Do you think US treasuries are still safe?

[HFWR]

The Shadow knows...

 

[Nords]

I'll have to look that one up. Can you summarize it a bit less succinctly? I know the gold standard has problems -- e.g. you can't expand the money supply to finance growth in good economic times -- but obviously a non-gold standard has problems too.

Lemme see if I have this right:
- I'm a voracious omnivorous reader
- I've spent a few years on this board building some credibility
- I've recommended a prize-winning book on economic history, along with a dozen or so other titles
- I've chosen books that I've read from the library so that you can easily access them
- I've intimated that it's one of the best books I've read in a long time
- You already know how the story ends

... and you want the Cliff's Notes version?!?

One more hint:
War reparations = bad.

You're welcome. Now go find your damn library card and do the work.

 

[clifp]

... and you want the Cliff's Notes version?!?

One more hint:
War reparations = bad.

You're welcome. Now go find your damn library card and do the work.

Clif's Notes is that is a very good reading list, but I have to finish your book first.

 

[donheff]

Lemme see if I have this right:
- I've recommended a prize-winning book on economic history, along with a dozen or so other titles
- I've intimated that it's one of the best books I've read in a long time

... and you want the Cliff's Notes version?!?

Now go find your damn library card and do the work.

I wanted the Cliff Notes too but I put a hold on an ebook version of Lords of Finance at the library. That is the one you intimated was a best read, right?

 

[Gone4Good]

So some things match the CPI very well, some are much more expensive than the CPI would predict.

And, don't forget, some things are much cheaper . . . like 19 inch color TVs that should sell for $400 today. That is exactly what you expect from any average, some higher, some lower and some right in the middle.

 

[DoraM]

And, don't forget, some things are much cheaper . . . like 19 inch color TVs that should sell for $400 today. That is exactly what you expect from any average, some higher, some lower and some right in the middle.

Imagine what a 1 Terabyte hard drive would have sold for in 1987! $10,000? What are they today? $100? That would seem to indicate the real inflation rate is actually deflation at more than 20%.

 

[brewer12345]

And, don't forget, some things are much cheaper . . . like 19 inch color TVs that should sell for $400 today. That is exactly what you expect from any average, some higher, some lower and some right in the middle.

Oh, so they have gotten to you, too? Here, quick, put this tinfoil helmet on. Now let's get those fillings out. Hand me those needle-nose pliers...

 

[GaryInCO]

Nords, I wasn't demanding you do my work for me. I read a lot, and I'll get that on my list. But I'm NOT retired, I have to w*rk a distressing number of hours every day, and I have kids which are another huge time sink. It's likely to be a while before I can squeeze a new book into my available time, and by that time this discussion will be long gone. In order to facilitate the current discussion I thought a summary of more than 3 words (and one symbol ) might be helpful.

G4G, yup, technology advances dramatically drive down the cost of some items. But again I'm thinking of the things people buy almost every day (food, fuel, etc) vs. the much less frequent purchases (houses, TVs, 1TB drives). The day-to-day purchases seem to be going up a lot more.

 

[GusLevy]

The argument that we must preemptively destroy the economy today to prevent a far-from-certain destruction some time in the unknowable future, which is entirely avoidable through other means, is not a defensible position, in my view. And not really worthy of debate.

I suppose that I will give you the benefit of the doubt and trust that you have some iota of intelligence by intentionally throwing out a red herring to deflect away from your infantile ad hominem attacks - otherwise as this is basically an anonymous chat board it is a rather silly tactic.

Nobody is making the argument to destroy anything by having the US Trsy preemptively default except in your note above. The argument, if there is one, is that difficult economic and political decisions must be made today in order to impede the US Trsy from reaching the point where they are indeed left with only two options: 1) to default on debt to maintain currency value, or 2) to protect their assets by printing endless supplies of cash to pay off debts which creates hyperinflation and destroys the wealth of the citizens. The fact that gold is trading at near all-time highs, that all the rating agencies are openly discussing downgrading UST debt, that we are days away from technical stoppage of US Govt due to debt limits, that the Fed is the second largest holder of UST debt to artifically maintain low interest rates, etc. are reasons why not only is a debate on the fundamentals of controlling US Trsy debt necessary, but in fact have already well begun with or without you.

