I have money in his bond fund, but I can't say I share his viewpoints expressed in this article...

The government needs to replace private investors who either don't have the money to buy new assets or have been burned by losses [...]

Really? Why is it a good thing to keep assets price artificially high? Why should the government bail out people who took unreasonable risks, or lied on loan applications?

The government did not step in to bail out venture capitalists and other investors who lost big in the dot-com bust. They risked their money and lost... no bailout for them, which was the right thing to do. The same treatment should apply to Wall Street and other investors who put money into toxic mortgages and overpriced real estate.

Higher yields on bonds and stocks is a good thing. Yes, there will be some pain in the short term, but we'll be better off in the long haul.

Duane

 

According to posts tonight, in effect the government is taking over Fannie and Freddie.

Ray

If a government takeover of Fannie and Freddie is good for PTTAX, bring it on!

Duane, I quite agree with your comments. But I was startled to learn that banks are permitted to own unlimited amounts of Fannie and Freddie preferred stock. I would prefer that stockholders be wiped out in a recapitalization of the two companies, but this is not a trivial factor for our banking system. And it's a shocking failure of regulation.

Tim

It is a Bloomberg article accessible via this Link. Here is a bit about the role of Bill Gross and Pimco in it.

Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, Bill Gross, co-chief investment officer at Newport Beach, California-based Pimco, said yesterday in a Bloomberg Television interview.

``They have to open their wallet,'' Gross said, predicting that the Treasury will act this weekend before the Federal Housing Finance Agency releases an assessment of Fannie's and Freddie's capital. About 61 percent of Gross's holdings were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or government agency Ginnie Mae, according to data on Pimco's Web site.

Ray

 

Ray...

In keeping with the current capital preservation concerns, can you tell me how my TIAA Traditional account is guaranteed? Who or what is the insurer?  Since we are seeing comments like Gross has made, it makes me wonder about putting my money into anything other than something that is FDIC insured.

The guarantee behind the Traditional Account is the financial health of TIAA itself. From your post I don't think you are looking for an elaboration on that as you seem to be focused on Gross and Pimco and the takeover of Fannie and Freddie. I only know what I read about that.

However, if your concern is with Mortgage Backed Securities, remember that the great majority of people with mortgages are paying them regularly and are not in default or behind in their payments. I certainly am not and if you have one, I doubt you are. We are the norm.

If you put your money only in bank accounts or CDs backed by the FDIC you are subjecting your self to inflation risk and that is a very serious and potentially fatal risk. Right now the inflation fear seems to have faded a bit with the decline in commodities but never fear, it will be back at some time.

What I have done is concentrate my investments - other than an inheritance account - in fixed income and that is more than 90% investments in the TIAA Traditional Account. Do I have any fear about it? No, none. 

But if you do, and you have trouble sleeping with your fear, then the FDIC backed bank accounts are probably where you should be. But be warned, unless you have some combination of a great deal of money in banks and a short life expectancy, you are taking a long term risk that is very severe - inflation. That I would not do. Rather than doing that, I am depending on TIAA's guarantee in the Traditional Account.

Ray

Thanks for your thoughts....you answered my question by saying the guarantee is backed by Tiaa's financial health.......I too have concentrated my holdings into the traditional account, but I guess reassurance never hurts.  Where can we get more timely reports about Tiaa's finances?

You would need access to the insurance rater's most recent report on TIAA. I or someone else recently provided a link to the most recent Fitch report. However, you can ignore this as all you will find is that TIAA is only one of two (or three, not sure which) of ALL Insurance companies in the U.S that has the HIGHEST RATING from each insurance company raters. I

n short, if TIAA goes under the US eonomy has probably gone under! In which case you are probably no worse off than if you money is in an insured FIDC account in a bank as the debt of the US economy would be impossible to pay off!

Ray

Carefulinvestor- have you read the detailed, reassuring notes on the TIAA-CREF website about (the lack of...) risky holdings in the TIAA General Account?  Go to the home page LINK and look to the right. Either click on "Statement on Credit Exposure in the TIAA General Account and the TIAA-CREF Fixed-Income Portfolios as of June 30, 2008" or clik on "View All News" and read the ones from 04/15/2008 and 12/31/2007 and 08/17/2007 as well. You'll sleep better. And visit the home page more often.

Tim 

Yes I have read it and it actually prompted my inquiry.....that note is for 6/30/08.  A lot has happened since then.  My other point is 2% potential risk of the $178 billion general account is still a lot of money, and I have a hard time interpreting a general note such as this.  Thanks for your response and I'll keep digging.

raywax:

The subject is a phrase used by Bill Gross of Pimco. It is presented in a Bloomberg article this morning which can be access via this Link. When Bill Gross says something like this, I listen!

Ray

But what are you doing with the information? That is what matters.

In general I do nothing about any one piece of information and that is what I did with Gross's post information. I accumulate information and let it simmer and build a general consensus of the investing climate. Since there is always new information and opinions, though many of the latter are really old, there is no end to the process.

There are times though when a specific piece of information or statement, such as Meredith Whitney's comment a month or so ago (hope I have her name right!) convinced me that the markets were too volatile for my taste and that there was more likely to be a general downturn than an upturn that made me even more cautious. By the time of the Bill Gross post I had eliminated all equities from my T-C holdings, but not from my inheritance account nor from my D&C account (though the latter is already concentrated in DODIX). So there was nothing for me to do. I am in my "battened down" mode and expect to stay there for some time.

Ray