Jim Rogers goes short 30 year bond

[doodle]

Jim Rogers has been pretty accurate on long term trends throughout his investing career. I've read all of his books and haven't found many instances where he has been wrong.
http://www.cnbc.com/id/43628669

[Tortoise]

A complete prediction requires at least two pieces of information: (1) What is going to happen, and (2) when it is going to happen.

Regarding what, Rogers says he predicts long-term U.S. Treasury interest rates are going to rise.

Regarding when, he says "eventually." Not very specific.

But he says quantitative easing cannot go on forever. "Eventually, even the Fed is going to have to throw in the towel because they're turning themselves into bankruptcy as well."

The problem with a prediction's lack of a "when" is that investors have no idea when a bet on the prediction is supposed to pay off. Even if everyone is 100% sure it will eventually pay off, in the meantime they run the risk of suffering losses waiting for the "inevitable" to happen--perhaps in 1, 5, 10, or even 20 years. Nobody knows.

Like all predictions lacking a "when," Rogers' prediction hides behind a shield of ambiguity. Like circular logic, it is impossible to refute it: If it hasn't happened, regardless of how long we've been waiting, it's because it simply hasn't happened yet. And if it happens at any point in the future, it's because Jim Rogers told us so. Heads Rogers wins, tails he doesn't lose.

[MediumTex]

...and how do you fit Japan into Rogers' thesis?

Rogers is an entertainer.  He says provocative things and it keeps his name in the news.

I understand his argument, but there is nothing inevitable about the conclusions he draws from the argument.

[AdamA]

Rogers is an entertainer.  He says provocative things and it keeps his name in the news.

Whenever I hear about a pundit making a prediction like this, it makes me want to bet against it. 

I'd love to track the one-year performance of whatever various pundits are bullish or bearish on.  I'll bet you could set up a decent portfolio this way, doing the opposite of whatever was recommended and then getting out of your position after a year or two.  "The Pundit Portfolio." 

 

[melveyr]

Jim Rogers spouts nonsense all of the time.

It really annoys me when he talks about the fed or the government "going bankrupt." He may want a gold standard for the United States, but that doesn't mean we have one. He really doesn't understand the basics of a fiat monetary system.

[MediumTex]

Anyone who followed Rogers and shorted the 30 years bond is hurting a lot right now.

Rogers' timing couldn't have been a lot worse.

[moda0306]

As the debt-ceiling issue draws nearer and nearer (which is starting to actually scare me), the bond market is giving a big middle finger to conventional wisdom.

A small part of me wants to see default just to see what the PP does.  I will stress that 99.9% of me hates our country being held hostage like this... I'm just saying that it's so fun to throw crap at the PP and see what it does.

[moda0306]

I don't carry the usual "pundit" worries about US debt, but I very much wonder whether the Republicans will actually shoot the hostage (and whether the dem's will actually allow the hostage to be shot).

The big question is, what will Gold do?  I wouldn't be surprised if it would go to $2,000 within a couple weeks.

Any other predictions?

I'm also interested in what will happen as this fiasco draws nearer and nearer... when are the gold/bond markets going to start moving (or has gold already started)?

What happens the day the issue is resolved might tell us how much of the movements lately have been due to the debt ceiling vote fiasco.

[AdamA]

I don't carry the usual "pundit" worries about US debt, but I very much wonder whether the Republicans will actually shoot the hostage (and whether the dem's will actually allow the hostage to be shot).

The big question is, what will Gold do?  I wouldn't be surprised if it would go to $2,000 within a couple weeks.

Any other predictions?

I'm also interested in what will happen as this fiasco draws nearer and nearer... when are the gold/bond markets going to start moving (or has gold already started)?

What happens the day the issue is resolved might tell us how much of the movements lately have been due to the debt ceiling vote fiasco.

My bet is that in the near term (next six months), this doesn't move the markets at all.  If there are any big moves in any direction, I think they'll reverse quickly (a few days).

I think the smart money is already where it wants to be, and I don't see these theatrics changing much of anything. 

