RuleNumberOne

If Trump had never commented on the Federal Reserve for the last 3 years, he could have had his trade war with just a small scratch on the stock market instead of the major wounds it has now. The Fed is there to help. Trump just needs to calm down and stop commenting on the Fed.

Wikipedia says this guy Kyle Bass is wrong almost all the time. Probability says don't bet with him, he is no Warren Buffett. Jim Cramer has a much better track record than this Kyle Bas https://en.wikipedia.org/wiki/Kyle_Bass In the period from 2008 to mid-2015, the flagship fund experienced a very modest annualized performance of 1.56%. Bass finished his speech stating "War is coming – just as it has throughout history." [27] Hayman suffered its worst year in 2017 with a loss of 19% due to the strengthening of the Chinese yuan.[5] Bass has attempted to profit from filing and publicizing patent challenges against pharmaceutical companies while also betting against their shares.[31][32] After 2 years of setbacks in his effort, Bass by 2017 ended his patent challenges.[6]

Some months ago, Warren Buffett said on CNBC that if there was a way to short the 30-year US Treasury and buy the S&P, he would do it. It is a good thing there wasn't such a way, or the poor guy would be tearing his hair out right now. Buffett missed out by keeping his stash in T-bills. All he had to do was to ride with the robots. It is not too late to get on the 30-year train with the robots - the ride from 2% to 0% gets you a 70% capital gain. If Buffett doesn't have the nerve, he can get off at 0.25% and still make a capital gain of 50% on his stash. There is trillions to be made by coat-tailing the robots. Euro-Hero Mario Draghi (aka the "hero who saved the Euro single-handedly") backs the robots all the way.

"Algos" (aka trend followers) have been driving bond prices past the stratosphere. https://www.ft.com/content/85c56472-bdcb-11e9-b350-db00d509634e "Yields fall as prices rise; managers who clung on to their holdings as yields tumbled below zero have reaped juicy profits. Among the biggest winners are computer-driven hedge funds that try to latch on to market trends. While many human traders may question the wisdom of buying or keeping a bond that apparently offers a guaranteed loss, robot traders that monitor price moves have no such qualms. GAM Systematic’s Cantab Quantitative fund has gained 36.1 per cent, according to numbers sent to investors, with the biggest gains coming from bets on falling bond yields. Stockholm-based Lynx Asset Management’s main fund is up 20.7 per cent while a smaller, more leveraged fund it manages has gained 30.6 per cent, according to numbers sent to investors. Lynx has been running close to the maximum bet it is permitted on falling bond yields, said a person familiar with its positioning. Some human investors “focused on fundamentals have struggled to hold on to bonds” as yields have turned negative, said Anthony Lawler, head of GAM Systematic."

If the US 30-year yield gets driven down to 1% by the GFT practitioners, there is a further capital gain of 26%. I think we can see a 1% on US 30-year. Do you want the 26% or not? Looks like easy money to be made, doesn't it? Like the 1999 dot-com bubble....

The fall in the 30-year yield from 3% to 2% resulted in a capital gain of 20%. If the US government issues 50 or 100-year bonds, there will be great demand from the GFT practitioners. You need to have a very evil mind to issue a 100-year bond to human beings. Meanwhile the Argentina century bond has fallen 37% this month.

My home insurance has a value of $310 per square foot in construction cost reimbursement. E.g, if a 3000 square foot house burns down, the insurance company pays $310 x 3000 = $930,000. So insurance claims and policies track real inflation (not the fake one reported by the government.) Construction costs have doubled in the Bay Area over the last 7 years from $150 to $300 per square foot. Insurers need to be able to invest in stocks like Warren Buffett to keep up with the real economy. I think Berkshire gets leeway to buy stocks, but other insurers like Markel have to have 80% of their assets in bonds? Property casualty insurance companies that invest in bonds are disadvantaged compared to Berkshire Hathaway if Berkshire gets to invest in stocks.

Italy 10-year yields jumped 24bp in today to 1.77%. Because Salvini is calling for new elections. Italy needs to exit the Euro and end their humanitarian disaster. Debt to GDP higher than ever, 3 recessions in 10 years, 33% youth unemployment. ECB and Eurocrats have a great lust for power and have created a big bond bubble just so that they can cling to power for some more time. Their pensions and savings need to be zeroed out and clawed back, just like they came after private sector banks in 2009.

