« China's Leaders Suppress Bubbles While USA Encourages Bubbles | Main | USA And India: World's Top Two Gold Buyers »

Comments

JSmith

"One of my readers thought I made a mistake today..."

NO!! How dare they?! They better say they're sorry!

Cato

The "cockroach theory" is most certainly in force. We're beginning to read stories re Goldman Sachs and a Bear Stearns hedge fund chocking on mortgage, CDO and asset-backed paper. So you know there's trouble in paradise. When the light is switched on and one cockroach is seen skittering away, be assured there are others hiding in the shadows.

Bonds backing underwater commercial and residential mortgage deals are stuck everywhere imaginable. Even in places you can't imagine. They circled the globe and come back again and everybody you wants to be a player on "the street" must own more than they care to just like all the rest. Institutional players survive by by "talking it up" & "marking it up". That's how the game is played. Trouble is the market is like an old crank phonograph who's spring is shot.

Ever try to find a pure play investment in anything lately? If you have a 401K and just want to keep things simple by selecting mutual funds - for safety. Let's say you're determined that tea kettle makers are the single safest investment over the long haul. Fidelity or Alliance Funds might very well manage a tea kettle fund, but be prepared to discover in the fine print that 70% of the fund is held in mortgage backed securities.

Herein lies the big surprise for every prudent investor who thought he was diversified. And a lot of litigation.

DeVaul

Cato is right. I recently received retirement "benefits" from my job and I had to pick from an approved list of mutual funds to put the money in that the firm was paying for me as part of my benefits.

One word stuck out like a sore thumb: "financials". This is code speak for "mortgage backed securities that will soon be underwater". Almost every fund had a huge position in "financials". Even the safest fund, the supposedly all cash fund, was really nothing more than government bonds and prime rated "financials". Only about 5% was actually held in cash.

I picked the one fund that had the lowest exposure to "financials", which also happened to be the one with the highest exposure to energy, natural resources, utilities, agriculture, etc.

It is the only fund in the portfolio that went up in value in the last six months. I had put all my meager benefits into it. Everyone else in the firm was surprised that their "safe" funds had lost value.

Well, they were never safe. They had been loaded up with bad mortgages and defaulted properties under a single code word, and they had no idea what that word meant.

Elaine Meinel Supkis

Like 'Carry trade' or 'leverage'=these words are LIES. They are disguises like the bonnet the Wolf wore when it tried to fool Little Red Riding Hood.

blues

Good for you DeVaul! I almost never hear of any one missing a bullet because they made the smart play. They ALWAYS head straight for where the next bullet is destined. I think they must have some incredible psychic powers in reverse to accomplish these anti-miracles.

John

Most are here precisely to step in front of as many bullets as possible.

At least, from what I can tell...

DeVaul

A miracle is probably correct. It was just dumb luck, really. My distrust of the word "financials" was the main reason for choosing the fund that did well. I did not really know much about the other things that it invested in.

My luck may run out, though. The fund is increasing its exposure to "financials". Great!

The thing that really galls me is that my co-workers lost enough money through inattention to pay off all my personal debts AND the mortgage on my house with enough left over for me to travel around the world in first class style.

I struggle to pay off tiny debts while I watch my fellow Americans burn money in their front yard just for fun or because they do not care or just because they can. I find that very frustrating.

The comments to this entry are closed.

Blog powered by Typepad