latest Mauldin/McCulley - so bad it can't even begin to be wrong

[Spartacus]

http://www.2000wave.com/article.asp?id=mwo062207

>>> the truth as I see it
money printing has lowered risk premiums as more money chases fewer assets, and within the spectrum of asset classes, more money being allocated to riskier assets (NOTE the sovereign funds - the "safest of the safe investors" getting into risky investments).

"Inflation" (he should be writing "consumer price inflation") is low because the new money is not going into the assets that the FED prefers to measure when the FED "measures"(spit in spittoon, wipe spit off lips) "inflation"(rinse and repeat)
>>> /end me and start McCulley

Now we read laughable McCulley - stability begets shrinking spreads.

>>> back to me
No, stability don't never do no such fing, no way, no how - retirees are not buying riskier, higher-return bonds because they feel safer buying them ("stability") but because that's the only way to get the income they need to live.

And maybe because they're being conned into it by pushy salesmen. Not because they've rationally concluded the higher risk is OK.

They have no choice. The mass of money printing is reducing yields thus forcing retirees and other fixed-income buyers out further onto a creaking branch. Unlike foreign private buyers who had the choice to abandon UST bills, at some point there is no choice. You're about to retire on a lifetime of savings and the amount you have just cannot yield the income you need if you put it in safe investments.

[Jim Nickerson]

Re: latest Mauldin/McCulley - so bad it can't even begin to be wrong

http://www.2000wave.com/article.asp?id=mwo062207

>>> the truth as I see it
money printing has lowered risk premiums as more money chases fewer assets, and within the spectrum of asset classes, more money being allocated to riskier assets (NOTE the sovereign funds - the "safest of the safe investors" getting into risky investments).

"Inflation" (he should be writing "consumer price inflation") is low because the new money is not going into the assets that the FED prefers to measure when the FED "measures"(spit in spittoon, wipe spit off lips) "inflation"(rinse and repeat)
>>> /end me and start McCulley

Now we read laughable McCulley - stability begets shrinking spreads.

>>> back to me
No, stability don't never do no such fing, no way, no how - retirees are not buying riskier, higher-return bonds because they feel safer buying them ("stability") but because that's the only way to get the income they need to live.

And maybe because they're being conned into it by pushy salesmen. Not because they've rationally concluded the higher risk is OK.

They have no choice. The mass of money printing is reducing yields thus forcing retirees and other fixed-income buyers out further onto a creaking branch. Unlike foreign private buyers who had the choice to abandon UST bills, at some point there is no choice. You're about to retire on a lifetime of savings and the amount you have just cannot yield the income you need if you put it in safe investments.

I don't know about this thing of "they have no choice." I quit work and thus quit earning new capital at 50-51 y/o, now about 15 years ago. I had about a million bonars, and absolutely did not know if it was enough to live out whatever was to be my unknown life expectancy. Not working in what I did was more important to me than KNOWING, if such can be known, that I would absolutely have enough money to survive on til death. The solution to me was a commitment to make my lifestyle such that I hopefully would not burn up all my money. That is more easily written that determined.

I don't socialize with a lot of folks, so my knowledge beyond how I do things is significantly limited. The folks I know who are retired, and about whom I have any real information, mostly have their savings in short-term CD's which they continually go to the bank and roll over. These people, however, are not fully dependent upon their savings in order to fund whatever is their lifestyles. They all have pension income from their employment and social security. These individuals are more "salt-of-the-earth" types versus "high-net-worth" types--none of the latter do I know.

Personally, at the moment I am mostly in money market funds, with the expectation that at some point being long equities will again seem reasonable. Since getting a taste of what it was like to be relatively poor in my personal net worth at the bottom in October 2002, I became a lot more serious about determining how I spend money with the key being choosing "needs" over "wants." I believe at some point in one's life, there should arise a time when one matures to the degree to know that one does not have to keep buying physical stuff just in order to possess it. The sooner one can do that, as one goes through life, the better if that unnecessary consumption is in fact saved. By age 65, I figure most people should possess more stuff than they need.

