Saturday, June 22, 2013

Don’t buy bonds

How to protect your pension from a bond market crash

If there is a serious withdrawal of pension funds from bond purchases, then government debt financing will become disproportionately harder. IMO (...) if the state can't use interest rates as a policy tool, because the higher costs are unaffordable, then options would become to offload the increased costs of borrowing into the private sector (auto-enrollment, mandatory purchases of gilts) which is a card to some extent already played. Or simply and more directly move to direct restrictions on lending. Neither of which looks particularly good, just another step to national insolvency. This reminds me a bit of the absurdity of saving for your pension while carrying a mortgage, when the yield on your pensions savings is lower than your mortgage costs.

Posted by stillthinking @ 05:11 AM (1938 views)
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3 thoughts on “Don’t buy bonds

  • I note, today, that the Telegraph staff have caught up with the parallel from the 30’s. We are approaching (what I’ve dubbed) a 1937 moment. Any market historians amongst you will have noted the extraordinary correlation between now and 1936/7.

    Bernanke is a well renowned expert on the Great Depression. One could almost conclude that the parallels are deliberate, and that a planned policy shift will take effect at some point to overcome the mistakes made before. He has something up his sleeve, but will not be seeing it through himself. Perhaps that’s appropriate.

    For now, if the comparison holds up, expect a market crash. By my calculations, the FTSE 100 would retrace to 3500. If not, then all participants will have to familiarise themselves with a potentially profound change in direction.

    Transitional period ahead.

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  • The yield on your pension may be lower than your mortgage cost but in the distorted credit driven world we live in, mortgaging still makes sense because the value of the debt will decrease but the nominal value of your asset will increase (so long as they keep blowing those bubbles obviously). Its stupid, irrational, immoral, not to mention unjust, but it remains true.

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  • gonna be ugly.

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