When 10 year US treasury notes start pricing in default risk you know the country is fucked.

You can't blame this on "liquidity in the credit markets".


Think about it. Ten years is not a long stretch of a time. People are actually scared of the US Government defaulting on its debts. Unbelievable.

I could scrape by and not default on my debts for the next 10 years if I made $8/hr. I would have to cut back on some of the things I enjoy.

Unfortunately the government is incapable of *gasp* cutting back and now there is a market for insuring US Gov't debt with Euros. A pretty pricey market at that. HOLY FUCK.

They can just print more money for gods sake. Tomorrow I could lose my legs, arms, and brain in a car accident and I am almost priced in at less risk than a 10 year Treasury.

Start panicking motherfuckers.


Wake up and start thinking about reducing spending rather than implementing more entitlements and bailouts.


I wouldn't trust Nancy Pelosi to make me a peanut butter jelly sandwich, let alone set policy that could destroy a global economy.

11/5/2008 11:25:26 PM

yet the dollar is rising

apparently no one trusts the rest of the world either

11/5/2008 11:26:52 PM

Quote :

"They can just print more money for gods sake."

wat?

11/5/2008 11:29:37 PM

Quote :

"They can just print more money for gods sake."

11/5/2008 11:31:59 PM

I actually had a friend (who voted for McCain) try to tell me it doesn't matter how much money the US Government spends. It took me awhile to get it through to him that it does matter.

11/5/2008 11:43:27 PM

fuck the government

11/5/2008 11:44:38 PM

FREE HEALTH CARE FOR EVERYONE

11/5/2008 11:45:31 PM

free healthcare

fuck that

free dental, mental, eye, and cosmetic care for everyone

fuck some whitey holding us back

11/5/2008 11:48:02 PM

Quote :

"Now is the time to start thinking about buying heavily."

That is you from September 5th, the S&P dropped 32% to a low from your call there, and is currently still down 26% from that point. Why the change of heart? What did you miss then that you see now?

11/6/2008 12:13:04 PM

What the fuck kind of responses are these.

The US treasury can start printing more money. I thought that was a commonly known fact.


Do you not recognize the significance that a treasury who is capable of printing more money now has a priced in default risk?

Quote :

"We have noted that Treasuries (and the dollar) are the remaining bubbles, although some doubts are starting to surface on the Treasury front. Paul Amery at Prudent Bear gives a good recap: The tectonic plates underlying the whole superstructure of debt have started to shift. On the surface nothing remarkable is happening – the 30 year US Treasury bond yield recently hit an all-time low of 3.88%, as investors sought a safe haven during equity market turbulence. Yet while nominal bond yields have declined, the credit risk component of US Treasuries has been on an increasing trend since last year. According to data provided by CMA DataVision, the credit specialists, the 10-year credit default swap spread – a form of insurance contract against issuer default – has risen steadily - from 1.6 basis points (0.016%) in July 2007, to 16 basis points in March 2008, to 30 basis points in September, to over 40 basis points on October 27 – see the chart below for the spread history so far this year. In other words the cost of insuring against a US government default has risen by 25 times in little over a year. Similar trends have been evident in the UK and German government bond markets. g103108.gif This has perplexed, and even amused, some market observers. How, they ask, could a private sector contract against default be expected to pay out in the case of a US government default – which would be the equivalent of a nuclear explosion in the financial markets? So what’s the point of buying such a contract? Moreover, how could the US government ever renege on its debts? After all, it supplies the world’s reserve currency, and the Federal Reserve Chairman reminded us a few years ago of the US authorities’ ability to print money in unlimited quantities. Any “default” would at least be through the time-tested mechanism of inflation and currency devaluation, according to this view. On the other hand a longer-term examination of debt markets reminds us that, throughout human history, regular default is the rule than the exception. And while sovereign defaults on external, foreign-currency debt are most common, Carmen Reinhart and Kenneth Rogoff demonstrated in a paper released earlier this year that defaults on domestic debt have happened far more often than might have been expected, particularly in times of severe economic duress. In both the US and UK, budget deficits are poised to explode....the really big impact is coming from the rescue packages being thrown at the financial sector. Morgan Stanley recently estimated that the 2009 fiscal deficit in the US would reach 12.5%, over double the previous record of 6%, set in 1983... When measured as a percentage of GDP, the US national debt is expected to pass 70% next year, which, though much higher than recent years, is still short of the record 122% registered in 1946, at the end of the Second World War. Some observers point to this comparison as an argument for the sustainability of the current position. Yet others argue that government debt must be seen in the context of, and as part of, the overall debt burden on the economy. With the US private debt to GDP ratio at levels never seen before – close to 300%, according to Steve Keen, the Australian economist – the question is surely whether the whole debt pyramid can avoid crashing down via a violent and uncontrollable chain of defaults, dragging the government bond market down with it. If this seems far-fetched, it helps to remember that the Latin root of the word credit comes from credere – to believe, but also to trust. For large sections of the private sector bond market, it is precisely that trust which has disappeared over the last year and a half. To suggest that such “credit revulsion”, to use an old term, might spread to governments’ debt obligations is surely not beyond the realms of possibility Signs of strain in the US Treasury market are already there, despite the current low yields. Recent auctions have shown poor bid-to-cover ratios, and long tails (the difference between the average accepted yield, and highest yield), both signs of shallow demand. Delivery failures in the secondary market have also hit record levels, a sign of poor liquidity. Market observers should keep a close eye on the progress of future auctions, particularly as the issuance schedule picks up. How can investors take cover if concerns over government solvency spread? For the early part of any credit-related decline in bond prices, there are obvious hedges, such as credit default swaps, short Treasury bond futures positions and inverse Treasury ETFs. But ultimately a US debt default would have cataclysmic consequences for the financial economy, bankrupting the entire system. So the ultimate safe haven is in the precious metals, which would rapidly regain monetary status in such a scenario."