How would Germany tell its voters that you have to work and save in order to pay the pensions of retirees in Greece, Italy, Spain. Fiscal consolidation will never happen. Can you get US voters to pay pensions of Mexican or Canadian government employees?

https://www.investopedia.com/terms/y/yieldtomaturity.asp The above link has what you need. There are two things you get when you buy at 191: 1. The haircut of 91 when you get back the face value of 100 euros a 100 years from now. 2. The coupon of say 2 euros per year. These are discounted back using the "yield-to-maturity". This yield-to-maturity has turned negative for upto 30-year debt. The longer the maturity the greater room for speculation. Italy issued 50-year bonds. Yes, it is absolutely batshit crazy. Negative yielding bonds (in a currency which likely wont exist 100 years from now) and negative yielding stocks (like WeWork) are preferred over dividend-paying stocks like WFC.

Bloomberg is doing great journalism, unlike the FT that has become the mouthpiece of Eurocrats. The bubble in the bond market is much bigger than 1999 because the sums involved are far bigger, by orders of magnitude. This Might Be the Bond Market’s Dot-Com Moment https://www.bloomberg.com/opinion/articles/2019-08-08/this-might-be-the-bond-market-s-dot-com-moment?srnd=premium In today’s bond market, it seems as if no price is too high. https://www.bloomberg.com/news/articles/2019-08-07/the-furious-global-bond-market-rally-shows-few-signs-of-abating The ECB Is Dragging Us Deeper Into Madness https://www.bloomberg.com/opinion/articles/2019-08-08/ecb-is-dragging-the-bond-market-deeper-into-yield-curve-madness?srnd=premium

perulv, You are exactly right in both your posts. Bloomberg has 3 articles in today's edition saying the same thing. One of the Bloomberg articles calls it the dot-com moment for the bond market. I have been posting the same thing for the last few months at CoBF. The Austrian 100-year bond has already climbed to 191 (it was 180 in your first post). If it goes back to 100 it is a big loss. In today’s bond market, it seems as if no price is too high. https://www.bloomberg.com/news/articles/2019-08-07/the-furious-global-bond-market-rally-shows-few-signs-of-abating The ECB Is Dragging Us Deeper Into Madness https://www.bloomberg.com/opinion/articles/2019-08-08/ecb-is-dragging-the-bond-market-deeper-into-yield-curve-madness?srnd=premium This Might Be the Bond Market’s Dot-Com Moment https://www.bloomberg.com/opinion/articles/2019-08-08/this-might-be-the-bond-market-s-dot-com-moment?srnd=premium

Agreed. In times like this and 2008, the national motto is "In Buffett We Trust"

FT finally saying what i said earlier: the article advises people to put money in Swiss vaults rather than Swiss banks. No one wins in the rabbit-hole world of negative interest rates https://www.ft.com/content/8081ff4c-b52f-11e9-bec9-fdcab53d6959 "Mr Hamers has a point. Rather than encouraging people to borrow and spend, the data suggests nervous eurozone consumers are hoarding. Eurostat reports the eurozone household savings ratio is at a five-year high of nearly 13 per cent. A similar but more dramatic phenomenon seems to be in evidence among the big wealth managers. One reason why UBS and CS are planning to pass on negative rates is that wealthy clients’ obsession with cash has become such a large problem for them. UBS reckons 26 per cent of its clients’ assets are held in cash. At CS, the proportion is 29 per cent." The tolerance for pain and stupidity is very high in the 'Eurozone'. Germany and Italy GDP figures have been hovering between -0.1% to 0.1% for the last 1.5 years.

There is not a lot of distress in either the FTSE 100 or DAX 30. The FTSE 100 is close to its all-time high of 7778 in May 2018. If German industry is in "free fall", it has not been reflected in the stock market yet. It is off 9% from its peak. The DAX high of 13340 was in January 2018.

https://www.ft.com/content/7fb1a0e6-9f0d-11e9-9c06-a4640c9feebb I think its worse than 10 years ago (googling for Italy unemployment shows it has doubled over the last 10 years). "The 32-year-old, who has a master’s degree, occasionally picks up casual work as a waitress and distributes flyers, earning about €300 a month. She is not the only young Italian who is struggling because of the lack of job opportunities. One in four Italians aged 15 to 34 is not in education, formal employment or training (Neet) — more than 3m people in total. In Sicily, Italy’s largest island, the proportion rises to 42 per cent. That has repercussions for other areas of life: the lack of a secure income makes it hard for adult children to move out of their family home and have offspring of their own. Italy registered the lowest number of births on record last year, as well as the highest ever number of emigrants — weighing on the country’s weak growth prospects and fragile public finances."

