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Posted by Larry Doyle on April 23, 2009 8:39 PM |

***UPDATE: The Central Station live event has ended, but you can view the topics we discussed by scrolling through the “Comments” section at the end of this post.***
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Sorry, folks. We are having some technical difficulties with the LiveChat software, so we’ll do Central Station the old-fashioned way. Send me your questions in the comments section and I’ll answer promptly.

LD

  • Larry Doyle

    Poll Question: How large will the Treasury auctions be next week of 2yr, 5yr, and 7yr Treasurys?

    $10 billion , $35 billion, $101billion, $345 billion, $2 trillion

    We can chat about Bank Stress tests, earnings, the market, career planning, foreign developments, or anything you’d like.

    • whaler

      poll question $345 billion

      • Larry Doyle

        you may be right…and then again, you may be wrong…

    • milkcarton

      $35 billion

    • silver

      Larry, can you give us some background on the Treasury auctions? Why are they getting so big? Who is buying? What does it all mean? Thank you!!

      • Larry Doyle

        Insitutions fund themselves either by borrowing money or selling equity. Given that Uncle Sam is not in the for profit biz it does not sell shares, thus it issues debt from bills (maturity 10yr maturity). The govt also collects taxes. Tax revenues follow the health of the economy. Currently tax revenues are dropping.

        Treasury auctions not only raise money to fund services provided by the govt but also to pay our debt service.

        With tax revenues declining and deficit spending growing, our Treasury auctions have soared to extraordinary levels.

        The auctions are being purcahsed 35-40% by foreigners and 60-65% by domestic entities.

        The debt vs GDP is getitng to scary levels. What does that mean. Unless we egt the deficit down, the debt service will absorb capital that would be needed by future generations to grow the economy.

        Longer term it is bearish for our currency, which may push inflation higher.

        • silver

          Thanks LD! Very helpful!!

  • silver

    Hi LD! I find all this talk about impending inflation very unnerving. Can you make any suggestions as to how to be pro active as far as protecting ourselves? Thank you!!

  • lizzy

    Any news on Obama’s Big Meeting with the credit card companies? I have been out all day so I am not aware of what has been happening. I heard that GM will be closing down for nine weeks this summer. Are we now officially mourning that loss?

    • Larry Doyle

      Lizzy,

      I think Larry Summers felt the credit card meeting was a snoozer (please see post lower on this page). Obama talked about capping rates.

      Chrysler is prepping for bankruptcy next week. I do think the UAW may have cut a separate deal with Uncle Sam which means the bondholders will get slammed.

      GM will be working part time and don’t be surprised if the UAW there also cuts a separate deal with Uncle Sam.

  • Larry Doyle

    First off, you will have some time. I think the inflation will still be a year or so away but I definitely think it will be coming.

    In regard to inflation, there are some investments that protect people including:

    TIPS: treasury inflation Protected Securities, which are governemtn bonds that are indexed to inflation.

    Senior Floating Rate Notes: loans from top quality companies that float and are indexed to a short term rate which will adjust higher as the Fed will be forced to increase rates to try to slow inflation

    Real Estate or other hard assets are typically good inflation hedges.

    You do not want to have floating rate debt.

    • silver

      Thanks LD!!

  • whaler

    Are there any opportunities in any of the REIT stocks?

    • Larry Doyle

      Whaler…I think there are going to be some great opportunities in some of the commercial REITs but not quite yet. I think they are likely to get cheaper first.

      I need to do some homework on specific names.

      Not sure if you saw the research piece put out by Deutsche Bank today on CMBS. I highlighted it this afternoon.

      • whaler

        Thanks Larry! I will make sure to read that article closely! Right now the Celtics are distracting me!!

  • milkcarton

    Any opportunities in the U.S. automotive industry stocks?

  • MPC

    LD-

    Can any good really come out of government intervention in the business practices of credit card companies? I’m not sure I feel anything good can come out of this. Perhaps the efforts of the government would be better put to use through earlier consumer education for young people.

    Additionally, in light of Earth Day yesterday, how do you feel about the Obama administration’s cap and trade schemes? Do you think government can mandate environmental policies that make economic sense?

    • Larry Doyle

      MPC…

      In my opinion, if there are limits put on credit card rates, there should be a time limit on those restrictions. Govt mandated limits is a very dangerous precedent and practice. Consumers need to adjsut and adapt. If enough do so, the card companies will lower rates or not generate earnings.

      In regard to the cap and trade, it sounds good and looks good but I do not think the govt can mandate these practices. I view these policies as taxes which will push business away or pass the increased costs down to consumers. How about providing incentives for the businesses to cahnge behaviors and then share the benefits with consumers.

      Whether banking, energy, auto, insurance, I am very concerned that govt intervention is becoming so overwhelming as to be dangerous.

  • Larry Doyle

    Ford was just put on the buy list by Goldman Sachs. Ford will categorically pick up market share and they have put their financial house in much better shape. All car companies will have a tough time as the industry as a whole goes through a downsizing, but if Chrysler and/or GM gets preferable treatment that would put Ford at a strategic disadvantage. Given that, Ford should be able to renegotiate some terms with Uncle Sam’s help.

