bonds | wealthymatters

Bill Gross and Frogs

August 20, 2011 4 Comments

wealthymatters.com Using the metaphor of frogs Bill Gross explains Financial Repression and the ways of dealing with it.Of course he speaks of the situation in the US but there is no reason why investors in other countries whose governments are struggling with debt can’t learn from him.All said and done not for nothing he is the Bond King!

To quote him “Put a frog in a kettle of boiling water and he’ll jump out faster and further than any of those blue ribbon winners at the Calaveras County jumping frog contest.Put him in a pot at room temperature, however, slowly turn up the temperature to boiling, and you’ll have frog legs for dinner. This latter, more unfortunate toad temporarily adapted to his external environment, which seemed like a practical thing to do, until – well, until he reached 212 degrees at which point he was cooked.”Financial repression is similar to slowly turning up the heat on poor froggy/the bond holder/saver. And the boiling point is when the nominal returns on bonds turns negative. Read more of this post

Filed under Paper Assets, Theory Tagged with Bill Gross Frog Story, bonds, cheap bonds, debt, Financial Repression, nominal return, postaday2011, RandomBlog2011, savers, transfer of wealth

The Money Masters

July 27, 2011 2 Comments

I had trouble sleeping last night and so watched ‘The Money Masters’ on the internet.I found this documentary pretty biased.But that’s not to say that the narrator didn’t make some good points.

The Ascent of Money

June 19, 2011 1 Comment

wealthymatters.com The Ascent of Money by Niall Ferguson is a fantastic book.I was drawn to read it after watching the TV series based on the book and I have no regrets.It’s time and money well spent.

The book describes how banks, joint stock stock companies, bond markets, insurance companies, etc. originated at different places, at different points in time, in response to specific needs .While I was reading the book I had many aha moments and I heartily recommend the book to anyone who wishes to understand our modern financial world better.

Prof.Ferguson also tells the fascinating stories of how time and again with every financial innovation there have been abuses and excesses.These stories are great to remind us that neither good nor bad times last forever,that frauds and scams are par for the course and that no financial crisis is the end of the world though it might end the world as we know it. Read more of this post

Filed under Theory Tagged with banks, bond markets, bonds, book, book review, finance book, financial crisis, financial history, frauds, insurance companies, joint stock companies, Niall Ferguson, postaday2011, RandomBlog2011, scams, stock markets, stocks, The Ascent of Money A Financial History Of The World, video

Smart Things To Do When The Yield Curve is Inverted

April 10, 2011 3 Comments

1. Banks normally come up with special term deposits with high interest rates.Now is a great time to book some fixed deposits.

2.Newly issued bonds tend to have higher coupon rates or deeper discounts.Now might be a good time to add some to your portfolio.

3.Older long term bonds you might have been coveting for a while might be available cheaper or at deeper discounts now.Maybe you should buy some now.

4.Stock markets might not be so buoyant now so investing short-term funds in bank term deposits which are offering equity like returns is a good idea.

5.Good stocks that you plan on holding for the long-term might be available cheaper.Why not buy them now?

6.Tax-saving FDs are likely to be very good options now.Do the math to check your pre-tax returns to see just how good they are. Read more of this post

Filed under Paper Assets, Theory Tagged with banks, bonds, Bulk Investments, bullion market, coupon rates, deep discount bonds, FDs, Fixed Deposits, Fixed Maturity Plans, FMPs, foreign currency denominated assets, foreign exchange, inverted yield curve, last quarter, long term bonds, MFs, Mutual Funds, NAVs, negative yield curve, Net Asset Values, postaday2011, pre-tax returns, RandomBlog2011, RD, RD Account, Recurring Deposit, retirement accounts, savings plan, SIPs, special term deposit rates high interest rates, special term depositshigh interest rates, stock markets, stocks, Systematic Investment Plans, tax-efficient, tax-saving FDs, tax-saving fixed deposits, trading opportunities, Uncertainity

Laddering

April 10, 2011 4 Comments

Normally,for fixed income instruments , the interest rates corresponding to longer terms are higher than those for shorter terms.However,locking in money for longer periods is not always an option.One way of ensuring a greater degree of liquidity while taking advantage of the higher rates offered for the longer tenures is laddering.

If you want to create a 5 year ladder you could buy a 1year, 2year, 3year,4year and 5year instrument .Then after the first year,renew the matured 1 year instrument for a term of 5 years.Then the following year do the same with the matured 2year instrument.Continue the process.

Laddering ensures that at least some of the higher interest rates are locked in and that the average rate is higher than the rates at the lowest point in the interest rate cycle.

If you are drawing an income from your fixed income instruments say to pay or part pay you a pension,your EMIs,a tution fee or get some passive income,laddering smoothes out the variations.

Laddering is possible with bonds,NCDs,FDs,CDs etc.