The notion that one must "chase" high-yielding investments in order to hopefully achieve some desired level of income must be weighed against the possiblitiy of loss of some of one's total wealth. The wise option to me, and I think a lot of other people, is to choose conservative investments and alter the life-style as necessary. That might seem uncouth to a lot of people who are younger, but it isn't at least not to me.

I have a sister who is 6 years older than I who has a good widow's pension and a rollover IRA with money in it which she will never spend, and whose children as a matter of fact could continue to live well without ever inheriting a part of the IRA. Sister's IRA is mostly in equities and a few bonds--none of which are very risky; though one could question the risks in being long equities now and having a buy and hold mentality which she has. Notably in the last 12 months she has made a lot more on her investments than I have.

To me people mostly always have choices, and the sooner in their lives they become able to make wise financial choices the better off they may be over the longer term.

[jk]

Re: latest Mauldin/McCulley - so bad it can't even begin to be wrong

i don't know how many of you remember when orange county, california, went bankrupt because of "slick" investments going bad. the county treasurer thought he was being clever, following advice from merrill, and made big losses. i think the junk debt cdo's being created know is NOT, for the most part, going into the portfolios of individuals, but is being sold to pensions and endowments which are attempting to goose their returns. these sales are either direct to the pension plan, or to hedge funds like bear stearns' which the pensions and endowments have been going into [heavily, i would add]. the losses will be spread around, and will push private pensions to go belly up even faster than they will otherwise. [because most private pensions have been running on unrealistic return assumptions for some time, they are in general underfunded.]

[DemonD]

Re: latest Mauldin/McCulley - so bad it can't even begin to be wrong

Over on the housingbubbleblog, there have been news reports that Calpers (the pension for teachers i think) is one of the biggest RE developers in california.

fun times ahead.

[Spartacus]

Re: latest Mauldin/McCulley - so bad it can't even begin to be wrong

Hah .... that will teach me to leave the emotion out of the secondary point.

I feel more strongly about the 2nd point (central bank actions hurting various groups) but the post was meant to be about (IMHO) the unbelievable fairy tale McCulley believes in.

I don't know about this thing of "they have no choice." I quit work and thus quit earning new capital at 50-51 y/o, now about 15 years ago.

I don't socialize with a lot of folks, so my knowledge beyond

the groups of retirees or near-retirees I occasionally observe (thanks to being dragged to religious functions by parents ) don't have a lot of financial sophistication. And they tell me lots ... for some reason they think I'm some kind of genius (they don't know me too well ... )

I just recently had to talk some a bunch out of going to a "no money down, get rich in 3 months" real estate seminar.

They went anyway. And when some of the things I told them came true (no real information at this seminar, sign up for a $2000 seminar for the real information) several still did not want to believe me.

The gullibility can be astonishing. And when I then see "The Secret" and its ilk I realize those people are NOT exceptions to the rule.

Another guy, 70 years old, never used a computer before, wanted me to set up a day trading account for him. He really, really, really believed he would make millions in a couple of months.

They may be able to budget, but he financial products and risk management you talk about is beyond them.

When I've talked with them, many will say "this pays 4%, I'll take that one" and that's it. It absolutely does not occur to them to ask if they could lose their capital. The question does not come up.

Another that I've spoken with many times regularly switches all his mutual funds to those that have perform the best in the last 5 to 10 years. I've printed up the studies and given them to him several times. Next month I expect he'll do the same thing again. I have no idea what's going on there - maybe some kind of "they won before, they'll win again, don't confuse me with the facts, even though I asked you what to do" ....

Personally, at the moment I am mostly in money market funds, with the expectation that at some point being long equities will again seem reasonable.
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To me people mostly always have choices, and the sooner in their lives they become able to make wise financial choices the better off they may be over the longer term.

Many of the ones I'm seeing would be easily separated from their money if the right con artist came along.

Many seem to me to be actively seeking such con artists - it's a wonder to me they've not found one yet.

I'm sure I have some blind spots too ... I don't know what I would do if someone pointed them out to me. In the past I've (IMHO fairly) evaluated criticism and many times accepted it. I don't know if these people do the same kind of evaluation - looking in from the outside it does NOT feel like it.