Discussion in 'Wall St. News' started by thehangingman, Jan 7, 2007.
Possibly, but not for long. To finance debt, foreigners will demand higher rates before long. This can feed on itself as the US economy suffers from higher rates and the attractiveness of dollar investment falls even more.
For last few months, holders of Treasury Paper have had a negative return in terms of the Euros they can buy with the interest. According to the FTs about two weeks ago, this is because many central banks are joining the "get out of dollars" movement.
I think we stay at 5.25% for many quarters (a few years). Once the fed is at neutral, it is in the best interest to keep rates the same unless they are really forced to do something. Unemployment would probably need to move toward 4.9 or 5%
The FED must defend the dollar. They must stop inflation. Their goal is not to defend the stock market. Actually, someone like Bernanke would probably be concerned about the high valuations in the recent market.
I am a chartist and I go by what the chart tells me.
This chart tells me that the dollar:euro is going back to a buck twenty give or take.
This chart tells me that the TNX was in a downtrend from the summer until now. Now the downtrend has been broken. By the summer, we will see 5.25 or greater on the TNX.
You will have to cut and paste the links to the browser because elitetrader messes up the links somehow.
Look at Eurodollar futures curve and the U.S. yield curve. Bill Gross is talking his book (position) in the press, but I don't think you'll do real well betting against him.
The Fed will be lowering rates.
I read Bill Gross's bond outlook once a month ( http://www.pimco.com/TopNav/Home/Default.htm ). A pretty sagacious guy, but personally I think he's a little too bullish on bonds (I think it will go the other way with possibly rising interest in the horizon and the Fed actually becoming helpless in the face of the slowing economy not slowing enough to warrant rate cuts due to inflation risk and having to defend dollars from collapse in the face of foreign reserve sell offs).
Has Bill Gross been wrong in the past? Is he stating his position as a benefit to the public or a benefit to his business?
I just answered my own question. I typed into google "Has Bill Gross been wrong" and a bunch of things popped up.
Here is a blog dating back to 2004 where Bill Gross had stated he believe the Fed was just about done when it was at 3.25%.
Here is another article titled "Grossed Out"
I truly believe that these money managers and gurus tell us things that are in the interests of their business, but not neccasarily our own interests. The finest example is Jim Cramer who tells us things for whatever reason...
He was spot on about the bond rally last fall. He was looking for the 10 year to fall to yield 4.7% since Summer and we went well beyond that. At least for the time being it seems to be in his business interest to see the interest rate go down and the 10 year Tres. go down even further from this level. That is at least the impression he's giving out, but he does warn that high returns seem unlikely.
My thoughts on equity using Bill Gross's GDP extrapolation and my required rate of return.
If Bill Gross's assessment that the GDP growth tends to revert to the mean of about 5% and I want to get at least 8% return on mature cyclical stocks the fair value of the Dow is, using the dividend discount model:
247.96 * 1.05 / (8% - 5%) = 8678.6
And the fair value of the S&P 500 using the same model:
Now, I'm not saying that the market needs to go to such levels in any way, but the model is just telling me, if I want 8% annualized return over the period of say, the next 10 years as a buy and hold investor, buying these indices at those levels will make sense. Right now the required rate of return for the big funds seems to be in the 7% range, far lower than the past 20 years (with the exception of the late 90s).
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