At Wednesday's meeting of the Federal Reserve Board, Chairman Alan Greenspan painted a reasonably optimistic picture on the economic performance for the rest of 2005.
The Fed is predicting growth to be a healthy 3.5% and inflation to be at an annualized rate of 2.9%. Both indices are comforting and the markets liked them.
He then turned to the question of interest rates.
We have a most unusual (but not unique) situation at present in that while overnight rates continue to gradually increase (and Chairman Greenspan reiterated his intention of persuing a 'measured' policy of gentle hikes) long term rates are moving steadily downwards. Mortgage rates, for example, are at very low levels fuelling the now famous (or infamous) boom in the housing market.
Greenspan admitted that, at present, he couldn't fully explain the phemoninon of increasing short term and decreasing long term rates but did say that the last time it happened many years ago it signalled a gradual softening of economic activity.
If this is the case it should mean that a shift away from equities and into the bond market by institutional investors is on the cards.
I wonder if those of us who invest in income producing vehicles should therefore increase our bond holdings at the expense of equities (even dividend paying ones) inorder to maintain the current level of income being produced by our investments?
Your views on this would be greatly appreciated.
A Cause for Concern?
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Philadelphia Eagle
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- Joined: Wed Mar 30, 2005 8:50 am
A Cause for Concern?
America the Beautiful :-6
website - home.comcast.net/~nmusgrave/
website - home.comcast.net/~nmusgrave/
A Cause for Concern?
Well, good luck, Eagle. So you Americans have yet to experience the phenomena of hyper-inflation in house prices, where you could buy a house then sell it the next day for a nice little profit, then the next owner could do the same, etc etc?!
A Cause for Concern?
I gather Greenspan is retiring soon. Was at a talk by an American fund manager the other day (by that I mean he was an american rather than he just managed an american fund) Felt quite sorry for him as he started out trying to hype us all up in a manner that probably works on an american audience but not on 50 or so dour scots first thing in the morning-more of a cut the crap and get on with it response. he adapted well however despite looking baffled for a few minutes. Interesting perspective, very american centric, was advocating the same thing- a shift away from equities in to bonds and property. I say interestring in that most UK balanced funds tend to have a large % in equities, bonds and property are not where you would put money for long term growth except as a small part of a portfolio or if someone was risk averse. Wouldn't put too much in the US either EU or perhaps the far east as a punt. There are several UK investment houses with long hostories out there that tend to outperform their peers. (The original Taipan was scots after all)
john8pies
Well, good luck, Eagle. So you Americans have yet to experience the phenomena of hyper-inflation in house prices, where you could buy a house then sell it the next day for a nice little profit, then the next owner could do the same, etc etc?!
Didn't you just hate all those interest rate hikes just because all those idiots in the south east pay ridiculous amounts for property? What do you think of the latest wheeze? first time buyers can't afford to buy property so let's not let the market follow the natural course and house prices start to fall let's help them pay the overinflated prices. It's like Bill and Ben the flowerpot men have taken over the garden.
john8pies
Well, good luck, Eagle. So you Americans have yet to experience the phenomena of hyper-inflation in house prices, where you could buy a house then sell it the next day for a nice little profit, then the next owner could do the same, etc etc?!
Didn't you just hate all those interest rate hikes just because all those idiots in the south east pay ridiculous amounts for property? What do you think of the latest wheeze? first time buyers can't afford to buy property so let's not let the market follow the natural course and house prices start to fall let's help them pay the overinflated prices. It's like Bill and Ben the flowerpot men have taken over the garden.
