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Deep Thoughts From Tony Boeckh On Act II - The Consequences Of The Debt Hangover
Tony Boeckh has issued his most recent investment letter, which, at 15 pages, discusses an outlook that can be summarized best as "we really have no clue what will happen" and may have been about 14.5 pages too long. On the other hand, with everyone having surefire money making schemes up their sleeve, and peddling a guaranteed economic outcome, perhaps some outlook humility is precisely what is needed. "Some believe the bull market in gold has just begun. Others believe we are headed for a deflationary depression in which high quality bonds would continue to thrive. Another view is that we are heading into high inflation and a dollar collapse. Yet others believe there will be a return to the good old days of stability and growth. In the time frame of most investors, we are in none of those camps. With bonds significantly overvalued, investors hardly have an edge in that area, except perhaps to go short. High yield bonds are fair value but the weak economic picture suggests growing risk for those companies with poor balance sheets and poor cash flow prospects. Gold as insurance at 5-10% of the portfolio makes sense but only for the long run and only if volatility can be ignored." All in all, some good observations.
From Tony Boeckh, U.S. Government Debt: The Upward Spiral Continues
h/t Chips4Pips
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Debt hangover?
Forget it!!
The entire planet is "front-running" the Fed!
And buying U.S. Gorilla debt hand over fist!
If, by, the "entire planet" you mean the Federal Reserve, its primary dealers, and its offshore partners, then yes, you are absolutely correct. The entire planet is buying US debt.
If, however, you look at China and Japan specifically, then you'll notice their holdings are static at best.
$Dollar is tanking tonight.
Stuff will be expensive tomorrow...
Yen/USD down to 84.8, or 2 yen/USD above where it was, when the BoJ intervened.
Great investment, that. It'll no doubt go down in history...
All of this fiat money has no place to go but gold
CHF bitchez
I always wonder why analysts keep refering to this useless ratio of Govt debt as a percentage of GDP to compare the level of indebtment of various countries.
Debt should always be counted as a percentage of revenues, so unless Govt revenues can magically become the entire GDP of a nation (100% taxes) countries should be compared using Govt debt as a percentage of Govt revenues and NOT GDP.
When one does the calculation correctly and includes the GSEs (Fanny Freddy AIG...) it appears that the US Govt is actually with a Govt debt / Govt revenues of 430% the most indebted Govt in the world, even more than Japan's at 400% and twice as indebted as the Eurozone's at 225%.
Even if somehow the US Govt managed to cut its spending by 50% accross the board but kept the level of taxes at the current level (ie producing a surplus of 10% of GDP to pay down the debt), it would still take at least 21 years of such drastic austerity for the US Govt to arrive at a level of indebtment comparable to that of the Eurozone.
Why the Eurozone is already in the midst of a sovereign debt crisis and not yet the US is a puzzling question.
21 years. Ironic, that is how long it takes to pay down a maxxed out Visa or MC.
"Why the Eurozone is already in the midst of a sovereign debt crisis and not yet the US is a puzzling question."
We'll be there soon enough. Let's see what the new year brings us.
There are several reasons why the Eurozone is in a sovereign debt crisis before the US (even though the US should be in one).
1. Europe has a population that is aging faster than the US
2. The EU countries' gov'ts spend significantly more than the US
3. EU banks have a higher debt to equity ratios than US banks
4. The Euro is inherently unstable due to a lack of a strong central bank
1. sure the US has a slight demographic advantage over the Eurozone (but it's not exactly as if they don't both have the problem with a boomer generation all entering into retirement age). And if demographics and a young population was that key to the level of indebtment, African countries should be allowed the highest.
2. true, but they also have significantly more revenues.
3. only thanks to TARP and to mark to fantasy rules.
4. It's not because of the lack of a strong central bank but US and UK economists have been claiming since the Euro's inception that it is inherently unstable because of the lack of a central taxing authority that can fund some countries in desperate need of cash from a central pool. It remains to be seen whether this is true or not. We focus today on the problems caused by Germany having to bail out Greece but I wonder what will happen when Texas needs to bail out California via the Federal Govt.
I think the key reason why the Eurozone is having a sovereign debt crisis and not the US or the UK is that US interests (and their European enclave in the city of London) still control most of the financial world and diverting attention with the Eurozone sovereign debt crisis is the best way to hide a much larger problem in the US.
In a word.
SOCIALISM.
Then explain why the 3 countries which are in the biggest mess within the Eurozone are exactly those with the smallest share of Govt / GDP : Greece (31%) Ireland (28%) Spain (33%), ie are the least socialist within the Eurozone.
Countries like Finland, Austria, Germany, France, Netherlands all have to pay much lower interests on their Govt bonds but all have a much higher share of Govt / GDP (from 38% to 43%), ie are the most socialist within the Eurozone.
chrisina,
Sorry, I meant as a Whole...........my bad.
The idea of cash flow analysis to cover guage indebteness is interesting, If you add the GSE's to the debt pile then it is only fair that their cash flows be added too.
Maybe the addition of the GSE's to the gvt balance sheet actually help the cash flow situation. Not saying were in good shape.
well, it's not exactlya cash flow analysis but the simple affirmation of the fact that any payments to service one's debt must be made from one's revenues.
And when you add the GSE's debt to those of the Govt you must of course add their revenues too. What you get is a Govt debt including federal, state, local and GSEs of 150% of GDP for the US and 35% of GDP as revenues, divide the two and you get US Govt debt of 430% of Govt revenues.
If the GSEs are 100% backed by the US Govt then despite what Geithner says their debt should be counted as part of the US Govt. It boggles the mind that the US Govt still gets away with such nonsense and analysts quoting this irrelevant measure of US Govt debt equal to 90% of GDP. No, it's 150% of GDP and 430% of Govt revenues.
The best observations are hindsight. I look to other countries that have gotten themselves into our pickle jar in the past. I believe we'll survive but with a lower standard of living. How low is the question. It's got to happen.
Gold as insurance at 5-10% of the portfolio makes sense but only for the long run and only if volatility can be ignored." All in all, some good observations.
5-10%?..........you must be kidding.
Tyler, you agree w/ that assessment?.
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