Gyroscopic Investing

I think Jim Grant is one of the smartest guys around. Here is what he has to say in an interview regarding the folly of negative interest rates and the perils of owning sovereign debt:

"Where do you see the biggest risks?

Sovereign debt is my nomination for the number one overvalued market around the world. You are earning nothing or less than nothing for the privilege of lending your money to a government that has pledged to depreciate the currency that you’re investing in.... The experience of losing money is common in investing. But where is the certitude of loss even before your check clears? That’s the situation with sovereign debt right now.
On a worldwide basis, more than a third of sovereign debt is already yielding less than zero percent."

Source: http://www.zerohedge.com/news/2016-08-2 ... any-people

Hi, GAG.

US Treasury debt, intermediate and log-term, still has a bit to go before zero and negative interest rate territory. Does this suggest our debt market is better and, also, better for US debt investors?

Thanks.

We hold LTT's for their volatility.
The yield is icing on the cake.

Honestly, no one knows the future direction of interest rates. They could easily go lower and then higher.

bedraggled wrote:Hi, GAG.

US Treasury debt, intermediate and log-term, still has a bit to go before zero and negative interest rate territory. Does this suggest our debt market is better and, also, better for US debt investors?

Thanks.

As always, the future is uncertain, but I would feel concerned about owning Euro-denominated debt. I suppose U.S. treasuries are the least worrisome, but one of these days the market is going to wise up to the fact that the U.S. debt is unpayable, meaning all hell will break loose. I call this phase "the Big Crunch."

But until that happens. Budd had a good comment regarding the benefits of owning U.S. treasuries as interest rates meander up and down. But when the Big Crunch comes, valuations for older bonds will plunge as investors demand hefty interest rate increases to hedge the cost of a U.S. default. Then it's "Greece and Puerto Rico, here we come."

The EU and the U.S. presently have the ability to bail out smaller entities such as Greece and Puerto Rico, but who is going to bail out the EU and the U.S. when the Big Crunch arrives? God help us, because nobody else can or will.

goodasgold wrote:As always, the future is uncertain, but I would feel concerned about owning Euro-denominated debt. I suppose U.S. treasuries are the least worrisome, but one of these days the market is going to wise up to the fact that the U.S. debt is unpayable, meaning all hell will break loose. I call this phase "the Big Crunch."

The U.S. can't default because it is a sovereign currency issuer not a user like Puerto Rico, the U.S. Virgin Islands or Greece.

If Republicans were stupid and didn't raise the debt ceiling to fund already authorized spending then technically the U.S. could default, but that would be a politically manufactured crisis not one the free market was too stupid to foresee.

So are you're saying there's going to be a "Big Crunch" where everyone just flat out rejects U.S. Treasuries because they can't default? How does that happen? Negative yields? Central bank buying them all up? Greater Depression where there's no tax payments to service the debt? Inquiring minds want to know!

goodasgold wrote:

bedraggled wrote:The EU and the U.S. presently have the ability to bail out smaller entities such as Greece and Puerto Rico, but who is going to bail out the EU and the U.S. when the Big Crunch arrives? God help us, because nobody else can or will.

The US will always make good on its promises to repay its debts, the question is, how much purchasing power will the dollars it pays its debt in have in the future? We control our own currency, and can inflate it / deflate it as needed. Greece and Puerto Rico were playing Monopoly with real money, unfortunately. I don't think there is a good analogy here.

ochotona wrote:

goodasgold wrote:

bedraggled wrote:The EU and the U.S. presently have the ability to bail out smaller entities such as Greece and Puerto Rico, but who is going to bail out the EU and the U.S. when the Big Crunch arrives? God help us, because nobody else can or will.

The US will always make good on its promises to repay its debts, the question is, how much purchasing power will the dollars it pays its debt in have in the future? We control our own currency, and can inflate it / deflate it as needed. Greece and Puerto Rico were playing Monopoly with real money, unfortunately. I don't think there is a good analogy here.

I would say we can deflate as needed, but inflate I am doubtful.