ETF (Exchanged Traded Funds) versus Mutual Funds (MF)

From the outside Exchange Traded Funds (ETFs) and Mutual Funds (MFs) look like the same financial products. A closer look at each of them reveals the many advantages and disadvantages of ETFs versus MFs. As for MFs I am only discussing open ended funds, not closed end funds. Regarding ETFs I will not consider exotic funds (for example, interest rate swaps and forward one month future contracts) or precious metals funds as these ETFs have different tax consequences.

Advantages of ETFs:

Significant cost advantage: Expense ratios are generally lower for ETFs than for comparable MFs. Vanguard offers very similar ETFs and MFs that follow the same index but the ETFs have much lower expense ratios. For example, the MF that tracks the Standard and Poor (S&P) 500 VFINX has an expense ratio of .18% versus ETF VOO for which the expense ratio is .06%. This is only a saving of US $12 on an investment of US $10,000 per year, but compounded over time it can add up to thousands of dollars coming out of investors’ pockets. There can also be a commission fee every time you buy an ETF (since you are buying a stock), but many brokerage firms will waive the fee if you buy their ETFs.

Buy or sell at any time: ETFs are just like stock – you can buy or sell them whenever you wish. Mutual Funds are processed once a day at the next closing net asset value (usually at the end of the day). Another advantage is you can place limit buy or sell orders (same as for stock).

Tax advantages (for non tax exempt account): ETFs do not distribute capital gains every year like mutual funds (except on rare occasions) so you will only have to pay the capital tax when you sell the fund.

No minimum investment amount: You can buy 1 ETF share or 100,000 shares. Most (if not all) MFs have an initial minimum purchase amount, for example, US $5,000 as well as a minimum reinvestment amount, for example, US $100.

You can short an ETF: Just as with stocks, you can short ETFs.

Disadvantages of ETFs:

No automatic dividend reinvestment feature: You have to reinvest the dividends (just like stocks). For most MFs you choose to automatically reinvest the dividends.

ETFs are only as good as the index: ETFs are passive (non-managed) funds that try to duplicate the performance of an index, for examples, S&P 500, Russell 2000, and others. This may be a positive since not all MF managers beat the appropriate index benchmark with which they are compared.

Can have high bid / ask spreads that are thinly traded and have small market capitalization: Always check if an ETF you are interested in is thinly traded or has a small market capitalization. The ETF liquidity could disappear in severe market conditions. Also, the spread between the bid and ask price can cause more expense when you are selling.

Advantages of MFs:

Automatic dividend reinvestment feature: As a mutual fund investor you can choose to automatically reinvest your dividends in the mutual fund.

Activity managed by MF manager (if not index fund): MF managers try to out-perform the comparable benchmark and peer funds through their selection of investments. This has the potential for out-performing the market.

Lower cost if buying shares on a monthly basis (no stock transaction cost): MF can have lower cost if buying shares every month.

Disadvantages of MFs:

High fees and sales loads: With MFs there can be sales charges on buying (front-end sales load) and redemptions (back-end sales load). These loads can be a maximum of 8.5% (most MFs do not charge the maximum). Mutual funds have higher fees than ETFs. The following are examples of the fees: management fee, non-management expense, and 12b-1/non-12b-1 fees.

Distribute capital gains every year (for non tax exempt accounts): Mutual funds are required by law to distribute capital gains each year (MFs must distribute 95% of the gains to shareholders). The capital gains distribution is a result of an MF selling shares. For example, if the market is going down the MF manager may have to sell shares because of the need to raise cash for shareholder redemptions.

Shares can only be sold when the market closes: Mutual Funds are processed once a day at the next closing net asset value (usually at the end of the day).

High minimum investments and reinvestments can be required: MFs can have high minimum initial investments. For example, Vanguard MFs have a minimum of US $3000 for initial investment.

Please chime in with comments about exchange traded funds versus mutual funds. Which ones have you been investing in lately?

© 2011 Paul Cusick

Paul

Long Average Duration Bond Funds and Interest Rate Risk

If you are an investor who thinks bond funds are always a safe investment in which you cannot lose money, guess again. Every investor should understand why the average duration for bond funds is important to interest rate risk. Having a good understanding of the correlation between interest rate and average duration for bond funds means you will make fewer financial mistakes and you will increase your overall net worth. Bond fund values move in the opposite direction of interest rates, so when interest rates go up, your bond fund principal will decrease. Conversely, when interest rates decline, the principal of your bond fund will grow.