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Philadelphia Eagle
- Posts: 505
- Joined: Wed Mar 30, 2005 8:50 am
A Cause for Concern?
gmc wrote: I gather Greenspan is retiring soon. Was at a talk by an American fund manager the other day (by that I mean he was an american rather than he just managed an american fund) Felt quite sorry for him as he started out trying to hype us all up in a manner that probably works on an american audience but not on 50 or so dour scots first thing in the morning-more of a cut the crap and get on with it response. he adapted well however despite looking baffled for a few minutes. Interesting perspective, very american centric, was advocating the same thing- a shift away from equities in to bonds and property. I say interestring in that most UK balanced funds tend to have a large % in equities, bonds and property are not where you would put money for long term growth except as a small part of a portfolio or if someone was risk averse. Wouldn't put too much in the US either EU or perhaps the far east as a punt. There are several UK investment houses with long hostories out there that tend to outperform their peers. (The original Taipan was scots after all)
john8pies
Didn't you just hate all those interest rate hikes just because all those idiots in the south east pay ridiculous amounts for property? What do you think of the latest wheeze? first time buyers can't afford to buy property so let's not let the market follow the natural course and house prices start to fall let's help them pay the overinflated prices. It's like Bill and Ben the flowerpot men have taken over the garden.
Yes, Alan Greenspan is to retire soon and the President and his advisers are currently
indentifying possible replacements.
Interesting that the fund manager you spoke with was advocating a shift out of equities and into bonds/property. If his audience was mainly retired or soon-to-be-retired people with, presumably, shorter time horizons than the average person then that would make a lot of sense.
I am retired and, upon retirement a few years ago, did the traditional thing of switching gradually from a equity dominated portfolio to a more conservative one of bonds and some property.
It now comprises mainly of balanced index bond funds and GNMAs - the mortgage backed securities fund. I've never lost the desire to 'chase yields', however and, consequently, have a few 'high-yield' (or junk bond) funds thrown in there!
It's interesting to note that, on a YTD basis, my high yield funds are out-performing the others by quite a margin!
I've long since given up trying to 'second guess' the market and simply try to chart a reasonably sensible path given the prevailing and forecast circumstances.
I used to invest a little in the UK but following a bad experience with a 'zero' company which went to the wall I withdrew with unseemly haste!
I have also been aware of the excessive price bubble in some parts of the UK property market.
The same thing won't happen in the United States for a number of reasons - our property market is much more widely spread than in UK and we don't have similar pressures on isolated and overcrowded areas (southern England) with resultant upward pressure on prices.
Also our long-term interest rates have been and remain lower than UK levels.
john8pies
Didn't you just hate all those interest rate hikes just because all those idiots in the south east pay ridiculous amounts for property? What do you think of the latest wheeze? first time buyers can't afford to buy property so let's not let the market follow the natural course and house prices start to fall let's help them pay the overinflated prices. It's like Bill and Ben the flowerpot men have taken over the garden.
Yes, Alan Greenspan is to retire soon and the President and his advisers are currently
indentifying possible replacements.
Interesting that the fund manager you spoke with was advocating a shift out of equities and into bonds/property. If his audience was mainly retired or soon-to-be-retired people with, presumably, shorter time horizons than the average person then that would make a lot of sense.
I am retired and, upon retirement a few years ago, did the traditional thing of switching gradually from a equity dominated portfolio to a more conservative one of bonds and some property.
It now comprises mainly of balanced index bond funds and GNMAs - the mortgage backed securities fund. I've never lost the desire to 'chase yields', however and, consequently, have a few 'high-yield' (or junk bond) funds thrown in there!
It's interesting to note that, on a YTD basis, my high yield funds are out-performing the others by quite a margin!
I've long since given up trying to 'second guess' the market and simply try to chart a reasonably sensible path given the prevailing and forecast circumstances.
I used to invest a little in the UK but following a bad experience with a 'zero' company which went to the wall I withdrew with unseemly haste!
I have also been aware of the excessive price bubble in some parts of the UK property market.
The same thing won't happen in the United States for a number of reasons - our property market is much more widely spread than in UK and we don't have similar pressures on isolated and overcrowded areas (southern England) with resultant upward pressure on prices.
Also our long-term interest rates have been and remain lower than UK levels.
