Showing posts with label US treasury. Show all posts
Showing posts with label US treasury. Show all posts
Wednesday, 21 March 2012
Tuesday, 24 August 2010
Big investors moving away from stocks into gold and bonds
Published: Tuesday August 24, 2010 MYT 9:05:00 AM
Updated: Tuesday August 24, 2010 MYT 9:13:21 AM
Big investors moving away from stocks into gold and bonds
NEW YORK: The smart money has moved away from stocks. So is the era of stock investing over?
It's too early to tell, but one thing is certain: "Money goes where it is treated best, and that hasn't been in stocks," says Wade Slome, who advises high net-worth investors and runs a hedge fund at his firm, Sidoxia Capital Management in Newport Beach, California.
The overall stock market is down over the past decade, while the price of gold has more than quadrupled and corporate bond returns have doubled. Couple that with the slow economy, and hedge fund managers and institutional investors continue to shift money away from stocks to investments they think will be safer.
An estimated $170 billion has been put in bond funds this year, while $35 billion has been pulled from stock funds, according to the Investment Company Institute, a trade group for the mutual fund industry.
So much for buy and hold.
Analysts at Bespoke Investment Group say we're in a "drive-by market." Their take: Stock investors aren't anticipating or analyzing anything. They just react to the news of the day and then move on to the next thing.
Three months ago, the survival of European banks and economies was front and center. Now, it's barely mentioned. Same goes for the "flash crash" in May. News of strong corporate earnings one day can drive the market sharply higher, but a weak earnings report the next can send prices plunging.
"Investors look at what is in front of them at that minute, and that's it," says Paul Hickey, one of the founders of the investment research firm.
The volatility begets more volatility, which further unnerves investors who have been punished by losses over the last decade. The total return, including dividend, for the benchmark Standard & Poor's 500 index is down about 11 percent since August 2000, according to Bespoke.
That means an investor who put in $10,000 in an S&P index fund 10 years ago and held it now has less than $9,000 to show for it.
Billionaire investor George Soros is one of those who bolted out of stocks in the second quarter. His Soros Fund Management reduced its stock holdings by about 40 percent to $5.1 billion from April through June, according to a quarterly report filed Aug. 17 with U.S. securities regulators. The fund sold 93 percent of its stake in Pfizer and 98 percent of its stake in Wal-Mart during the quarter.
The fund's biggest holding is an exchange-traded fund in gold-related stocks. It represents 13 percent of its stock portfolio. The quarterly report does not detail the fund's holdings outside of stocks, and the fund declined to comment on its investments.
Other big-name investors with large positions in gold ETFs include John Paulson, who was made famous for his successful bet that the subprime mortgage market would blow up.
They are sticking with gold even though prices for the precious metal are up 9 percent this year to more than $1,200 an ounce. That's four times the $300 price of an ounce of gold in 2000.
There has been an equally bullish move into government and corporate bonds. The Federal Reserve has pushed down interest rates to almost zero to stimulate the economy. That has spurred a rally in Treasury bonds and notes. The benchmark 10-year Treasury yield is down to 2.6 percent, its lowest level since the height of the financial crisis in 2009. Prices and yields move in the opposite direction.
Lower rates should help companies because they make it cheaper to borrow money and allow them to refinance their existing debt. Corporate profits then go up, leaving more money to spend on expansion or workers.
That's why lower rates should help boost stocks, says Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "But we are not seeing that at all right now."
Instead, investors are putting money into corporate bonds, even those that offer little guaranteed return. IBM was able to raise $1.5 billion by selling 3-year notes that pay a mere 1 percent in interest. That was only 0.30 percentage points more than the yield on comparable U.S. Treasurys.
Johnson & Johnson sold 10-year bonds this month with a 2.95 percent yield, even though it pays a dividend equal to about 3.7 percent of its stock price.
That means an investor who buys $10,000 in J&J bonds gets back $295 annually for 10 years, plus the principal. If that investor bought 166 shares of J&J stock at about $60 a share now and held it for a decade, the annual payout would be $360 a year, plus any price appreciation in the stock and increases in dividends. J&J has increased its dividend for 48 consecutive years.