[Storm]

The debt ceiling debate is so politicized right now - it's blatantly obvious that the Republicans want to just raise it "a tiny bit" so they can force us to go through this again in an election year and hope to damage Obama's reputation as much as possible.

What sickens me is that they would risk the strength of our economy and our credit rating just to gain a few political points and hopefully win the White house in 2012.  The GOP strategy seems to be to intentionally destroy the economy as much as possible because it will make the president look bad.  In truth I think it is making them look bad.

The closest analogy I can come up with is if you were running a household budget, and knew you had to refinance your home next year.  You had an 800 credit rating, but your spouse was so concerned with your "deficit" or amount owed that they forced you to not pay your credit card bills and instead pay down the mortgage.  Your credit rating gets trashed from not paying your credit cards on time and next year you go to refinance and find you can only qualify for a sub-prime mortgage with 10% interest instead of the 5% interest you had before.  Your spouse then uses your poor credit rating to trash your reputation with all your mutual friends and then uses this as ammunition in their argument to let them run the household budget completely next year.

To further extend this analogy, the spouse was the one that ran up all the revolving credit card debt in the first place by going on unnecessary shopping trips to department stores in middle eastern countries...

[moda0306]

Storm,

You're my hero today.  Just thought I'd let you know.  Great analogy.

Entitlements, while full of problems, have been regressively and fully funded for decades, yet we hear that those are the things that must be hit.

I think an analysis of the tax-code of the last 30 years is in order here.

[doodle]

I don't know what to think anymore. I am starting to admire the Chinese. This deficit would be a non-issue. The communist party would simply make a decision in the best interest of the country and it would be done.  There would be minimal politics involved.

I just finished watching Joe Scarborough, Lawerence O'Donnell, and Grover Norquist spend the last 15 minutes yelling over each other. It was an absolute shouting match. If this is what is happening in the debt discussions in Congress we are sunk.

In support of Grover Norquist, I think his point is valid that the tax increases always happen in Washington but the spending cuts never seem to follow.

This baloney of cutting 4 trillion over ten years is absurd. First, because you aren't actually cutting anything, you are simply slowing the increase in deficit spending. Second, because these "cuts" will never happen.

When things get "cold" enough, we will eventually have to huddle together to survive. We just haven't reached that point yet.

My doom and gloom streak remains unbroken. I'm actually itching to post something positive!

[Storm]

Doodle, brilliant observation about the $4 trillion.  I always find it amusing that Congress can propose a budget with something like $20 trillion (just making this up, not a real number), then propose a budget with only $16 trillion and claim they are saving us $4 trillion.  It's like the car dealer first telling you the car only sells for retail price, then telling you you're saving $2,000 from factory incentives.

[MediumTex]

I don't know what to think anymore. I am starting to admire the Chinese. This deficit would be a non-issue. The communist party would simply make a decision in the best interest of the country and it would be done. Because no one has to worry about reelection there would be minimal politics involved.

In China the Tea Party members would be sitting in re-education camps right now.

What makes you think that communists only do what is in the best interest of the country?  Did Joseph Stalin do what was in the best interest of the Soviet Union or what was in the best interest of Joseph Stalin?

The logic you are using above is what brought Hitler to power in Germany.

Tyranny is not all it's cracked up to be.

Perhaps you were just kidding and the subtlety got by me.

[moda0306]

The tax increases always happen?

I think in the 1950's we had a 90% top bracket with no preferential treatment of dividends & capital gains.

In the 1970's we had a 70% top bracket, but only 50% for wage-income. (implying preferred treatment to workers, not investors, which is opposite today).

In 1986 we moved to a system of a 26 or 28% top bracket for all types of income, but increased payroll taxes.

In 199? Clinton increased ordinary brackets but reduced capital gains rates... payroll taxes stayed the same.

In 2002, Bush lowered ordinary AND dividend & capital gain rates... payroll taxes stayed the same.

Overall, income tax rates are very low compared to the last century, especially on the investor-class, while payroll taxes have more than paid for the programs they've run.

