Say A Little Prayer

Monthly Investment Outlook from Bill Gross

I’m not what you would call a “prayerful” type of guy. Even at 30,000 feet, when the air gets rough, I never invoke the “God” word, settling instead for promising myself that if I ever get back to terra firma, I will never fly again, which I promptly forget days or even hours later. It’s not that I’m a non-believer in prayer’s ultimate destination, but more of a cynical take on why the Lord would hand out party favors to everyone that asked, or to those that asked most intently.

Funny, too I think, about how I learned two different versions of the Lord’s Prayer: one – the Protestant litany – spoke to “forgiving our debts as we forgive our debtors”; the other – maybe a more traditional Catholic influenced version – substituted “forgive our trespasses as we forgive those who trespass against us.” The differences never much bothered me as I prayed less and sinned more into my teenage years, but later I got to thinking about it as I entered the bond market and began to contemplate the odds of paying and being paid, or trespassing and being trespassed against with other people’s money. Given a chance, I thought I would infinitely prefer forgiving a trespasser as opposed to a debtor. Continue reading

The FDIC’s Plan to Raid Bank Accounts During the Next Crisis

The financial system is predominantly comprised of digital money. Actual physical Dollars bills and coins only amount to $1.36 trillion. This is only a little over 10% of the $10 trillion sitting in bank accounts. And it’s a tiny fraction of the $20 trillion in stocks, $38 trillion in bonds and $58 trillion in credit instruments floating around the system.

Suffice to say, if a significant percentage of people ever actually moved their money into physical cash, it could very quickly become a systemic problem.

Indeed, this is precisely what caused the 2008 meltdown, when nearly 24% of the assets in Money Market funds were liquidated in the course of four weeks. The ensuing liquidity crush nearly imploded the system. Continue reading

Bank for International Settlements warns low interest rate policies may generate next global financial crisis

The international body representing central banks is warning its members that record low interest rates are generating conditions for another global financial crisis that may be worse than the first.

In its annual report, the Swiss-based Bank for International Settlements (BIS) expressed serious concern that global share markets had reached new highs and the interest rate premium for many risky loans had fallen.

“Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally,” the bank wrote. Continue reading

First a default, then a depression? Some think so

It wouldn’t only cause a depression or another Great Depression, but the Greatest Depression.

Thursday brought a change to that trend, though, as investors heeded a dire message from President Barack Obama, who intimated in a CNBC interview Wednesday that Wall Street was taking the crisis too lightly.

Consequently, stocks sold off sharply and the Treasury Department warned of the dire consequences that might result from a full-blown debt default.

Picking up on that message, Bove said the situation could be more dramatic: A Depression that would cause severe and lasting economic damage.

“The devastation to the United States would be so severe that it would take decades to recover from the Depression caused by a default and the attendant dumping of trillions of dollars of U.S. Treasury securities on the global financial markets,” said Bove, vice president of equity research at Rafferty Capital Markets. Continue reading