Quips and Questions
Close to 70% of all federal debt matures by the first quarter of 2007....after raising rates, what will they do??? Maybe they will reissue the 30 year bond, all those deficit ridden, underfunded pension plans could sure use it
Since 2000 there is $10.40 in additional debt for business and consumers added for each dollar increase in GDP, OUCH!!!!
The percentage of unprofitable companies coming to market is increasing. Close to 40% of the companies going public last year didn’t make a profit. That is up from 2001 and 2002. This year that percentage is expected to increase. According to one investment banker, “The ducks are quacking again so we need to feed them.”
For financial markets, the zero real federal funds rate is the candy of the carry trade — allowing investors and speculators to borrow short and pocket the spread anywhere else on the yield curve. In 2005, the Fed is going to take the candy away.
The Fed will continue to raise rates until the fed funds rate reaches 3-4%. At that point spreads between 2-yr and 10-yr notes should narrow to within 20 basis points....the financial sector constitutes over 40% of the SP500....what will GM and the financial sector do without a carry trade?
In this kind of environment, what will happen to the bond market, high-yield "junk bonds" and emerging market debt, investment-grade debt, and the “refi trade” that has underpinned consumer equity extraction from increasingly overvalued homes?
Question of the day: What happens to the economy, when there is no more equity to be extracted from overvalued real estate??
Since 2000 there is $10.40 in additional debt for business and consumers added for each dollar increase in GDP, OUCH!!!!
The percentage of unprofitable companies coming to market is increasing. Close to 40% of the companies going public last year didn’t make a profit. That is up from 2001 and 2002. This year that percentage is expected to increase. According to one investment banker, “The ducks are quacking again so we need to feed them.”
For financial markets, the zero real federal funds rate is the candy of the carry trade — allowing investors and speculators to borrow short and pocket the spread anywhere else on the yield curve. In 2005, the Fed is going to take the candy away.
The Fed will continue to raise rates until the fed funds rate reaches 3-4%. At that point spreads between 2-yr and 10-yr notes should narrow to within 20 basis points....the financial sector constitutes over 40% of the SP500....what will GM and the financial sector do without a carry trade?
In this kind of environment, what will happen to the bond market, high-yield "junk bonds" and emerging market debt, investment-grade debt, and the “refi trade” that has underpinned consumer equity extraction from increasingly overvalued homes?
Question of the day: What happens to the economy, when there is no more equity to be extracted from overvalued real estate??
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