I think the lesson from the past few months is to not underestimate political risk, even with developed countries. The US congressional deadlock on the debt ceiling resulted in a downgrade of US debt and triggered a stock sell off. The fractured nature of the Euro Zone is preventing them from coming to a consensus about Greece and taking action to stabilize the markets. The difference is that the US has a chance of becoming less politically dysfunctional in the future, particularly after the presidential election cycle. The Euro Zone will be politically dysfunctional for as long as they are comprised of many countries, unless they can come up with some sweeping charter changes that give the ECB more monetary control. Valuations might indicate low growth everywhere. However, the Euro Zone’s ability to respond to crises is far worse than that of other economic regions of significant size. Investing in Europe is like selling a put option - if something bad happens, you cannot count on government intervention to fix the problem. Before buying Euro assets, you should ask if you’re willing to live with that risk.
This is my thinking: Investors are very concerned about Europe, but they are just realizing that the rest of the world is probably not as safe as it seemed even three months ago. Even if just Greece defaults (which is what I’m discounting) it would be the biggest default in history. Should Greece default, the probabilities of others defaulting is higher. Yes, Euro banks would see huge losses. But, such a huge default (in a “developed” economy, no less) and a likely continental banking crisis would affect the rest of the world economy very negatively. Looking at simple valuation metrics, cyclically adjusted, US is at one of the highest valuations relative to Europe in history. I’m just saying, if I take a long bet on region Europe looks the most compelling simply because the coming storm is better incorporated into prices. Nobody wants to say the “R” word in the US.
Biggest default in history? Wouldn’t the Russian default be bigger? Or…maybe the Spanish defaults in the 1400s? 
Personally, I think there are deals to be had also on the fixed income side. I just bought debt of a German bank at about a 6% discount to Par with a 7.25% coupon. I figure that if the second largest German bank fails, it’s Armageddon anyway.
BTW, where do you go to screen for bonds if you don’t have a BBG in front of you? I usually just look at bond indexes and treasury futures in my stuff, but if I wanted to get more granular, do people have recommendations?
I use my brokerages Bond screeners; anyone else have a website site that accomplishes this?
BuySideWannabe Wrote: ------------------------------------------------------- > I’m praying we see a sharp rally soon so that I > can sell some of my portfolio and get the hell out > of the equity market… I’m very bearish, and I > believe we have lots of downside risk over the > next year or two… > > This week has absolutely crushed me, especially > since i thought of selling some stuff last > week…but figured I’d wait a bit longer…baddd > idea on my part. > > let’s hope for some good news for tomorrow. You got your bounce from Bernanke’s comments hinting at more central planning. The market went from down -2.27% to now only down -.75%, so there you go, it is as good as its gonna get I’m afraid. Of course, you could wait until Bernnake announces a LSAP program, but at that point it will signal the final end to this debt fueled craze, as inflation runs wild. So either way you are screwed, and I wouldn’t mess around with trying to get a few points higher in order to exit the fraudulent, HFT driven, sad excuse for a US equity market.
equity_analyst Wrote: ------------------------------------------------------- > Of course, you could wait until Bernnake announces > a LSAP program, but at that point it will signal > the final end to this debt fueled craze, as > inflation runs wild. Ahhh the inflation monster is coming!!! Loud noises!!! All of human monetary history is a “debt-fueled craze” by your definition. That’s just another phrase for the concept that “the economy grows over time and people own financial assets to divvy that growth up among themselves”. The fact that interest rates are low and debt/savings high and more spread out is just indicative of a different ownership structure of the existing asset base. The preconditions for hyperinflation are quite different from those in place today as has been discussed ad nauseum on this forum.