Here’s why: for every 1% increase in interest rates the bond fund will go down in value by the average duration of the bond fund (it works the opposite if interest rates go down). For example, if the average duration for the bond fund is 7 years and interest rates go up 2%, the value of your investment will decrease 14% (average duration X interest rate change = gain / loss). Another example, suppose you have $10,000 invested in a bond fund with the average duration of 7 years; if the interest rate goes up 2% you just lost $1400 of your Investment. If the situation is reversed and the interest rate goes down by 2%, you just made $1400.

Here’s a ‘real life’ example of when interest rates go down and bond fund principal increases. Vanguard’s Long Term Treasury Investor Shares (VUSTX) average duration is 13.1 (this is the current average duration of the fund; I do not know the average duration in 2008). On October 31, 2008 the share price was $11.11, on December 18, 2008 the share price was $13.74 this is a gain of 23.7% to the principal. The treasury 20 year bond price deceased by 1.88% (from 4.74% to 2.86%) during the same time period. This is very close to the calculation (1.88 x 13.1) gain of 24.6%. If you had been an investor in long average duration bond funds at the start of the 2008 financial meltdown you would have been a very happy investor indeed. An investor in short average duration bond funds would have had much lower gains. For example, if you invested in a short average duration bond fund with average duration of 3 years, your gain would have been around 5.64%.

The opposite ‘real life’ example occurs when interest rates increase and bond fund principal decreases. Using the same bond fund, Vanguard’s Long Term Treasury Investor Shares (VUSTX) average duration is 13.1. October 1, 2010 the share price was $12.49, on December 31, 2010 the share price was $11.07 this is a loss of 12.8% to your principal. The treasury 20 bond price decreased by .81%. It is reasonably close to the calculation loss of 10.61%. If you ]had been invested in long average duration bond funds during the last quarter with the start of QE2 and all the Bush tax cuts being extended by 2 years you would not have been a happy investor. This is one of the reasons why investors are pulling money out of bond funds. More than $20 billion have been pulled out of bond funds since mid-November 2010, with the weekly outflow in mid-December marking the biggest in more than two years.

The greater the average duration of a bond fund's holdings, the more its share price will fluctuate when interest rates change. This why there is risk in investing in bond funds. Average duration is a very useful measurement of bond fund sensitivity to changes in rates. To make it simple, the greater the average duration of a fund's holdings, the more its share price will fluctuate when interest rates change. To make it even simpler, a rising interest rate climate is not good for bond fund investors. If you think interest rates are going to increase you want to be invested in short average duration bond funds. It is the opposite if you think interest rates are going to increase; in that case you want to be in long average duration bond funds.

Buying individual bonds can take some risk out of investing in bonds. Assuming the issuer is still solvent when the bond matures, you collect the face value of the bond. You will not experience the principal fluctuations to which bond funds are subject.

© 2011 Paul Cusick

Paul’s Gang 2010 Blog Summary

I would like to thank everyone who read my blog, and also those who wrote comments and sent me email on it in 2010. My hope is that everybody gained a bit more investment knowledge, made fewer investing mistakes and increased their investment gains as a result of reading my blog. I had a great time writing Paul’s Gang and learned a great deal myself over the last year.

Some interesting statistics:
• 36 blogs published, comprised of 120 pages of writing
• Over 19,000 visitors to the Paul’s Gang blog site
• Visits came from 75 countries/territories
• Visits came from all 50 US states, Washington DC, Guam and Puerto Rico
• Visits came from all 10 Canadian provinces and 2 territories. I am still waiting for a visit from Canada’s newest territory, Nunavik (population 11,627).

Top 5 countries visiting, not including US:
• Canada
• United Kingdom
• Singapore
• India
• Spain

Top 5 page views (blogs):
• Netflix (NFLX)
• High Dividend Yielding Stocks
• Investment US TAX Changes for 2011
• Tradable REITs Investing – Office Building
• Best Investment for Stagflation

Top 5 longest times spent on a page (blog):
• High Dividend Yielding Stocks (over 15 minutes)
• Brazil
• Tradable REITs Investing – Office Building
• 401K Rollover
• Best Investment for Stagflation

Visits from interesting countries / territories:
• Macedonia (FYTOM)
• Saint Lucia
• USA Virgin Islands
• Andorra
• Cayman Islands
• Vietnam

Top 5 keyword searches (46% of traffic came from searches):
• Best investment for stagflation
• Tax changes for 2011
• What to invest in stagflation environment
• 2011 tax changes
• High dividend yield stocks

I sincerely wish everyone a happy and prosperous 2011 for you and your families and a year of successful investing.

