Someone getting the message:-
From Bloomberg – TCW Group Inc. is taking the possibility of a bond-market selloff seriously.
So seriously that the Los Angeles-based money manager, which oversees almost $140 billion of U.S. debt, has been accumulating more and more cash in its credit funds, with the proportion rising to the highest since the 2008 crisis.
“We never realize what the tipping point is until after it happens,” said Jerry Cudzil, TCW Group’s head of U.S. credit trading. “We’re as defensive as we’ve been since pre-crisis.”
TCW isn’t alone: Bond funds are holding about 8 percent of their assets as cash-like securities, the highest proportion since at least 1999, according to FTN Financial, citing Investment Company Institute data.
Cudzil’s reasoning is that the Federal Reserve is moving toward its first interest-rate increase since 2006, and the end of record monetary stimulus will rattle the herds of investors who poured cash into risky debt to try and get some yield.
The shift in policy comes amid a global backdrop that’s not exactly rosy. The Chinese economy is slowing, the outlook for developing nations has grown cloudy, and the tone of Greece’s bailout talks changes daily.
Bugger, and you thought it wasn’t this bad – guess what – it is worse than worse.
Received an email from a friend stating that the USD is down and gold up.
My response was basically yes, short term, as markets are irrational.
Now before I go on, you must be prepared to read all of this post to understand the eventual outcome in order to ‘save’ your assets.
Throughout I have quoted from various reputable (yes, each to their own) sources as they too are aware of the risks – well not the full risks – I have stitched the components together with one supporter (see later).
It will be self evident.
Yes covered the majority of these items in prior posts, but now is a good time to heed the advice. You only have a short time frame in which to secure your future. At this point I do advise a big phat disclaimer, as this is my opinion.
All markets are irrational, what is happening is irrational, as no one living will have any experience whatsoever in the final outcome.
It is written in history, it is a complete systematic failure of debt.
Not kidding here, in fact I do quote more reputable sources than me below, in context.
Why irrational, well all due to human behavior – yes us humans are lemmings and those with money want security and a rate of return, those looking after other people’s money want security, but at the same time reward and return, as successful profits dictate commission.
Then we have governments, numb nuts in control who are only interested in their legacy, pious, self centered wankers, who care not for their constituents.
I wish I could be harsher, the problem is in the person themselves, none are interested in doing ‘what is right’ – each party has their own misguided beliefs and twist even Keynes socialistic economic theories, to suit themselves.
Considering please what I have stated in prior posts, governments are unable to eliminate deficits – in fact globally governments are borrowing on very low, zero or negative interest rates which increases government debt, as they pay off old debt and deficits – no room for error amidst falling GDP, rising interest rates and lower tax revenues.
So we have bond markets with no liquidity, yes all the way around the world.
We have the perfect storm brewing, in Europe compounded by austerity measures in place and a large refugee crisis and what is the catalyst that would drive lemmings to invest their / or other people’s money into the area first?
That these investments will collapse which will lead to a complete collapse of the financial system.
I often wondered why and how all this money could disintegrate, USD 72 trillion in bonds issued globally. Yes that is a lot of money isn’t it.
Total debt securities all industries, as at 2014.
Even bond guru Bill Gross ‘senses’ that the bond bull market is ending.
“Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don’t necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a “bang” at some future date. To them, (and myself) the current bull market is not 35 years old, but twice that in human terms. Surely they and other gurus are looking through their research papers to help predict future financial “obits”, although uncertain of the announcement date. Savor this Bull market moment, they seem to be saying in unison. It will not come again for any of us; unrest lies ahead and low asset returns. Perhaps great unrest, if there is a bubble popping.”
But look at the stock exchanges – I received this through an email from Bill Bonner,
“The S&P hasn’t seen a correction of this magnitude in almost four years”
“On the bright side, this has taken the forward price-to-earnings (P/E) ratio of the EuroStoxx 50 down to 15 versus 17.6 for the S&P 500.”
Interesting piece of advice. However according to Bloomberg on June 11, Sweden’s largest fund manager, Swedbank Robur which oversees $138 billion in assets, has slashed its equity exposure in half at some funds “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued.”
In the funds with the broadest equity mandates, Sweden’s biggest fund manager reduced its equity exposure to about 30 percent in April from 80 to 85 percent in the second half of last year, Head of Multi Asset Per Storfaelt said in a June 11 interview in Stockholm, as reported originally by Bloomberg.