Junk bonds are also attracting investors. They are being issued by companies at a record clip. Junk bonds are rated lower than other corporate debt because they have a higher probability of default. Investors are compensated for that risk with higher yields, which currently average around 9 percent.
Institutional investors like pension funds that are willing to take above-average risks to get above-average returns, says Ed Yardeni, who runs his own investment and economics consulting firm.
"Investors are fed up with stocks," Yardeni says. "But they are still diversified: Half their portfolio is in gold and half in bonds."
Of course, investing in bonds and gold aren't risk-free. Far from it. The dramatic rallies in both have some on Wall Street saying that bonds and gold could be nearing a bubble that's about to pop.
By taking those positions, investors are hedging their bets about what's to come with the economy. Gold is considered a protector against inflation, and bonds are good to hold in times of deflation.
As for stocks, they're getting the short shrift they deserve. - AP
http://biz.thestar.com.my/news/story.asp?file=/2010/8/24/business/20100824091246&sec=business
Updated: Tuesday August 24, 2010 MYT 9:13:21 AM
Big investors moving away from stocks into gold and bonds
NEW YORK: The smart money has moved away from stocks. So is the era of stock investing over?
It's too early to tell, but one thing is certain: "Money goes where it is treated best, and that hasn't been in stocks," says Wade Slome, who advises high net-worth investors and runs a hedge fund at his firm, Sidoxia Capital Management in Newport Beach, California.
The overall stock market is down over the past decade, while the price of gold has more than quadrupled and corporate bond returns have doubled. Couple that with the slow economy, and hedge fund managers and institutional investors continue to shift money away from stocks to investments they think will be safer.
An estimated $170 billion has been put in bond funds this year, while $35 billion has been pulled from stock funds, according to the Investment Company Institute, a trade group for the mutual fund industry.
So much for buy and hold.
Analysts at Bespoke Investment Group say we're in a "drive-by market." Their take: Stock investors aren't anticipating or analyzing anything. They just react to the news of the day and then move on to the next thing.
Three months ago, the survival of European banks and economies was front and center. Now, it's barely mentioned. Same goes for the "flash crash" in May. News of strong corporate earnings one day can drive the market sharply higher, but a weak earnings report the next can send prices plunging.
"Investors look at what is in front of them at that minute, and that's it," says Paul Hickey, one of the founders of the investment research firm.
The volatility begets more volatility, which further unnerves investors who have been punished by losses over the last decade. The total return, including dividend, for the benchmark Standard & Poor's 500 index is down about 11 percent since August 2000, according to Bespoke.
That means an investor who put in $10,000 in an S&P index fund 10 years ago and held it now has less than $9,000 to show for it.
Billionaire investor George Soros is one of those who bolted out of stocks in the second quarter. His Soros Fund Management reduced its stock holdings by about 40 percent to $5.1 billion from April through June, according to a quarterly report filed Aug. 17 with U.S. securities regulators. The fund sold 93 percent of its stake in Pfizer and 98 percent of its stake in Wal-Mart during the quarter.
The fund's biggest holding is an exchange-traded fund in gold-related stocks. It represents 13 percent of its stock portfolio. The quarterly report does not detail the fund's holdings outside of stocks, and the fund declined to comment on its investments.
Other big-name investors with large positions in gold ETFs include John Paulson, who was made famous for his successful bet that the subprime mortgage market would blow up.
They are sticking with gold even though prices for the precious metal are up 9 percent this year to more than $1,200 an ounce. That's four times the $300 price of an ounce of gold in 2000.
There has been an equally bullish move into government and corporate bonds. The Federal Reserve has pushed down interest rates to almost zero to stimulate the economy. That has spurred a rally in Treasury bonds and notes. The benchmark 10-year Treasury yield is down to 2.6 percent, its lowest level since the height of the financial crisis in 2009. Prices and yields move in the opposite direction.
Lower rates should help companies because they make it cheaper to borrow money and allow them to refinance their existing debt. Corporate profits then go up, leaving more money to spend on expansion or workers.
