Monday, September 15, 2008

Who's Money Was It?

The market got sick today,down 500 points. It's about to get a lot worse.

AIG needs 40 billion dollars for cash flow. Kind of makes you wonder where you would get that amount of money or why you would need that much. That is twice what our three major car companies are worth in stock value.

A tremendous amount of money has vaporized and who has lost it is still a question. I submit that we know who lost it and it wasn't Joe Six Pack (Joe's never saved a dime in his life).

The Fed is going to meet tomorrow to discuss lowering the Fed Funds rate. Could be a real waste of time. Look for world interest rates to jump up to 10 to 15 percent in the very near future.

Previously bought 30 year Treasury Bonds could be discounted drastically to raise cash. Could be a real buying opportunity.

Cash is king. Notice how little of it is around. Those companies that don't have it, are biting the dust. The money that has been lost, has been lost by people with savings. So far, only banks and financial institutions have lost money. Just wait till you get your retirement bank statement at the end of the quarter. You'll notice the money they lost, was your money.




Copyright 2008 All rights reserved

6 comments:

Dan Mac said...

Jim,

I'm not a bond guy...by "previously bought" do you just mean existing issues of 'close' to 30 yr maturity? Also, what in your mind is the driver for world interest rates going to the 10-15% range?

I am currently long a healthy dose of cash & confusion. ; )

Dan

Jim in San Marcos said...

Hi Dan Mac

Yes, that would be right. A 30 year bond held by a private party.

If you need cash, you have to discount the face amount until you find a buyer. In essence, that's an increase in yield.

If a 100K bond is paying 5% and you have to discount it to 50K to find a buyer, the effective interest rate is 10%.

You don't get the price you would hope for. That's why cash is king in a panic.

Grab some popcorn, the movie is about to start. Thank you for your comments

watchtower said...

Jim

Would TIPS (Treasury Inflation Protected Secururities) be something to consider in the future if you were a passive investor?

Jim in San Marcos said...

Hi Watchtower

I see two problems here. The government isn't very truthful about the actual rate of inflation and I don't see any practicability in investing long term in Treasuries--they're good for keep your funds protected. Other than that, you'll lose money in the long run.

I think that the present inflation rate is somewhere around 10% but everyone seems satisfied with what the banks are paying. That is really hard to figure.

Anonymous said...

It's official.

Paulson is using the Treasury as a personal piggy bank to rescue is buddies running AIG. At some point, can't the administration or Congress stop him? What he's doing seems almost, well, treasonous let alone destructive to the free market principles that our administration loves to talk about.

Anonymous said...

This is a little off-topic, but I am curious about how to calculate stock market inflation. 500 points today are quite different than even a few years ago.
Do I calculate using the consumer price index, or is there a different method used with the market?