He thinks the stocks are going to bust. Irrational but irrelevant, as stocks are a good way to transfer capital and keep it out of the hands of illiquid Banks and governments.
Like since when can’t you buy stocks in one country and sell those stocks in another country?
Lemmings are interesting, in which way does he thinks Bonds are better, unsecured loan paper from Government.
At zero or negative interest rates. As of writing, over 25% of all bonds issued by European governments has a guaranteed negative return for investors.
Amazing – simply amazing
Then we have long term rates in the US increasing due to the increase of interest rates on the 30 year bonds – you see why would anyone want a 30 year gilt investment paying 4 percent when you will shortly buy bonds with far greater yields.
“Mortgage Rates Top 4% in Test for Housing (in the US)
Jun 11, 2015
Mortgage rates vaulted above 4% for the first time this year, posing a challenge to the housing market’s strengthening recovery.
For the week ended Thursday, the average rate of a 30-year, fixed-rate mortgage rose to 4.04% from 3.87% the previous week to the highest level since last October, according to mortgage-finance company Freddie Mac.
The increase followed a Treasury-market sell-off over the past week that drove yields higher on most kinds of bonds. Bond yields rise as prices fall.”
Anyway that is what is happening.
Interest rates have never been cheaper in Australia, as they are now. The lenders do not look beyond the domestic situation.
Comparison rate from St George
Variable Rate 5.69% p.a.
Fixed Rate 1 year fixed 4.84% p.a.
3 year fixed 4.64% p.a.
5 year fixed 4.64% p.a.
And this is a low document, technically a higher risk loan. Five years will see you through this fiasco.
Secure quickly, someone may wake up to what is happening. Tell your family, friends – give them some security too.
On and Banks, don’t trust them.
The manager of one of Britain’s biggest bond funds has urged investors to keep cash under the mattress.
Ian Spreadbury, who invests more than £4bn of investors’ money across a handful of bond funds for Fidelity, including the flagship Moneybuilder Income fund, is concerned that a “systemic event” could rock markets, possibly similar in magnitude to the financial crisis of 2008, which began in Britain with a run on Northern Rock.
“Systemic risk is in the system and as an investor you have to be aware of that,” he told Telegraph Money.
He pointed out that a saver was covered only up to £85,000 per bank under the Financial Services Compensation Scheme – which is effectively unfunded – and that the Government has said it will not rescue banks in future, hence his suggestion that some money should be held in physical cash.
He declined to predict the exact trigger but said it was more likely to happen in the next five years rather than 10. The current woes of Greece, which may crash out of the euro, already has many market watchers concerned.
So you think it will not hit a Bank near you?
Think again – but not your local currency – buy USD.
Safer no depreciation but will appreciate and you will prosper against the negative impact of currency wars plus Yellen’s adjustment to the interest rates.
Bullion may be banned, happened before.
May happen again, so those SA Kruggerand, after gold hits bottom in mid August 2015 would be a good bet. At least a recognizable currency – and a store of value.
September 27, 2015 starts … ends?
Edit: omitted extract from Bill Bonner’s newsletter. The Rogue Economist
“Is Your Money Safe?”
The important insight is that government and banks always work together to protect themselves – not you.
We saw it happen in Cyprus, too. The government there (working with the big banks) changed the terms of the deal – suddenly and, for depositors, catastrophically.
It gave big depositors – with over $100,000 in the bank – a haircut and a shave equal to nearly half their money. Why?
The Cypriot banks had bought Greek government debt. The fall in value of those bonds (the Greeks couldn’t pay then, either) left the banks on the edge of bankruptcy.
The loss was very real. Who ended up paying for it?
The banks that made the bad investments? The government that regulated the banks and forced them to buy government bonds?
Nope. The depositors! Innocent, but perhaps naïve, the depositors got scalped.
And now, Greek depositors – the smart ones, at least – are taking precautions. They yanked out €3 billion ($3.4 billion) this week – or about one-quarter of all deposits for the year.
In the U.S., the FDIC guarantees individual deposits at member banks up to $250,000.
How good is that guarantee?
In a pinch, all sorts of things that you took for granted suddenly have question marks behind them.
What’s the bank’s collateral really worth? How much does the bank have in reserves? How much does the FDIC have? How long will I have to wait to get my money? What will it be worth then? What will I do in the meantime?
You may want to take precautions too.
Further Reading: If you think this kind of thing can’t happen in America, think again. In fact, it came within hours of happening just a few years ago. And it’s starting to happen again. Bill explains it all in his new investor presentation. Google billbonnersdiary.com