11/8/2008 9:53:12 AM

Quote :

"Unfortunately the government is incapable of *gasp* cutting back"

Unfortunately, America just elected a democratic majority to all 3 branches. The Fed. is about to get massive, and there's nothing to stop it. This has the potential to be worse than Jimmy Carter and the late 70s.

The people wanted change...itsa bout to come

11/8/2008 10:28:48 AM

Yeah, I am not sure what the concept of CDS on Treasuries is. How someone would expect the contract to payout.

Now, I will say that we don't know what the terms on this CDS are. What constitutes default. On some CDS debt-to-income ratios rising above a certain level will trigger a default.

I can't really think of another good case where default could be triggered yet there is a reasonable chance that the CDS contract will pay.

11/8/2008 10:48:26 AM

Medicare ~40 trillion. Social Security ~7 trillion.

That 350 billion that we "probably wouldn't need" is coming out now.

State gov'ts are going to require TARP money soon.


This is going to get much, much worse.

1/14/2009 7:59:31 PM

I'm with rallydurham on this one.

"Spending is Out of Control" from the former Comptroller General
http://www.gao.gov/cghome/2005/businessweekideasoutsidecolumn.pdf

America's Financial Future, part 1:
http://www.youtube.com/watch?v=KIgrxpp97OQ

...and part 2:
http://www.youtube.com/watch?v=DXr_Ga_n0pY


A few other articles:
http://washingtontimes.com/news/2009/jan/13/running-on-empty-/
http://www.cbsnews.com/stories/2006/10/28/business/main2135398.shtml



Basically, unless we stop spending shit-tons of money on useless crap, we're fucked -- in a few decades all the taxes collected by the government won't even be able to pay off the interest on the national debt.

1/14/2009 8:31:01 PM

1/14/2009 9:52:33 PM

relevant
http://market-ticker.denninger.net/archives/730-Heh-CONgress-Wake-Up!.html

clip:

Quote :