 

[brewer12345]

I suppose that I will give you the benefit of the doubt and trust that you have some iota of intelligence by intentionally throwing out a red herring to deflect away from your infantile ad hominem attacks - otherwise as this is basically an anonymous chat board it is a rather silly tactic.

Nobody is making the argument to destroy anything by having the US Trsy preemptively default except in your note above. The argument, if there is one, is that difficult economic and political decisions must be made today in order to impede the US Trsy from reaching the point where they are indeed left with only two options: 1) to default on debt to maintain currency value, or 2) to protect their assets by printing endless supplies of cash to pay off debts which creates hyperinflation and destroys the wealth of the citizens. The fact that gold is trading at near all-time highs, that all the rating agencies are openly discussing downgrading UST debt, that we are days away from technical stoppage of US Govt due to debt limits, that the Fed is the second largest holder of UST debt to artifically maintain low interest rates, etc. are reasons why not only is a debate on the fundamentals of controlling US Trsy debt necessary, but in fact have already well begun with or without you.

And now we have a fly floating down the river on its back with an erection shouting, "Raise the drawbridge!"

 

[HFWR]

I suppose that I will give you the benefit of the doubt and trust that you have some iota of intelligence by intentionally throwing out a red herring to deflect away from your infantile ad hominem attacks - otherwise as this is basically an anonymous chat board it is a rather silly tactic.

Nobody is making the argument to destroy anything by having the US Trsy preemptively default except in your note above. The argument, if there is one, is that difficult economic and political decisions must be made today in order to impede the US Trsy from reaching the point where they are indeed left with only two options: 1) to default on debt to maintain currency value, or 2) to protect their assets by printing endless supplies of cash to pay off debts which creates hyperinflation and destroys the wealth of the citizens. The fact that gold is trading at near all-time highs, that all the rating agencies are openly discussing downgrading UST debt, that we are days away from technical stoppage of US Govt due to debt limits, that the Fed is the second largest holder of UST debt to artifically maintain low interest rates, etc. are reasons why not only is a debate on the fundamentals of controlling US Trsy debt necessary, but in fact have already well begun with or without you.

Not many on this board, but plenty of politicians and pundits are pushing drastic cuts, which others feel are unnecessarily harsh, given reasonable projections and given the current circumstances. I think most people would be happy to see a glide path leading to better fiscal health in the long run, versus diving off a cliff...

 

[Nords]

That is the one you intimated was a best read, right?

Like a slow-motion train wreck.

My study of WWI history pretty much stopped at 1919, but reading "Lords of Finance" makes you realize how WWII really began then.

One of the best themes in the book is the occasional cameo by an enfant terrible on the lunatic fringe of the economic debate. His name was Keynes.

Bernstein's trade & history books are very enjoyable too. It's hard to believe that the same guy wrote "Intelligent Asset Allocation"...

 

[clifp]

s.

Bernstein's trade & history books are very enjoyable too. It's hard to believe that the same guy wrote "Intelligent Asset Allocation"...

I'll second that 4 Pillars was tough slog for me. In contrast, Bernstein's
Birth of Plenty was a delight to read.

 

[veremchuka]

On this page some posters seem to take delight in insulting other posters. Why? Can't this be discussed without this behavior? Too many threads have been locked lately due to behavior that was uncalled for. I regret some of my comments in the spouse cheating thread re the DSK discussion that may have contributed to that being locked. Let's stick to facts and not resort to insults.

 

[Gone4Good]

I suppose that I will give you the benefit of the doubt and trust that you have some iota of intelligence by intentionally throwing out a red herring to deflect away from your infantile ad hominem attacks - otherwise as this is basically an anonymous chat board it is a rather silly tactic.

As best I can tell, my 'infantile ad hominem attacks' relate to this statement . . .

But lately we've seen a rise of crazy people getting elected to higher office who argue that default wouldn't be a bad thing.

If you have a problem with the above comment, you can address it directly. To be clear, nothing in that statement references some hypothetical future as imagined by you. It's about actual people who argue that default today might be an acceptable way to control federal spending. I stand by my description of them as 'crazy.' I also stand by this next comment you've taken issue with as it relates to them (and possibly you, if you're rising in their defense) . . .