So how do you think we are going to get rid of the debt that is strangling the system currently (and note, I did not say hyperinflation)? What options are available?
equity_analyst Wrote: ------------------------------------------------------- > So how do you think we are going to get rid of the > debt that is strangling the system currently (and > note, I did not say hyperinflation)? > > What options are available? Reset to zero and start over?
equity_analyst Wrote: ------------------------------------------------------- > So how do you think we are going to get rid of the > debt that is strangling the system currently (and > note, I did not say hyperinflation)? Just replace the word “hyperinflation” with the phrase “inflation that has run wild” in my original statement then. Semantics. > What options are available? We are never going to “get rid” of debt. Money is debt. Without credit there is no economy. Debt is a way of keeping track of who owes what to whom. Think it is all owed to Mars? Over time debt vanishes due to growth. Ever called up and complained to your grandparents about 120% public debt/GDP they left you post WW2? I didn’t think so. When the dust settles around the negotiations over who owns the assets things will normalize. It’s a gigantic world game of Monopoly with a fixed pie bias.
Dwight: “Without credit there is no economy.” I find this hard to believe. I do understand that the the creation of public debt is a way to expand the economy by creating an asset that can be considered almost as good as currency. But sometimes the difference between it being “almost currency” and “actual currency” becomes a major issue, and we may be entering one of those times. Societies had economies before the invention of credit. You had production, you had barter, and you had taxation and you had coinage long before a modern banking system with exchangeable debts. And yes, the ancient Summerians had clay records of who owed how many cows to whom, but you didn’t have tradable public debt securities until the 1400s, and this seems to be what you really mean when you talk about the essentialness of credit. I’m happy to agree that credit helps lubricate the economy and make it run more smoothly, by making sure that barter and money transactions don’t have to match up perfectly in timing in order to happen, but you sound like you are asserting something deeper about the connection between credit and the economy.
bchadwick Wrote: ------------------------------------------------------- > Dwight: “Without credit there is no economy.” > > Societies had economies before the invention of > credit. You had production, you had barter, and > you had taxation and you had coinage long before a > modern banking system with exchangeable debts. > And yes, the ancient Summerians had clay records > of who owed how many cows to whom, but you didn’t > have tradable public debt securities until the > 1400s, and this seems to be what you really mean > when you talk about the essentialness of credit. Modern credit is different than it was in the dark age yes, but buying something on credit has existed as long as barter, etc. Societies often used to use sticks with notches to keep track of who owed whom. I would maintain that one of the earliest human inventions was credit. > I’m happy to agree that credit helps lubricate the > economy and make it run more smoothly, by making > sure that barter and money transactions don’t have > to match up perfectly in timing in order to > happen, but you sound like you are asserting > something deeper about the connection between > credit and the economy. Money transactions by definition do not have to match up perfectly in timing as the money represents a promise to pay something in the future. Interestingly UK currency used to be stamped “I promise to pay on demand to the bearer the sum of one pound” which illustrated this point nicely. Barter transactions were found to be very ineffective even in small tribes, which is why elaborate systems of credit have evolved in every society. My deeper point is that the poster in question has not stumbled upon some new phenomenon of debt that is going to bring down the world. For example, what if we all of the sudden forgave every debt outstanding in the world. Would things be better off? Worse off?
smells like ZH in here…
Dwight Wrote: ------------------------------------------------------- > equity_analyst Wrote: > -------------------------------------------------- > ----- > > So how do you think we are going to get rid of > the > > debt that is strangling the system currently > (and > > note, I did not say hyperinflation)? > > Just replace the word “hyperinflation” with the > phrase “inflation that has run wild” in my > original statement then. Semantics. > > > What options are available? > > We are never going to “get rid” of debt. Money is > debt. Without credit there is no economy. Debt > is a way of keeping track of who owes what to > whom. Think it is all owed to Mars? > > Over time debt vanishes due to growth. Ever > called up and complained to your grandparents > about 120% public debt/GDP they left you post WW2? > I didn’t think so. > > When the dust settles around the negotiations over > who owns the assets things will normalize. It’s a > gigantic world game of Monopoly with a fixed pie > bias. Who’s owed what is irrelevant. The fact is the debt can’t be paid, so losses must be absorbed. So who is going to absord those losses and do they have the capital base to do so? And your implicit assumption is that GDP is growing faster than debt, thus, the debt can be repaid. However, it is clear that the debt has grown to a point where growing the economy to service that debt is impossible. That is the flaw with your argument. And so here we are. Greece is the perfect example–projections were that debt/GDP would fall as asuterity measures were introduced, but exactly the opposite has occured and the Greek economy is going further into depression. On a global basis things are no different–as there will be no “growing” our way out of debt when GDP can’t keep pace with it. That is where we are now and there is no way out.
