patrick.net

Common sense says buy precious metals. RE locally has inflated quite a bit in the last 9 months so I'm cautious on that front. I'm still 42% cash & 58% in mREITs and stocks in my IRA. Looking to buy some stocks on a pullback. :)

AIJ and E-man,

Apart from the on-going open-ended QE, the other factor to consider is geopolitical conflict.

Consider:
http://azizonomics.com/2012/09/17/dagan-vs-netanyahu/

Jim Rickards is also of the view that if Obama moves up in % points towards re-election, Israel will attack Iran (he's put a timeframe of late October).

I think if that happens, oil will soar to $200 and gold to $2000 within a day.

Hedging with gold make perfect sense to me (~10 to 20%). Silver a bit too volatile for my liking.

Apart from that -- I expect stocks to do fine over medium term primarily because bond yields are horribly low.

How would you play the Fed buying MBS? are there any specific ETFs one can invest in to take advantage of that specifically? such as VMBS?

I'm clueless on how to play the Fed buying MBS. @SFace should know this. All I can say is mREITs have been going up. :)

If you believe in the Elliott wave theory, we are in the 5th wave top. That means expect the market to correct hard after this up wave. Historically speaking, the market does very well between July to November when an incumbent president is up for a re-election. So we may have some more room to run here, but don't expect a Christmas rally this year. That's my educated guess based on history.

Thanks for the comments so far!

I don't place much in most of these Yahoo articles, so take this one with a grain of salt...
http://finance.yahoo.com/blogs/breakout/post-qe3-sector-strategy-separating-haves-nots-131759056.html

I've been 90% in bonds and dividend-yielding stuff for months now, and don't see any reason to change that strategy. NCO, NUC, STWD. Keep a 10% cash reserve for sniping and options trading.

Have a large holding of AAPL, that's 1 of my 2 tech holdings.

Have 100 shares of TiVo, that's my crazy "well it ought to pan out SOMEDAY" position.

all,

How does one invest in corporate bonds?

Here's a tweet from an FT Alphaville reporter.

SocGen: Beware credit Japanification: "The unlikely triumvirate of low growth, low rates, low yields hs become corporate bond mkt's friend"

usn said: How does one invest in corporate bonds?
Where indeed...
Due to a sharp increase in cash flow into Vanguard High-Yield Corporate Fund—more than $2 billion in the last six months alone—we've closed the fund to most new investors.

uomo_senza_nome says

How does one invest in corporate bonds?

Schwab.com has a nice menu of corporate bonds. You just pick and pay and they're yours.

Of course "Uncle Chuck" will take his cut, but I've bought bonds there and it all worked OK. Other online brokers have similar things.

E-man says

I'm clueless on how to play the Fed buying MBS.

In theory, that's easy: short US Treasury bonds.

In practice, it's hard to short Treasuries. Maybe you have to use the futures market, which is arcane, at least to me. Or maybe you can buy puts on them on the CBOE, but I haven't figured that one out either.

EBGuy -

LOL -- so all that yield is chased away there too then.

Patrick -

Thanks will check it out.

In theory, that's easy: short US Treasury bonds.

I don't know if it's that straightforward though. Why do you think US T-bonds will go toast?

Japan 10-year yields are so low, US T-yields can go low further. The economy is much more non-linear than we think.

uomo_senza_nome says

Why do you think US T-bonds will go toast?

It's a bet that interest rates will shoot up at some point. As rates go up, bonds go down. That's just a mathematical relationship, nothing to do with psychology or politics. If someone owns a 10-year bond paying 1.78% but new 10-year bonds come out paying 3%, then the price of the old bond has to fall to make its own yield equivalent to 3%, or no one will buy it.

So if you are short treasuries and interest rates go up, the bond prices will fall, and you win.

If rates go down yet more, then you lose that bet. How much you lose depends on how exactly you bet against bonds. If you're short (having borrowed the bond) then you have to pay it back when it's more expensive, and it could be a lot more expensive in theory. But if you buy a put option on the bond, all you lose is the premium on that option.

So it's all a bet on interest rates.

It's a bet that interest rates will shoot up at some point.

What if they never shoot up?

I recommend you consider reading the below links.

There is no business like Bond business, still .

Front-running Fed buys .

If I were a large buyer (say like a primary dealer or some institution), then why can't I frontrun the Fed?

What this means is that there is risk-free profit to be made in the bond market as long as the Fed is there as the bidder with infinite capacity. The Fed can whip all the shorts out of the market with a single keystroke.

I think bond prices can continue to go up much longer than you think. You don't bet against the House. The House always wins.

E-man says

Common sense says buy precious metals. RE locally has inflated quite a bit in the last 9 months so I'm cautious on that front. I'm still 42% cash & 58% in mREITs and stocks in my IRA. Looking to buy some stocks on a pullback. :)

Learn from your victory. Prosper from your failure.

common sense? precious metals?
http://www.myfoxny.com/story/19578206/fake-gold-bars-turn-up-in-manhattan

coriacci1 says

common sense? precious metals?

If you are wealthy enough to buy 100 oz gold bars, then I'm sure you are prudent enough to check what you have is not fake. There are electronic testers out there.

But for the most part, people of lesser net worth will end up buying 1 oz. coins, where forgery is very less likely (not worth the cost).

How are you investing since Bernanke has set QE3 in motion?

I haven't bought or sold anything since the QE3 announcement was made.

usn said: I think bond prices can continue to go up much longer than you think.
Inconceivable!

This link may be of some relevance.

http://www.etftrends.com/2012/09/mortgage-backed-securities-etfs-and-qe3/

uomo_senza_nome says

What if they never shoot up?

I recommend you consider reading the below links.

There is no business like Bond business, still .

Front-running Fed buys .

If I were a large buyer (say like a primary dealer or some institution), then why can't I frontrun the Fed?

Thanks, those are very good!

I can see that the Fed is a criminal racket to distribute money to certain large favored bond sellers (both Treasury bonds and mortgage-backed bonds), but I don't still don't quite get how buying bonds with newly printed cash can be deflationary.

Professor Fekete says that lowering interest rates does not necessarily help current debtors, who must keep paying at the old higher rate until they can refi.

But he doesn't clearly spell out how bond buying is deflationary. The Fed prints cash and distributes it to the favored few, but then doesn't that cash just go into the economy? If not, where does it go?

As most I could see it as a break-even thing, where you've removed $X of debt from the economy, but added $X of cash to compensate.

usn said: But for the most part, people of lesser net worth will end up buying 1 oz. coins, where forgery is very less likely (not worth the cost).
I'm sure everyone has heard of this guy already, but in case you haven't, it's hard to go wrong with gold (especially if nobody else knows about it).
A Carson City recluse whose body was found in his home at least a month after he died left only $200 in his bank account. But as Walter Samaszko Jr.’s house was being cleared for sale, officials made a surprise discovery: gold bars and coins valued at $7 million.