Friday, August 20, 2010 – Does Anyone Here Feel Like I Do?

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SgtWs

Friday, August 20, 2010 – Does Anyone Here Feel Like I Do?

Post by SgtWs »

Well after yesterday's shelling by the bears I don't see anything on the calendar to bet on a big comeback for the bulls in the markets today. The bears hold the momentum and investor sentiment is diving across the board.

Can I go on a rampage without offending the masses?

I think if you look in between all the political rhetoric taking place over the coming election you will see that it is apparent few politicians have good a grasp of what were facing. While they will never admit it, they are mostly perplexed over the current situation and are not real sure what to do. I'm not criticizing them either, that is just a fact. You can argue for or against tax cuts/hikes, and a whole slew of other things, but for every logical proposed solution there is an equally logical opposing argument. Whether we increase our debt more, austerity, stimulation, etc.......and in the end no one knows. I haven't a clue either. All I can say is everyone is ----'d! But I do oppose further bailouts. Let em crash and get it over with.

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YOU GREEDY PEOPLE STOLE MY FUTURE WITH ALL YOUR WASTEFUL SPENDING!

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I was thinking yesterday how I would just love to be a fly on the wall while Tim, Ben and the Fed heads are all sitting around drinking a few drinks discussing candidly how far up the creek we really are. I bet ol Alan doesn't get much love either from the group for keeping rates so low for so long all those years and manipulating the inflation gauges to please the markets. And he thought he would go down in history as one of the greatest? Um, wrong. Anyways...I digress. This is the only game in town for us, so we have to make do with what we have, and our options are truly limited.

I've got a lot of stuff I found interesting that I will be adding throughout the day. Here a few interesting articles I just saw on The Business Insider........

Obama Shows His First Sense Of Panic About Backsliding Economy

If Greece's Budget Cuts Are Sufficient As The EU Says They Are, Then Why Are Greek Yields Approaching Crisis Levels Again?

It Looks Like U.S. Government Bonds Aren't Supported By China Anymore

And from Bespoke........

S&P 500 and Sector Trading Range Charts Thursday, August 19, 2010 at 04:40PM

Below we highlight our one-year trading range charts of the S&P 500 and its ten sectors. For each chart, the blue shading represents between one standard deviation above and below the 50-day moving average (white line). The red shading represents between one and two standard deviations above the 50-day, and the green zone represents between one and two standard deviations below the 50-day. Moves into or above/below the red/green shading represent extreme overbought/oversold territory.

After trading into overbought territory for the first time since the April highs, the S&P 500 quickly pulled back and is now back below its 200-day and 50-day moving average. The trading range for the index has really turned sideways with the market basically going back and forth for the past couple of months.


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Bonds Gain Edge Over Equities in Economic Debate

By: John Melloy, Executive Producer, Fast Money

Bond investors are looking more and more on the money than stock investors these days after poor economic data sent the 2-year Treasury yield to a record low and the Dow Jones Industrial Average plunging by as much as 200 points.

Before this summer swoon, many investors scratched their heads as stocks rose, while bond yields continued to fall. The natural relationship is for the two to move in tandem as higher economic growth and inflation lifts stock prices and at the same time, hurts bond prices and sends yields higher.

This conundrum has puzzled market participants, most famously former Federal Reserve Chairman Alan Greenspan in 2005, a few times over the years. Most of the time, according to Citigroup Global Markets, equities are proven to be right as the economy recovers and yields are forced higher. But are they this time?

Data today showed weekly jobless claims at their highest level since November and that a measure of manufacturing activity in the Philadelphia-area unexpectedly shrank. This is not the kind of activity that an S&P 500 up 7 percent from its 2010 low (before Thursday) was predicting.

“The bond market is telling you the economy is worse off than people think,” said Guy Adami, Drakon Capital managing director and a ‘Fast Money’ trader. “People argue about a double-dip, but I would argue we never got out of the recession.”

If bonds are right, it would be a break from history. “Of the eight previous episodes where bond yields have fallen, but equities have rallied (like now), we have found the equity market was ‘right’ on five occasions,” said Citigroup’s Robert Buckland, in a note. “After each it was bond yields that rose to catch up with stock prices rather than vice versa.”

There was one case, in 2004, where it wasn’t entirely clear which asset class was right, according to Citigroup.
“This time, we expect the conundrum to be resolved through rising bond yields,” said Buckland. A “sustained global economic recovery and gloomy fiscal outlook should push yields up from their current historically low levels.”

The other option is that that both asset classes are wrong. “This time Treasuries are not about inflation or deflation,” said Brian Kelly, founder of the aptly named Kanundrum Capital. “They are about capital preservation as baby boomers approaching retirement want to protect what is left of their nest egg.”

It’s still a close call, but today’s data argues that it’s equities that are behind the curve, the yield curve that is.
Last edited by SgtWs on Fri Aug 20, 2010 9:31 am, edited 1 time in total.

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idiq
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Post by idiq »

Just to comment on Alan... I was in Finland taking a course on the History of Financial Markets, and the professor had worked at an investment bank prior to doing economics for the government...

One time he made a comment that in Europe, during Greenspan's time, everyone thought he was next to God. That nothing could go wrong with the markets because Alan was leading the way... Really stressed the point actually. Interesting the perception vs. reality.

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flight23
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Post by flight23 »

If treasury rates rise does that mean the G fund does better? With the F fund the opposite is true, if rates rise F fund value drops because older bonds are worth less since they have a lower interest rate. As I understand it though the G-fund being a no-loss fund doesnt trade based on the value of the bonds themselves but rather based on the interest rate of the bonds held... anyone understand this better?
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SgtWs

The G Fund.........

