Bonds!

[Blake Hampton]

8 minutes ago, wabuffo said:

the thing about the 20s is that it still ended in a depression.

 

Another thing about the (19)20s was that the US Treasury ran a multi-year surplus and "paid down" Federal debt.   Trying to reduce Treasury debt always leads to a depression, I say.

 

No one should listen to me about macro policy, but no one should listen to Buffett or Dimon either (who are no better than a coin flip on their economic predictions).  Both have a an exceptional circle of competence - Buffett on investing, Dimon on banking - but macro isn't in that circle of competence.

 

Bill

 

I completely disagree.

 

I don't think there is anyone in the world better to listen to about macro right now than both Jamie and Warren. No one is worried about what could be one the most significant financial events in our nation's history, and the dumbest part is that it's been staring us dead in the face.

 

When the head of one of the biggest dealers in Treasury markets tells you that a bond market crisis is coming, you would be apt to listen.

[Blake Hampton]

I'm honestly surprised Jamie would be this open about it.

 

Monday will certainly be interesting.

[Gregmal]

4 minutes ago, Blake Hampton said:

 

 

Monday will certainly be interesting.

Maybe I missed it but did something happen today? What are we watching/expecting to be interesting Monday?

[Malmqky]

Quote

 

“You are going to see a crack in the bond market,” Dimon said. “It is going to happen. And I tell this to my regulators, some of you who are in this room, I’m telling you it’s going to happen, and you’re going to panic.”

 

“I’m not gonna panic,” he added. “We’ll be fine. We’ll probably make more money, and then some of my friends will tell me ‘We like crises because it’s good for JPMorgan Chase.’ Not really.”

 

 

Feel like we need to keep in mind what Jamie said directly after saying bond market will crack and people will panic ^

 

Not to hijack the bond thread, but If things really do hit the fan, don't we want to own businesses that come out stronger after crises (often because their lesser competitors get hurt)?

 

Fairfax, Amazon, Berkshires, JPM, etc.

Edited May 31, 2025 by Malmqky

[gfp]

4 minutes ago, Gregmal said:

Maybe I missed it but did something happen today? What are we watching/expecting to be interesting Monday?

 

Nothing happened.  Jamie Dimon made some comments that were published in the middle of the trading day on Friday.  Jamie Dimon also said something like, 

"I just don’t know if it’s going to be a crisis in six months or six years"

Edited May 31, 2025 by gfp

[Blake Hampton]

Ignore this man at your own peril.

[Gregmal]

Ah so the next time the 10 year fluctuates back to 4.50% we start yelling and screaming again, nice!

[wabuffo]

How about Stan Druckenmiller?
 

Druck will run you over going the other way 15 minutes after a pronouncement of a trade he made just because the price action changed. 
 

He’s a great trader, maybe the best ever, but a mere mortal as an economist.
 

Bill

Edited May 31, 2025 by wabuffo

[73 Reds]

36 minutes ago, Blake Hampton said:

Ignore this man at your own peril.

Still can't figure out why anyone here would want to listen to a banker for investment advice.  Blake, over the course of an entire investment lifetime Buffett and Bogle are the only people whose words made a difference to me.

[gfp]

1 hour ago, Blake Hampton said:

Ignore this man at your own peril.

 

We're really not ignoring him Blake.  We all agree that inflation is the constraint on a sovereign issuer "borrowing" in their own free floating, non-convertible global reserve currency.  Dimon, Druck, Wabuffo, Mosler, Buffett, Munger - everyone agrees that inflation is the constraint.

 

You also have to listen when every member of your appeal-to-autority dream team predicting "crisis" says "I don't know if it will happen in 6 months or 6 years or..."

 

Most of us, not you apparently, are also aware that Dimon has been actively lobbying for a change in bank capital rules that would make it easier for large banks / primarily dealers like JPM to own a lot more cash bonds on their books without taking a capital charge that makes it unattractive/uneconomic.  A lot of the market distortions that people try to read into as macro tea leaves predicting the future - like persistently negative IR swap spreads - are partially just byproducts of current bank capital rules for an IR swap vs a cash treasury.

 

Dimon would like it to be easier/less costly for primary dealers to more effectively make markets in Treasury securities and he would like the capital charges to be much lower or basically zero.

 

---

 

Separately, I really think you are missing what Bill is saying when he says government surpluses lead to depressions / recessions.  You are missing a major fundamental truth of the monetary system we actually have:  the government's deficit is the private sector's surplus and conversely the government's surplus (paying down the "debt") creates a drain out of the private sector.  The net liabilities of our government are the US dollar "money" we use to operate our highly leveraged, liquidity sensitive economy.

 

The sooner you realize the national debt of the US government is never going to be "repaid" and will only grow, the sooner you can get on with your life and learn to make money in the system we actually have, not the one you wish we had or the one someone thinks we have in a book you read.

