bchadwick Wrote: ------------------------------------------------------- > > Sounds smart to me. Now let’s just hope the market is up tomorrow so I can sell higher! 
bchadwick Wrote: ------------------------------------------------------- > If there’s a debt ceiling agreement, then there > may be a pop in stocks in relief, but the economic > contraction that’s likely to follow an agreement, > plus the fact that US debt now has material > political risk is going to make life difficult. The way I figure it the debt ceiling will be raised soon with very high probability. If not then we flounder around for a bit and it eventually gets raised regardless. I do not personally expect systemic issues. “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” – John Maynard Keynes If you believe that the debt ceiling will be raised one way or the other, the question then becomes whether the economy will contract. My reading of the situation is that any spending cuts will be timed out significantly far enough for it not to make much of a difference in the next couple of years. So while we will continue to experience a drag on GDP from withdrawn fiscal stimulus in the foreseeable future it will likely not be enough to push the economy back into recession given that the most cyclical sectors of the economy are already quite weak (auto sales, residential construction, business investment, etc). If that is the case and the economy picks up from stall speed, the deficit will contract on its own fairly rapidly over the next couple of years, rendering the entire thing a moot point and revealing it as wasted time. Recall that in 2000 Greenspan was worried about budget surpluses “as long as the eye could see". A lot can change in a few years. A risk to my thesis is that uncertainty ultimately could become self-fulfilling as it so often does in the financial markets. Another is that, misguided as it is, we do attempt dramatic austerity measures despite lessons of history from the Great Depression and the failed experiments by Euro Zone countries. What I’m really worried about is how this whole thing affects consumer sentiment and whether people will be willing to spend or if they will freeze up again. This posturing and scaremongering is having very real effects on how people feel about the world. I acknowledge that my theory is the bull case and I have an optimistic bias.
bchadwick Wrote: ------------------------------------------------------- > > If investors decide that cash in mattresses is > safer than 90d T-bills, that’s an interesting > dynamic. I’ve been 65% “in cash” for about two > and a half months now, and now I’m wondering if > that cash is in 90d T-bill money markets and what > happens if a default actually does happen. Which > maturities of Treasury securities are the ones > that won’t be paid? Will I lose principal, or > only interest? The debt ceiling says that no new > debt can be taken on, but presumably old debt can > be rolled over. > > Anyone have any perspective on this stuff? My understanding is that interest would get paid and principal would be rolled over.
Yes, an 11th hour agreement is still the most likely possibility, but I think the likelihood is around 60%, whereas most market participants seem to be thinking it’s in the 90% region. Their rationale: “it’s unthinkable.” But, as someone born on September 11th, I can say “the unthinkable happens.” I think the problem is that the politicians, and even many market participants aren’t thinking about just how devastating it will be as institutions become forced sellers because their mandates prohibit them from holding debt that’s in default. There’s 14 Trillion in US debt. What do you reallocate all that to? Even if only 25% of it needs to be reallocated, that’s an enormous flow outward. Yields will shoot up, and that won’t just make it hard to borrow; it will also increase the required return (or discount rate) on stocks. So even if there isn’t an anti-stimulus in the economy, the present value of future cash flows will be lower. And with interest rates as low as they are right now, stock valuations are highly sensitive to changes in interest rates. So with the politicians, and even the media seemingly unaware of just how damaging this can be, I think it’s way more likely than most people think that politicians will play chicken and roll the dice on who crawls out of the wreckage.
higgmond Wrote: ------------------------------------------------------- > bchadwick Wrote: > -------------------------------------------------- > ----- > > > > If investors decide that cash in mattresses is > > safer than 90d T-bills, that’s an interesting > > dynamic. I’ve been 65% “in cash” for about two > > and a half months now, and now I’m wondering if > > that cash is in 90d T-bill money markets and > what > > happens if a default actually does happen. > Which > > maturities of Treasury securities are the ones > > that won’t be paid? Will I lose principal, or > > only interest? The debt ceiling says that no > new > > debt can be taken on, but presumably old debt > can > > be rolled over. > > > > Anyone have any perspective on this stuff? > > > My understanding is that interest would get paid > and principal would be rolled over. Thanks! That was my guess too, but I thought there might be some aspect of the mechanics that might make it more complex than that.
doesn’t Spain have a AA rating? in what world would Spain and the US have the same rating? Spain has double the unemployed, a generational employment problem, a bankrupt banking system and much much more wrong with it. also, dems will cave and if anything goes wrong with the economy from now until election time, they can say, well we had to cave for the short-term sake of the economy but look where it got us. blame the repubs and vote for dems. and if the economy chugs along, well, they can say its because of all the stimulus programs and public works they’ve been doing over the years. i think the dems truly have the upper hand here politically.
MattLikesAnalysis Wrote: ------------------------------------------------------- > doesn’t Spain have a AA rating? in what world > would Spain and the US have the same rating? Spain > has double the unemployed, a generational > employment problem, a bankrupt banking system and > much much more wrong with it. > > also, dems will cave and if anything goes wrong > with the economy from now until election time, > they can say, well we had to cave for the > short-term sake of the economy but look where it > got us. blame the repubs and vote for dems. and if > the economy chugs along, well, they can say its > because of all the stimulus programs and public > works they’ve been doing over the years. i think > the dems truly have the upper hand here > politically. I go back and forth on this, but I’m in agreement with you at the moment in that I *think* the democrats have the upper hand in this situation assuming that the debt ceiling gets passed. As a side note, Obama came across 100x better than Boehner last night on TV to independents. I’m not talking about the content which was useless for both, but Obama’s delivery was far superior. I believe Boehner most likely looked like the “bad guy” to the average joe.