That's why lower rates should help boost stocks, says Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "But we are not seeing that at all right now."
Instead, investors are putting money into corporate bonds, even those that offer little guaranteed return. IBM was able to raise $1.5 billion by selling 3-year notes that pay a mere 1 percent in interest. That was only 0.30 percentage points more than the yield on comparable U.S. Treasurys.
Johnson & Johnson sold 10-year bonds this month with a 2.95 percent yield, even though it pays a dividend equal to about 3.7 percent of its stock price.
That means an investor who buys $10,000 in J&J bonds gets back $295 annually for 10 years, plus the principal. If that investor bought 166 shares of J&J stock at about $60 a share now and held it for a decade, the annual payout would be $360 a year, plus any price appreciation in the stock and increases in dividends. J&J has increased its dividend for 48 consecutive years.
Junk bonds are also attracting investors. They are being issued by companies at a record clip. Junk bonds are rated lower than other corporate debt because they have a higher probability of default. Investors are compensated for that risk with higher yields, which currently average around 9 percent.
Institutional investors like pension funds that are willing to take above-average risks to get above-average returns, says Ed Yardeni, who runs his own investment and economics consulting firm.
"Investors are fed up with stocks," Yardeni says. "But they are still diversified: Half their portfolio is in gold and half in bonds."
Of course, investing in bonds and gold aren't risk-free. Far from it. The dramatic rallies in both have some on Wall Street saying that bonds and gold could be nearing a bubble that's about to pop.
By taking those positions, investors are hedging their bets about what's to come with the economy. Gold is considered a protector against inflation, and bonds are good to hold in times of deflation.
As for stocks, they're getting the short shrift they deserve. - AP
http://biz.thestar.com.my/news/story.asp?file=/2010/8/24/business/20100824091246&sec=business
Wednesday, 18 August 2010
Wall Street Legend: This Market Just Flashed a Huge Warning Signal
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| David Rosenberg calls it the smoking gun… Rosenberg and I just spoke on the phone. You might not know his story, but David Rosenberg is a Wall Street legend. He is famous for being a bearish economist at the most bullish firm on Wall Street. When the housing market was in a roaring boom, Merrill Lynch was making billions. But Rosenberg, Merrill's chief economist, was warning about recession and a bear market in stocks. He said the housing and mortgage bubble would pop and a severe economic downturn would follow. Last year, he quit Merrill Lynch. Many people thought Merrill fired him for not being bullish enough. "That's nonsense," he told me. "My wife and three kids live in Toronto. I wanted to be with them. So I left New York." He's now Chief Economist at Gluskin Sheff, a boutique money-management firm in Canada. Of course, Rosenberg's bearish views were spectacularly right… Rosenberg is now one of the most popular economists in the media. You'll often find him giving an interview on CNBC or a quote to the Wall Street Journal. So what's Rosenberg's smoking gun? It's the bond market. First, check out this chart of the yield on the 10-year Treasury note. It's collapsing… now at March 2009 levels.  Some markets are smarter than others. Lumber is a great leading indicator of the housing market. The Baltic Dry Index often leads the shipping stocks. Rosenberg says the bond market is smarter than the stock market. Rosenberg writes a great, free daily newsletter, Breakfast With Dave, where he summarizes and comments on all the major economic news of the day. In one of his issues last week, he showed that whenever the economy heads into a downturn, bond traders start anticipating the recession before the stock market. Take the 1990 recession, for example. The 10-year note yield peaked on May 2, 1990 at 9.09%. The S&P 500 peaked two months later… In the 2001 recession, the 10-year yield topped out on January 20, 2000 at 6.79%. The stock market peaked eight months later, on September 1, 2000. In the 2008 recession, the 10-year yield reached its high on June 12, 2007. The S&P 500 peaked on October 9, 2007, a few months later… And finally, the smoking gun for the 2010 recession… The 10-year Treasury yield peaked on April 5 at 3.99%. It's now at 2.60% four months later. The stock market peaked on April 26, three weeks later… In other words, if the action in the bond pits is any guide, the economy is going back into recession. I asked Rosenberg what investors should do about this. He likes gold and the highest-quality natural resource companies. But bonds are his favorite investments. He says most people think cash is king. But they're wrong. In a deflationary recession, income is king. He calls his strategy "SIRP," which stands for Safety and Income at a Reasonable Price. Rosenberg thinks interest rates will continue to decline like they did in Japan, and bond investments will continue to rise in value. Corporate bonds are his favorite. Rosenberg says American corporate balance sheets are loaded with cash and extremely healthy, so corporate bonds are safe. Good investing, Tom |
Friday, 23 July 2010
Wednesday, 12 May 2010
Gold rises to new record as investors flock to safety
Gold rises to new record as investors flock to safety
May 12, 2010 - 6:55AM
Gold futures rose to a record in New York as government debt in Europe spurred demand for the precious metal as an alternative to currencies.