The argument that we must preemptively destroy the economy today to prevent a far-from-certain destruction some time in the unknowable future, which is entirely avoidable through other means, is not a defensible position, in my view. And not really worthy of debate.

 

[obgyn65]

Hello Mary - to answer your question, I am a very conservative investor (100% CD, muni or equivalent), and I do not trust US treasuries.

What do you think? How do you address the issue of diversification within your non-taxable accounts?

 

[Independent]

It's about actual people who argue that default today might be an acceptable way to control federal spending.

I pulled this out of your link

Republican Senator Pat Toomey has even introduced legislation directing the Treasury to prioritize debt service over other payments if the debt limit is not raised. It has 22 Republican co-sponsors in the Senate and 98 in the House of Representatives, although no members of the Republican leadership have backed it.

I find this "responsible" in our topsy turvy political world. It's not that I think the bondholders are more important than Social Security beneficiaries. I happen to believe the opposite.

But, default on bonds has unpredictable consequences. "Defaulting" on SS or other payments has more predictable, and more likely long-term favorable effects. If the checks don't arrive on time, I think we'll suddenly get very serious about spending vs. taxing trade-offs.

 

[Gone4Good]

I find this "responsible" in our topsy turvy political world.

The responsible thing for legislators to do is to pay for the spending that they vote for.

Toomey's approach may be preferable to an outright default, but it certainly could lead to that, among several other potentially dramatic consequences. I'd hardly call it responsible (even in quotes). Off the top of my head:

1) Increased principal default risk - Without the ability to increase total debt, Treasury will have to auction new debt simultaneously with the maturity of existing debt. A failed debt auction could result in a principal default.

2) Increased risk of interest default - Running the government on a cash flow basis, with no borrowing capacity, means a default is possible if revenues come in below forecasts. For fiscal 2009, actual revenues were $500 billion less than expected. What happens when an interest payment is due but revenues come in well below forecast?

3) Unpredictable economic impact - Federal spending will have to decline by roughly 10% of GDP immediately to fit within the debt ceiling limit. No government to my knowledge ever cut spending by so much, so quick outside of total collapse. The impact on the economy would be negative and unprecedented.

4) Unpredictable market reaction - Combine an increased risk of default and expectations of a sharp economic contraction with clear evidence that our government has ceased to function properly and financial markets will have every reason to panic.

5) Technical feasibility - It's not clear our sprawling government even has the technical capability to do this.

6) Political feasibility - If we can't get politicians to agree on simple things like raising the debt ceiling to accommodate the borrowing that THEIR LAWS REQUIRE, how on earth do we expect them to agree to prioritize a one-third budget cut that needs to be apportioned immediately. The entire government complex likely grinds to a halt (worsening #3 and #4)

 

[Gone4Good]

Another consequence occurs to me that is a bit more complex. Here we have a story about banks planning to reduce their use of Treasury securities for collateral because of the debt ceiling fight.

Combine that with a persuasive (if long) interview with Gary Gorton who argues that the financial crisis was largely caused by a run on the shadow banking system, which itself was caused by uncertainty over the quality of collateral provided for Repo transactions, and the like.

If financial markets start to ask for haircuts on Treasuries used as collateral, we could very well see 2008 all over again. And this time there will be nobody to blame but the politicians.

 

[GaryInCO]

Here's another opinion in the "are Treasuries safe" discussion:

The Second-Best Time in 40 Years to Short the Bond Market

Excerpts:

But with an ever-increasing supply of new bonds and shrinking demand, bond prices really have only one way to go...
Down.
When bond prices drop, the yield will soar. And with the yield on the 30-year Treasury bond dropping below 4.2% last week, we're now looking at the second-best time in the past 40 years to sell the government bond market short.

...

If there was ever a "pound the table" moment in the financial markets, this is it. Get out of Treasury bonds now. They are going lower.

 

[REWahoo]

Gary, you've posted several links to Stansberry Research. Perhaps the info you find there is accurate and predicts the future with 100% accuracy. Or perhaps you have some affiliation with the Stansberry organization?

