Monday, March 22, 2010

Money Multiplier is negative

Voltron says: The "money multiplier" has gone negative. That is, each additional dollar borrowed and spent by the government actually lowers GDP.


Anonymous said...

Is more volatility good for bond funds. If so is this a good time to rebalance into bond funds and move out of stock funds?

Apollo's brother

Gerard said...

It's a very good question, Dionysus.

Generally bond volatility is bad for bond funds. It actually depends what the Bond Convexity of your bond fund is. Good luck figuring out what it is. Try asking your broker, that'd be good for a laugh (you'll get a lot of "umm uhh umm uhh".

At the moment, I balance my portfolio between shorting stocks and shorting bonds so when you ask if you should sell stocks and buy bonds it's like asking me if you should poke yourself in the eye or kick yourself in the nuts. It's kind of a difficult question to answer.

Now the closest thing to a "conventional" investment that you could do that might benefit from interest rate volatility would be to buy a house with a fixed rate mortgage, provided it is cash flow positive (i.e. you could rent it out and make money every month)