Fixed Income

Bailed Out Banks Are Helping to Keep Treasury Rates Low

08/03/2009 by Research Reloaded

Banks are buying Treasuries like mad it seems due to a dearth of corporate bonds and restrained growth of their loan portfolios. Sounds like a good time to issue debt if you are a top rated corporate. Also, this is a result of banks being defensive, with substantial growth in deposits net of loans since they are restraining their loan growth. But with treasury returns so low, one has to imagine that at some point banks switch to being more aggressive on the loan growth front once they have more confidence in the value of their balance sheets and deposits keep rolling in due to Americans finally saving more. All-in-all, to me this a good sign that our financial system is healing itself.

"Hyperinflation" Fund Starts Up, Can't a Computer Do This?

06/16/2009 by Research Reloaded

After their Black Swan fund gained 234% in 2008 (year of the black swan), and realizing that future years can't all be black swans, (ie. they are at the top of their game with the Black Swan strategy) management company 36 South is starting a Hyperinflation fund. Can't they just invest their black swan for a hyperinflation environment? Or is hyperinflation not technically a black swan because while it is an outlier negative potential event, it is one we can conceive of. (If I did my Taleb reading correctly, black swans are those events that are hard to conceive of beforehand, not simply rare potential events)

Thus perhaps their Black Swan fund can't invest for a potential hyperinflation scenario since they themselves have conceived of the scenario as plausible. What a dilemma, it must be complicated business investing a black swan fund... the moment you realize the event you're hedging against, you might have fallen outside of your mandate!

Would GM Bondholders Have Been Better Off Without Government "Help"?

06/02/2009 by Research Reloaded

Here's an easy to way to figure out whether GM unsecured bondholders have been fairly treated or not. Ask this simple question: Have GM unsecured bondholders been made better or worse as a result of government bail-outs and intervention? Keep in mind that without an earlier bailout, GM could have gone into bankruptcy earlier before wasting time bleeding more money, and that in such a scenario bondholders would have gone into real, normal bankrupcty procedings rather than the politically-driven "bankruptcy" circus we have recently experienced.

Please think about this question. If the answer is that GM bondholders have been made worse by the government bailing out and intervening, then you can conclude that they have been treated unfairly. If they have come out the same or better than if the government hadn't done anything, then perhaps they shouldn't be complaining. I'd love to hear a bankruptcy expert answer this question, it would cut through all the static.

Skewed Risk/Reward in US Treasuries - Continuing Opportunity

05/14/2009 by Research Reloaded

Below is a chart of US 10-year treasury yields going back to 1962. Question. Does something look wrong with this chart? Excluding recent months, Treasury yields are lower than they have ever been back to 1962, while in direct opposition to this we have a US government who loves to spend money and rack up debt, plus who historically has an affinity for moderate inflation and not so moderate dollar devaluation. 

Defending the UAW, Felix Salmon is Forced to Abandon Logic

05/07/2009 by Research Reloaded

Defender of the corrupt UAW, even after essentially admitting its corrupt ways- Felix Salmon at Reuters. I have been watching an interesting back and forth between Business Insider blogger Joe Weisenthal, and Felix Salmon from Reuters. Essentially Felix Salmon has been arguing on the UAW's side, saying that Chrysler bondholders should just "man up" and take the hit while the UAW should be allowed to jump ahead of the technically senior bondholders. A few days back Mr. Salmon said the following:

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