What if you had a bond sale and no one came?

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Saracen

Junior Member
Nov 11, 2011
14
0
0
The problem Merkel faces is that she knows what needs to be done to stabilise the situation. She does just doesn't have a clue how to get re-elected after she does it. So she probably won't do it.

The core problem with the eurozone is that it's "stability" is based on Germany's strength. If Germany is not prepared to stand behind it, then it's toast. But if Merkel does let Germany stand behind it (assuming she can get it past her own courts) then German taxpayers are going to be bailing out spend-crazy Mediterranean states for years to come, and in very large sums indeed.

So, Merkel will be a politician that will have to tell her tax-payers, and more relevantly her electorate, that there's no money in their banks, and that services have to be cut and taxes heavily increased, in order to give the money to countries that can't run their own affairs. And that is going to be an awfully popular thing to do before going into an election. It's the equivalent of blowing her own political brains out. Sheer suicide.

Will German tax-payers put up with footing the bill for this bailout? In my opinion, no, they won't. And because of that, the euro in it's current form is doomed, and that is going to create all sorts of mayhem for countries and economies all over the world if we aren't very lucky indeed.

I hope to hell the eurozone can't find a way out of this, but I can't see how it is likely, given not just the financial situation, but both the economic and political ones as well.

If anyone wants me, I'll be in the bunker, restocking the shelves with tinned food and water. ;)
 

Jhhnn

IN MEMORIAM
Nov 11, 1999
62,365
14,685
136
The problem Merkel faces is that she knows what needs to be done to stabilise the situation. She does just doesn't have a clue how to get re-elected after she does it. So she probably won't do it.

The core problem with the eurozone is that it's "stability" is based on Germany's strength. If Germany is not prepared to stand behind it, then it's toast. But if Merkel does let Germany stand behind it (assuming she can get it past her own courts) then German taxpayers are going to be bailing out spend-crazy Mediterranean states for years to come, and in very large sums indeed.

So, Merkel will be a politician that will have to tell her tax-payers, and more relevantly her electorate, that there's no money in their banks, and that services have to be cut and taxes heavily increased, in order to give the money to countries that can't run their own affairs. And that is going to be an awfully popular thing to do before going into an election. It's the equivalent of blowing her own political brains out. Sheer suicide.

Will German tax-payers put up with footing the bill for this bailout? In my opinion, no, they won't. And because of that, the euro in it's current form is doomed, and that is going to create all sorts of mayhem for countries and economies all over the world if we aren't very lucky indeed.

I hope to hell the eurozone can't find a way out of this, but I can't see how it is likely, given not just the financial situation, but both the economic and political ones as well.

If anyone wants me, I'll be in the bunker, restocking the shelves with tinned food and water. ;)

I think you're projecting a lot into that. While the creation of Eurobonds would be inflationary in the long run, maybe, the short term results would allow transition into something other than collapse of the Euro, which can't be good for Germans, either, other than the ones holding derivative positions that pay off if it does...

A great deal of German prosperity exists because of commerce within the Eurozone- they loaned the southerners the money to buy their products so they could be prosperous. No demand- no prosperity, something we're experiencing ourselves.

They'll bear part of the burden either way, so the question is whether to make that orderly & predictable, or roll the dice in a fit of pique.
 

Bitek

Lifer
Aug 2, 2001
10,676
5,239
136
"The chancellor has said the EU treaty bars the ECB from acting as a lender of last resort and printing money to buy government debt." Your obama should listen to this.

Yes, because that is working so well for the EU...

That's why they are in this stupid mess. The Euro will fall due to Ger intransigence. Our currency collapsed, but at least there was no inflation...

Why are right wingers so desperate to behave like Europeans?
 

Saracen

Junior Member
Nov 11, 2011
14
0
0
I think you're projecting a lot into that. While the creation of Eurobonds would be inflationary in the long run, maybe, the short term results would allow transition into something other than collapse of the Euro, which can't be good for Germans, either, other than the ones holding derivative positions that pay off if it does...