© 2011 Paul Cusick

Investment US Tax Changes for 2011 - Update

Disclaimer: I am not a Certified Public Accountant (CPA), tax advisor or tax lawyer. Please talk with your CPA, tax advisor, or tax lawyer before making any investment decisions that may have tax consequences for your investments. One of my investment rules is know the tax ramifications of any investment that you plan to make before you make it, and make it tax efficient, whether under current tax laws or forecasted future tax changes. Taxes and/or government fees will be increasing over the next 5 years to help pay for the federal, state and local government deficits and future government entitlement programs (for example, health care). For example, to pay for the new health care plan high income earners in 2013 will experience an increase in Medicare payroll tax (.9%) and an additional tax (3.8%) on qualified dividends and capital gains.

Former President George W. Bush’s tax cuts (BTC) were intended to expire at the end of 2010, reverting to the previous tax code for long-term capital gains and qualified dividends, reviving the estate tax and restoring the top marginal bracket of 39.6% at the beginning of 2011. On December 17, 2010 President Obama and the US Congress extended Bush’s tax cuts for another 2 years (ending January 1, 2013), made changes to the estate tax and added a 2% reduction of the payroll (social security) tax. This will be one of largest stimulus packages for the US economy ever – approaching $1 trillion US. 

Long-term capital gains tax (on assets held longer than one year):  The current tax rate of 0% for taxpayers in the 10% and 15% tax brackets as of 2008 and 15% for everybody else will not change for the next two years. The pre-BTC rates were 10% for the 15% tax bracket and 20% for everybody else. 
 
Qualified dividends:  Qualified dividends will continue to be taxed at a maximum rate of 15% for the next two years. The pre-BTC rate was ordinary income based on your highest tax bracket. For example if you were a high income earner and your tax bracket was 39.6% your qualified dividends would have been taxed at 39.6% (this could be as high as 43.4% in 2013).
 
Top income tax bracket:  Bush’s tax cuts eliminated the top income tax bracket of 39.6% making the 35% the highest tax bracket and created a new 10% bracket for low income earners. Congress and President Obama extended 35% as the highest tax bracket and the 10% tax bracket for the next 2 years.
 
Revival of the estate tax: In 2010, as a result of several unusual circumstances, there is no limit on the size of an estate that is exempt from federal estate taxes. Starting in 2011 (and ending in 2013) the exemption will be $5 million per person and for a married couple up to $10 million will be exempt from federal and gift taxes. The top tax rate applied to the portion of estates exceeding those limits will be 35%, the lowest tax rate in 80 years.
 
Payroll tax decrease: Wage earners received a social security tax reduction of 2%, making the tax rate 4.2% up to the cap of $106,800 in 2011 (the cap will increase in 2012). If your wage income is at or over the cap, this will result in savings of $2,136, or about $40 per weekly paycheck. Congress did not renew the Making Work Pay tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns (this was up to a maximum adjusted gross income level). Consequently, working individuals who earn less than $20,000 ($40,000 for married taxpayers filing jointly) will have less money in their paycheck starting in 2011.
 
The tax rate on long-term capital gains and qualified dividends which are most important to investors will stay the same for the next two years. All these tax changes will revert to their pre-BTC tax rates on January 1, 2013. With President Obama, all of the House of Representatives and 1/3 of senators up for reelection at the end of 2012, expect the US tax rates to be a major campaign issue in the 2012 election.
 
A good strategy is to always keep interest/ dividend-paying and non-tax efficient investments in your non-taxable accounts. Also, any investments for which there is a high degree of difficulty determining the tax liability, i.e. trading stocks, future contracts, exotic ETFs, etc., should be invested through your non-taxable accounts.
 
Between the extended Bush tax rates and payroll tax decreases (costing the US government almost $1 trillion in revenue over the next two years) and Quantitative Easing 2, the US government has created the largest stimulus ever in its quest to grow the economy and reduce a persistent US unemployment rate hovering close to 10%. If this stimulus does not lead to job growth and reduce the unemployment rate, the issue will become: how do you reduce structural unemployment issues which take a long time period to resolve? This will be difficult to resolve in the current US political environment which everything is short focus on the next election.
 