1. If hyper-inflation resulted in economic growth, Venezuela/Argentina/Zimbabwe would be the powerhouse right now and not Germany/USA. 2. If Italy leaves the Euro, they can run a budget deficit exceeding the 3% Euro limit. Even today the US runs a big deficit under Trump, percentage wise greater than Italy's deficit. In the aftermath of the 2008 crisis, the US ran a big deficit of around 10% AFAIR. Under Trump, the deficit is around 4-5% in a currency controlled by the US. The government's debt is some private sector company's income. Your debt won't be in a currency you don't control if you leave the Euro. 3. If each Euro were to devalue across the board into two Euros, nothing changes. Europe has 1.4% inflation right now and the US is at 1.7%. Inflating across the board won't fix the disparity. The US has a 50-year low in unemployment. 4. If Italy were to leave the Euro, it could redenominate the debt in a new currency it controls or simply refuse to pay. Get a fresh start. Make use of the human capital instead of leaving it idle until expiry. "Nominal shocks have *real* effects" (because of sticky wages) Hard to believe that at this point anyone is arguing that the the EU should have *less* robust nominal GDP growth. What in the world is the risk with unemployment so high? The main advantage of breaking up the EU would be to allow individual countries to inflate. Why in the world cant the ECB just inflate across the board...? If Spain or Italy leaves the EU tomorrow, the only way they recover is by devaluing their (new) currency...ECB just needs to print more money...its so easy and yet we are all making it out to be rocket science

According to Bloomberg, non-Italian banks hold 425 billion euros of Italian debt. Of that, 240 billion euros is held by two French banks: BNP Paribas (143B) and Credit Agricole (97B) Wikipedia says: BNP Paribas and Credit Agricole each had equity of 100B, total assets of 2T and 1.7T. https://www.bloomberg.com/graphics/2019-italian-banks/

The FT in its articles has started adding that "negative yielding bonds guarantee a loss if held to maturity" along with the standard "prices rise when yields fall" explanation for bonds. Monetary policy cannot fix the European Project's problems. If zero rates and free debt or nationalization resulted in prosperity, every nation in the world would be "developed". Low rates and free-market-suppression cannot make a country more competitive. Communist countries would be the most prosperous and the US would be poor if it were true. Italy has lower rates than the US, but just look at the 33% youth unemployment. Zero GDP growth over the last 1.5 years and a little above zero before that. Euro needs to be broken up. Spain had 56% youth unemployment some years ago if I remember correctly. Greece unemployment is worse than Italy. I can't understand why Italy stays in the Euro. Their existing youth are unutilized/idle, even as the population is shrinking rapidly. Leave the Euro, devalue, run as big a fiscal deficit as you want, and give the youth something to do. There is no way out if one-third of your youth are unemployed. I don't really understand this. There shouldn't be a lower limit for yields if ECB will buy at any price. Yields don't matter anymore if ECB can buy at ever higher prices. Even when yields are negative, expected (nominal) return can be positive because you can sell to ECB at higher prices. I was listening to an analsyst last week; i think it was Bloomberg Surveillance. The analyst was asked why anyone in their right mind would buy European debt that has a negative yield. His reponse was if you believed prices would be going higher (yields lower) then it was rational to buy bonds today even if they have a negative yield. My immediate reaction was to think of the greater fool theory. We are in very interesting times.

The ECB has bought 33% of each country's outstanding debt (except junk-rated Greece), so the remaining 67% is held by private investors such as pension funds. The ECB will have to bump up the 33% limit if it wants to buy more. ECB has also bought investment-grade corporate debt, I don't know what criteria it applies there. I expect the majority of any issuer's debt is still held by the private sector. The problem for a pension fund is though the price of the bond rises due to the negative yield, when the bond matures it results in a loss. If the only bonds in the market were Tulips (aka 100 year bonds), they could sell it to a greater fool at higher speculative prices and pay out the monthly pension payments. These pension funds and insurance companies have to buy the negative-yielding debt. I don't know what the weighted average maturity is for the negative-yielding debt. I don't really understand this. There shouldn't be a lower limit for yields if ECB will buy at any price. Yields don't matter anymore if ECB can buy at ever higher prices. Even when yields are negative, expected (nominal) return can be positive because you can sell to ECB at higher prices.

