What do you see happening if the U.S. defaulted on its debt? 1 1

[numisport]

Outside the political aspect to me it just means print more money, run away inflation and goodbye to your retirement savings. Might be that the only thing of value I have left is my family and my coins.

[VKurtB]

On 6/4/2023 at 1:29 PM, numisport said:

Outside the political aspect to me it just means print more money, run away inflation and goodbye to your retirement savings. Might be that the only thing of value I have left is my family and my coins.

Hmm. Interesting. My pension MIGHT SOMEDAY have a COLA, but they haven’t had one for many years. Luckily, my mortgage ALSO never goes up, so inflation has little impact on my housing costs. Social Security DOES have an annual COLA, and that pays for quite a lot. Inflation? For me, it’s a wash.

[Henri Charriere]

On 5/19/2023 at 8:51 AM, World Colonial said:

.... Everyone knows the USG can always pay its debts by "printing" if necessary....

I would like to go on record as saying not for one second do I believe this provocative assertion.

I have since seen the projections for the next two years and see wild galloping reined in to a tame trot. (If the ceiling were stopped dead in its tracks, what would the interest payments on its humongous amount be?)

The good news is nobody loses regardless who wins.  One will claim, "I didn't have the support of Congress," and the other, with a straight-face, will say, "Hey, I inherited this problem from my predecessor."  I don't regard these as political observations and wouldn't want it to be construed as such.  It is a simple recognition of human nature coupled with economic factors which are always in a state of flux.

 

[GoldFinger1969]

On 6/4/2023 at 2:29 PM, numisport said:

Outside the political aspect to me it just means print more money, run away inflation and goodbye to your retirement savings. Might be that the only thing of value I have left is my family and my coins.

Probably be decades if not longer before it all hits the fan.  Took 30 years for Greece's profligate ways to wreck the economy....a global financial reserve currency superpower will take far longer. 

[GoldFinger1969]

5% 10-Year Treasury Bond:  Forget about default, the surging supply has resulted in the long yields ripping higher.  Lots of good values in bond funds and fixed-income vehicles, if anybody is interested post below or start a new thread in the appropriate section where we can discuss financial investments.

[Zebo]

On 10/19/2023 at 11:57 PM, GoldFinger1969 said:

5% 10-Year Treasury Bond:  Forget about default, the surging supply has resulted in the long yields ripping higher.  Lots of good values in bond funds and fixed-income vehicles, if anybody is interested post below or start a new thread in the appropriate section where we can discuss financial investments.

Short term money moving longer to take advantage. Possibly

[World Colonial]

On 10/19/2023 at 11:57 PM, GoldFinger1969 said:

5% 10-Year Treasury Bond:  Forget about default, the surging supply has resulted in the long yields ripping higher.  Lots of good values in bond funds and fixed-income vehicles, if anybody is interested post below or start a new thread in the appropriate section where we can discuss financial investments.

Temporary value, depending upon the maturity/duration and credit quality.

There has been a "blood bath" in USG bonds, with TLT ETF losing over 50% (not including interest payments) since the peak in 2020.  That's as bad as the S&P during the GFC.

The bond mania almost certainly peaked in 2020 after a 39=year bull market.  This means rates are destined to "blow out" past the 1981 high years from now, as the economic "fundamentals" are actually mediocre to awful.

So, yes, closer to an interim peak in yields and low in prices, for higher quality debt, not necessarily "junk" which is actually most of what's out there given the extended history of sub-basement credit standards masquerading as "prudent".

[GoldFinger1969]

On 10/20/2023 at 3:48 AM, Zebo said:

Short term money moving longer to take advantage. Possibly

Yes, for the first time in 15 years or more you get a nice yield in a money market fund.  The problem is.....when the Fed starts to cut or if there is any financial accident (harder to predict), the Fed will ease.

The "good" news is that we probably aren't going back to ZIRP.  Even cuts and then a freeze to a 3-3.5% Fed Funds will probably have money market funds yield in the 3's if not low-4's.

[GoldFinger1969]

On 10/20/2023 at 10:10 AM, World Colonial said:

Temporary value, depending upon the maturity/duration and credit quality.  There has been a "blood bath" in USG bonds, with TLT ETF losing over 50% (not including interest payments) since the peak in 2020.  That's as bad as the S&P during the GFC.

That's the 30-year Treasury with a duration of over 25 years.  So the losses aren't surprising.  Unlike the S&P 500, you are guaranteed to get your money back and get the return on the original coupon.  Small blessing ! 

On 10/20/2023 at 10:10 AM, World Colonial said:

The bond mania almost certainly peaked in 2020 after a 39=year bull market.  This means rates are destined to "blow out" past the 1981 high years from now, as the economic "fundamentals" are actually mediocre to awful. So, yes, closer to an interim peak in yields and low in prices, for higher quality debt, not necessarily "junk" which is actually most of what's out there given the extended history of sub-basement credit standards masquerading as "prudent".