A great deal of German prosperity exists because of commerce within the Eurozone- they loaned the southerners the money to buy their products so they could be prosperous. No demand- no prosperity, something we're experiencing ourselves.

They'll bear part of the burden either way, so the question is whether to make that orderly & predictable, or roll the dice in a fit of pique.
True enough, but if Barroso et al get their way with eurobonds, it'll still end up with the German tax-payer footing the bill, because they'll be the ones back-stopping it and politically, it's akin to giving your bankrupt neighbour your credit card and telling him to have at it. In my view, the German tax-payers would never forgive Merkel. Which is why I say I think she knows what needs to be done, but not how to get re-elected if she does it. The tax-payer mood in Germany, and for that matter other core eurozone countries like the Netherlands, is pretty ugly right now.
 

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
Interesting comment by strategist on CNBC just now that ECB may have been selling German Bunds yesterday, in order to try and close spread between German Bunds and those of Italy, Spain, etc.

I believe there already have been two margin calls in last few weeks because spreads got to 450 bps (or something like that) previously.

Sarkozy's brother (yes, I know he is Carlyle Group) seems to be distinguishing between an immediate liquidity crisis in European banking system (they apparently rely on wholesale funding, where I think U. S. banks use more depositor bank, and U. S. money markets, who used to provide that funding, have pulled back in last months) and the sovereign debt crisis per se.

The two seem to be interrelated*, but not identical (I previously assumed they were the same, but might not be). I also assumed EFSF was same as our TARP, but those commentators seems to indicate they may be different (EFSF may be designed to fund Italy and Spain if they lose all funding elsewhere, whereas Eurobonds, etc. might eventually deal with sovereign debt crisis)



http://video.cnbc.com/gallery/?video=3000058679 (U. S. money market funds apparently provide some wholesale funding for European banks, but have pulled back)
http://video.cnbc.com/gallery/?video=3000058810 (so so clip; just points out immediate crisis is lack of wholesale funding for European banks, not soveriegn debt per se)
http://video.cnbc.com/gallery/?video=3000058830 (Euro-TARP?)
http://www.nakedcapitalism.com/2011/11/the-fed-stress-tests-while-europe-starts-to-burn.html (Credit Anstalt)

:confused:





edit: * http://www.bbc.co.uk/news/business-15851963
"To repeat: banks are encouraged by financial regulation to be big investors in government debt or bonds, so are exposed to substantial losses as and when there's a risk of the relevant governments failing to repay all they owe; in extremis, a bank's liabilities are guaranteed by the state, but that guarantee isn't terribly valuable as and when the state itself is perceived to be in danger of going bust. So with the governments of two big economies, Italy and Spain, finding it harder and more expensive to borrow, it would make sense for there to be evidence of increasing stress in the banking system. Is there evidence of such stress?"
 
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ShawnD1

Lifer
May 24, 2003
15,987
2
81
Why would you buy gold? It doesn't even pay a coupon.
Gold is traditionally a good thing to buy when there is an expectation that massive inflation is about to happen. That would be stuff like World War 1, World War 2, impending crashes (.com crash, real estate crash, all of those other crashes that happen all the time). Gold doesn't make money, but it's something to buy if you don't want your money to magically disappear to inflation.

This also explains why Ron Paul supporters like gold so much. They're absolutely convinced USA is on the brink of collapse. In that case, gold really would be a good thing to buy.
 

freegeeks

Diamond Member
May 7, 2001
5,460
1
81
I'm Belgian and we are the next target to bet against. Our govt is looking at creative ways to finance the debt at reasonable rates. Belgians hold over 600 billion euro of savings which is more then enough to repay the total debt twice. Our prime minister has asked the Belgians to privately buy bonds at reasonable interest rates (around 3-4%) so they don't have to go to the international markets and be a$$raped (10 year Belgian bonds closed at 5,7% today). Basically our govt will try to refinance internally by tapping into the huge savings of Belgian families. Banks are only offering 2% on savings accounts so for a lot people this is a sensible investment and keep the speculators outside. Maybe our 10-20% saving rates will save us...
 

