Berkeley CSUA MOTD:Entry 21889
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2025/07/09 [General] UID:1000 Activity:popular
7/9     

2001/7/20 [Finance/Banking, Finance/Investment] UID:21889 Activity:nil
7/20    Recent headline O'Neill Predicts Strong U.S. Surpluses
          The article put such a good spin on the notion or paying down the
        debt.
          Well there is a huge huge huge huge devastatingly huge potential
        problem which has been written about in the heavy econ papers
          Our entire economy is based what is called the "riskless asset."
        All prices of investments, be it stock, bonds, capital spending,
        buying houses etc. all rely on what is called the CAP-M ( capital
        asset pricing model ). This states basically that the more risk
        an asset has the high its expected rate of return must be. The
        expected return in the "interest rate." The problem arises in
        that the CAP-M ( my nomencalture - standard is CAPM no "dash")
        uses as a requirement in its calculation the rate of return of
        the riskless asset. The foundation which people previously used
        in this model was the 30yr US Bond.
          So where is problem? The government started buying back 30yr
        bonds thus reducing demand and causing a demand shock which
        altered the normal curve and skewing its price. Everyone realized
        this and quickly renormalized all asset prices to the 10yr bond
        as it was still in high supply. However as the govenment
        continues to run high surpluses the demand will continue to
        shrink for the 10yr and it will no longer be effective as a basis
        for the pricing assets.
          Repurcussions to this are obvious. Without a standard government
        based riskless asset pricing, financial institutions will no
        longer be able to commonly price assets. This will cause an
        increase in the volatility of equities.
          Solutions- Right now that is of a big debate in the economic
        field- right now the biggest option looks like fannie ma. Ya
        those are the guys who own all the home loans. That is turning
        into the biggest source of bonds and thus providing a basis for
        stable pricing- Whenever you have bigger supply- the stability of
        a price goes up. That is why when the government had 3Trillion in
        bonds out the prices were fairly stable. Only recently has
        volatility started to be seen. But the problem with using home
        loans is obvious as well- equity bubble.
          Net result. The Government is going to NEED to step up spending
        to maintain a budget deficit. Maybe not now but the seeds are
        being planted.  Look at the signs, Cal government going into debt
        over energy.  This is chump change but just a sign that
        governments are taking up the slack of the consumer.
          Required Actions: Align yourself with an industry which will
        benefit from governemt spending. Boeing, LM, EDS, Dyncorp, HAL.
          Look for massive US bases setup in foreign countries. Look for
        massive emigration to foreign bases. Look for a reimergance of
        colonialism. The plans are in the works - and coming this fall I
        am hoping I can get involved with them - as I am starting to
        believe this is coming sooner rather than later.
          Just commentary and by no means correct- and may not even reflect
        my true views
        \_ Hi kinney!
2025/07/09 [General] UID:1000 Activity:popular
7/9     

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