Tag Archives: Finance

In case you thought the sovereign debt crisis was over: “Portugal yields soar, underline euro worries”

The sovereign debt crisis is back! Actually, it never went away…

Portugal yields soar, underline euro worries
ECB comes off THE sidelines to buy Portuguese bonds

Proving that the euro zone’s sovereign-debt crisis is yet to be vanquished, yields on Portuguese government bonds continued to climb to levels viewed as unsustainable on Thursday, prompting the European Central Bank to intervene.

Yields on the 10-year bonds soared to a euro-era high of more than 7.6% at one point Thursday morning, according to strategists. The European Central Bank later intervened to buy Portuguese bonds, several analysts said, after staying out of the markets amid relative calm in recent weeks.

Read the rest of the article here…

TARP was a waste of money, despite what the Treasury Department tells you.

The Treasury announced that the total cost of TARP would be just $50 billion. In their perverse logic, the Administration and media played this up as a government success story. But we really should look at TARP as an investment. Congress approved spending $700 billion for TARP, of which only $296 billion was spent. Looking at TARP as an investment, the government lost 16.9% over a two year period. And they call that a success!

What else could the government have done with the $296 billion? Since TARP was signed into law on October 3, 2008, the following instruments have produced these returns:

TARP Troubled Asset Relief Program -16.9%
SPY S&P 500 9.1%
TLT iShares Barclays 20+ Year Treas Bond 15.7%
IEF iShares Barclays 7-10 Year Treasury 19.3%
SHV iShares Barclays Short Treasury Bond 0.7%
GLD SPDR Gold Shares 57.8%
XLF Financial Select Sector SPDR -18.8%

All major markets (stocks, long-term bonds, intermediate-term bonds, short-term bonds, and gold) posted positive returns. In some cases, very good returns. As you can see, I added the Financial sector into that table, which declined slightly more than TARP. Most of TARP’s investment were in the financial sector. The small difference is largely a rounding error because I am looking at XLF’s return up to today whereas the Treasury is using expected returns as of some future date. And that is assuming you trust their accounting…

But this raises the question of why they invested in the worst performing market sector? Those of us who argued that they were throwing good money after bad were correct. Maybe Treasury lost less money than we expected, but we were still correct in predicting negative returns on this investment.

Of course, the government claims that TARP saved the financial system from utter destruction. Oh, to live in a world where you can make outrageous claims without any proof. Next thing you know, the government will claim that the American Recovery and Reinvestment Act of 2009, also known as the stimulus bill, “created or saved” millions of jobs, even though the unemployment rate has remained steady near the 10% level.