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Archive for January 1st, 2013

Funding What Should Not Be Funded

Tuesday, January 1st, 2013

With the Fed engaging in financial repression (maybe that should be oppression, the only role of the Fed is to steal from savers…) there are many corporate bonds being issued at low yields, some of which  are at lower yields than losses that we experience during crises for the ratings class.  Should this not be a warning sign?  Yes, it should.

The Fed is creating another bubble.  Note the failure of the last bubble they engineered — the housing mortgage bubble.  They are smart, oh so smart, but with little true knowledge of how the world works.  We would be better of without the Fed.  Please unemploy a bunch of Ph.D. economists who can create very clever models of the economy that bear no resemblance to the real economy.  Please eliminate a bunch of pseudo-intellectuals who think they can control the economy.

Please eliminate a bunch of sorcerers apprentices who think they understand how to stimulate the world, and replace them with a bunch of humble people who know that they do not know, and maybe, a few that know that they can’t really stimulate, so give up.

The low interest rates that the Fed supports for high quality bonds indirectly attempts to overleverage the corporate sector in the same way that they overlevered the consumers through housing 2003-2007.

We would be a lot better off without as much government interference.  We grew much faster when the government did not try to control the economy as a whole.  Please point to successes in government macroeconomic management.  You will find none.

Interest rates are too low now, and are building up a new bubble in corporate debt.  Don’t worry in the short run, the corporate sector is strong.  But what if this continues for a while?  The one remaining sector of strength will be compromised.

Our policies in the US stink… it is only a matter of time before they hurt us badly, whether through higher taxes, inflation, or default.

Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.


Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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