"We The People of the United States have lived through twenty years of monetary fraud, avarice, theft and outright assault. The monetary policies of both The Executive (Treasury) and The Fed have been to blow bubble after bubble, submit fraudulent budgets and borrow without limit, irrespective of ability to pay, and worse, urge Americans to do the same thing! Then, exploiting these exhortations, the bankers have swooped in and preyed upon the lack of understanding of fundamental mathematics among Americans, selling them unsound loans - "Option ARM" and "Subprime" mortgages, "Rollover" car loans that are instantly upside down by thousands and credit cards with 30% "default" rates triggered if you are one hour late with a payment - on your water bill. They then "securitized" all this debt - debt they knew in advance could not be paid - and sold it off to unsuspecting suckers all over the world who were also duped through the issuance of bogus ratings that were literally "bought and paid for." Every bit of this was and is bogus and yet you have done nothing to put a stop to any of it. Fully aware of the mathematics of the matter - that if GDP growth is 3% but debt growth is 6% the law of exponents says that eventually the game of musical chairs will end in tears both The Executive and The Fed have desperately tried to blow bubble after bubble, knowing full well that when the last bubble bursts an enormous deflationary credit collapse must and will come crashing down upon the economy just as it did in 1929 and 1873, bankrupting tens of millions of Americans, throwing millions out of their homes and destroying hundreds of thousands of businesses. THAT DAY HAS NOW ARRIVED AND INSTEAD OF ACCEPTING THEIR JUST PROPORTION OF THE DAMAGE THEY ARE CRAVENLY APPEARING IN FRONT OF CONGRESS AND DEMANDING TO BE SAVED, COMPLETE WITH THEIR LEARJETS, HOMES IN THE HAMPTONS AND YACHTS WHILE EVERYONE ELSE LITERALLY BURNS IN HELL, THREATENING ECONOMIC NUCLEAR WAR IF YOU REFUSE THEIR BIDDING - AND YOU HAVE SAID "YES" INSTEAD OF JAILING THE LOT OF THEM FOR EXTORTION! The necessary GDP adjustment - a moderate recession - should have been taken in 1987. It was not, and instead a bubble was intentionally blown. We got the Internet Bubble. The necessary GDP adjustment - now about 10%, or a mild depression - should have been taken in 2000. It was not, and instead an even bigger bubble was intentionally blown. We got the Housing Bubble. The necessary GDP adjustment - now about 20%, or a moderate depression, should have been taken in the summer of 2007. Alarmed by the mathematics, Bernanke attempted to blow an even bigger bubble with the discount and interest rate cuts, plus manipulation of reserves and 23A exemptions. The money went into commodities but the bubble was very small and short-lived because the mathematical limits of debt in the system had been reached and by the summer of 2008 this became evident with the failure of Fannie, Freddie, Bear Stearns, Lehman and AIG, along with a collapse in the commodity, stock and credit markets. We are now up to a near-30% necessary correction in GDP, a SEVERE DEPRESSION, as a direct and proximate consequence of the actions taken by you, Henry Paulson, Ben Bernanke and Alan Greenspan over the previous twenty years and, more recently, the previous eighteen months. Fully fifty percent of the damage that HAS TO be taken was ADDED TO THE SYSTEM as a DIRECT CONSEQUENCE of your and their actions over the last year and a half! If you do not immediately halt the path we are on, there is a grave risk that the United States will suffer an economic collapse. We simply cannot print or borrow our way out of this mess; the mathematics of the matter cannot be argued with. Prudent Americans who are not in debt will not take on debt to over-consume any longer, and those who are not prudent are unable to borrow to over-consume as the ability to foist off securitized toilet paper on suckers by the banks has permanently ended. THE MUSIC HAS STOPPED AND THERE ARE NOT ENOUGH CHAIRS."

1/15/2009 12:15:37 AM

[Edited on January 15, 2009 at 12:16 AM. Reason : f'ing server...]

1/15/2009 12:16:30 AM

if i'm going to live in a third world country, its going to be a lot closer to the equator and its going to have sandy beaches

1/15/2009 1:30:22 AM

The only solution is to elect real leaders. At some point our lives will become so miserable that we will throw these fucks out of office.

Here's a nice summary of government stupidity
http://www.youtube.com/watch?v=3OVXzCcgDzI&feature=related

LOL at Obama running on the back of "change" when his solution is more of the same shit.

[Edited on January 15, 2009 at 8:31 AM. Reason : a]

1/15/2009 8:31:03 AM

Quote :

"The only solution is to elect real leaders. At some point our lives will become so miserable that we will throw these fucks out of office."

lol

1/15/2009 8:34:04 AM

should've elected Ron Paul. He was the ONLY candidate even talking about reducing spending.

1/15/2009 9:11:27 AM

Marko ftw, as per usual.

1/15/2009 9:32:26 AM

Quote :

"State gov'ts are going to require TARP money soon. "

Which is like borrowing from your Visa to pay your Mastercard.


You are right rally, this shit is out of control... perfect time to increase spending AND add another entitlment.

1/15/2009 10:33:53 AM

so... which country should I move to?

1/15/2009 11:16:34 AM

Somalia. Nowhere to go but up!

1/15/2009 12:07:16 PM

Quote :

"They can just print more money for gods sake."

After several years of trillions in deficit, this is exactly what is going to happen.

The dollar will collapse, and we need to plan for it. Stuff is going to cost a lot, and the best thing the market forces can do is to make more stuff.

If I was a multi-billionaire, I'd be buying up mining operations left and right and gearing up the WD40 to clean up and restart the rustbelts of this great land. I can't say the same for mining and other stocks yet, because there is a lot of company-specific risk and volatility that I don't yet understand. For what its worth, Warren Buffet has been buying up rail company stock.