Actually, most of the "junk" bonds are higher-quality junk as opposed to stuff we saw in the past.  Credit quality is actually pretty good.

It is hard to talk about blowing past a 15% 10 or 30-year bond yield.  I know Rick Santelli on CNBC was predicting double-digit rates by 2030 or something like that, but it took DECADES after WW II for rates to move up that high.  It was a different era...where you learned about bond yields the next day in the financial section....today everybody knows within seconds.

The Bond Vigilantes -- remember them ? -- may rise yields enough to slow GDP growth such that inflation and even real rates do not jack up nominal yields.

 

[World Colonial]

On 10/20/2023 at 10:55 AM, GoldFinger1969 said:

Actually, most of the "junk" bonds are higher-quality junk as opposed to stuff we saw in the past.  Credit quality is actually pretty good

That's because everyone is looking in the rear-view mirror.

Debt coverage is or at least was generally good, thanks to artificially low borrowing costs and inflated earnings from a fake economy, mostly from government deficit spending.

Wait and see how great this credit quality looks with much higher rates and lower earnings.  

On 10/20/2023 at 10:55 AM, GoldFinger1969 said:

It is hard to talk about blowing past a 15% 10 or 30-year bond yield. 

It's a process, not an event.  No market moves in a straight line forever.  We've been in a bond bear market for over three years.  

There will be a partial retracement lasting maybe up to a few years, maybe even longer but I doubt it.  I don't think the next rising phase will take UST rates to 15% but double digits are definitely feasible.

Most people don't believe this is likely or possible because they look at the environment and it looks good to "ok", depending upon the person's perception from their personal circumstances.

The "fundamentals" never look terrible at or near market peaks and vice versa because that's not how markets actually work.  

I can speculate on the type of environment which might exist in a future of much higher rates.  Both are the result of negative psychology, rates entirely since no one who knows what they are talking about can claim rates since at least 2008 are the result of the positive "fundamentals".  It's a mania.

The actual credit quality of the USG is the worst since at least WWII.  (My explanation for it is extensive economic and social decay, an attempt to prevent falling living standards and a belief in something for nothing.)  This is the benchmark for all other rates.  So yes, when this is widely acknowledged, it's easy to see how rates are destined to "blow out".

On 10/20/2023 at 10:55 AM, GoldFinger1969 said:

The Bond Vigilantes -- remember them ? -- may rise yields enough to slow GDP growth such that inflation and even real rates do not jack up nominal yields.

 

You seem to be describing some form of "equilibrium".  There is no such thing.

[GoldFinger1969]

I remember having lunch with Bill Dudley, Goldman's chief economist and later president of the NY Fed, years ago....he said some trends were simply uninvestable, like a slow gradual rise in rates like we saw from 1945-1966.  Unless you use leverage, you can get the direction right and still find it hard to profit.

[zadok]

On 10/20/2023 at 8:30 PM, GoldFinger1969 said:

I remember having lunch with Bill Dudley, Goldman's chief economist and later president of the NY Fed, years ago....he said some trends were simply uninvestable, like a slow gradual rise in rates like we saw from 1945-1966.  Unless you use leverage, you can get the direction right and still find it hard to profit.

...im a bit on the sloooow side, does that mean i should continue to hold onto my S & H green stamps or cash them in?....

[GoldFinger1969]

On 10/21/2023 at 8:39 PM, zadok said:

...im a bit on the sloooow side, does that mean i should continue to hold onto my S & H green stamps or cash them in?....

I think my grandparents got those from their old A&P supermarket !! 

[zadok]

On 10/22/2023 at 11:27 AM, GoldFinger1969 said:

I think my grandparents got those from their old A&P supermarket !! 

...yep, atlantic n pacific, both big ponds....

[World Colonial]

On 10/20/2023 at 8:30 PM, GoldFinger1969 said:

I remember having lunch with Bill Dudley, Goldman's chief economist and later president of the NY Fed, years ago....he said some trends were simply uninvestable, like a slow gradual rise in rates like we saw from 1945-1966.  Unless you use leverage, you can get the direction right and still find it hard to profit.

Agree, except that when the next phase of the rate cycle takes off, I'll take the "over" on rates moving faster than what's happened since 2020.

I expect it to coincide with the recognition of the actually mediocre to awful "fundamentals" which substantially exist now.

[GoldFinger1969]

On 10/23/2023 at 8:20 PM, World Colonial said:

Agree, except that when the next phase of the rate cycle takes off, I'll take the "over" on rates moving faster than what's happened since 2020.

I expect it to coincide with the recognition of the actually mediocre to awful "fundamentals" which substantially exist now.