 

You don't get to pick the system that evolved and exists here.  It is what it is.  Try to understand it, don't ever naively apply the analogy of a household budget to the US government's finances - I'm looking at you Elon Musk "we will go literally bankrupt!"  Nothing elicits an eye-roll quicker than another idiot telling us that the government is going to run out of "money."

 

Inflation is the constraint.  We try to always have some inflation because deflation kills debt-based economies.  So is 2% perfect?  Is 3.5% the end of the world?  What if they targeted 1%?  Would we panic when it was 2% instead of rejoicing?

 

 

[Gregmal]

9 minutes ago, gfp said:

So is 2% perfect?  Is 3.5% the end of the world?  What if they targeted 1%?  Would we panic when it was 2% instead of rejoicing?

100%. It’s like being at the zoo watching all the monkeys throw around hard “facts” about inflation. Being “50%” above target, 3 vs 2, meteoric “spikes” month to month cuz 0.3 vs 0.4, and how 2% is the goal and 3% is runaway inflation lol. In many of these cases, yes, you’d be better off just completely ignoring all of it

[cubsfan]

24 minutes ago, gfp said:

 

We're really not ignoring him Blake.  We all agree that inflation is the constraint on a sovereign issuer "borrowing" in their own free floating, non-convertible global reserve currency.  Dimon, Druck, Wabuffo, Mosler, Buffett, Munger - everyone agrees that inflation is the constraint.

 

You also have to listen when every member of your appeal-to-autority dream team predicting "crisis" says "I don't know if it will happen in 6 months or 6 years or..."

 

Most of us, not you apparently, are also aware that Dimon has been actively lobbying for a change in bank capital rules that would make it easier for large banks / primarily dealers like JPM to own a lot more cash bonds on their books without taking a capital charge that makes it unattractive/uneconomic.  A lot of the market distortions that people try to read into as macro tea leaves predicting the future - like persistently negative IR swap spreads - are partially just byproducts of current bank capital rules for an IR swap vs a cash treasury.

 

Dimon would like it to be easier/less costly for primary dealers to more effectively make markets in Treasury securities and he would like the capital charges to be much lower or basically zero.

 

---

 

Separately, I really think you are missing what Bill is saying when he says government surpluses lead to depressions / recessions.  You are missing a major fundamental truth of the monetary system we actually have:  the government's deficit is the private sector's surplus and conversely the government's surplus (paying down the "debt") creates a drain out of the private sector.  The net liabilities of our government are the US dollar "money" we use to operate our highly leveraged, liquidity sensitive economy.

 

The sooner you realize the national debt of the US government is never going to be "repaid" and will only grow, the sooner you can get on with your life and learn to make money in the system we actually have, not the one you wish we had or the one someone thinks we have in a book you read.

 

You don't get to pick the system that evolved and exists here.  It is what it is.  Try to understand it, don't ever naively apply the analogy of a household budget to the US government's finances - I'm looking at you Elon Musk "we will go literally bankrupt!"  Nothing elicits an eye-roll quicker than another idiot telling us that the government is going to run out of "money."

 

Inflation is the constraint.  We try to always have some inflation because deflation kills debt-based economies.  So is 2% perfect?  Is 3.5% the end of the world?  What if they targeted 1%?  Would we panic when it was 2% instead of rejoicing?

 

Fantastic post. Thank you for elaborating on this view.

[Hektor]

3 hours ago, wabuffo said:

I asked AI for an example of an evergreen bearish-sounding economic headline:

 

AI Response:

"Jamie Dimon issues economic warning!"

[wabuffo]

Quote

The sooner you realize the national debt of the US government is never going to be "repaid" and will only grow, the sooner you can get on with your life and learn to make money in the system we actually have, not the one you wish we had or the one someone thinks we have in a book you read.

 

+1 for gfp.   

 

Bill

Edited May 31, 2025 by wabuffo

[Hektor]

2 hours ago, Blake Hampton said:

I don't think there is anyone in the world better to listen to about macro right now than both Jamie and Warren.

Not even Bill A 

[73 Reds]

36 minutes ago, gfp said:

 

We're really not ignoring him Blake.  We all agree that inflation is the constraint on a sovereign issuer "borrowing" in their own free floating, non-convertible global reserve currency.  Dimon, Druck, Wabuffo, Mosler, Buffett, Munger - everyone agrees that inflation is the constraint.

 

You also have to listen when every member of your appeal-to-autority dream team predicting "crisis" says "I don't know if it will happen in 6 months or 6 years or..."

 

Most of us, not you apparently, are also aware that Dimon has been actively lobbying for a change in bank capital rules that would make it easier for large banks / primarily dealers like JPM to own a lot more cash bonds on their books without taking a capital charge that makes it unattractive/uneconomic.  A lot of the market distortions that people try to read into as macro tea leaves predicting the future - like persistently negative IR swap spreads - are partially just byproducts of current bank capital rules for an IR swap vs a cash treasury.

 

Dimon would like it to be easier/less costly for primary dealers to more effectively make markets in Treasury securities and he would like the capital charges to be much lower or basically zero.

