IOXIX Blowup From IOs @LewisBrahamWhat I find inexplicable is the timing.
I understand that on July 1
5th the rarely sold securities in FARIX were "estimated" to be worth X by their valuation firm. This allowed them to price the fund at $9.20.
OK, But then what happened between then and September 22?
IF they sold lots of this "estimated" junk, when they sold it what it was worth, as it was marked to a market price..
( Why did it take till September 22 for them to "find" another price that they retroactively applied to the NAV on July 1
5?)
If it was not sold on July 1
5th, but many months later, how can you apply a "mark to market price" in September to a NAV in July?
I think a better explanation is there were lots of redemptions, and they paid them out, but when they finally unloaded some of this stuff, they didn't make the cash they wanted, so they went back and "Adjusted" the prices to allow them to be whole, not their investors.
Explainer: Several parts of the U.S. yield curve are inverted: what does it tell us? @yogibb, the 10 Year-3 Month Treasury Yield Spread is the difference between the 10 year treasury rate and the 3 month treasury rate. This spread is widely used as a gauge to study the yield curve. A 10 year-3 month treasury spread that approaches
0 signifies a "flattening" yield curve. Furthermore,
a negative 10 year-3 month spread has historically been viewed as a precursor or predictor of a recessionary period. The New York Fed uses the rate in a model to predict recessions 2 to 6 quarters ahead.
10 Year-3 Month Treasury Yield Spread is at
-0.16%, compared to -0.12% the previous market day and 1.
53% last year. This is
lower than the long term average of 1.20%.https://ycharts.com/indicators/10_year_3_month_treasury_spreadThe indicator went negative in late October. Think it is too early to say anything.
@sma3, we are living in strange time when many events are coming together (war, pandemic and remote working) and they all contribute in their own way to inflation. The challenge is that it doesn’t seem to respond well to rate hikes.
I maintain a balanced allocation while paying particular attention to risk reduction. Sold most of growth stocks, EM and developed market stocks. Still I keep a healthy cash position (CDs and treasuries), and exposure to energy, and commodity futures. Just as I am building up alternatives they are falling.
IOXIX Blowup From IOs Having a security valued at $10 by an outside pricing service even though the manager senses that price is stale and the security could only fetch $8 if he had to sell it in a falling market I would suspect creates plausible deniability from a legal perspective. There is also a legitimate question as to what the security is "worth" from a sense of intrinsic value versus what you could get for it price-wise during panic selling and a liquidity crunch. Let's say you have such panic selling of all stocks and bonds, but you own the bond of an issuer that still has a viable business and can pay the debt's interest and principal on time. You might be only able to get 80 cents on the dollar of the face value of the bond if redemptions force you to sell the bond during a panic. Yet the bond in a normal environment could be judged worth full face value. So, you can claim in a court that even though you ended up selling it at a 20% discount due to redemptions, you and the pricing service were correct in pricing it at its full par value right before you sold it. Still, I suspect mfs might have a better answer for this than me.
I suspect the most viable cases for pursuing legal action involve actual credit impairment of the issuer which the manager or the pricing service declines to acknowledge in the valuation of the security. If the manager knows an issuer is heading towards default yet continues to value the security at par, that's a big no-no. That's why I believe the Heartland muni bond fund case was a slam dunk for the SEC. From MFS's linked article:
In 2008, Heartland Advisors agreed to pay $3.5 million to settle an SEC lawsuit over the drastic markdown of two municipal bond funds in 2000. The SEC said the investment firm was negligent in failing to properly price the value of some bonds in the Short Duration High-Yield Municipal Fund and the High-Yield Municipal Fund. The funds had invested mainly in nonrated medium- and lower-quality municipal bonds. When the projects underlying some bonds held by the funds went into default and other projects were failing, Heartland didn't make sure the funds were priced accurately, the SEC asserted.
FOMC, 11/2/22 Notes from above & Fed Chair Powell’s Press ConferenceFed fund rate hike by +7
5 bps to 3.7
5-4.00%. Bank reserves interest rate 3.9%. Primary credit rate 4%. More hikes are coming until the Fed sees slowdown in economic activity from the financial conditions tightening (but there is no numerical targe for a terminal rate). Inflation-expectations have stopped going up. The Fed watches core PCE and 3mo-18mo yield spread (media watches a variety of yield spreads). Over-tightening is preferable to under-tightening (or a premature pause); reason is that it is easier to fix over-tightening.
QT continues at -$9
5 billion/mo (-$60 billion/mo for Treasuries, -3
5 billion/mo for MBS).
Labor and job markets, and wage growth remain very strong. Consumer spending is robust. Housing is regional but isn't hot anymore.
The Fed is aware of global concerns and regularly consults with other central bankers. But the Fed focus is on the US.
US soft-landing is still possible but is becoming less likely due to persistence of inflation.
Impacts of fiscal spending are mixed.
Ethics issues at the Fed are being addressed with stronger disclosure rules and other restrictions.
I had a dentist appointment, so this is a delayed report.
https://ybbpersonalfinance.proboards.com/thread/158/fomc-statements-6-7-weeks?page=2&scrollTo=823
