Wednesday, November 3, 2010

Another QE Term

While there was some turnover last night in the elections, not as much as would have been needed to really scare the politicos enough. Still, one can hope a message got through to D.C: The economy stinks, the FED and the bailouts help the banks, and we are all getting pretty sick of it.

Another QE Term
Another terrible candidate won again today, Quantitative Easing. QE 2.0 as it is known now (later QE, WOW! That was a long time ago!) won another stint at the plate for the next 8 months. The FED will work hard to monetize almost all Federal debt and this is a good thing in some way. Fine, it is what it is.

Some have argued this may ignite a currency war but what do we care, we are the reserve currency and thus cannot concern ourselves with the problems (real or perceived) of others.

QE has been ineffective in much of anything useful. It has set a real bid under commodities and equities, but those are not reflected in the CPI anyway.

The yield curve will remain steep which will aid the banks in case mortgage losses and putbacks end up not being solved through legislation due to the new makeup of CONgress.

So what does this all mean?

Short Term (next 8 months or so)
-equities will rise
-commodities will rise
-gold and silver will rise
-junk yields will soar

Basically what you have seen for a while will continue on. I can see a scenario where a monster move up occurs in stocks to a blow off top, but I think it will more of the stair step 1% days as far as the eye can see kind of thing. Commodities may see a more violent surge. This is not a good thing but it may support aggregate demand if folks try to stock oil in tanks under their home. You have heard of contango, right?

What can you do? Well, savings are trash and cash is dead. It has been and I had hoped for a more sane policy and reform but then I am a fool. Some ideas:
-Past a POMO day schedule near your desk and if you can day trade move with the POMO schedule as detailed many places like Zero Hedge. One note: this has been so obvious and written about the real players may try and move this around a bit but the vicinity will remain.
-Buy broad equity indices and hold them.
-Buy junk bonds
-Buy bad muni bonds
This is almost Tepper-esque in the "can't lose" sense.

This is not advice. Here is what I aim to do.

I am going to really spend some time looking at buys that I can stomach. This will exclude broad indices and in particular anything financial, housing, or US automotive. I am looking to start trying to get some return on my money that I can play with, plus it would be more fun.

To this end I am using my own way of looking for buys and I will be buying and testing the iBankCoin PPT as another tool. I will test some ideas out on the thing and see how it fits my way of trading. I hope it proves useful.

Long Term (who cares, we are all dead right?)
This move serves as a start of a long term commitment by the FED to markets for support without end. While this did not work well for Japan, things are a bit different here. Nothing over the next year will really get much better in the real economy, but that hardly matters when banks are making serious coin, corporations can get money on the ultra cheap to buy back shares, and expansion overseas where much of the free cash will be deployed will prove a hit. So what if we have no job growth here and consumer attitudes and spending stay low. Who needs them anyways, rail traffic is through the roof!

Do not despair or take this blog the wrong way. I am interested in getting involved on a limited scale to see if some things I have been working on play out and make a few bucks off it. Am I doing what Bernanke'e FED wants me too and being a robot? To a degree perhaps, but then I know the specific plan I have in mind for gains (hopefully) I am going to make and it does not involve buying BAC secondary offerings.

Never fear, the same material will still remain on macro issues, sarcasm, endless whining, and assorted fun. Use the comments to let me know what parts of all this you find most interesting.

Have a good night.

5 comments:

Anonymous said...

POMO? What does it stand for?

GawainsGhost said...

Well, what I find most interesting is the precipitous decline of the Cowboys and Vikings. I mean, really. Have you ever seen a drop off like this?

Bad decisions in the off-season, poor coaching, sloppy practices, pitiful production on the field. Have these men no pride?

Funny thing is, you know, these ticket brokers. Guys that buy tickets in bulk early in anticipation of selling them for a profit later, during a winning season. How's that working out?

Well, in Dallas, Jerry Jones got his money, this time around. He sold tickets at face value, which is already marked up by the way. But now the brokers who bought them can't sell them. You can actually buy a ticket to a Cowboys game online for as little as $15. Now that's a haircut.

I'm not much for fans wearing bags over their heads, although there were more than a few seen on Sunday. If I had my way, I'd start a movement. John Wayne Gacey clown makeup. Can you imagine? An entire stadium full of evil clowns sitting silently, staring at the field with rape/torture/murder in their eyes.

That would scare the hell out of me. And it might force Jerry Jones into early retirement with nightmares, which would be the objective. But I couldn't participate in such an endeavor, because, well, I'm afraid of clowns. Always have been, since I was a child. Something about clowns disturbs me. I cannot be around them. It's a phobia.

Still, if you could get a movement like that going, it could be nationwide in a matter of weeks. Lots of disappointed and disgusted fans out there in just about every market. In that case, I'd be way long evil clown makeup.

Howbeit, yeah, I can see the logic in your investment strategy, GYSC. Commodities are on a tear. But I've always said real estate remains a sound investment, provided you have the capital and know what you're doing.

The people I know who made a lot of money in real estate, and I know a few, didn't do it by flipping houses--that's a small profit endeavor involving a lot of work. No, these guys, all millionaires, did it by buying acreage on the outskirts of developing cities and towns. Or by buying farm land.

It's simple, really. Just buy up land, zone it agricultural (lowest tax rate), wait for the growth and development, and when that comes sell the land for 10x what you paid for it. Moreover, in the meantime, you let the grass grow then cut and bale it for hay to sell to ranchers to feed their livestock. A couple of acres will produce several hundred bales of hay worth $5 each three or four times a year, enough to cover the taxes while waiting for appreciation. Smart. This is an investment that pays for itself, carries minimal cost (other than the capital required to purchase the land), and generates a guaranteed return. But it's a long term strategy--you have to be able to ride out the market and wait for growth and development in order to realize a profit.

Farm and ranch land is the thing to own right now. I don't see growth and development coming back in the near future, but people always have to eat. Of course, there are complications involved with farming, weather cycles and the like. And the futures markets are iffy at best. Still, a productive crop farm or livestock ranch is a money maker.

The thing that gets me is serial bubbles. First tech, then houses, now junk bonds. I'd avoid those. Sound investments with minimal leverage, safety of principal, adequacy of return, is the only way to go.

watchtower said...

Anon

I think GYSC is referring to 'Permanent Open Market Operations'.

I could be wrong though.

getyourselfconnected said...

Home late, rain storm here and the wife and I went out for dinner instead of fighting the traffic. I may have plans tomorrow night so Entertainment blog may appear on Saturday! That might get nuts.

getyourselfconnected said...

Friday plans cancelled, post up in a bit.