Whatever, I think it only fair we point out Mr Stansberry and his organization have a very questionable history and he's been in serious trouble with the SEC. Here are just a couple of the hundreds of hits you'll find on Google:

Stansberry Research Reviews - Legit or Scam?
Porter Stansberry investment scam in SEC fraud action

 

[Gone4Good]

Perhaps the info you find there is accurate and predicts the future with 100% accuracy.

I think they're targeting 50% accuracy by being on each side of every trade. That, of course, gives them the ability to claim 100% accuracy because they'll always be able to point to a prediction that proved true (while conveniently ignoring the one that proved false). What's amazing is that anybody actually reads this stuff (except for it's pure entertainment value).

The good news, though, for bondholders, is all they have to do is wait until July and Stansberry will have a report out arguing that it's the best time in the world to buy long-bonds.

March 11, 2011

The dollar looks poised for a three-month rally, as I'll show you today.

April 8, 2011 (emphasis original)

for the first time, investors didn't flee to the safety of the dollar. . . .I think this drop is significant...
As an investor, I expect the existing trend to continue from our government... which is bad for the dollar and U.S. bonds.

May 10, 2011 - Why Stocks Rise When the Fed Stops Printing Money

The big fear in the market is this: What happens when the Fed stops printing money and starts raising interest rates? Won't stocks fall?
You'll be surprised...

I crunched the numbers and found, in recent times, stocks do surprisingly well when the Fed starts to hike interest rates.

June 7, 2011 - The Beginning of the Panic

At the end of this month, the Federal Reserve will stop buying Treasury bonds. That's the first time since March 2009 our economy will stand on its own two feet. And we expect that just like a child riding a bike without training wheels for the first time... it will crash.

 

[GaryInCO]

Gary, you've posted several links to Stansberry Research. Perhaps the info you find there is accurate and predicts the future with 100% accuracy. Or perhaps you have some affiliation with the Stansberry organization?

Only as a subscriber.

Whatever, I think it only fair we point out Mr Stansberry and his organization have a very questionable history and he's been in serious trouble with the SEC.

I think they publish some good analysis. I followed them peripherally for several years before subscribing to anything, and Stansberry in particular has been very good at predicting some fairly major economic/financial events. He made some (at the time extremely inflammatory and controversial) calls that turned out to be dead on the money: the GM bankruptcy (which he predicted at least 2 years in advance, when few others seriously considered it), the FNMA and Freddie Mac implosions (likewise), and others. I wish I had believed him when he started predicting those events, and shorted the stocks he recommended. I fear he will be equally accurate with his bleak analysis of the future of the dollar and the US economy -- it's been playing out just the way he called it for some time now.

Not all their analysis is good, certainly. I've tried subscribing to several of their pricey newsletters and canceled when I found (surprise) they didn't live up to the florid claims. I've quit doing that, since they've taken to retaining 10% of the subscription fee even if you cancel within 90 days. I made it clear to them that if they believed in their own product, they would offer full 100% guarantees to any disgruntled subscriber. Certainly they incur some overhead expenses in taking on a new subscriber -- but if their products were as good as they claim, cancellations would be a minor issue.

Some of their less-expensive letters are reasonably good, and the price/performance is much better. I've made good money in many of their recommendations, e.g. gold, silver, SJT, NLY, SA, many others. Of course I've lost money too but I've come out ahead overall.

I absolutely agree that they tend to post analysis on both sides of the issue (which he justifies by saying "I'm not going to pay these analysts a fortune for their market expertise, then dictate that they parrot my opinion in their letters"), then point to the one that was right.

I happen to agree with some (not all) of Stansberry's analysis and some (not all) of his politics. The link I posted was one I agreed with.

The links to his past exploits were enlightening -- thanks for that. I haven't dug deeply into his history. I'd already decided to let most of my subscriptions lapse, and that information strengthens my decision.

Gary

 

[Nords]

Certainly they incur some overhead expenses in taking on a new subscriber -- but if their products were as good as they claim, cancellations would be a minor issue.

It's the classic paradox of investment advice-- if it's so good, then why do they need to sell it instead of just enriching themselves by investing their own money?

I think free investment advice is worth what we pay for it. As the prices rise beyond that, though, the value doesn't keep up.

 

[GaryInCO]

I think they *do* enrich themselves with their own advice. All of their newsletter writers (that I know of anyway) appear to be pretty well-off. Of course that could be window-dressing.