personal finance money management

As investors search for yield anywhere and everywhere, bonds are trading in uncharted territory. Please consider Obama Wins Low Yield as Markets Shrink Aiding Deficit

Bond investors seeking top-rated securities face fewer alternatives to Treasuries, allowing President Barack Obama to sell unprecedented sums of debt at ever lower rates to finance a $1.47 trillion deficit.

Shrinking credit markets help explain why some Treasury yields are at record lows even after the amount of marketable government debt outstanding increased by 21 percent from a year earlier to $8.18 trillion. Last week, the U.S. government auctioned $34 billion of three-year notes at a yield of 0.844 percent, the lowest ever for that maturity.

Spending by companies and consumers has slowed as the economy has shown signs of weakening. Companies in the Standard & Poor’s 500 Index have stockpiled a record $2.3 trillion of cash and equivalents. Company borrowing slid 29 percent in the first half of the year to $528 billion amid a dearth of business investment, Bloomberg data shows.

Piles of Cash Equates to Piles of Debt

Companies are piling up cash alright. However, the flip side of that cash is debt.

Moreover, analysts mistake that cash for willingness to expand. The reality is corporations do not want to get trapped like they did in 2008, unable to borrow.

For more on corporate cash levels, please see Are Corporations Sitting on Piles of Cash?

Individuals are also hoarding cash. The U.S. savings rate reached 6.4 percent in June, up from 1.7 percent in August 2007, the start of the financial crisis.

Are Individuals Hoarding Cash?

Individuals are not really "hoarding cash" either. Instead they are paying down debt. Most do not realize that by definition, paying down debt constitutes "saving".

For most wage earners, the savings rate is after-tax salary minus personal consumption expenditures (PCE). For a more precise definition, please see What's Behind The Soaring Savings Rate?

“There’s been a collapse in both consumer and business credit demand,” said James Kochan, the chief fixed-income strategist at Menomonee Falls, Wisconsin-based Wells Fargo Fund Management, which oversees $179 billion. “To see both categories so weak for such an extended period of time, you’d probably have to go back to the Depression.”

Food Stamps and Unemployment Insurance Mask Depression

I believe we are in a depression now. The key difference is food stamps and unemployment checks have replaced bread lines.

We also have hundreds of thousands of people living in their homes without making payments on their mortgage or home equity lines. The slow foreclosure process encourages more to do the same.

“The diminishing supply” of alternatives to Treasuries “is giving Washington an opportunity to continue with its fiscal irresponsibilities,” said Mark MacQueen, partner and portfolio manager at Austin, Texas-based Sage Advisory Services, which oversees $8.5 billion. “The only way to tell Washington and America ‘no more’ is a weak dollar, which eventually leads to higher interest rates.”

“We are slowly playing a fool’s game as rates go further down to unsustainably low levels,” said Dan Shackelford, a money manager who helps oversee $15 billion in fixed-income assets at T. Rowe Price Group Inc. in Baltimore.

Thoughts on the Fool's Game

If you are managing $15 billion thinking it is a "fool's game", then in my opinion you ought not be doing it. It seems to me there is a lack of fiduciary responsibility if one is investing client money in a "fool's game".

What the hell - Anything for a fee!

I do think corporate bonds, especially most junk is playing for the greater fool. In regards to treasuries, there is going to be an exit problem for sure, but that could be years away. In Japan, yields stayed low for a decade. Why can't it happen here?

Yields certainly might stay low for an extended period. Whether or not they do remains to be seen. I happen to like long-term treasuries right now, but certainly not as much as when the 10-year was at 3.75% and bears were foolishly shorting treasuries like mad.

The government isn’t the only one getting a good deal. Armonk, New York-based International Business Machines Corp., the world’s biggest computer services provider, sold $1.5 billion of three-year notes on Aug. 2 with a coupon of 1 percent, the lowest of the more than 3,400 securities in the Barclays Capital U.S. Corporate Index of investment-grade company debt.

Portland, Oregon, sold about $408 million in sewer-system revenue debt on Aug. 11, with utility bond yields at the lowest level on record. Yields on 10-year, AA rated tax-exempts backed by utility revenue stood at 3.02 percent on Aug. 10, according to Bloomberg Fair Market Value data. That’s the lowest since the index was created in November 1993.

“We are in unchartered territory,” said [William Larkin, a fixed-income money manager in Salem, Massachusetts at Cabot Money Management]. “We are pushing and pulling levers that we don’t understand the full implications.”

Uncharted Territory

This is indeed uncharted territory thanks to the Fed pushing and pulling levers in a manner it does not understand. William Black, a former bank regulator, is one person who does understand. Black says U.S. Using "Rally Stupid Strategy" to Hide Bank Losses - Will Produce Japanese Style Lost Decade.

I agree with his assessment.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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If you are having a tough time understanding the nitty gritty of your mortgage, like the total interest you’ll end up paying and the monthly payments you’ll need to make, then you might as well use this simple web based tool called the AmortizationLoanCalculator.

It asks you for the principal loan amount, the loan term and the annual interest rate and returns a table that’s an amortization schedule showing your periodic payments, what part of it is going towards paying the principal and the interest, and the overall interest you pay in the lifetime of the mortgage.

As you can see in the above screenshot, the table is pretty easy understand. The C Prin and C Int stand for cumulative principal and cumulative interest respectively.

Features

• Online calculator for calculating loan payments and interest.
• Simple interface; no sign up required.
• Enter the principal amount, loan term and annual interest rate.
• Amortization schedule with cumulative rates and amounts displayed.

Check out AmortizationLoanCalculator @ amortizationloancalculator.net/index.php (By Abhijeet from Guiding Tech)

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