ShawnD1

Lifer
May 24, 2003
15,987
2
81
I'm Belgian and we are the next target to bet against. Our govt is looking at creative ways to finance the debt at reasonable rates. Belgians hold over 600 billion euro of savings which is more then enough to repay the total debt twice. Our prime minister has asked the Belgians to privately buy bonds at reasonable interest rates (around 3-4%) so they don't have to go to the international markets and be a$$raped (10 year Belgian bonds closed at 5,7% today).
The problem is that buying bonds is still stupid. The only reason to have bonds is for a reliable income after retirement. If you want to make money, you buy stock. 4% return sucks.

I always wonder who keeps buying bonds at such terrible rates like 2% or less. The inflation rate by itself is around that much so basically you're lending money for free. It makes no sense at all.
 

freegeeks

Diamond Member
May 7, 2001
5,460
1
81
The problem is that buying bonds is still stupid. The only reason to have bonds is for a reliable income after retirement. If you want to make money, you buy stock. 4% return sucks.

I always wonder who keeps buying bonds at such terrible rates like 2% or less. The inflation rate by itself is around that much so basically you're lending money for free. It makes no sense at all.

I want to see the return of stocks in the last 10 years or so
 

ShawnD1

Lifer
May 24, 2003
15,987
2
81
I want to see the return of stocks in the last 10 years or so

Toronto Dominion (TD) bank (my credit card is through them)
http://www.google.com/finance?q=NYSE:TD
Dividends every quarter in the past 10 years, no exception. Dividends are in the range of 0.8% per quarter, so 3.2% dividends every year. On top of dividends, the value of the stock also goes up. Price 10 years ago was $24. Price today is $66. That's a growth of 175% over 10 years. If I did my math right, that works out to roughly 10.6% growth per year. That's growth on top of your dividend, so your money really goes up by maybe 13% per year.

Canadian Imperial Bank of Commerce (CIBC) (my main bank)
http://www.google.com/finance?q=TSE:CM
Dividends every quarter, no exceptions, and they appear to vary quite a bit. The lowest was around 0.7% per quarter (2.8%/year) then some of the larger ones are 1.8% per quarter (7.2%/year). Stock price went from $55 to $68.62 today. That growth kinda sucks but it's balanced out by the dividends. Having the stock tank every once in a while means you can buy stocks for this company like it's a two for one sale.

Royal Bank of Canada (RBC) (parents bank)
http://www.google.com/finance?q=TSE:RY
Dividends every quarter, no exceptions. Most of them are around 0.7% per quarter (2.8%/year). Stock price went from $25 to $43.90. Whatever that works out to, it's much better than 4%.

Here's my local phone company, Telus
http://www.google.com/finance?q=TSE:T
Dividends every quarter, no exceptions. Most of the quartly dividends seem to be around 1%. Stock price rose from $26 to $53.55.


So yeah, 4% sucks.
Keep in mind buying companies is as good as buying gold. Their value is protected against inflation because the price goes up when inflation happens. If the canadian dollar was suddenly worth $0.01, then the price of Canadian stocks would go waaaaaaaay up to reflect this.
 

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
http://selectedfunds.com/downloads/SFSuccInv1210.pdf (look at first graph).

The lost decade in stocks doesn't include reinvested dividends (I think) plus basically assumes you bought at or near peak of tech bubble, and didn't dollar cost average over time (lower average cost basis).

If Euro leaders have ultimately in store what our Fed appears to be doing to us, you may or may not just keep up with inflation, over time, going forward:
"The cost would be inflation and devaluation. As in the US, inflation would fluctuate between 2-5% a year, or 30-50% every decade. As in the US over the last twelve years, it would entail the gradual impoverishment of the middle class whose wages would rise more slowly than inflation. So that governments could fund their deficits with free money, the ECB, just like the Fed, would force yields below the rate of inflation. This form of financial repression would devastate fixed-income investors, pension funds, and savers. By taking control of the credit markets through printing money, the ECB would shield Eurozone governments from the harsh discipline that markets can impose. Unrestrained, deficits would skyrocket."

