Tuesday, January 27, 2009
What to Expect from the FOMC
The short rate is close to zero and the Fed's balance sheet has expanded exponentially. What else can the Fed do? Long treasury yields have risen significantly over the last one month. The Fed could announce a program to buy long bonds. This would help in an environment where risk spreads are slow to normalize. There is also talk in some quarters that the Fed could announce an explicit inflation target. This I think is unlikely for now. When nominal rates hit the zero bound, the only way to bring real yields down is by stoking inflation expectations. This would be achieved by a credible inflation target. I am planning to play the meeting by buying TLT (20+ year Treasury ETF) with a tight stop. Buying TIP seems a safer bet given that 5-year 5-year break-evens are still well below 2%.
Subscribe to:
Post Comments (Atom)
1 comment:
Hey, thanks for the comments on PM.
I disagree with most research that indicates that M&A destroy value. The way there research papers work is - What was the stock price before the acquisition? What is the stock price one month, one year, five years after acquisition? Is there a difference? If it is negative, M&A destroyed value.
That is not true. We don't know the alternate universe that might have existed if the said M&A didn't happen, and what the competitive position of the company would have been in that universe without that M&A. Also what is important is whether it was stock or cash acquisition.
Case in point: AOL-TWX merger. People say $100-$150 billion value was destroyed because of that M&A. Just wait a sec. This was a stock transaction. Stock price of both AOL & TWX would have anyway fallen without the M&A as the dot-com bubble crashed. For AOL long-term shareholders, it has actually been a great deal. Without it, they would have lost even more. It is TWX long-term shareholders for which this has been a deal from hell.
Another case would be HDFC Bank and CBOP. People say HDFC Bank overpayed. But it used its own expensive stock to buy another expensive one. HDFC's own stock would have fallen even without the deal as Indian markets crashed.
I can see from your blogs that you are interested in both US and Indian markets as well as economics like me. Do you have an email address?
Post a Comment