Please chime in with your comments on 2011 tax rates, tax efficient investments, or anything else.
 
© 2010 
Paul Cusick

Quantitative Easing 2 (QE 2) Update and Analysis

On November 3, 2010 the US Fed (Federal Reserve) announced the policy of Quantitative Easing (QE) 2. The stated goal of the policy was to decrease interest rates in order to jump start the economy and reduce the US’s persistent unemployment rate of just under 10%. The major side effects of QE 2 are that it would devalue the US currency and make commodities more expensive since they are valued in US dollars. At the same it would make US manufactured goods cheaper for companies and customers outside the US which should lead to an increase in US exports, at the same time making imports more expensive thus decreasing imports.

After six weeks (as of December 18, 2010), what has been the effect of QE 2?

US Treasury interest rates - The interest rate yield has increased on the 10, 20 and 30 year treasury bonds. The 10 year has increased 33%, the 20 year has increased 16% and the 30 year has increased 9%. Mortgage rates track the yields on the 10-year Treasury note. For example, if you add 150 (1.5%) Basis Points (BPS) to 160 BPS you will get the 30 year fix mortgage rate. The current national 30 year fixed rate is 4.83%; on November 5, 2010 it was 4.24% (an increase of almost 60 BPS). With the increased cost of borrowing for companies and consumers, it will reduce their spending on goods and resources. This will have the effect of decreasing economic growth.

US unemployment rate - The November 2010 (December rate will be announced January 7, 2011) unemployment rate was 9.8%. I will need to review the unemployment rate over the next 6 months.

Commodities prices - Almost all commodities prices have continued to increase after the announcement of QE 2. For example, the US national gasoline price has increased over $.17, oil (Brent) has increased $5 a barrel, copper increased 9% and wheat has increased 9%. This increase in commodity prices will increase the price of goods, food for example, and decrease companies’ and consumers’ ability to spend more on goods and services. It could also lead to inflation.

US real GDP (Gross Domestic Product) - The real GDP rate for the third quarter was 2.5%. I will continue to check back on the real GDP rate over the next 6 months.

US imports / exports – The August 2010 US 12 month trade balance was negative $621.4 billion. I will review the 12 month trade balance periodically over the next 6 months.

US dollar - The US dollar has decreased by 5% compared to the Euro and 4% compared to the Japanese Yen. This should increase US exports (they will be cheaper) and decrease imports (they will be more expensive).

Currently the primary issue with QE 2 is that interest rates are increasing, which leads to increased cost of financing which could in turn slow the growth of the economy, counter to the intent of QE 2. This should, however, be neutralized by the large tax decrease and stimulus approved by Congress and President Obama on December 17, 2010.

© 2010 Paul Cusick

Paul

Best Investment Strategies for Quantitative Easing (QE2)

On November 3, 2010 the US Federal Reserve announced its second round of Quantitative Easing (QE 2), a program through which it intends to buy an additional $600 billion of longer-term treasury securities by mid 2011. This equates to $70 billion per month. In this week’s blog I will be discussing what investments are best for the QE 2 environment, focusing on commodities, precious metals, gold and US companies that export.

The major impact of QE2 is that it will inject $600 billion directly (by printing money) into the economy. Theoretically this will facilitate the Fed’s stated policy to grow the economy and increase job growth. It will have the outcome (if everything goes according to plan) of decreasing interest rates and devaluing the dollar, which will have the following effect on investments:

· Since most commodities are valued in $US QE2 will drive up the cost of commodities.

· QE2 will have the positive effect of making US exports cheaper (it is a positive for companies that export and should help their stock price) for companies or consumers outside the US. It will have the opposite effect with imports which will become more expensive for US companies or consumers to buy.

· Interest rates may decrease which will in theory help to grow the economy. For example, for REIT companies that need to refinance their properties every 5 to 7 years this will lower their interest costs.

As for myself, I don’t tie my whole portfolio to my macroeconomic forecast or the forecasted economic environment. I could be wrong, so I tilt some of my portfolio (10 - 20%) to take advantage of the QE2 economic situation and the rest elsewhere. It helps to hedge so that, if my forecast is wrong, I am not forced to sell assets that have lost value. Today many people are finding themselves in the unfortunate position of needing to sell their houses to raise cash to pay debt and living expenses. You never want to be forced to sell an asset that has lost value. A well-diversified portfolio is key – you never put all your eggs in one basket.