I am not as sanguine that the Dems have the upper hand on this. It seems to me that anything that is bad for the economy is good for Republican electoral prospects. We are way too far from November 2012 that people are going to remember the details of this fight or be willing to argue them. Not that I really love the Dems these days either. It’s humiliating to be represented by members with the backbone of a wet noodle (this is why I actually like Joe Biden), and some of them don’t seem to understand that at least some of the conservative points are valid, but at least they don’t seem to be insane like the Tea Partiers.
Does it really matter? Even US debt ceiling is lifted, the US credit situation doesn’t improve until the sound fiscal and monetary policy are put in place. I bet the credit rating of US might be adjusted down, but people will start losing confidence in US currency,though US is still the most promising economy and has the most sound political system in the world.
Here is another good one. Illustrates the “debt is savings” point. http://www.econbrowser.com/archives/2011/07/graphic_of_the.html
Its despicable, but the Republicans have been fairly shrewd about this. They’re probably hoping for Obama to veto the newest debt plan by the republicans so that the hate will go toward Obama.
I want to see: A rise in the debt ceiling asap A meaningful decrease in spending phased out over time & An increase in taxes corporate / personal taxes
AlphaSeeker Wrote: ------------------------------------------------------- > Our > situation is just not as dire as Greece yet. > > It takes a long while for a giant to fall… A > death by a thousand cuts. People say that (USA people) but it surprises me just how fast the US is falling. I’ve said this before on here; overconfidence speeds decline. Everything ends but thinking it can’t possibly end makes it end quicker. And there is something about the American personality programmed to believe there is no way it will ever end! Basically I disagree with almost every American’s view that the end is nowhere near. I left the USA a month ago never to return because I think the sh!t is going to come sooner than people think and it is better to run for the door before the herd realizes what’s happening…I just hope I have my citizenship here before those retards financially nuke themselves (or the creditors do it for them). It blows my mind I am sitting here in Asia only one month after my decision to bail and reading about default as actually being a possibility.
purealpha Wrote: ------------------------------------------------------- > AlphaSeeker Wrote: > -------------------------------------------------- > People say that (USA people) but it surprises me > just how fast the US is falling. How is the US “falling”? Sure we have plenty of problems but I do not see where Armageddon is near. There are always problems. I much prefer this debt ceiling charade to something like the Great Depression, the Cold War, the Tech Bust, or the Financial Crisis. People have been saying that the US is crumbling since time immemorial, but through all previous crises it has emerged stronger than before. > Basically I disagree with almost every American’s > view that the end is nowhere near. I left the USA > a month ago never to return because I think the > sh!t is going to come sooner than people think and > it is better to run for the door before the herd > realizes what’s happening…I just hope I have my > citizenship here before those retards financially > nuke themselves (or the creditors do it for > them). Did you also leave the country in Fall of 1999 and say: “Whew. Thank goodness I got out of there in time before Y2K hits and the entire country is destroyed!”? Or did you hire someone to watch your pets after the “rapture” on May 21s of this year? There is always an end of the world scenario out there if you go looking for it! > It blows my mind I am sitting here in Asia only > one month after my decision to bail and reading > about default as actually being a possibility. Asia certainly has its own issues, but I am glad you are happy there. It blows my mind too that we are going through this ridiculous and completely unnecessary mess, but that is what a democracy is for, and we will get through it one way or another.
Just because America emerged stronger after every crisis doesn’t mean it will do so eternally.
Looks like the polls are in and the Tea Party really did shoot themselves in the foot though they took the rest of Washington down a peg with them. Also this had a big impact on sentiment while less so on the actual economy similar to Hurricane Katrina. http://www.mcclatchydc.com/2011/09/16/124366/congress-puts-on-smiley-face-in.html “The data show that Congress’ approval ratings remain dismal. A Sept. 8-11 Gallup poll found only 15 percent of the public approved of how Congress was doing its job, while 82 percent disapproved. The margin of error was 4 percentage points.” “Nothing frightens politicians like numbers that low, especially when the economy remains sluggish, consumer confidence is bleak and businesses are reluctant to hire.” “‘I think GOP leaders, at least, see that jobs and the economy are going into the tank,’ said Burdett Loomis, a professor of political science at the University of Kansas and the author of several books about Congress.” “Republican pollster Bill McInturff found that public disgust with the summer debt-ceiling debacle had eroded confidence in the economy and the federal government profoundly, on a scale similar to the 9/11 terrorist attacks and Hurricane Katrina. That, McInturff warned in an analysis earlier this month, could lead to “unstable and unpredictable political outcomes” in next year’s elections.”
Zesty Wrote: ------------------------------------------------------- > You said, “at whatever point the government > decided to begin paying its bills again, the risk > premium would immediately go away”. That’s a > statement not grounded in any type of research. > Are you aware that many decades after the great > depression there were people still putting money > “under their mattresses”. That is so say, you have > no idea to what extent such an event may alter the > trading/investing behavior of market participants. > Without modeling the behavioral aspects, you have > your head stuck in a textbook that has little to > do with the real world. By the way, CDS spreads spiked on short term US gov’t debt, seemingly indicating speculation of a temporary technical default rather than solvency risk. The linked chart below shows Germany and France CDS going way up even while the US CDS has stayed constant at very low levels. It seems that the market agreed with precisely what I claimed, as did Warren Buffet when he said a few days later: “The U.S., to my knowledge owes no money in currency other than the U.S. dollar, which it can print at will.” I tend to spend less time looking at textbooks (which after all once claimed that the world is flat) and more time looking at facts, history, and what actually happens in the real world. http://www.bespokeinvest.com/thinkbig/2011/9/14/recent-sovereign-and-state-cds-trends-france-now-more-risky.html Fascinating to look back on this thread in hindsight.