Gold futures reached $US1232.50 an ounce amid concern that Europe's most-indebted nations will struggle to contain deficits after policy makers provided almost $US1 trillion in a rescue package. The metal priced in euros also reached an all-time high today, and bullion in UK pounds and Swiss francs has surged.
"This is the beginning of the unraveling of fiat currencies," said Michael Pento, the chief economist at Delta Global Advisors Inc. in Huntington Beach, California. "Money has to be backed by something. People are beginning to realize that gold is the world's reserve currency."
Gold futures for June delivery rose $US30.90, or 2.6 per cent, to $US1231.70 on the Comex in New York, compared with yesterday's settlement. The previous record was $US1227.50 on December 3.
Gold for immediate delivery reached an all-time high of $US1231.70, exceeding the previous record of $US1226.56 set on December 3.
Gold has climbed 11 per cent in 2010, following nine straight annual gains. This year, the euro has dropped more than 11 per cent against the US dollar, an index of equities in major markets is down and returns on the benchmark 10-year US were up 3.8 per cent.
"People are in panic mode," said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. "There is absolute panic over the risk of contagion spreading to other countries in Europe. Yields on Treasuries are so low, people are starting to look to gold as an alternative."
Bloomberg
May 12, 2010 - 6:55AM
Gold futures rose to a record in New York as government debt in Europe spurred demand for the precious metal as an alternative to currencies.
Gold futures reached $US1232.50 an ounce amid concern that Europe's most-indebted nations will struggle to contain deficits after policy makers provided almost $US1 trillion in a rescue package. The metal priced in euros also reached an all-time high today, and bullion in UK pounds and Swiss francs has surged.
"This is the beginning of the unraveling of fiat currencies," said Michael Pento, the chief economist at Delta Global Advisors Inc. in Huntington Beach, California. "Money has to be backed by something. People are beginning to realize that gold is the world's reserve currency."
Gold futures for June delivery rose $US30.90, or 2.6 per cent, to $US1231.70 on the Comex in New York, compared with yesterday's settlement. The previous record was $US1227.50 on December 3.
Gold for immediate delivery reached an all-time high of $US1231.70, exceeding the previous record of $US1226.56 set on December 3.
Gold has climbed 11 per cent in 2010, following nine straight annual gains. This year, the euro has dropped more than 11 per cent against the US dollar, an index of equities in major markets is down and returns on the benchmark 10-year US were up 3.8 per cent.
"People are in panic mode," said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. "There is absolute panic over the risk of contagion spreading to other countries in Europe. Yields on Treasuries are so low, people are starting to look to gold as an alternative."
Bloomberg
Thursday, 5 March 2009
What Fuels The National Debt?
What Fuels The National Debt?
by Reem Heakal (Contact Author Biography)
First established in 1789 by an act of Congress, the United States Department of the Treasury is responsible for federal finances. This department was created in order to manage the expenditures and revenues of the U.S. government, and hence the means by which the state could raise money in order to function. Here we examine the responsibilities of the Treasury and the reasons and means by which it takes on debt.
Responsibilities of the Treasury
The U.S. Treasury is divided into two divisions: the departmental offices and the operating bureaus. The departments are mainly in charge of policy making and management of the Treasury, while the bureaus' duties are to take care of specific operations. Bureaus such as the Internal Revenue Service (IRS), which is responsible for tax collection, and the Bureau of Engraving and Printing (BEP), in charge of printing and minting all U.S. money, take care of the majority of the total work done by the Treasury. (For related reading, see Buy Treasuries Directly From The Fed.)