It seems Paul Volcker said Ray Dalio's firm produces more relevant statistics and analysis than the Federal Reserve. More quotes from Dalio's article: "Right now, approximately 13 trillion dollars’ worth of investors’ money is held in zero or below-zero interest-rate-earning debt. That means that these investments are worthless for producing income (unless they are funded by liabilities that have even more negative interest rates). So these investments can at best be considered safe places to hold principal until they’re not safe because they offer terrible real returns (which is probable) or because rates rise and their prices go down (which we doubt central bankers will allow). Thus far, investors have been happy about the rate/return decline because investors pay more attention to the price gains that result from falling interest rates than the falling future rates of return. The diagram below helps demonstrate that. When interest rates go down (right side of the diagram), that causes the present value of assets to rise (left side of the diagram), which gives the illusion that investments are providing good returns, when in reality the returns are just future returns being pulled forward by the “present value effect.” As a result future returns will be lower. That will end when interest rates reach their lower limits (slightly below 0%), when the prospective returns for risky assets are pushed down to near the expected return for cash, and when the demand for money to pay for debt, pension, and healthcare liabilities increases. While there is still a little room left for stimulation to produce a bit more of this present value effect and a bit more of shrinking risk premiums, there’s not much. At the same time, the liabilities will be coming due, so it’s unlikely that there will be enough money pushed into the system to meet those obligations. Then it is likely that there will be a battle over 1) how much of those promises won’t be kept (which will make those who are owed them angry), 2) how much they will be met with higher taxes (which will make the rich poorer, which will make them angry), and 3) how much they will be met via much bigger deficits that will be monetized (which will depreciate the value of money and depreciate the real returns of investments, which will hurt those with investments, especially those holding debt)."

Yeah, I feel safer investing in the UK because they would be more insulated from a Euro debt crisis. What is a good source for finding British and German stocks? Ray Dalio shorted Italian banks and European stocks last year before the Italian elections. He has written a long article I very much agree with. https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio/ "sometime in the next few years, 1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak, and 2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly be coming due and won’t be able to be funded with assets. Said differently, I think that the paradigm that we are in will most likely end when a) real interest rate returns are pushed so low that investors holding the debt won’t want to hold it and will start to move to something they think is better and b) simultaneously, the large need for money to fund liabilities will contribute to the “big squeeze.” At that point, there won’t be enough money to meet the needs for it, so there will have to be some combination of large deficits that are monetized, currency depreciations, and large tax increases, and these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots. Most likely, during this time, holders of debt will receive very low or negative nominal and real returns in currencies that"

I read somewhere this week that the European stock index is up only 14% over the last 5 years since they started the negative-yield campaign. Clearly it doesn't work. Germany GDP growth: Q1, Q2, Q3 Q4 2018, Q1 2019 = 0.4, 0.5, -0.2, 0.0, 0.4 Germany is I think negative for Q2 2019. Italy GDP growth: Q1, Q2, Q3 Q4 2018, Q1 2019 = 0.1, 0.1, -0.1, -0.1, 0.1. Will a German recession pull down others in Europe into a recession too?

Spending time on macro has worked very well for me. It has also worked well for Ray Dalio, Howard Marks, Soros, Buffett, Munger. We cannot use John Hussman as the only example. Yeah I know Buffett says he does "pricing" and not "timing". But if he thought the market would go up for the next 10 years, he would not be sitting on 115 billion in cash. Can think of many Buffett-Munger quotes about waiting for buying opportunities.

Unlike me, hedge funds can go to Europe to investigate to find out when things are going to crash. Does anyone have useful insights? My thoughts are below: - ECB has revealed in meeting after meeting that it is maxed out. - Germany is entering or is already in a recession. Economic and manufacturing surveys at 9-year, 7-year lows. - Italy, Greece debt to GDP keeps going up and up, never down. Why doesn't Italy quit the Euro? - Italy youth unemployment is at 33% (Greece is even worse). Why doesn't Italy quit the Euro instead of doing this to their youth? - German 30-year is already at 0.2%. Debt is free, but growth is nowhere to be found. ECB has removed free-market pricing in bonds and created a gigantic bond bubble. - Some people suggest the ECB should nationalize the private sector by buying equities. Do people in Europe believe in free markets or not? - If Italy were to leave, they can run budget deficits of 10-15% (like the US did in 2009). Devalue their currency and do whatever it takes to give their youth a chance. They can't keep destroying generation after generation. - Italy is the third-largest debtor in the world (after US and Japan.) French banks will be wiped out if Italy leaves the Euro.