I still scratch my head how we could have had decades of prosperity under such oppressive top-rates, and I don't think it was moral to tax that much, but I hardly think we're dancing on the edge of the laffer curve at this point.

[Lone Wolf]

The communist party would simply make a decision in the best interest of the country and it would be done.

No, the Communist Party would make whatever decision is in the best interest of themselves and their hold on power.  There's a big difference.

It's worth reading about the "Great Leap Forward".  I think you'll agree that the last thing the Communists care about is the people.

To further extend this analogy, the spouse was the one that ran up all the revolving credit card debt in the first place by going on unnecessary shopping trips to department stores in middle eastern countries...

Nope.  Obama took Bush's outrageous levels of spending and sent them to the moon.

The February 2011 deficit alone was $223 billion.  In one month!  This is almost 50% bigger than Bush's (completely unacceptable) $161 billion deficit for the entire year of 2007.

And as Tyler Durden points out, cash inflows into the Treasury are now less than 1/6th of the current debt ceiling, a completely unprecedented ratio:  http://www.zerohedge.com/news/time-debt ... -different

It's one thing to be indifferent, but I can't understand why you guys would want to give these politicians cover for the mess they've made.  No matter what happens with the debt ceiling, this is a very dangerous situation.  The debt ceiling is nothing but a sideshow.  It's going to get raised (with minimal actual cuts) and the real problems will still be there.

[moda0306]

LW,

Analyze the deficits a bit...  Other than the stimulus package (1/3 of which was tax-cuts, and another 1/3 simply went to state/local governments to make up for their cuts) a huge amount of todays increased spending is on the entitlements related to income safety nets.  Unemployment, medicaid, etc.  Not to mention a boom of retirees and increasing healthcare costs.

These are, for the most part, already precalculated and weren't dreamed up by Obama.  Income Security programs are predesigned to zig when the economy zags.  This was predestined and actually supposed to happen in any kind of sharp recession.

Also, if you look at the following link, you'll see that about 30% of the defecit from 2010 is from decreased tax-revenues from what we had in 2007.  http://www.presidency.ucsb.edu/data/budget.php

Lastly, with a retiring population 3-4 years is going to result in much-increased spending for those items.  If you look at the following link (http://www.cbo.gov/ftpdocs/120xx/doc120 ... 5B1%5D.pdf), you'll see that betweeen income security, medicare and medicaid, you've got a huge chunk of the increase. The thing is, these recipients have been paying surpluses into these programs for decades.  Huge cuts to them seems a bit skewed to me.  Further, if a very large chunk of what the federal government does is insurance for the elderly, it is perfectly natural to have a growth in these programs as a % of GDP... but like I said, they've paid their due.

[Gumby]

Also, if you look at the following link, you'll see that about 30% of the defecit from 2010 is from decreased tax-revenues from what we had in 2007.  http://www.presidency.ucsb.edu/data/budget.ph

Correct link here: http://www.presidency.ucsb.edu/data/budget.php

[moda0306]

LW,

Regarding the debt ceiling, if it "will get raised," then why would either side put so much effort into using it to get their way... if both sides "know" the otherside will vote to raise it, why budge 1 inch?

If Cut, Cap and Balance is the answer, then why not wait until a budget vote and do it then?  Answer: Because they know the democrats might give more if they think the republicans will actually not vote to raise the debt ceiling... or basically because they're holding the country hostage and are hoping the dem's will "be the better man" and just give in to avoid default.

You're probably right... they will vote to extend it... but only after the democrats agree to a bill FAR right of what the country would agree with overall.  If there truly is a debt crisis, tax receipts are down 400 billion, and we have some of the lowest rates of the last century while our payroll taxes have been running surpluses for the last 25 years, why would we act like drastic cuts to entitlements are a must, but tax increases are absolutely out of the question.

[Lone Wolf]

You're probably right... they will vote to extend it... but only after the democrats agree to a bill FAR right of what the country would agree with overall.  If there truly is a debt crisis, tax receipts are down 400 billion, and we have some of the lowest rates of the last century while our payroll taxes have been running surpluses for the last 25 years, why would we act like drastic cuts to entitlements are a must, but tax increases are absolutely out of the question.