The primary tasks of the Treasury include:
The National Debt
A government creates budgets to determine how much it needs to spend to run a nation. Oftentimes, however, a government may run a budget deficit by spending more money than it receives in revenues from taxes (including customs duties and stamps). In order to finance the deficit, governments may seek to raise money by taking on debt, that is, by borrowing it from the public. The U.S. government first found itself in debt in 1790, after taking on the war debts following the Revolutionary War. Since then, the debt has been fueled by more war, economic recession and inflation. As such, the public debt is a result of accumulated budget deficits. (For more insight, read The Treasury And The Federal Reserve.)
The Role of Congress
Up until World War I, the U.S. government needed approval from Congress every time it wanted to borrow money from the public. Congress would determine the number of securities that could be issued, their maturity date and the interest they would pay. With the Second Liberty Bond Act of 1917, however, the U.S. Treasury was given a debt limit, or a ceiling of how much it could borrow from the public without seeking Congress' consent. The Treasury was also given the discretion to decide maturity dates, interest rate levels and the type of instruments that would be offered. The total amount of money that can be borrowed by the government without further authorization by Congress is known as the total public debt subject to limit. Any amount above this level has to receive additional approval from the legislative branch.
Who Owns the Debt?
The debt is sold in the form of securities to both domestic and foreign investors, as well as corporations and other governments. U.S. securities issued include Treasury bills (T-bills), notes and bonds as well as U.S. savings bonds. There are both short-term and long-term investment options, but short-term T-bills are offered regularly, as well as quarterly notes and bonds. When the debt instrument has matured, the Treasury can either pay the cash owed (including interest) or issue new securities.
Debt instruments issued by the U.S. government are considered to be the safest investments in the world because interest payments do not have to undergo yearly authorization by Congress. In fact, the money the Treasury uses to pay the interest is automatically made available by law.
The public debt is calculated on a daily basis. After receiving end-of-day reports from about 50 different sources (such as Federal Reserve Bank branches) regarding the amount of securities sold and redeemed that day, the Treasury calculates the total public debt outstanding, which is released the following morning. It represents the total marketable and non-marketable principal amount of securities outstanding (i.e. not including interest).
War Time
In times of war, a government needs more money to support the effort. To finance its needs, the U.S. government will often issue what are commonly known as war bonds. These bonds appeal to the nation's patriotism to raise money for a war effort. Following September 11, 2001, the U.S.A. Patriot Act was passed by Congress. Among other things, it authorized Federal agencies to initiate ways to combat global terrorism. To raise money for the "war on terrorism", the U.S. Treasury issued war bonds known as patriot bonds. These Series EE savings bonds hold a five-year maturity.
The U.S. Treasury has also become a key institution working with financial institutions to draft new policies aimed at battling counterfeiting and money laundering related to terrorism.
Conclusion
The public debt is a liability to the U.S. government, and the Bureau of Public Debt is responsible for the technical aspects of its financing. However, the only way to reduce debt is for the federal budget's expenditures to cease to exceed its revenues. Budget policy lies with the legislative branch of government, and thus, depending on the circumstances at the time of budget formulation, running a deficit may be the country's only choice.
For more insight, read Giants Of Finance: John Maynard Keynes.
by Reem Heakal, (Contact Author Biography)
http://www.investopedia.com/articles/04/011404.asp?partner=NTU3
by Reem Heakal (Contact Author Biography)
First established in 1789 by an act of Congress, the United States Department of the Treasury is responsible for federal finances. This department was created in order to manage the expenditures and revenues of the U.S. government, and hence the means by which the state could raise money in order to function. Here we examine the responsibilities of the Treasury and the reasons and means by which it takes on debt.