http://www.testosteronepit.com/home/2011/11/21/euro-schizophrenia-in-germany.html






That being said, buying those Belgian bonds would be patriotic and hopefully help keep contagion out of your country, but you should at least also research dollar cost averaging into some good mutual funds (e. g. disciplined and experienced contrarian growth or value / deep value style managers, who always invest across a time horizon of at least 3 - 5 years, and attempt to attract other shareholders, other than themselves, who are sophisticated enough to ignore short-term noise, and know proper time to add money, rather than take it out (i. e. don't want dumb hot money chasing a recent winning streak, bloating assets when there are not many good long-term investment opportunities, then pull their money when best opportunities are presenting themselves, and leave remaining shareholders with tax bill because of their dumb mercurial chase for performance), or just low expense ratio total market index fund (in the U. S., that is VTSMX, VTSMX, VTSMX!!! :)), particularly in a taxable account (you can even gain at least an additional decade or more of essentially tax free-compounding early in retirement by drawing down mandatory distributions from retirement accounts and just let VTSMX be growth component to outpace inflation in the interim) - http://books.google.com/books?id=ac...nepage&q=tyranny of compound interest&f=false)

Strategic asset allocation should determine most of your portfolio return, over very extended periods of time... (over extended periods of time, stocks >> bonds > cash, and something like Vanguard intermediate term bond index fund is primarily designed to dampen overall portfolio volatility (didn't happen in 2008 - hopefully an anomaly that won't repeat itself in future - because everything crashed then, or like someone said above, good bond funds are primarily designed to generate steady income stream, with decreased volatility, in retirement).
 
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The-Noid

Diamond Member
Nov 16, 2005
3,117
4
76
Interesting comment by strategist on CNBC just now that ECB may have been selling German Bunds yesterday, in order to try and close spread between German Bunds and those of Italy, Spain, etc.

I believe there already have been two margin calls in last few weeks because spreads got to 450 bps (or something like that) previously.

Sarkozy's brother (yes, I know he is Carlyle Group) seems to be distinguishing between an immediate liquidity crisis in European banking system (they apparently rely on wholesale funding, where I think U. S. banks use more depositor bank, and U. S. money markets, who used to provide that funding, have pulled back in last months) and the sovereign debt crisis per se.

The two seem to be interrelated, but not identical (I previously assumed they were the same, but might not be). I also assumed EFSF was same as our TARP, but those commentators seems to indicate they may be different (EFSF may be designed to fund Italy and Spain if they lose all funding elsewhere, whereas Eurobonds, etc. might eventually deal with sovereign debt crisis)



http://video.cnbc.com/gallery/?video=3000058679 (U. S. money market funds apparently provide some wholesale funding for European banks, but have pulled back)
http://video.cnbc.com/gallery/?video=3000058810 (so so clip; just points out immediate crisis is lack of wholesale funding for European banks, not soveriegn debt per se)
http://video.cnbc.com/gallery/?video=3000058830 (Euro-TARP?)
http://www.nakedcapitalism.com/2011/11/the-fed-stress-tests-while-europe-starts-to-burn.html (Credit Anstalt)

:confused:

Spreads for margin are over a benchmark average aaa index not over bunds. Includes Austria, France, Germany and Netherlands if memory serves me correct. Selling bunds would only partially make a change. The market punishing France over the last month had more of an effect.

Confused where cnbc gets some of these guys.
 

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
As a layman, there seemed, to me at least, to be some truth in what they were saying, but I also kind of suspected they might have an agenda of their own (talking up trades they already have in place), rather than honestly analyzing what is really occurring in the markets...

The talking head from Europe saying ECB might have been selling to decrease spreads between Bunds and other countries bonds was on CNBC this morning, I think right after European market close (I don't see video clip on their website). I think he said because they couldn't bring those yields down directly, maybe they were trying to increase German Bund yields to decrease spreads that way.
 