Post by SgtWs »

I'm not sure if this helps.......let me know and I will try a different approach.......

I stole most of the information from TSP’s site, but changed some of the wording around.

The G Fund is used as ‘cash’ for most TSP investors because according to TSP:
The G Fund offers the opportunity to earn rates of interest similar to those of long-term Government securities but without any risk of loss of principal and very little volatility of earnings.


The G Fund invest in short-term securities specifically issued to the TSP. Like all the other debt we owe, when you invest in TSP’s G Fund, the payment of your principal and interest are ‘guaranteed’ by the U.S. Govt (whatever that really means anymore I’m not sure – some would say there is no ‘credit risk’, but I would argue that is changing). :D

The interest rate resets monthly and is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. And earnings consist entirely of interest income on the securities.

So the amount of money your earn would be based on short-term rates, which is close to nil right now.

By law, the G Fund must be invested in nonmarketable U.S. Treasury securities specially issued to the TSP. The G Fund investments are kept by electronic entries which do not involve any transaction costs to the TSP. The G Fund rate is set once a month by the U.S. Treasury based on a statutorily prescribed formula (described below), and all G Fund investments earn that interest rate for the month. (The G Fund rate is also used in other Government programs, such as the Social Security and Medicare trust funds and the Civil Service Retirement and Disability Fund.)

The Board invests the G Fund exclusively in short-term securities (with maturities ranging from 1 day to 4 days over holiday weekends), but the securities earn a long-term interest rate. Because the Federal Retirement Thrift Investment Board pursues its strategy of investing the G Fund in short-term securities, the value of G Fund securities does not fluctuate; only the interest rate changes. Thus, when the monthly G Fund interest rate goes up, G Fund earnings accrue faster; when the G Fund interest rate declines, G Fund earnings accrue more slowly.

Calculation of G Fund Rate — G Fund securities earn a statutory interest rate equal to the average market yield on outstanding marketable U.S. Treasury securities with 4 or more years to maturity. The G Fund rate is calculated by the U.S. Treasury as the weighted average yield of approximately 94 U.S. Treasury securities on the last day of the previous month. The yield of the security has a weight in the G Fund rate calculation based on the amount outstanding. (The larger the dollar amount of a security outstanding, the larger its weight in the calculation.)

The Treasury securities used in the G Fund rate calculation have a weighted average maturity of approximately 10 years.

The G Fund Yield Advantage
— The G Fund rate calculation described above, along with the Board’s policy of investing exclusively in short-term maturities, results in a long-term rate being earned on short-term securities. Because long-term interest rates are generally higher than short-term rates, G Fund securities usually earn a higher rate of return than do short-term marketable Treasury securities. In the chart above, the G Fund rate is compared with the rate of return on 3-month marketable Treasury securities (T-bills). From January 1988 through December 2009, the G Fund rate was, on average, 1.73 percentage points higher per year than the 3-month T-bill rate.

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flight23
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Post by flight23 »

Thanks for that info.

Based on what you said though I think one line of your post is incorrect:
"So the amount of money your earn would be based on short-term rates, which is close to nil right now. "

It sounds to me that the rate is actually based on long term rates, but the reason the value of the fund doesnt change with changes in rates is because they buy short term securities with long term rates.

To me that means that if the S#@% hits the fan and US Govt Debt buyers start disappearing (like China above) then the borrowing rate for the government will go up (ie long term bond rate) thus driving up the G fund return.
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SgtWs

Correct on the mistake.......my bad.......

Post by SgtWs »

I'm trying to do 10 things at once. To be honest I have never really tracked returns of the G Fund closely. I guess the important part is that you will preserve your capital at its dollar value....you move $100 into the G Fund, you should get $100 back. I also found a few of the statements a little confusing. I think they could do a better job of explaining it.

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flight23
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Post by flight23 »

No problem, just making sure we are on the same page.

The G fund to me is what makes the TSP so awesome... I dont know of any investment vehicle like it really. Essentially it is a no loss fund that generally gives a rate of return that beats inflation. Its a bit better than putting $100 in and getting $100 back, you are basically guaranteed at least some return, historically 2-6%/yr. If goverment debt rates go up, although that means in general we will all be f'ed, it will make the G fund a very attractive option.
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jeffvan1
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Post by jeffvan1 »

[QUOTE="SgtWs"]...you move $100 into the G Fund, you should get $100 back.

You will get $100.00 back. Which is why the gov't guarantees that you can never lose any principle in the G-Fund. The $100.00 might have enough purchasing power to buy a candy bar or could even be the equivalant of 100 squares of toilet paper, BUT at the end of the day, its still a $100.00. You didn't lose any principle. :lol: :lol: :lol: :lol: :lol: :lol:

SgtWs

That would be funny........

Post by SgtWs »

That would be funny if it were not sooooooo true..........

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Fund Prices2024-03-27

FundPriceDayYTD
G $18.14 0.01% 1.00%
F $19.09 0.26% -0.68%
C $82.11 0.87% 10.42%
S $82.19 1.48% 6.61%
I $42.68 0.56% 6.21%
L2065 $16.38 0.84% 8.36%
L2060 $16.38 0.84% 8.36%
L2055 $16.39 0.84% 8.36%
L2050 $32.73 0.71% 6.94%
L2045 $14.91 0.67% 6.56%
L2040 $54.37 0.63% 6.20%
L2035 $14.34 0.58% 5.77%
L2030 $47.66 0.53% 5.35%
L2025 $13.14 0.31% 3.40%
Linc $25.60 0.24% 2.79%

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