Responsibilities of the Treasury
The U.S. Treasury is divided into two divisions: the departmental offices and the operating bureaus. The departments are mainly in charge of policy making and management of the Treasury, while the bureaus' duties are to take care of specific operations. Bureaus such as the Internal Revenue Service (IRS), which is responsible for tax collection, and the Bureau of Engraving and Printing (BEP), in charge of printing and minting all U.S. money, take care of the majority of the total work done by the Treasury. (For related reading, see Buy Treasuries Directly From The Fed.)
The primary tasks of the Treasury include:
- The collection of taxes and custom duties
- The payment of all bills owed by the federal government
- The printing and minting of U.S. notes and U.S. coinage and stamps
- The supervision of state banks
- The enforcement of government laws including taxation policies
- Advising the government on both national and international economic, financial, monetary, trade and tax legislation
- The investigation and federal prosecution of tax evaders, counterfeiters and/or forgers
- The management of federal accounts and the national public debt
The National Debt
A government creates budgets to determine how much it needs to spend to run a nation. Oftentimes, however, a government may run a budget deficit by spending more money than it receives in revenues from taxes (including customs duties and stamps). In order to finance the deficit, governments may seek to raise money by taking on debt, that is, by borrowing it from the public. The U.S. government first found itself in debt in 1790, after taking on the war debts following the Revolutionary War. Since then, the debt has been fueled by more war, economic recession and inflation. As such, the public debt is a result of accumulated budget deficits. (For more insight, read The Treasury And The Federal Reserve.)
The Role of Congress
Up until World War I, the U.S. government needed approval from Congress every time it wanted to borrow money from the public. Congress would determine the number of securities that could be issued, their maturity date and the interest they would pay. With the Second Liberty Bond Act of 1917, however, the U.S. Treasury was given a debt limit, or a ceiling of how much it could borrow from the public without seeking Congress' consent. The Treasury was also given the discretion to decide maturity dates, interest rate levels and the type of instruments that would be offered. The total amount of money that can be borrowed by the government without further authorization by Congress is known as the total public debt subject to limit. Any amount above this level has to receive additional approval from the legislative branch.
Who Owns the Debt?
The debt is sold in the form of securities to both domestic and foreign investors, as well as corporations and other governments. U.S. securities issued include Treasury bills (T-bills), notes and bonds as well as U.S. savings bonds. There are both short-term and long-term investment options, but short-term T-bills are offered regularly, as well as quarterly notes and bonds. When the debt instrument has matured, the Treasury can either pay the cash owed (including interest) or issue new securities.
Debt instruments issued by the U.S. government are considered to be the safest investments in the world because interest payments do not have to undergo yearly authorization by Congress. In fact, the money the Treasury uses to pay the interest is automatically made available by law.
The public debt is calculated on a daily basis. After receiving end-of-day reports from about 50 different sources (such as Federal Reserve Bank branches) regarding the amount of securities sold and redeemed that day, the Treasury calculates the total public debt outstanding, which is released the following morning. It represents the total marketable and non-marketable principal amount of securities outstanding (i.e. not including interest).
War Time
In times of war, a government needs more money to support the effort. To finance its needs, the U.S. government will often issue what are commonly known as war bonds. These bonds appeal to the nation's patriotism to raise money for a war effort. Following September 11, 2001, the U.S.A. Patriot Act was passed by Congress. Among other things, it authorized Federal agencies to initiate ways to combat global terrorism. To raise money for the "war on terrorism", the U.S. Treasury issued war bonds known as patriot bonds. These Series EE savings bonds hold a five-year maturity.
The U.S. Treasury has also become a key institution working with financial institutions to draft new policies aimed at battling counterfeiting and money laundering related to terrorism.
Conclusion
The public debt is a liability to the U.S. government, and the Bureau of Public Debt is responsible for the technical aspects of its financing. However, the only way to reduce debt is for the federal budget's expenditures to cease to exceed its revenues. Budget policy lies with the legislative branch of government, and thus, depending on the circumstances at the time of budget formulation, running a deficit may be the country's only choice.
For more insight, read Giants Of Finance: John Maynard Keynes.
by Reem Heakal, (Contact Author Biography)
http://www.investopedia.com/articles/04/011404.asp?partner=NTU3
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