We've already had a a record rise in Fed Funds and the 10-year Treasury yield.  From 0.25% and 0.5% a few years ago.  Even if you use the 10-year rate from 18 months ago....it's doubled.  Those are BIG moves percentage-wise and in absolute terms, too.

"Highest rates in 15 or more years" is something we haven't said/seen in decades. 

[World Colonial]

On 10/24/2023 at 2:21 AM, GoldFinger1969 said:

We've already had a a record rise in Fed Funds and the 10-year Treasury yield.  From 0.25% and 0.5% a few years ago.  Even if you use the 10-year rate from 18 months ago....it's doubled.  Those are BIG moves percentage-wise and in absolute terms, too.

"Highest rates in 15 or more years" is something we haven't said/seen in decades. 

Yes, and this is only the beginning if the cycle actually ended in 2020 as it almost certainly did.

Any inference that a 39-year cycle (1981-2020) ended or fully "corrected" with a measly 3+ year advance especially when the actual "fundamentals" are mediocre to terrible is nonsensical.  It's a complete fantasy.

I also know it's contrary to the personal preference of most of the US population but there you have it.

Interest rates aren't "high". Current rates are more typical of what existed prior to the late 60's (or near it) when lending standards and credit quality were actually "normal", except that both are now at (sub-)basement levels in the aggregate.  "Normality" completely ended with deranged fiscal and monetary policy starting no later than 2008.  (It was hardly "normal" prior to that either.)

The primary reason this increase hasn't impacted the economy as many expected is precisely because lending standards are still very lax meaning it isn't actually hard to borrow, for hardly anyone.

That's coming later.

[GoldFinger1969]

On 10/24/2023 at 3:06 PM, World Colonial said:

Yes, and this is only the beginning if the cycle actually ended in 2020 as it almost certainly did. Any inference that a 39-year cycle (1981-2020) ended or fully "corrected" with a measly 3+ year advance especially when the actual "fundamentals" are mediocre to terrible is nonsensical.  It's a complete fantasy.  I also know it's contrary to the personal preference of most of the US population but there you have it.  Interest rates aren't "high". Current rates are more typical of what existed prior to the late 60's (or near it) when lending standards and credit quality   were actually "normal", except that both are now at (sub-)basement levels in the aggregate.  "Normality" completely ended with deranged fiscal and monetary policy starting no later than 2008.  (It was hardly "normal" prior to that either.)  The primary reason this increase hasn't impacted the economy as many expected is precisely because lending standards are still very lax meaning it isn't actually hard to borrow, for hardly anyone. That's coming later.

The jury is still out on if we are reversing the 40-year tailwinds we had for keeping inflation low.  China, demographics, and free trade are being slowly unwound.  India and other Asian countries may or may not pick up the slack.  AI may be a great productivity enahancer which could be the equivalent of cheap energy after 1981 but we'll have to see.

That said, we went from 2% to 4% from 1946 to 1966 on the 20-year Treasury.  The 1970's came much later.  Even if we eventually hit double-digits on rates, it will probably be many years or even a decade from now.  We're not going straight up in a short time period.

Stocks should be good investments and durations of 5-7 years will serve most well in fixed-income.

[zadok]

On 10/25/2023 at 2:03 AM, GoldFinger1969 said:

The jury is still out on if we are reversing the 40-year tailwinds we had for keeping inflation low.  China, demographics, and free trade are being slowly unwound.  India and other Asian countries may or may not pick up the slack.  AI may be a great productivity enahancer which could be the equivalent of cheap energy after 1981 but we'll have to see.

That said, we went from 2% to 4% from 1946 to 1966 on the 20-year Treasury.  The 1970's came much later.  Even if we eventually hit double-digits on rates, it will probably be many years or even a decade from now.  We're not going straight up in a short time period.

Stocks should be good investments and durations of 5-7 years will serve most well in fixed-income.

...i listen, sometimes i learn, mostly i have more questions...my unfounded thoughts, both stocks n bonds just seem to be too easily manipulated n r reactionarily inconsistent? stocks seem to be overly influenced by the large hedge funds? bonds seem to be overly influenced by political bias? why do we believe that US markets r world markets? markets, gold, oil other benchmarks should have a defined relationship that is predictable? things that u cant pick up n hold or trade for other things seem more like blind faith? certain things that r essential to life r the only real things all else is perceived? just to keep this thread numismatical, coins bottom line is they can either be spent or melted?...one more thought, india's priorities r much different than china's....

 

Edited October 25, 2023 by zadok
spelling

[World Colonial]

On 10/25/2023 at 2:03 AM, GoldFinger1969 said:

The jury is still out on if we are reversing the 40-year tailwinds we had for keeping inflation low.  China, demographics, and free trade are being slowly unwound.  India and other Asian countries may or may not pick up the slack.  AI may be a great productivity enahancer which could be the equivalent of cheap energy after 1981 but we'll have to see.