Sure, I'm not trying to argue whether this is or isn't the right time and method to address our debt problem.  More that in all likelihood, the debt ceiling issue will get resolved (simply because self-interested politicians have incentives to make it happen.)  The debt problem, however, is chronic, much bigger and ultimately much more serious long-term.

As for what the country would agree with, polling is showing that the public is more worried that the debt ceiling will get raised without fixing our debt problems vs. some kind of calamity because the ceiling wasn't raised.
http://www.gallup.com/poll/148454/debt- ... icans.aspx

This illustrates the level of concern about spending.  This is what's causing Republicans (who showed very little restraint in terms of spending, borrowing, waging war, etc. in the past) to feel pressure to act like they are going to do something about spending.  Again, I don't expect a lot in the way of actual results, as it's very difficult to get politicians to restrain themselves from virtually any kind of spending.

As for guidelines, Nick Gillespie and Matt Welch point out that tax receipts (regardless of tax rate) rarely waver outside of 18-19 percent of GDP.  http://washingtonexaminer.com/opinion/o ... out-budget  That tells us where we'd need to get to arrest the growth of the debt.  Clinton's final budget was 18% of GDP.  Surely we could return to that without the world ending.

[moda0306]

LW,

I disagree about long-term federal debt problems being the far bigger concern here.  I think even coming close to the brink will put little cracks in the confidence in our currency that high debt-levels (like Japan) won't.  I know the public disagrees with me on this.

I'll agree that the populace (however wrongly) thinks that the debt is a huge crushing issue, and that it needs to be resolved.  I think the public is wrong, but it is what it is and I don't really blame them for thinking that.

Where the public is left of where congress is now is their acceptance of tax-hikes as part of the solution.  There is simply no evidence to suggest that we're on the edge of the laffer curve.  If there is a debt crisis (which I don't really think there is (I DO think there's a private-sector balance-sheet crisis)), then tax hikes ARE part of the solution.

The reason that it's going to be continually unacceptable to run a constant % of GDP of government is because of the substance of what the federal government does... they're a giant insurance company... mostly for the elderly.  These programs have been extremely well-funded (running surpluses) for decades with regressive payroll/SE taxes by the potential recipients, and now they're a growing part of the population.  By saying we need a fixed % of GDP of federal government spending, you're really effing them over after years of proper increased program funding... or significantly shrinking government in other areas.

Likewise, if when we have a baby boom, one would expect municipalities and states to enact bonding bills to build schools and parks.

[doodle]

MT,

Tyranny is not all it's cracked up to be.

Perhaps you were just kidding and the subtlety got by me.

While I am not advocating tyranny in any form,  I am fundamentally questioning whether the American system is well suited to solving problems that should be philosophical in nature rather than political.

I am really wondering whether Plato had it right when he imagined his utopian government based around a group of philosopher kings.

This is somewhat different than the Chinese system, I am sure, but maybe there are parallels.

It strikes me that we allowing the long term direction of our country to be dictated by a series of disjointed and ever changing individual interests. Fundamentally, at present, we seem to be a lacking a philosophical goal to strive for. There is no greater vision of what this whole unbelievably productive economic system we have created should accomplish for us.

I think Obama is right when he talks about the need for a "vision for America".

There is a quote I heard once that said "If you don't know where you are going, any road you take will get you there."

Well, no one has defined where to go as a country. This is partly a failure of the President, but also of all of our leaders. Continued material wealth can no longer be the driving factor behind why we get up every morning. Sure, that is one incentive, but our economic system has created enough wealth to satisfy our basic needs over and over again. At this juncture I feel we need to formulate a vision of what the goal for humans is in general. A "what is the purpose of life" type of discussion and then implement structures that make this purpose achievable.