As routine due diligence I will review all of my investments against the current economic conditions to determine whether any are no-no’s for the forecasted economic environment. For example, if I was invested in a company that used commodities for the majority of their products, and it is not possible for the company to raise their prices, I will decrease or eliminate my investment in that company.

Also, always understand the tax consequences of your investments, how the investment works and what your exit strategy will be.

The following are methods for investing in commodities, precious metals, gold and companies that export:

1. Commodity producing companies. Examples of commodity producing companies are coal and Natural Gas (NG) producer Consol Energy Inc. (CNX) and gold, silver and copper producer Goldcorp Inc. (GG). Consol Energy is the biggest coal exporter to China for steel production. Canada Goldcorp is one of the largest gold producers in the world. I own the following commodity producing companies:

Lundin Mining Compnay - LUNMF.PK
Advantage Oil and Gas Ltd. - AAV
Pegrowth Engery - PGH
Penn West Engery - PWE


2. Future Based Commodity ETFs. Before you buy future based commodity ETFs you may want to read the following article “Commodities are a Rock in a Hard Place”: http://www.morningstaradvisor.com/articles/article.asp?docId=17924.
Before buying a future based commodity or commodity index you need to understand the contango and backwardation effects (you should also understand the tax consequences of a taxable account). Two famous future based commodity ETFs are States Oil (USO) and United States Natural Gas (UNG). These funds have been influenced by the contango effect in the future energy market. UNG lost over 50% of its stock value in the last year. A worthwhile article on the contango effect on UNG is “What’s Wrong With UNG?” http: http://etfdb.com/2009/whats-wrong-with-ung/.


3. Exchange Traded Funds (ETFs) or Mutual Funds (MF) index of commodity producing companies. For a very good article on ETFs of commodity producing companies indexes see
http://seekingalpha.com/article/195688-the-benefits-of-equity-commodity-etfs.

You can buy selector based ETFs, for example metals and mining (XME), global coal (PKOL), steel (SLX), etc.

4. ETFs index of commodities. Before you buy a commodities index ETF in your taxable account you should read the following article about tax consequences of ETFs:
http://www.investopedia.com/articles/exchangetradedfunds/08/etf-taxes-introduction.asp.

The following are 2 examples of commodities index ETFs:

Powershare DB Commodity Index Tracking Fund - DBC
Dow Jones AIG Commondity Index Fund - DJP

These ETFs have about 20 commodities in the index. They include, for example, oil, NG, heating oil, gold, corn, wheat, etc. These ETFs have large total assets of over $2 billion and at the same time large bid / ask spreads (also very high fees for ETFs). These funds all use future contracts and may also be affected by contango.


5. ETFs or MFs index of commodity producing countries. These also have currencies implications. I own the following ETFs and MFs indices of commodity producing countries (each of these funds has about 50% commodity stocks within its index):

S & P BRIC 40 SPDRS - BIK
Claymore/BNY BRIC - EEB
DWS Latin America - SLA

6. Real commodity assets (owning a forest or mine). If you have a lot of money like the Yale Endowment Fund (http://www.yale.edu/investments/Yale_Endowment_09.pdf) you may want to buy real assets such as a forest, large commercial building, or oil or natural gas fields. The Yale portfolio manager, David Swensen, one of the top investors in the world for the last 25 years, has been increasing his holdings in real assets over the last 3 years. It is an investment category through which you can take advantage of pricing efficiencies. One of the best ways for the average investor to buy real assets is by buying Real Estate Investment Trust (REIT) companies. For example, timberland has been one of the best investments for the last 20 years. Its return during the past two decades has been 12.8%. There are a number of timberland REIT companies that own extensive timberland acres. For example, Plum Creek (PCL) owns over 7 million acres and has a yield of 4.3%.

7. Companies that export a majority of their sales from the US. QE2 should have a positive effect on US companies that export a majority of their products. Their products should cost less and be more competitive in the world marketplace. This should increase their revenue and profit and should have the effect of increasing their stock price. This will not work if the products they sell have a large component of commodities (since commodity prices will be increasing).

