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My take on the article is that the entire 'yield enhancement', which is
bigger than the stock market and possibly more important to the health
of the economy, is currently frozen. There are hundreds of people
working at banks (commercial and investment) whose daily job is to
recommend to institutions (pension funds, university endowments) to buy
agencies bonds instead of Treasuries, to buy GNMAs instead of
Treasuries, to buy CMOs instead of GNMAs, to buy Danish mortgage bonds
or Pfandbriefe instead of CMOs, etc. At the moment, these people are
doing no business, because the institutions are willing to trade off
risk for enhanced yield.
An unstated reason for this may be that many of these institutions had a
prudent amount invested in stocks, Asian and Russian bonds, hedge
funds...and has had their fill of risk, thank you very much, and need to
digest these losses before returning to the markets normally.
In the meantime, 'riskier' borrowers may have trouble financing their
business. The Fed will be sensitive to this and keep money loose. This
will be a boon to the stock market. Therefore Kramer is bullish about
stocks while VERY nervous about bond markets, where this narrower flight
to quality will hurt most markets apart from Treasuries.
Just my reading
Dan Goncharoff
Frankfurt
petena9090@xxxxxxxxxxxxxx wrote:
>
> There has not been a lot of comment on the content of Cramer's article... Would someone please take
> it seriously at all and explain what is going to happen next and what we
> should
> do about it?
>
> I for one agree with Cramer except that 1) he may be exaggerating the bond
> liquidity situation and 2) he has little to say about what we can do about
> it ( how
> can we profit from the information).
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