Bonds!

[gfp]

2 minutes ago, Marco Van Basten said:

Not an option for most of the country.  Oh, and I don't have a W-2 job.  

 

We were talking about your wife Marco.  Keep up!

[Marco Van Basten]

57 minutes ago, gfp said:

 

We were talking about your wife Marco.  Keep up!

Sorry, I am slow...  On the one hand, she wants to work and thinks that she will be bored at home, and we need the health insurance that her job provides, on the other hand, she went from being an Obama Democrat to Trump Republican, and every time she sees taxes in her paycheck, I hear five minutes of hate (from Orwell's 1984)

[gfp]

1 minute ago, Marco Van Basten said:

Sorry, I am slow...  On the one hand, she wants to work and thinks that she will be bored at home, and we need the health insurance that her job provides, on the other hand, she went from being an Obama Democrat to Trump Republican, and every time she sees taxes in her paycheck, I hear five minutes of hate (from Orwell's 1984)

 

You know, Marco, some people work very hard all day every day for free!  Even (especially) privileged young ladies who hit the marriage lottery with a successful soccer coach

 

 

[Red Lion]

14 hours ago, Marco Van Basten said:

It would be a disaster if you raise the payroll cap, employment will go down and probably quite a bit.  You already have marginal tax rates north of 50% in many places - NY, NJ, CA, HI, MA.  You push it up higher and you will have an impact on employment.  My wife doesn't make much, but because I push her into the top federal bracket, albeit not the top NYS brackets, the tax she pays on her salary is approaching 60% (including Medicare and Social Security.)  We are debating whether she should stop working (she has an MBA), because it's just not worth it.  Push it say a few percentage higher and it's just a no brainer for her to quit.

My neighbor's wife quit her job as a teacher after NYS passed additional tax increases a few years ago, since her husband worked for a hedge fund, and this loyal Democrat could not stomach paying 60%+ tax rate...

 

Keep in mind, many federal tax credits for kids phase out at $400K of income...

 

From an economic point of view, the best is to take away benefits from higher income retirees.  

Just to be clear, I’m not advocating for this. I just think it’s the more likely political “solution”. 

[Blake Hampton]

Tariffs as Trump implements them are illegal. In this case, the FY 2025 deficit was actually close to $2 trillion, which is about $15 thousand for each and every single U.S. household. That number is also growing quite quickly. Just the war in Iran is costing $1 billion a day. What about our interest expense, worsening demographics, and all the other stupid stuff that would take me all day to list?

 

I guess money really does grow on trees.

[Marco Van Basten]

1 hour ago, Blake Hampton said:

Tariffs as Trump implements them are illegal. In this case, the FY 2025 deficit was actually close to $2 trillion, which is about $15 thousand for each and every single U.S. household. That number is also growing quite quickly. Just the war in Iran is costing $1 billion a day. What about our interest expense, worsening demographics, and all the other stupid stuff that would take me all day to list?

 

I guess money really does grow on trees.

Dude, the deficit is shrinking in both absolute terms and as a % of GDP from fiscal 2023 and fiscal 2024 levels, albeit it is still way too high.  So the deficit is NOT growing in absolute terms on a per household basis.  Yes, Iran war is expensive, however so is Iranian terrorism.  I agree with you on a lot of things, but you need to look at both sides of the coin, not just one.  

[TwoCitiesCapital]

4 hours ago, Marco Van Basten said:

Dude, the deficit is shrinking in both absolute terms and as a % of GDP from fiscal 2023 and fiscal 2024 levels, albeit it is still way too high.  So the deficit is NOT growing in absolute terms on a per household basis.  Yes, Iran war is expensive, however so is Iranian terrorism.  I agree with you on a lot of things, but you need to look at both sides of the coin, not just one.  

 

The deficit was largely unchanged from the prior year. So in absolute terms its somewhat static - surprising for all of the savings DOGE was supposed to get us and all of the fraud supposedly enacted by the welfare state. Where did it all go?!?