    Ford is the long term domestic winner in autos.

    • whaler

      one of the few cars i have never owned!

  • VinalSt

    LD! My standard savings account has a very low interest rate. I have already put some money into a fixed rate CD…but do you have any suggestions of saving account options that allows more flexibility than a CD and better returns than I am currently getting through my Bank?

  • Larry Doyle

    Vinal….this is the question millions of people want answered. I liked the rate from the Savings bank Silver mentioned last week. I think it was 4%.

    Silver provided a link to, I believe, Dedham Savings.

    In the market, there are very few options. One idea you may want to start looking at is beginning to fund a whole life insurance policy. It is a good way to get a guaranteed rate of return. You lose some flexibility but it is worth looking into for a longer term savings vehicle. The company I like is Northwestern Mutual.

  • Larry Doyle

    In regard to the quiz question about the treasury auction, the answer is a three digit number. Higher than $100 but lower than $105 billion.

    In all seriousness, the sizes of these auctions are getting VERY DAUNTING!!!

  • lizzy

    Is there anything new about the situation in UK? I remember your post about the tax increase they are begining?

    • Larry Doyle

      The U.K. situation is pretty much baked into the cake. They’re broke.

      They have little that they can do on the spending front and are going to resort to some forms of quantitative easing (purchasing a mix of government and coporate securities in an attempt to bring rates down and spur borrowing).

      I honestly see the quantitative easing both here and in the U.K ending badly as the govt gets loaded up with these securities and then watches interest rates ratchet higher. The govt will lose money in a big way on these purchases.

      I put that program in the camp of “losing money both coming and going.”

    • silver

      Larry do you think the U.S. tax rate will ever get as high as in the U.K.?

      • Larry Doyle

        It is not inconceivable that we do get to that rate.

        We are going to ahev enormous deficits for a long time. We need to increase domestic savings, lessen spending, and generate greater revenues. I do nto think that increasing the tax rates is the right approach but a Democratic administration and Democratic Congress may very well push rates higher. It would probably not be in one move but it could be in two or three step moves.

        Aside from federal taxes, I think state and local taxes will also go up.

        We may have more Tea Parties.

  • whaler

    Are the life insurance stocks a better value because they have slowed down their lending on commercial real estate?

    • Larry Doyle

      Insurance companies typically do not mark investments down but carry them at cost (either origination or purchase). When the asset incurs a default or a writedown then they take it. The stock markets have taken down the stocks on a lot of these companies knwoing that they hold a lot of assets worth only 50-70 cents on the dollar but now they need time to write new policies or loans to generate revenues.

      Some of these companies have had nice bounces but there are still real risks in owning the companies that were the aggressive lenders.

      I’d be patient.

      • silver

        Helpful advice! Good night all! 🙂

  • Larry Doyle

    Thanks for riding. We will learn more tomorrow about the Bank Stress Test model. Should be interesting.

  • druid hill

    I read that although inflation is down right now as the economy starts turning around it will rise quite a bit. How can I invest my money to protect myself from a higher inflation rate?

  • Larry Doyle

    Druid Hill,

    Welcome to Sense on Cents. I wrote today about inflation as a Ticking Time Bomb.

    I received a similar question as yours from another reader tonight, so I hope my reply is helpful to you, as well:.

    First off, you will have some time. I think the inflation will still be a year or so away but I definitely think it will be coming.

    In regard to inflation, there are some investments that protect people including:

    TIPS: treasury inflation Protected Securities, which are governemtn bonds that are indexed to inflation.

    Senior Floating Rate Notes: loans from top quality companies that float and are indexed to a short term rate which will adjust higher as the Fed will be forced to increase rates to try to slow inflation

    Real Estate or other hard assets are typically good inflation hedges.

    You do not want to have floating rate debt.

  • TeakWoodKite

    LD, What impact do the current events have in
    planning for a college education fund? When it comes to preserving the value of the investment portfolio any suggestions?

    One sector over another long term?

    • Prof. Quincy Wagstaff

      One way or another, you have to write the check…but first check this out: Independent 529. Tell them Groucho sent you 😉

      • Baravelli the Iceman

        Hey Professor! That Idependent 529 Plan is a smart way to save for college. The pre-paid tuition plan can be applied at over 250 (and growing) schools nationwide, provides on average a 50 bp annual discount, lays off tuition inflation, has no fees, and is free from federal taxes. And if junior somehow doesn’t go to one of those 250+ schools, roll it over to another family member. What’s the risk? Tuition falls…okay. Or you cash out, but not for tuition, at which point your return is capped at +/- 2% per year. Just remember, if all of this is giving you a haddock, take an aspirin. The passord is still “Swordfish.”… Baravelli

      • TeakWoodKite

        Thank you for this info. And your sense of humor.
        AEven if it is at this kites expense 🙂

    • Larry Doyle

      TWK…Professor Wagstaff provides a link to more info than I could glean in a lifetime. I hope it provides solid guidance. As you review, let me know if I can shed any light.

      Professor Wagstaff, or should I call you Groucho? I thank you!!






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