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freegeeks

Diamond Member
May 7, 2001
5,460
1
81
Toronto Dominion (TD) bank (my credit card is through them)
http://www.google.com/finance?q=NYSE:TD
Dividends every quarter in the past 10 years, no exception. Dividends are in the range of 0.8% per quarter, so 3.2% dividends every year. On top of dividends, the value of the stock also goes up. Price 10 years ago was $24. Price today is $66. That's a growth of 175% over 10 years. If I did my math right, that works out to roughly 10.6% growth per year. That's growth on top of your dividend, so your money really goes up by maybe 13% per year.

Canadian Imperial Bank of Commerce (CIBC) (my main bank)
http://www.google.com/finance?q=TSE:CM
Dividends every quarter, no exceptions, and they appear to vary quite a bit. The lowest was around 0.7% per quarter (2.8%/year) then some of the larger ones are 1.8% per quarter (7.2%/year). Stock price went from $55 to $68.62 today. That growth kinda sucks but it's balanced out by the dividends. Having the stock tank every once in a while means you can buy stocks for this company like it's a two for one sale.

Royal Bank of Canada (RBC) (parents bank)
http://www.google.com/finance?q=TSE:RY
Dividends every quarter, no exceptions. Most of them are around 0.7% per quarter (2.8%/year). Stock price went from $25 to $43.90. Whatever that works out to, it's much better than 4%.

Here's my local phone company, Telus
http://www.google.com/finance?q=TSE:T
Dividends every quarter, no exceptions. Most of the quartly dividends seem to be around 1%. Stock price rose from $26 to $53.55.


So yeah, 4% sucks.
Keep in mind buying companies is as good as buying gold. Their value is protected against inflation because the price goes up when inflation happens. If the canadian dollar was suddenly worth $0.01, then the price of Canadian stocks would go waaaaaaaay up to reflect this.

you are just picking some stocks that performed reasonably well. Globally, stock markets have basically sucked the last 10 years, returns are nothing to write home about
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
People are 100% incorrect to blame this on the PIIGS. The Euro was rigged so the wealthy, specifically the German and French wealthy, would be able to pump exports to S. Europe while providing trade financing, sucking interest out of the PIIGS. The union was flawed from the beginning, in that without a fiscal and political union, a currency union will fail. That's why they are pushing for greater integration. Germans are deceiving themselves by thinking they didn't benefit from the PIIGS' debt problems. Just as China's inevitably locked to the US through trade deficits, Germany and France are inevitably locked to the PIIGS through the same. International trade is a zero sum game.
 

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
Are Merkel / IMF / ECB loading the "bazooka" the market seems to be looking for? (talk of Stability Pact, $600 billion Euro IMF funding to Italy through ECB, ECB increasing buying from $10 billion to $20 billion per week (Brian Kelly comments starting around 2:50 mark http://video.cnbc.com/gallery/?video=3000058814 etc.)

Or is this just more of the same (two steps forward, one step back, etc, as John Manley described it on CNBC recently)?
 

cybrsage

Lifer
Nov 17, 2011
13,021
0
0
The problem is that buying bonds is still stupid. The only reason to have bonds is for a reliable income after retirement. If you want to make money, you buy stock. 4% return sucks.

I always wonder who keeps buying bonds at such terrible rates like 2% or less. The inflation rate by itself is around that much so basically you're lending money for free. It makes no sense at all.

Bonds are good to invest in as you get closer and closer to retirement and cannot make up the swings of stocks.
 

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
Yes, in normal times (i. e. not 2008 crash when everything went down together), stocks are supposed to zig when bonds zag.

So you can dampen overall volatility of your whole portfolio by mixing stocks and bonds, but bonds will drag down returns vs all stock portfolio (extended time periods) because stocks (say 8 - 10% average annual return) vs. bonds (say 5 - 6 % average annual return) vs cash (say 2 - 3% average annual return). I am just guesstimating those numbers for illustrative purposes, don't know how accurate and up to date they are.

And over very extended periods of times, differences in performance between asset classes will dwarf differences in individual stock or bond mutual funds performance, so strategic asset allocation can explain something like 92% of overall return, again over very extended periods of time.
 
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