 

It is falling as a % of GDP - for now. The history of the deficit/debt levels under Republican leadership for the last 30-40 years leaves much to be desired and suggests that it will likely get worse from here. 

Edited March 6 by TwoCitiesCapital

[Blake Hampton]

This is well worth the watch. Robert Shiller is a great teacher:
 

 

[gfp]

The 20 year treasury has a 5 handle again!

 

  

 

[rogermunibond]

Torsten Slok pointed to $10T in gov bond to be refinance, $2T in deficit, and $2T in IG corporates.

 

https://www.apolloacademy.com/14-trillion-in-ig-supply-coming-to-the-market/

[wabuffo]

Torsten Slok pointed to $10T in gov bond to be refinance, $2T in deficit,

 

sigh.... Treasury securities are pre-funded by the deficit spending which creates the net financial assets for the domestic private sector (and foreign sector via the rest of the world's net export to us) to purchase them.  

 

Repeat after me - there is no crowding out.   And by the way, if the Treasury didn't issue securities, rates would fall to zero (or even go negative).

 

Its a pity these pointy-headed economists don't even understand any of this...

 

Bill

Edited March 24 by wabuffo

[rogermunibond]

He's just pointing to the higher rates/spreads from absorbing this refinance.

 

It's not frictionless.

[wabuffo]

He's just pointing to the higher rates/spreads from absorbing this refinance.

 

He is just hand-waving because he doesn't understand any of it, apparently.   What would we do without "experts"?

 

Bill

 

 

 

Edited March 24 by wabuffo

[rogermunibond]

I get it most of the refinance is going to T-bills and notes and gets absorbed without much ado.

[cubsfan]

5 hours ago, gfp said:

The 20 year treasury has a 5 handle again!

 

  

 

 

I remember that one!   Worked great...

 

That's a good one for Blake!

[hasilp89]

Did anyone catch Buffett mutter “they can print money” when talking about the fed with beck quick on cnbc? I assume he understands the true plumbing but@wabuffo do you need to give him a call?

[gfp]

6 minutes ago, hasilp89 said:

Did anyone catch Buffett mutter “they can print money” when talking about the fed with beck quick on cnbc? I assume he understands the true plumbing but@wabuffo do you need to give him a call?

 

The context is that a treasury auction will never fail and that is what he was referring to.  (and, yes, the Federal Reserve is not allowed to directly bid in treasury securities auctions but primary dealers are required to backstop the auctions in exchange for the privilege)

Edited April 1 by gfp

[wabuffo]

Did anyone catch Buffett mutter “they can print money” when talking about the fed with beck quick on cnbc? I assume he understands the true plumbing but@wabuffo do you need to give him a call?

 

He is not the only one who doesn't understand the plumbing.  Sad.

 

Bill

[Blake Hampton]

I don’t think betting against Buffett is a winning strategy over time.

 

Buffet knows what he’s talking about, and he likely understands the financial plumbing better than anyone else in the world; he’s the one Treasury secretaries and Fed chairmen call for advice.

 

The Fed printing money to save the system is a choice that must be made. It is not some automatic switch that flips. During a severe situation, it becomes a manual decision between sacrificing the currency and saving the system.

 

The Banking Panic of 1907, which resulted in John Pierpont Morgan saving the country from systemic collapse, convinced Congress that the financial well-being of the country couldn't be dependent on any one individual. Thus, in 1913, the Federal Reserve was born. One of their founding principles was to help avert banking panics. They became the lender of last resort. They're the firefighters that arrive to save everyone when all other options have been extinguished. They do not move until they have to.

 

With each new systemic crisis, the Federal Reserve has had to move into new areas that were formerly thought of as far outside of their actual mission: to protect the banking system. In 2008 it was AIG and investment banks. In 2020 it was corporate credit. Go and read some of what Kevin Warsh has had to say about "mission creep." He is the incoming Chairman after all.

