Right now holding onto cash is probably the best bet. I'd expect deflationary pressures to continue despite the federal reserve's inflation. They haven't started dumping money out of planes yet but they will if the default rate starts to climb much more.
The rating companies who assign those AA and AAA are useless as well. Recently Moody's Investors Service threatened to lower Iceland's debt rating to junk. Why isn't it there already? It's absurd.
Right now I prefer to invest my money in business opportunities and hold onto as much as cash as I can. It seems like risk out there is extreme when interest rates are 0%. How can you judge what's actually going on in the economy when the price of money is so distorted? We're facing a serious shortage of capital right now and the notion that a 0% interest rate is the way to raise more is insane.
Anyway if these municipal bonds explode on you I don't think anyone is going to bail you out.
But if I had a house, I'd go pick up a year's supply of the basics whenever I saw them come moderately to deeply on sale. It's going to save more money than you'd make on any bond in the near future.
The reason I say that, is that you can still find 3% FDIC insured savings and money market accounts (look at your local Credit Unions). For me to get a better return on canned pears and chicken stock, we'd need real consumer price inflation > 3%. If you take a look at the consumer price index and remove energy costs, it's been quite some time since we've experienced 3% annual inflation. (Removing energy costs is the key here).
Now.. if you hold it for 3 years, it would probably be a no brainer. As long as you don't mind actually eating what you bought over those years -- eg no 40 cases of Peanut Butter!
Munis are working right now because people with deeper pockets (pensions, institutions) are forced to allocate capital here. Essentially, cash is not an option. The risk for Munis on the short term is pretty fair, and we're probably not going to see a crash in the asset right now solely for the fact that it's so blindingly obvious.
Define "cash." Holding onto the dollar may not make sense in this interest rate environment because our printing presses are the fastest on the planet. Gold sucks when the yield curve is this steep. You could try a carry trade and pick up some AUD or NZD... follow the ticker DBV to see how that's doing.
Also, you could try LT government bonds-- the feds have had a crapton of auctions, and with the deficit is going they have an interest in keeping 30year rates low. The joe-retail trader way to play this is TLT, which is looking technically healthy.
But with all this financial rambling, this is Hacker News. I absolutely agree with you-- the best asset you have right now is your business, so I would claim diversification is stupid, don't focus on the market because you can get much higher returns doing something that doesn't require yield curves. Odds are, you don't have enough cash to worry about munis.
Excellent point. Of course, the government knows this, and will thus be terrified to raise rates for a long time to come. Any raising of rates will quickly cut short the recovery, and then the government will panic and lower them again. Welcome to Japan!
There was also a story not too long ago about foreign investors forgoing the usually favorable T-bills because there were considered too risky. I am not quite sure what that really means. Here it is at WSJ: http://online.wsj.com/article/SB3000142405274870480420457506...
Now, about this 0.00%. I firmly believe that we are in a time vacuum, by design. You see, consumers form the foundation of our economic system. They are the engine. By keeping interest rates across the board obscenely low, we are providing much needed time for them to pay off debts. Once the bulk of the consumers become stable, then the rates should rise. Until then, the front of the caterpillar has to wait for the back to catch up!
Yes, and I hope that happens. Just like the fed bailout of banks and of GM were wrong, we need to let bad institutions die. How else can society learn what works and what doesn't?
By keeping interest rates across the board obscenely low, we are providing much needed time for them to pay off debts.
Interesting thought, I hadn't considered it that way. The question is whether it's worth the cost.
And the current zero interest rate policy only helps consumers with adjustable-rate debt. It actually hurts those with fixed-rate debt.
After the implosion of the Japanese asset bubble in the early 1990s, Japan set effectively 0% interest rates in an effort to stimulate the economy. This led to what's known as a 'carry trade', where investors would borrow free money from Japan, and then invest it in higher-yield investments abroad.
After the collapse of the American equity markets in 2001, higher yields were hard to come by. So, all that liquidity went looking for a new home and largely landed in mortgage-backed securities, credit default swaps, and their associated derivatives. Of course, a lot of these investments yielded only a few percent, so investment funds would often leverage up 20x-30x to get a respectable rate of return.
When those investments started to unwind, they unwound hard. The end result was that the Japanese carry trade contributed to the eventual devastation of the American financial system. Which, ironically, means that we now have 0% interest rates. The great cycle continues.
Now, the Japanese carry trade certainly isn't the whole story, and there's a lot of other factors that were in play. However, there's no doubt in my mind that the BOJ's 0% interest rates helped us dig the hole that we find ourselves in today.
BTW, watched I.O.U.S.A. this week (http://www.iousathemovie.com/). If you want to have the crap scared out of you about the impending issues with the debt that's the movie to watch.
In real terms, the investments quoted actually had a negative return during 2009 (nominal interest rates mean little outside of an apples-to-apples comparison). With the unadjusted CPI rising 2.7%, those dollars can now buy less than they could one year ago.
The negative return actually suggests a lot about the economy (see Japan's lost decade -- http://en.wikipedia.org/wiki/Lost_Decade_%28Japan%29). Here are a few of the conclusions one might draw:
- There is considerable fear remaining among investors.
- The government is encouraging risk taking and investment, while discouraging savings.
- US treasuries represent the risk-free rate in many traditional financial models; the traditional models are either changing OR returns that seem sub-optimal when compared with yields from 3 years ago actually have significant amounts of risk embedded in them.
- Banks & local governments can borrow at very low rates, thereby strengthening their balance sheets, making for a potentially attractive investment opportunity (this is, of course, dependent on how wisely you expect them to allocate the capital they borrow).
- The implications are far reaching. This is only the tip of the iceberg.
Take away: Look for inefficiencies and exploit them.
Is the bank paying large bonuses (UK banks are paying bonuses bigger than their profits) if so they can afford to pay their creditors for giving them money to use.
Your Current Playable Balance is: 0.00 IDR
As hackers who want to create a better web, we should stop promoting the words of people like him and jc and others who give the internet a bad name. We should just banish them from the web -- they make it worse for everyone but themselves and their uber-elite little group of scammers.
How exactly is that corrupt and supports revenue models that are fraudulent ripoffs of his startups' customers?
There's a video floating around of Mark Pincus telling a group of startups that it's okay to rip off people as long as you're making money.
It's atrocious behavior and I don't believe anything about it is at all acceptable. Until the situation really is corrected, this dude will have no respect from me.
Look, humans can rationalize anything, so the rationality of the argument is less important than the motivations of the person making the arguments. Why are they saying what they are saying? At some point, you have to trust people and when someone justifies ripping off other people in the name of making a successful startup, then every argument after that becomes suspect.
He has done just that. Said it is okay to build a business based on ripping people off -- it's not.
Well, it's not fine in my opinion and he should have said it wasn't fine and they should have given back all the money they took from customers. Instead, he's excited about making more money by selling zynga to the public or some other member of the startup pyramid scheme.
read this post and see what really happened.
calling me corrupt is strong language and inaccurate
i have a reputation for being honest, respectful, and generous. i have worked for 25 years to build that reputation. i value it more than anything other than my wife and children.
it is very hurtful to me to read hateful stuff like you spew out