I feel that the system can benefit from individuals inputs about what is important (education, healthy communities, health care etc, clean environment etc.) , but the actual mechanics of creating the structure to get us there is quite complex and it would be better hashed out by experts whose efforts are not constantly being compromised by slanderous lies and political backstabbing in order to score points for the "party" or for personal gain.  

[MediumTex]

I feel that the system can benefit from individuals inputs about what is important (education, healthy communities, health care etc, clean environment etc.) , but the actual mechanics of creating the structure to get us there is quite complex and it would be better hashed out by experts whose efforts are not constantly being compromised by slanderous lies and political backstabbing in order to score points for the "party" or for personal gain.  

What "experts" did you have in mind?

Who gets to pick them?

I appreciate your idealism, but reality has a way of dealing with proposals like this rather harshly.

Communism was also supposed to work the way you are describing, but as T.S. Eliot said: "between the idea and the reality falls the shadow."

I would simply like to be left alone by the government to live my life based upon my own beliefs--in other words, free to act on my own morality.  History, however, tells me that the "experts" of the world understand the concept of "freedom" as the right of each and every member of society to live his life according to the beliefs of the "expert" who is making the rules.  People like me bother these experts because I just won't agree with what they tell me is good for me based solely upon their declaration.

History is in some way a never-ending process of the experts gaining power, the experts enslaving the people, the people breaking free, the people selecting a new batch of experts, and so on.

I believe that the type of narcissistic egomaniacs who tend to be attracted to political leadership and who truly believe that their own personal beliefs should be imposed on the rest of the world are basically in the grips of a kind of mental illness.  Unfortunately, these people tend to surround themselves with people who agree with them and validate their views, and thus the mental illness is rarely diagnosed until much damage has been done.

I believe your trust in the experts of the world is misplaced.  I am surprised you are not more skeptical of the ideas you are endorsing.

***

For a really outstanding example of your idea in action, see the history of the Federal Reserve and the job it's done in meeting its mandate of creating stable prices.  There's your "expert" in the harsh light of reality.

[Lone Wolf]

I am really wondering whether Plato had it right when he imagined his utopian government based around a group of philosopher kings.

But who chooses these philosopher kings?  Can you name a person that you'd like to elect to make decisions on how you live your life?  Ben Bernanke?  Barack Obama?  George W. Bush?  Nancy Pelosi?  John's Boehner?  Anthony's Weiner?

Fundamentally, at present, we seem to be a lacking a philosophical goal to strive for. There is no greater vision of what this whole unbelievably productive economic system we have created should accomplish for us.

Why not use this productivity to live out free, peaceful lives in whatever way makes each of us happiest?  Philosopher-kings need not apply.

Ultimately, nobody can come up with a "philosophical goal" for you but you.

Great Browne quote on this: "The most ignorant person in the land still knows enough to come in out of the rain.  The lowliest soul in America knows better than you do what would make him happy.  How can you presume to set the rules of life for him - and to force everyone to obey your rules - and then have the audacity to claim that you're doing it for everyone's own good?"

I'm baffled by the innate human desire for a strongman.  Remember that politicians are simply men and women that willingly obtain and exercise power over other people.  They should be viewed with the utmost skepticism (if not outright suspicion.)  I'd prefer that those who want to play philosopher-king stay at home with Age of Empires or Civilization and leave actual humans alone to live their lives.

[MediumTex]

I am really wondering whether Plato had it right when he imagined his utopian government based around a group of philosopher kings.

But who chooses these philosopher kings?  Can you name a person that you'd like to elect to make decisions on how you live your life?  Ben Bernanke?  Barack Obama?  George W. Bush?  Nancy Pelosi?  John's Boehner?  Anthony's Weiner?

Why limit it to the animate realm?  Why not make a statue, or even a pure abstraction, the philosopher-king?

It will, of course, be necessary to recruit a priesthood of statue and abstraction interpreters to determine what the wishes of the wise philosopher-king are for humanity.

This may sound sort of dumb, but it accounts for the way humans have been ruled for most of recorded history.

I believe that the Founding Fathers' reasons for keeping church and state separate were far more subtle than most people realize.