 

Another aspect of this that I think is important is that the Federal Reserve is technically not allowed to lose money. All of the Federal Reserve's loans are supposed to be secured by "good collateral." When the Fed has to move on deep-end items like corporate credit, they're legally supposed to go to the Treasury, and in-effect Congress, in order to get equity backstops so that they don't lose money. That takes time.

 

Today, we have a system that is incredibly leveraged as well as a Congress that seemingly couldn't get anymore stupid. Like Buffett said, when you get right down to it, a lot of Congressmen think that they know more about the financial system than those at Treasury and the Fed. They're truly one dumb bunch, and in my opinion, a good reflection of the electorate they're supposed to represent.

 

So we have a system that it sort of just-in-time when it comes to money, and lawmakers who have little understanding of how to properly respond to a crisis.

[Blake Hampton]

A Treasury auction will never fail. But yields very well may spike to levels people previously thought were impossible.

 

Powell's approach is to flood the system with money. Warsh seems to me more of a disciplinarian.

 

I think those are important topics.

[gfp]

Ahhh to be young again!  Everything is just so cut and dry.  I read it in a book and heard it on a podcast!  Warsh is going to be different from Powell and Warsh has the choice to be "more of a disciplinarian"..

 

I am looking forward to Warsh actually starting his job so we can start dispensing with all this "Warsh will be different" chatter that we are SO sure of

[Blake Hampton]

But how will Warsh respond during a crisis?

[Malmqky]

I remember when we got a new director at work, and we were going to clear out the backlog, get rid of DB2/mainframe completely, refactor half our code bases, and migrate everything to Azure in a three year timeframe.

 

Three years later, guess what actually happened?

[Castanza]

17 minutes ago, Blake Hampton said:

I don’t think betting against Buffett is a winning strategy over time.

 

Buffet knows what he’s talking about, and he likely understands the financial plumbing better than anyone else in the world; he’s the one Treasury secretaries and Fed chairmen call for advice.

 

Everyone worships something or someone ...

[Gregmal]

19 minutes ago, Blake Hampton said:

I don’t think betting against Buffett is a winning strategy over time.

 

Buffet knows what he’s talking about, and he likely understands the financial plumbing better than anyone else in the world; he’s the one Treasury secretaries and Fed chairmen call for advice.

 

The Fed printing money to save the system is a choice that must be made. It is not some automatic switch that flips. During a severe situation, it becomes a manual decision between sacrificing the currency and saving the system.

 

The Banking Panic of 1907, which resulted in John Pierpont Morgan saving the country from systemic collapse, convinced Congress that the financial well-being of the country couldn't be dependent on any one individual. Thus, in 1913, the Federal Reserve was born. One of their founding principles was to help avert banking panics. They became the lender of last resort. They're the firefighters that arrive to save everyone when all other options have been extinguished. They do not move until they have to.

 

With each new systemic crisis, the Federal Reserve has had to move into new areas that were formerly thought of as far outside of their actual mission: to protect the banking system. In 2008 it was AIG and investment banks. In 2020 it was corporate credit. Go and read some of what Kevin Warsh has had to say about "mission creep." He is the incoming Chairman after all.

 

Another aspect of this that I think is important is that the Federal Reserve is technically not allowed to lose money. All of the Federal Reserve's loans are supposed to be secured by "good collateral." When the Fed has to move on deep-end items like corporate credit, they're legally supposed to go to the Treasury, and in-effect Congress, in order to get equity backstops so that they don't lose money. That takes time.

 

Today, we have a system that is incredibly leveraged as well as a Congress that seemingly couldn't get anymore stupid. Like Buffett said, when you get right down to it, a lot of Congressmen think that they know more about the financial system than those at Treasury and the Fed. They're truly one dumb bunch, and in my opinion, a good reflection of the electorate they're supposed to represent.

 

So we have a system that it sort of just-in-time when it comes to money, and lawmakers who have little understanding of how to properly respond to a crisis.

So Blake, what’d you buy during the recent selloff?