 

---

 

Separately, I really think you are missing what Bill is saying when he says government surpluses lead to depressions / recessions.  You are missing a major fundamental truth of the monetary system we actually have:  the government's deficit is the private sector's surplus and conversely the government's surplus (paying down the "debt") creates a drain out of the private sector.  The net liabilities of our government are the US dollar "money" we use to operate our highly leveraged, liquidity sensitive economy.

 

The sooner you realize the national debt of the US government is never going to be "repaid" and will only grow, the sooner you can get on with your life and learn to make money in the system we actually have, not the one you wish we had or the one someone thinks we have in a book you read.

 

You don't get to pick the system that evolved and exists here.  It is what it is.  Try to understand it, don't ever naively apply the analogy of a household budget to the US government's finances - I'm looking at you Elon Musk "we will go literally bankrupt!"  Nothing elicits an eye-roll quicker than another idiot telling us that the government is going to run out of "money."

 

Inflation is the constraint.  We try to always have some inflation because deflation kills debt-based economies.  So is 2% perfect?  Is 3.5% the end of the world?  What if they targeted 1%?  Would we panic when it was 2% instead of rejoicing?

 

 

Yep - terrific post.  Also consider who owns most of our debt (Japan, China).  They don't want to be repaid because who would they rather lend to?

[Blake Hampton]

I recommend watching from 16:32 to 23:18:

 

 

[Dalal.Holdings]

As I said, I hope @wabuffo is right and the alarmists wrong.

 

However, hope is not a strategy. I'll continue owning some Euro denominated assets and avoid long duration dollar denominated bonds.

[Marco Van Basten]

1 hour ago, Dalal.Holdings said:

As I said, I hope @wabuffo is right and the alarmists wrong.

 

However, hope is not a strategy. I'll continue owning some Euro denominated assets and avoid long duration dollar denominated bonds.

Do you own Euro denominated assets because you like the assets or you don't like the dollar?  I think for the past 15+ years, 50%-60% of my portfolio has been invested in non-US securities, but that was due to bottom up analysis, not top-down macro bets.  

[Dalal.Holdings]

Just now, Marco Van Basten said:

Do you own Euro denominated assets because you like the assets or you don't like the dollar?  I think for the past 15+ years, 50%-60% of my portfolio has been invested in non-US securities, but that was due to bottom up analysis, not top-down macro bets.  

 

Not only is the U.S. fiscally challenged vs say Germany, but U.S. equities are much more expensive than European counterparts. There has been good reason for that as the Eurozone (esp Germany) has been in multi-year economic stagnation due to self imposed austerity. My bet is that changes in the coming years.

[Marco Van Basten]

6 minutes ago, Dalal.Holdings said:

 

Not only is the U.S. fiscally challenged vs say Germany, but U.S. equities are much more expensive than European counterparts. There has been good reason for that as the Eurozone (esp Germany) has been in multi-year economic stagnation due to self imposed austerity. My bet is that changes in the coming years.

I am sorry, but Microsoft should be more highly valued than Deutsche Bank.  I could never understand how you could compare multiples across markets.   

[Dalal.Holdings]

4 minutes ago, Marco Van Basten said:

I am sorry, but Microsoft should be more highly valued than Deutsche Bank.  I could never understand how you could compare multiples across markets.   

 

Yeah except that’s not what I said at all. No point in discussing further.

[Malmqky]

56 minutes ago, Marco Van Basten said:

I am sorry, but Microsoft should be more highly valued than Deutsche Bank.  I could never understand how you could compare multiples across markets.   

 

Microsoft isn't a counterpart to Deutsche Bank. Either compare the entire market, sectors, or direct counterparts - JPM or something.

Edited June 1, 2025 by Malmqky

[Marco Van Basten]

1 hour ago, Malmqky said:

 

Microsoft isn't a counterpart to Deutsche Bank. Either compare the entire market, sectors, or direct counterparts - JPM or something.

European indices have different composition than the US indices.  Europe has no equivalent of MA/V, MCO/SPGI, no equivalent of MSFT/META/GOOG/NVDA yes there is ASML.  My point is that Europe has different businesses than the US, so it is impossible/impractical/foolish to compare multiples in Europe vs US.  So you cannot compare market multiples, that makes no sense.  I just looked, my portfolio is 60%+ non-US, but it is driven by bottom up analysis.  

[Malmqky]

2 hours ago, Marco Van Basten said:

European indices have different composition than the US indices.  Europe has no equivalent of MA/V, MCO/SPGI, no equivalent of MSFT/META/GOOG/NVDA yes there is ASML.  My point is that Europe has different businesses than the US, so it is impossible/impractical/foolish to compare multiples in Europe vs US.  So you cannot compare market multiples, that makes no sense.  I just looked, my portfolio is 60%+ non-US, but it is driven by bottom up analysis.  

Thanks for explaining, understand what you’re saying now