Just look at the gap between nominal GDP of the US and the next few countries:

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

How much of this nominal GDP is due to our multi-decade strong dollar policy?

http://tinyurl.com/7jvw2d

The dollar has been artificially strong way too long. It has obliterated exports, and sent a ton of jobs oveseas. God bless my distant cousins Raju and Venkatesh over in India for being such good IT professionals, but I will be goddammned if a single US dollar is really worth 50 rupees.

The gap between 'nominal' and 'real' will rapidly close, and for good measure. Believe it or not, people in Asia actually like Fords and Chevys.

1/15/2009 2:17:42 PM

...also - agriculture. we're not going to stop eating completely.


its hard to measure valuations in the public markets, because bubbles seem to form and crash nearly a decade ahead of real growth, but they do indeed portend real growth.

once anecdote i have from personal experience is RIMM. i've been in and out of it since the turn of the century. if you look at its chart from 1999 up until the dot com crash, you see a wave forming, then crashing, only to be followed by a rising tide (2004-2006), followed by ebbing of the tide (2006-2008) and perhaps pointing to a seachange (from now until however long they can sustain good operations). The near 20-fold run up from inception until the peak of the dot com bubble in its valuation seems like a distant memory, especially when dwarfed by the real growth that followed.

The same wave --> tide --> sea change pattern may be the natural course for commodities. That is unless major catastrophic events prevent the 2 billion people in India and China from waking up every morning and wanting to do something with their lives. Global growth is in tact, and the two waking giants have a lot to do with it.

1/15/2009 2:47:19 PM

I can't believe how calm everyone is. Remember when 2009 was supposed to be a "comeback" year?

It looks like reality has set in and the markets are beginning to price in financial armageddon for the US economy.

Bush was right about one thing this sucker is going down, hard. The average American will absolutely be wiped out. You are about to see your job gone. You are about to see your life savings, insurance policies, pension payments all undergo a SEVERE reduction in purchasing power to the tune of 50% or more.

The Social Security ponzi scheme is about to come unravelled. Like Buffet says when the tide goes out we see who has been swimming naked. The treasure chest is bare folks.

In a forced liquidation we will see our remaining companies sold for 10-20 cents on the dollar to the world's creditors like China and Asia.

We can't afford more flawed policies at a time like this. Obama will relent to the pressure and give in to the flawed guns & butter philosophy that has transformed this once great nation into a country mired in economic hell.

I am scared of the political turmoil we may experience. Based on our history the government will again relent to stealing absurd amounts of wealth from its citizens under the guise of protection.

This is what our forefathers feared and the time is nigh. Farewell to the dollar. Pennies are already worth less than a cent, nickels less than a nickel, dimes less than silver... How much do you really believe this fiat paper is worth?

[Edited on January 21, 2009 at 3:42 AM. Reason : a]

1/21/2009 3:39:32 AM

1/21/2009 8:44:58 AM

Does anyone else blame our parents for this?

Ill be honest I kinda do. I understand that government deficit spending started before they were voting, but it seems to really have taken off when our parents were the primary voters.

1/21/2009 9:55:10 AM

^ http://www.ritholtz.com/blog/2008/11/the-shallowest-generation/

1/21/2009 10:03:54 AM

Quote :

"I wouldn't trust Nancy Pelosi to make me a peanut butter jelly sandwich, let alone set policy that could destroy a global economy."

1/21/2009 10:05:34 AM

1/21/2009 12:38:50 PM

^^^


edit:
Then again there is always this, from the same website:


Still tempting to sell everything I've got in the markets, even if they're way down, and invest in gold. Hmmmmm......

[Edited on January 21, 2009 at 12:49 PM. Reason : ]

1/21/2009 12:40:28 PM

http://globaleconomicanalysis.blogspot.com/2009/01/brink-of-debt-disaster.html

1/23/2009 10:48:58 AM

Quote :

"Still tempting to sell everything I've got in the markets, even if they're way down, and invest in gold. Hmmmmm......"

lol, everything goes in cycles. Gold was cheap a few years ago, and now paper assets are pretty cheap. When you have every objective indicator in existence telling you that stocks are a buy, you probably want to throw a few eggs in that basket.

1/23/2009 11:13:55 AM

I think you're panicking a bit too much.

That the cost of insuring T-bonds is increasing is more of a product of a completely spooked and unsettled financial market then anything else.