No "fundamentals" explain interest rates or any other market price during this manic period.  It's a rationalization.  The "fundamentals" aren't and weren't actually better versus your prior reference period (1942-1966) either but even if it was, the differences in market prices are completely disproportionate.

I've explained to you why I don't use "fundamentals" to try to predict market prices.  It's because you're left to predict your own indicators when the supposed predictive indicator mostly or entirely doesn't have anything to do with the price covered by the forecast.

On 10/25/2023 at 2:03 AM, GoldFinger1969 said:

That said, we went from 2% to 4% from 1946 to 1966 on the 20-year Treasury.  The 1970's came much later.  Even if we eventually hit double-digits on rates, it will probably be many years or even a decade from now.  We're not going straight up in a short time period.

Even if your precedent was correct, we've already had your baseline period of low rates, 2008-2020 if not back to 2001 or 2002.  Believing we're going to have another multiple decades of artificially cheap money with the current (sub) basement level credit standards we've had the entire time makes no sense.  (Yes, I know Japan had it, doesn't have anything to do with the US.  US commentators selectively cherry pick results they like from elsewhere while ignoring those they don't.)

On 10/25/2023 at 2:03 AM, GoldFinger1969 said:

Stocks should be good investments and durations of 5-7 years will serve most well in fixed-income.

The US stock market is still in its biggest bubble ever with your preferred indicator (the P/E ratio) distorted by a fake economy from deranged fiscal and monetary policy.  However, I'm not convinced it's over, yet.  Long-term optimism is still pinned to the ceiling and performance is fractured (both of which are bearish) but the primary averages have held up anyway, again.

Someone will probably do ok with a duration of 5-7 years at current levels, but any surprises should be to the downside.

[GoldFinger1969]

On 10/25/2023 at 9:36 AM, zadok said:

...i listen, sometimes i learn, mostly i have more questions...my unfounded thoughts, both stocks n bonds just seem to be too easily manipulated n r reactionarily inconsistent? stocks seem to be overly influenced by the large hedge funds? bonds seem to be overly influenced by political bias?

No, don't believe the hype from some Gold Bugs I debate here and there.  Yes, stocks are sometimes volatile for no reason (i.e., Flash Crash); other times, they are volatile FOR a reason (i.e., 2020 Pandemic).  Hedge funds are a bogeyman.  They do dominate trading and especially high-frequency trading (haven't heard much of that lately....hmmmm).  But like Warren Buffet says....in the short-term, the stock market is a voting machine, in the long term, a weighing machine. 

On 10/25/2023 at 9:36 AM, zadok said:

bonds seem to be overly influenced by political bias? why do we believe that US markets r world markets? markets, gold, oil other benchmarks should have a defined relationship that is predictable? things that u cant pick up n hold or trade for other things seem more like blind faith? certain things that r essential to life r the only real things all else is perceived? just to keep this thread numismatical, coins bottom line is they can either be spent or melted?...one more thought, india's priorities r much different than china's....

Different markets have different factors at times.  When 10-year Treasuries were at 0.5%, they were there because of pandemic fears....the market WANTED higher rates because it was consistent with a removal of the "fear trade" with $$$ moving into UST.  Today, we have rates closing in on 5% and the market is scared.  Somewhere between 0.5% and 5%, the market decided rates were high enough and going higher was no longer good for stocks.

Can't have defined relationships either among U.S. asset classes (like stocks vs. UST) and world asset classes....just like you can't say Saints will benefit from rising Lincoln Penny or MSD prices.  Sure, a "rising tide lifts all boats" so maybe if all U.S. coins are going up then Saints would too.  But not necessarily (i.e., a move up in coins that aren't PMs).  Same thing with all the different things you cited.

Big change now is the end of ZIRP -- Zero Interest Rate Policies -- going back to rate levels pre-2008 Great Financial Crisis (GFC).  It was 15 years ago...lots of people forgot.  What are stocks worth if you can get 5% in a money market fund or 6-8% in investment grade bonds with a tiny amount of high-yield ?   What are long-duration stocks that don't pay dividends (i.e., tech) worth ?  What are dividend-paying stocks worth ?

Nobody remembers !! 

Bitcoin wasn't around pre-GFC...crypto and BitCoin are a trillion-dollar market.  Is the money going there coming from art....coins....gold & PMs....UST....stocks...what ?  All guesses.

Check out these charts.  Looks high if you go back a decade or a bit longer....but looks like we're returning to the post-WW II levels and could go up another 100-200 bp without threatening the late-1970's/early-1980's levels, right ?  Problem is, stocks can't take another 100-200 bp.