why the system is in need of an overhaul.

Hussman Funds - Weekly Market Comment: The Recklessness of Quantitative Easing - October 18, 2010

Hussman Funds - Weekly Market Comment: The Recklessness of Quantitative Easing - October 18, 2010

Hussman does a great job pointing out the fraud perpetrated by Congress & the Fed and carried out by FASB. If banks were held to mark-to-market standards like every other GAAP-reporting company, many (if not most) would be insolvent today (let alone two years ago). At some point, this lax accounting policy will be allowed to expire -- expect banks to dump assets, be forced to raise capital at a discount, and suspend making new loans. They know this day of reckoning is coming, which is why they held on to TARP funds instead of lending them as Congress intended, and then invested the funds in the market in order to make record profits in the last four quarters.

All our elected officials and their lackeys have done is to delay the inevitable (and possibly to dig a bigger hole depending on how the foreclosure mess plays out).

Key Paragraph: "In short, further attempts at QE are likely to have little effect in provoking increased economic activity or employment. This is not because QE would fail to affect interest rates and reserves. Rather, this policy will be ineffective because it will relax constraints that are not binding in the first place."

Unanticipated Consequences:

1. Ignorance: The Fed is acting without gathering all the facts; essentially ignoring history and unlearning lessons.
2. Error: The Fed has incorrectly assessed what the barrier is that is preventing the economy from moving forward -- it is not liquidity, it is loss of trust (which no amount of QE will fix - only time can repair it).
3. Immediate Interests: It is beyond me why the Fed of the last 15 years continuously insists on manipulating the stock market in the short term.  Whether it is QE or interest rate moves, it more often than not has appeared that the purpose of such policies has been to prop up the stock market in the short term, often at the expense of the economy in the long-term.  The Fed's stated purpose is "to provide a safer, more flexible banking and monetary system."  Politics and the stock market should have no bearing, yet both seem to creep in and take hold of most decisions -- just one reason why the system is in need of an overhaul.

PIMCO | Investment Outlook - Stan Druckenmiller is Leaving

PIMCO | Investment Outlook - Stan Druckenmiller is Leaving

As always, Gross hits the nail on the head. Low yields on bonds will require higher returns on stocks in order for pension funds and money managers to hit target returns. The result we are seeing in the short-term is an overallocation to emerging markets. Pension funds and money managers are being forced to chase higher returns, thereby chasing higher risks.

Unanticipated Consequences:

1. Error: Funds are using assumptions that worked in the past, but appear to be way too rosy based on current (and expected future) fundamentals.
2. Immediate Interests: Pensions were set up to take care of the then-current work force.  They ignored the burden on the future work force's wallet.  Additionally, realizing that they need higher returns to make up for the lost decade of 2001-2010, many funds have reach for yield recently by pouring money into higher risk investments like emerging market stocks.  This may create an even larger bubble that will hurt even more than the real estate bubble when it bursts.

American states' pension funds: A gold-plated burden | The Economist

American states' pension funds: A gold-plated burden | The Economist

Excellent article. Between the national debt, state and municipal pension liabilities, and corporate pension liabilities, the country's future has been mortgaged. Unrealistic expectations for returns and unreasonable benefits for retirees have forced these pension plans to implement "Delay and Pray" tactics on their funds. Just like at the national level, someone needs to step in and make the unpopular, but necessary, decisions if they are to survive.

Unanticipated Consequences:

1. Error: Funds are using assumptions that worked in the past, but appear to be way too rosy based on current (and expected future) fundamentals.
2. Immediate Interests: Pensions were set up to take care of the then-current work force.  They ignored the burden on the future work force's wallet.  Additionally, realizing that they need higher returns to make up for the lost decade of 2001-2010, many funds have reach for yield recently by pouring money into higher risk investments like emerging market stocks.  This may create an even larger bubble that will hurt even more than the real estate bubble when it bursts.

House Advantage - Series - The New York Times

House Advantage - Series - The New York Times

A great article series that shows just how much the game is rigged.