Please chime in with comments about the QE 2 investment strategy. What investments do you are think best for QE 2? Future blogs that I will be writing:

Income generating bucket of money

Investing in possible buyout companies

Investing in Brazil

Using Fisher’s 15 points for researching companies to evaluate one company

Reviewing 2011 tax changes

© 2010 Paul Cusick

Paul

Quantitative Easing (QE) 2

This week’s blog is about the US Fed’s (Federal Reserve) announced policy of quantitative easing 2. On November 3 the Fed announced that it intends to buy an additional $600 billion of longer-term treasury securities by mid 2011, which equates to about $70 billion per month. The Fed will continue to review the size of its overall securities purchases and the overall size of the program; after reviewing incoming data, they will adjust the program as needed to increase employment and keep prices stable.

Why is the Fed doing Quantitative Easing 2? The US continues to experience persistently high unemployment. Job growth of between 150,000 and 200,000 per month is required just to absorb the new employees entering the job market. The current GDP growth rate is around 2% and the inflation rate is less than 2%. Over the last 2 years the Fed and the US government have tried a number of programs in their attempts to jump start the economy and increase employment.

Examples of programs the US government and the Fed have tried over the last 2 years:

Fed fund interest rate: The Fed has decreased the fed fund interest rate to a historic low of .25% (it was 4.75% in 2007). It can only go down to 0%. At this level the Fed cannot use this to kick start the economy and increase employment. Home mortgages are at a record low.

Large federal government stimulus: In 2009 Congress passed and President Obama approved a $787 billion stimulus package to help stimulate the overall economy and employment growth. With the enormity of the budget deficit and the Republican Party taking over the House of Representatives there is little or no political will for a new federal government stimulus in 2011.

QE 1 (2009): The Fed started quantitative easing 1 back in March 2009 when it began a program of outright purchases of treasury coupons, GSE debt and mortgage-backed securities. QE1 lasted about 1 year and the Fed increased the money supply by about $600 billion.

This was not the first time the US government used cutting fed fund interest rates and large stimulus programs to stimulate the economy. For the first time in US history it has not been successful. Without the ability to lower the fed fund rate (it could go to 0%) and without Congress having the will to approve a new large stimulus program the Fed thinks the only arrow left in the economic stimulus policy quiver is to carry out QE 2 to help the economy grow and increase employment.

What is Quantitative Easing (QE) 2? In very simple terms, it is injecting (printing) money directly into the economy. This is supposed to lower interest rates and increase the money available for lending. How are the Feds doing this? The Fed will distribute new money at a rate of $70 billion per month and go to financial institutions to buy $70 billion of government bonds at a higher rate than others will pay for them. In a perfect world the financial institutions will then lend out money to companies or people who will in turn invest or spend it. This should pave the way toward overall economic growth.

Issues and problem with QE 2: The major problem with quantitative easing is that it will devalue the US currency. This has the positive effect of making US exports cheaper (it is a positive for companies that export and should help their stock price) for companies or consumers outside the US. It will have the opposite effect with imports which will become more expensive for US companies or consumers to buy. This can lead to currencies wars with countries that export to the US since their products will be more expensive which would tend to decrease demand for them. They may need to devalue their currencies to be able to sell in the US. Since most commodities are valued in $ US it will drive up the cost of commodities. This may have a negative effect on poor people around world since they spend a greater percentage of their money on commodities such as food, fuel, etc.

The positive effect of QE 2 is that interest rates may decrease which will in theory help to grow the economy. This will assist consumers or companies that need loans, for example to refinance their homes (and have more money to buy goods), buy homes, cars, etc. and for companies to purchase new equipment. This has a positive affect for people that need to borrow money and negative effect for people or companies that save money (they will receive lower interest yields and their dollars will be devalued).

Is it working? It is still early to determine if QE 2 is working. Since it was put into effect on November 2 all the Fed treasury bills, notes and bonds yields have increased (as of November 19th). For example, 7 year and 10 year treasury notes have increased 33 basis points (a basis point is .01%) and 30 year bonds have increased 32 basis points. The reason for this might be that investors perceive quantitative easing 2 will feed inflation in the future. Success may also be subverted if financial institutions will only lend money to consumers with high credit worthiness (unlike pre financial crisis when almost anybody could get a mortgage).

Please chime in with comments about QE 2. Do you think it will help the economy, will it lead to currencies wars and stagflation, increase commodity prices, etc. Future blogs that I will be writing:

Income generating bucket of money

Investing in possible buyout companies

Investing in Brazil

Using Fisher’s Common Stocks and Uncommon Profits and Other Writings15 points for researching companies to evaluate one company

Best investments for Quantitative Easing (QE) 2

Paul

© 2010 Paul Cusick