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rates may actually drop when they stop the purchasing... the fear of continued dumping of money into those bonds already forced them to go higher not lower..... thats why this thread is rediculous. you have investors of all walks of life on both sides of the fence.
we dont know which way they ultimately go as its a coin toss at best....
Either you do not understand the bond market, or you are incapable of logical thought.
Which ever it is, your statement is ludicrous.
The government then introduces austerity programs significantly raising taxes, lowering public services, and freeing up tons of money to pay interest on bonds to the uber wealthy, who sit back and make nice risk free, tax exempt profits.
Interest on federal government bonds are not tax exempt for federal income taxes. They are exempt for state income taxes, which is much lower than the federal tax rate and nonexistent in some states like TX, FL, and Alaska.
Federal government bonds are not risk free. They just are risk free from default risk, as the government could alwyas print more cash or raise taxes. Investors of federal government bonds have significant interest rate risk and inflation risk. If you hold a bond with a 5% coupon rate, but the market interest rates rise to 10%, the value of your bond erodes signficantly. If inflation rises significantly in the future, the value of those interest payments in economic value declines.
neither is investing and predicting markets...lol..
actually que2 was supposed to have the fed driving down longer term rates making them even less attractive and to get some of that money flowing into equities.
even the fed couldnt fight the pull of the worlds investors and qe2 actually had the worlds investors bidding rates up even higher then they were before as qe2 made the bond markets unsettled.
bill gross tried the opposite by dumping a ton of of treasuries as well as shorting them. this time investors pulled again in the opposite direction bring rates lower un-doing bill gross's attempt..
while bill gross certainly can have his logic play out and rates rise other big successful bond investors are taking an opposing view. they feel rates may actually fall as the uncertainty of qe2 comes to an end.
it certainly has nothing to do with rich vs poor . its all about strategy, perception and charts. anyone who thinks they can predict interest rates or only sees one outcome is foolish
Ok, I will write real slow so maybe even you can understand.
The bond market is subject to the same laws of supply and demand as any other market.
Less demand means increases in interest rates to attract buyers.
And as we all should all know, the value of bonds is directionally inverse to the direction of the interest rates.
If you buy a bond and the interest rate goes down you make money, if it goes up you loose.
The only reason rates went down after QE1 is that the Fed let it be known in no uncertain terms that they were going to continue quantitative easing. There was no doubt in the bond market that the Fed would continue to be the majority buyer of Treasuries.
What you are seeing now is a different tone from the Fed. It is clear they are facing some lose/lose scenarios by their actions.
You might want to read this to get a more focused picture Charles Plosser and the 50% Contraction | FINANCIAL SENSE
Like most jerry rig fixes, there is a limit to how much good QE can do and too much can be very detrimental. It appears we have come fairly close to that limit. As far as your articles go, if you read them yourself, you would have read how the authors were in direct disagreement with Bill Gross who has become very bearish on the bond market. Now you can side with some "wantobe" expert financial writers who have never invested money professionally in their lives if you want to, but personally, when the largest private bond investor moves his money, I am going to sit up and take notice.
My apologies, it has been a long time since I was in the lower brackets. I am sure you are much more familiar.
It has nothing to do with which bracket you're in, it has to do with the fundamentals of a tiered tax system with deductions and exemptions.
One has to be utterly naive to believe someone making 50k would just subtract 14k of their income for taxes since they fall into a 28% federal tax bracket, yet there you were lecturing with the usual haughty expertise. I believe we figured out the family of four from your example paid about $0 in federal taxes after standard deduction, exemptions, and child tax credit.
Also = if you think saying "neener I make more money you must be low income" bothers me, it doesn't. Shows an interesting side of you though.
Ok, I will write real slow so maybe even you can understand.
The bond market is subject to the same laws of supply and demand as any other market.
Less demand means increases in interest rates to attract buyers.
And as we all should all know, the value of bonds is directionally inverse to the direction of the interest rates.
If you buy a bond and the interest rate goes down you make money, if it goes up you loose.
The only reason rates went down after QE1 is that the Fed let it be known in no uncertain terms that they were going to continue quantitative easing. There was no doubt in the bond market that the Fed would continue to be the majority buyer of Treasuries.
What you are seeing now is a different tone from the Fed. It is clear they are facing some lose/lose scenarios by their actions.
You might want to read this to get a more focused picture Charles Plosser and the 50% Contraction | FINANCIAL SENSE
Like most jerry rig fixes, there is a limit to how much good QE can do and too much can be very detrimental. It appears we have come fairly close to that limit. As far as your articles go, if you read them yourself, you would have read how the authors were in direct disagreement with Bill Gross who has become very bearish on the bond market. Now you can side with some "wantobe" expert financial writers who have never invested money professionally in their lives if you want to, but personally, when the largest private bond investor moves his money, I am going to sit up and take notice.
NOW READ THIS NICE AND SLOW!
no place here did i say bill gross is wrong. i said it could play out that way or it may not . there is an argument to support for rates falling as well. i can argue either side.
.. in either case there has to always be an equal amount of buyers for those shares and sellers for those shares.. there has to always be someone on the opposite side of the trade with an opposing view or there is no trade..
what changes is the prices that are willing to be accepted or paid,.. that changes but there cant be a trade without equal amount of buyers for those shares . every single share of anything thats traded has to have a buyer and seller matched. so if all the rich people are plotting to drive rates down and then buy who is on the opposite side buying while they are selling ,the poor people?
YOUR LOGIC AMAZES ME SOMETIMES AS YOU ADD YOUR RICH PLOTTING AGAINST THE POOR SPIN .
what that translates to is ITS NOT A RICH VS POOR ISSUE. its a what is someone willing to pay and whether they believe the asset is going up or down from that point that makes them a buyer or seller but every share thats sold needs a buyer to take it....
no place did i state or predict whats next, ill leave that to you
Last edited by mathjak107; 04-21-2011 at 02:59 AM..
My apologies, it has been a long time since I was in the lower brackets. I am sure you are much more familiar.
lower brackets? 28%... ha ha ha ha .which tax chart are you on ... for a married couple 28% is $139,350 – $212,300.. if thats you jimcom i guess your the thing you mock the most, an upper income earner..
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