Tuesday, April 6, 2010

The Masters Tournament is this week.  Traditionally at we pick from the top 50 players in the world and the winner (most earnings total) has bragging rights until the next major.  Last year I won 3 out of four, I was robbed the last major because Harrington fell apart on Sunday.  I am picking him again; so we shall see how it goes.  Also I am expecting to play twice this weekend so going out at night will be a no dice this weekend. 

Torts are still freaking me out.  I feel like most arguments are policy concerns.  I am reviewing Contracts a lot as well.  This month is crunch time so this paragraph will either grow exponentially or shrink by the same degree.   

Where is all the money going?  I hear a lot of people now want to start looking at purchasing a home, especially with this market.  We all know that it cannot stay low forever.  In a little over a year the Fed has purchased 80% of the mortgage backed securities.  Because the Fed has purchased these seemingly “toxic” securities and taken them off the market the US real estate market was safe for about a minute. The truth is that the safety net that the Fed provided is now gone and those securities will make it back into the market place causing volatility and letting capitalism do its thing.  The MBS provide a yield, but they have an unwritten floor.  Besides the common factors of inflation and the like, mortgage backed securities look at the 10 yr Treasury note.  The 10 yr note is safer than the MBS because; better tax benefits, and is backed by the US gov’t as opposed to borrowers.  It will always trade lower than the MBS.  The mortgage backed securities have to pay a lot of people before providing the yield; the lender, the broker, etc…then the investor.  Ago; the US is spending so much money it has to attract foreign investors by selling these 10 yr notes at attractive interest rates, i.e. financing the country with a Chi-Ex Card.  Because these will be enticing investors the Mortgage Backed Securities have to start raising the rates to be able to compete and even be sold, which is the eventual plan of the government.  When the rates go up what’s going to happen?  The trickle will be felt everywhere.  I think that commercial real estate is barely starting to feel the pinch.  That sector will be getting a whole lot worse than better in the proximate future.  As interest rates go up and consumer spending contracts (it has expanded in the last few months) who will be looking to start a business?  Who will be able to afford to start one?  The low interest borrowing will fade into memory and the market will have to correct itself.  Inflation managed bond portfolios out performing international ones will seek equilibrium.  The see-saw of the market will come back.  That is going to be a cruel jolt back to reality.  We are going to see the classics go up: gold, oil and the “safe” investments return to normal levels: munis, corp, and gov’t bonds.  I don’t understand why many people invest as if the rally was real, but let’s be honest; the government is not going to bail out the country every time, nor should it.  Prudence is a tough lesson and we are all learning it.  Economist Gary Becker alluded to the fact that in 1950, woman and man married at ages 20.3 and 22.8; now it’s 26 and 27.7, respectively.  Judge Posner referred to the fact that 1930 - 1990 - the percentage of households consisting of a married couple declined from 84% to 56%.  Why do I mention these statistics?  The road is going to be brutal for the weary and unprepared.  People are breeding later in life because they are opting for their careers and higher earnings.  Women are making more income (less dependence on men) and the specialization of housewife does not have the same allure it once had; results, fewer children.  The problem is when we are all ready to retire there will be less healthy young people to tax.  This is where immigrants and the un-educated will fill in the gaps.  The uneducated and immigrants will take the unskilled jobs needed for society to function but at what cost?  They will need benefits and rights as well and not all of them will be earning enough to be able to tax them at a high enough rate to pay for social security and Medicare benefits.  Also immigrants tend to send earned income back to their native countries thus not participating in consumer growth or taxation of goods.  So what do we do; make babies and stay broke for the benefit of the older generations, or work hard make less babies and retire on our own dime and not uncle sam’s.  The important thing to know is that all connected and any action will cause an equal and opposite reaction, I just hope I am on the good side of that Newtonian equation.

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