equity_analyst Wrote: ------------------------------------------------------- > Who’s owed what is irrelevant. I couldn’t disagree more. Ever consider how the PIIGS got into so much trouble? They had large capital inflows once the Euro was instituted and those reversed in the crisis. The crisis has nothing to do with debt and everything to do with the structure of the Euro which invites speculative attacks in the market and does not provide a reasonable backdrop of a functional currency and protection of property rights needed for capitalism to function. Ask yourself why is the Eurozone in trouble when it has less debt relative to production than the US or Japan? How about why are Ireland and Spain in trouble even though they ran budget surpluses for most of the 2000s while Germany and Austria ran some of the largest deficits during the same time period? I would say who owes who is the most important factor of all in this. > The fact is the debt can’t be paid, so losses must > be absorbed. This is a moralistic point of view rather than one based on fact and an understanding of the actual dynamics of the system. “We were bad and need to pay for our sins” etc. It is simply not true. Debt is a human invention to keep track of assets and liabilities. There is no more reason to endure a liquidity trap by choice than there is to try to put an anorexic person on a diet. > So who is going to absord those losses and do they > have the capital base to do so? > > And your implicit assumption is that GDP is > growing faster than debt, thus, the debt can be > repaid. > > However, it is clear that the debt has grown to a > point where growing the economy to service that > debt is impossible. This is also false. Why is Japan growing slowly, has debt of 220% of production, yet has rock bottom interest rates and deflation? Your neoclassical economic model is broken my friend. > That is the flaw with your argument. > > And so here we are. > > Greece is the perfect example–projections were > that debt/GDP would fall as asuterity measures > were introduced, but exactly the opposite has > occured and the Greek economy is going further > into depression. Greece is the perfect example of why austerity does not work to pay down debt. That’s it. Yet you would have us embrace a future similar to Greece like mindless lemmings. Try reading some history of the late 1930s with an open mind. News articles from that period are informative as well. > On a global basis things are no different–as > there will be no “growing” our way out of debt > when GDP can’t keep pace with it. > > That is where we are now and there is no way out. I’d pity your sad dreamworld if you weren’t so gleeful about it.
@ dwight I am not going to address all the issues you stated as it will be a rehash of earlier interactions. I do agree with some of your comments but Japan, IMO is different because most Japanese debt is owned by it’s citizens. It is in their best interest to buy their debt. The only reason that Japan has managed to grow is that it is still a “producing” economy like Germany.
Dwight, you’re usually alone in your thinking. You have a very radical thought process when it comes to debt and paying back obligations. Is that what you tell your bank when they try to collect on their loans? “What’s owed is not relevant.” Is that what you tell them? LOL
ManMythLegend Wrote: ------------------------------------------------------- > Dwight, you’re usually alone in your thinking. > You have a very radical thought process when it > comes to debt and paying back obligations. OK… so I am wrong because of what? Explain yourself rather than saying “you are alone in your thinking”. If you have something to add to the conversation then out with it. > is that what you tell your bank when they try to > collect on their loans? “What’s owed is not > relevant.” Is that what you tell them? LOL Nope. That is what equity analyst tells them though according to above. Try reading the post next time. equity_analyst Wrote: ------------------------------------------------------- > Who’s owed what is irrelevant.
C3Po Wrote: ------------------------------------------------------- > @ dwight > > I am not going to address all the issues you > stated as it will be a rehash of earlier > interactions. I do agree with some of your > comments but Japan, IMO is different because most > Japanese debt is owned by it’s citizens. It is in > their best interest to buy their debt. The only > reason that Japan has managed to grow is that it > is still a “producing” economy like Germany. C3Po: nope that’s not why. Italy also owes the vast majority of its debt to its own citizens. It is very much in their best interests to buy their debt. Yet Italy is having problems financing itself. Why?