America the Beautiful :-6
website - home.comcast.net/~nmusgrave/
website - home.comcast.net/~nmusgrave/
A Cause for Concern?
posted by philadelphia eagle
Interesting that the fund manager you spoke with was advocating a shift out of equities and into bonds/property. If his audience was mainly retired or soon-to-be-retired people with, presumably, shorter time horizons than the average person then that would make a lot of sense.
I am retired and, upon retirement a few years ago, did the traditional thing of switching gradually from a equity dominated portfolio to a more conservative one of bonds and some property.
They weren't, his comment was a general one criticising the typical UK balanced managed fund which usually has a higher proprtion in equities than it's US counterpart. If you are going for a higher risk higher reward fund that's what you want, you're not likely to think much of a fund manager that goes for a safe option when you are paying him or her to manage aggressively. It was more the concept he seemed to disagree with.
The more you listen to these guys the more you realise that skepticism is the best approach.
In the old days priests used to cut open animals and look at the entrails pretending they can see the future. Nowadays economists and fund analysts do the same with spreadsheets and models. moving stones in the sand and kidding on they can see a pattern. theres more to business than just numbers.
Interesting that the fund manager you spoke with was advocating a shift out of equities and into bonds/property. If his audience was mainly retired or soon-to-be-retired people with, presumably, shorter time horizons than the average person then that would make a lot of sense.
I am retired and, upon retirement a few years ago, did the traditional thing of switching gradually from a equity dominated portfolio to a more conservative one of bonds and some property.
They weren't, his comment was a general one criticising the typical UK balanced managed fund which usually has a higher proprtion in equities than it's US counterpart. If you are going for a higher risk higher reward fund that's what you want, you're not likely to think much of a fund manager that goes for a safe option when you are paying him or her to manage aggressively. It was more the concept he seemed to disagree with.
The more you listen to these guys the more you realise that skepticism is the best approach.
In the old days priests used to cut open animals and look at the entrails pretending they can see the future. Nowadays economists and fund analysts do the same with spreadsheets and models. moving stones in the sand and kidding on they can see a pattern. theres more to business than just numbers.
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Philadelphia Eagle
- Posts: 505
- Joined: Wed Mar 30, 2005 8:50 am
A Cause for Concern?
gmc wrote: posted by philadelphia eagle
They weren't, his comment was a general one criticising the typical UK balanced managed fund which usually has a higher proprtion in equities than it's US counterpart. If you are going for a higher risk higher reward fund that's what you want, you're not likely to think much of a fund manager that goes for a safe option when you are paying him or her to manage aggressively. It was more the concept he seemed to disagree with.
The more you listen to these guys the more you realise that skepticism is the best approach.
In the old days priests used to cut open animals and look at the entrails pretending they can see the future. Nowadays economists and fund analysts do the same with spreadsheets and models. moving stones in the sand and kidding on they can see a pattern. theres more to business than just numbers.
Totally agree with you on fund managers.
I don't use them, preferring to sink or swim by my own actions.
I always go for 'no load' funds especially if they have a good expense ratio in addition to a decent track record on performance.
A typical competitive ER here is around .22%
How does that compare with UK?
They weren't, his comment was a general one criticising the typical UK balanced managed fund which usually has a higher proprtion in equities than it's US counterpart. If you are going for a higher risk higher reward fund that's what you want, you're not likely to think much of a fund manager that goes for a safe option when you are paying him or her to manage aggressively. It was more the concept he seemed to disagree with.
The more you listen to these guys the more you realise that skepticism is the best approach.
In the old days priests used to cut open animals and look at the entrails pretending they can see the future. Nowadays economists and fund analysts do the same with spreadsheets and models. moving stones in the sand and kidding on they can see a pattern. theres more to business than just numbers.
Totally agree with you on fund managers.
I don't use them, preferring to sink or swim by my own actions.
I always go for 'no load' funds especially if they have a good expense ratio in addition to a decent track record on performance.
A typical competitive ER here is around .22%
How does that compare with UK?
America the Beautiful :-6
website - home.comcast.net/~nmusgrave/
website - home.comcast.net/~nmusgrave/