A market that has a lot of new players who probably weren't even out of college the last time the economy was in a serious recession.

While its true that soaring government debt could lead to a default, what everyone needs right now is to have a calm and collected demeanor.

1/23/2009 11:37:16 AM

I think the theme here is a bit over the top.

As you can see from one of agentlion's graphs, debt held by the public asa fraction of GDP is is lower than it was in the early 90s and certainly much lower than it was prior to the 1960s.

We are in the low end of the range for public indebtedness of all the major economies.

That't not to say that a lower debt burden would not be good for growth but I don't see that the end is nigh, at least not because of government debt.

This is further supported by the fact that interest rate on public debt is crashing.



[Edited on January 23, 2009 at 11:56 AM. Reason : .]

1/23/2009 11:55:30 AM

^^ Well the markets clearly disagree. Did you see what gold did today? Did you see what US treasuries did today? Have you seen what US equities have done the past 12 months? Right now we're in a huge state of denial we haven't even begun to see the consequences of this thing yet.


Buy equities because they are LESS terrible than the US dollar is the only argument I could possibly support.

We are about to see an EXTREME shift in standard of living.


http://www.youtube.com/watch?v=_0YZa9Cm5II

1/23/2009 1:22:56 PM

im excited

i hope that it slaps this country back into some semblance of normalcy

1/23/2009 1:25:29 PM

Im excited too

I know the next few years are probably gonna be shitty

but at the end of it I see us having a more fair and balanced economic/government system

1/23/2009 1:43:14 PM

Rallydurham

I don't make economic prediction based on daily market fluctuations.

All the aggregate economic data from the last 6 months barely qualifies as a longterm trend.

1/23/2009 2:23:24 PM

Daily fluctuations?

We are 8 years into a deep bear market and we may not even be halfway through it yet.

So much for a "floating" exchange rate the dollar has been SINKING for 40 years now. The collapse has been put off because of everyone using the dollar as the reserve currency. Now it's upon us.

The trade deficit has been growing astronomically for over a decade.

Unfunded Government debt is at $50 trillion between medicare and social security ALONE.

We've spent more lining bankers pockets in the past 6 months than we have in the history of government practically.

The size of the pie isn't shrinking, it's just our slice.

That gasping for breath sound you hear is the US sucking its last bit of breath.

1/24/2009 4:03:36 PM

Quote :

"That gasping for breath sound you hear is the US sucking its last bit of breath."

wtf are you talking about? You make some reasonable points, then bamm, off to the moon.

1/24/2009 4:16:40 PM

Do the world a favor. When you meet your laid off neighbor tell him to sell his fucking house or car. Tell him to stop paying for consumer goods on credit. Do not feel sorry for these stupid motherfuckers who live paycheck to paycheck so they can have i-phones, bermuda vacations, and customized vehicles.

Fuck these middle management assholes acting like ballers and triple fuck these executives living like they are god.

Savers are getting fucked in this goddam mess. Stop putting your money in these entitling equity positions and make these motherfuckers work for a living.

1/26/2009 8:52:02 PM

Lets be honest here, you've been fucked pretty hard by this market since you last tried shoving your money in back in like August or Sept and you're mad. I mean, I haven't seen this much sky is falling bs from even the staunchest of perma bears that I read.

1/26/2009 9:12:22 PM

Money means nothing to me. I was down 50% at the lowest point. Whatever. I'm a gambler, in gambling 50% means you still have your neck.

What I cant stand is these people stealing from the American public. It's disgusting. What I can't stand even more is how passive they are to let the government and executives steal from them.


I'm up pretty big the last 3 months or so since I went gold crazy. I plan on being up a lot more once shit hits the fan.

We've plateaued temporarily. The bears are catching their breath and waiting until government wealth "creation" (which should be known as destruction) takes the market back to artificial highs so they can demolish it.


The S&P is going to stay in this band for awhile. But there is no denying it will touch below 700. I'm willing to stick my neck out on below 600.

1/28/2009 10:05:46 PM

Dude you're going off the charts and I can't help but imagine coke fueled binge brought on by the realization that you placed some terrible bets.

True or not, a cool head is whats needed now.

1/29/2009 12:57:53 AM

hate to tell you buddy but most of the analysts, fund managers, etc agree. Right now the S&P is still bloated based on earnings that are a fantasy. We're probably over 15 P/E. It's not strange during a recession for that to go down to about 10. Which puts us anywhere from 500-700 depending on how bad the earnings are...

1/29/2009 6:54:37 AM

→

1/29/2009 11:57:37 AM