patrick.net

The Banksters would love a bit of risk spread to move some paper, but they'll never allow the US to default. There's plenty left to plunder.

EMan says

Wouldn't bonds be really cheap now because of the "panic" and be resellable for a lot more?

possibly. But you don't want to be in bonds before that happens. I saw people swoop in and grab bonds from AIG and Citi when they were selling for 25 cents on the dollar. The government then bailed them out by paying out 100 cents on the dollar to all the bond holders. Instant 400% profit.

Might short? Not much commitment here.

Markets so far seem ok.

Don't short AAPL it went up.

;)

I'm out of the markets sans Gold/Silver. Earnings don't justify prices, nor do fundamentals. We have 10% unemployment and the Dow/S&P 500 are higher than they were in 2006. We are due for a major correction in all markets. Back in 2009, the market was much lower than it is today and it's price was justified as "pricing in the recovery". The recovery never came, yet the market is much much higher.

theoakman says

EMan says

Wouldn't bonds be really cheap now because of the "panic" and be resellable for a lot more?

possibly. But you don't want to be in bonds before that happens. I saw people swoop in and grab bonds from AIG and Citi when they were selling for 25 cents on the dollar. The government then bailed them out by paying out 100 cents on the dollar to all the bond holders. Instant 400% profit.

I was kind of kicking myself back than for not buying buying more AIG. But than again I thought it might collapse and I already had their shares.

EMan says

theoakman says

EMan says

Wouldn't bonds be really cheap now because of the "panic" and be resellable for a lot more?

possibly. But you don't want to be in bonds before that happens. I saw people swoop in and grab bonds from AIG and Citi when they were selling for 25 cents on the dollar. The government then bailed them out by paying out 100 cents on the dollar to all the bond holders. Instant 400% profit.

I was kind of kicking myself back than for not buying buying more AIG. But than again I thought it might collapse and I already had their shares.

Not stock. Their bonds. Their bonds were selling for nothing because AIG did not have the cash to honor those agreements. The insiders swooped in and bought them because they were the first to get official word from the government that AIG's bondholders would be bailed out to 100 cents on the dollar.

Sounds a lot like the question asked on this thread. Never got a definitive answer there.

I suspect that if -- and that's still a big if -- the U.S. does default, then the Fed will be forced to raise interest rates to keep selling treasuries. The dollar will decline relative to other currencies, but that makes little difference if your saving for a house. The higher interest rates will make housing more affordable.

Even more important, the fact that the Fed raised rates (in this hypothetical situation) would break the psychology that the Fed won't raise rates for a long time. Banks and sellers -- er, squatters -- will start to panic that more rate hikes are coming and realize it's better to sell now than to wait and be forced to sell during high interest rates when demand is low and prices must follow. It would be like a second bursting of the bubble.

So I'd say cash is good for those saving for a house. Cash in another currency better if you have something you can quickly transfer without a loss. I don't know of a specific, low-risk, high-liquid asset though. Maybe some kind of CD or money market account in a foreign, stable currency.

Btw, I think that bonds are a high-risk investment now. They performed extremely well over the past few years because the Fed kept lowering interest rates. But the Fed can't lower them any more since they are pretty much at zero. That means there is no reason for bonds to appreciate.

At the same time, the Fed could always raise interest rates and sometime in the future they will have to. We're not going to have near-zero interest rates for twenty years. If interest rates are kept up against the 0% wall, the Fed in effect forfeits its power to control monetary policy. However, when the Fed does plan to raise rates, I doubt it's going to give the public any warning whatsoever. Perhaps those with political connections will get a warning, but we won't. It will come as a surprise whenever it comes.

In any case, whenever interest rates rise, bonds fall. And rates have no where to go but up.

In many ways I don't understand the bond markets. I thought that it's simply me giving money to the government and they pay me an interest rate in return. Therefore when there is uncertainty about the investment people loan less to the Feds making these rates go up.

But it does get very confusing with all the bond types out there.

I'm pretty sure that if bonds didn't sell very well, the government would get money printed and out there to ensure they were sold. Interest rate hikes aren't in the cards for the country right now. It simply can't handle higher interest rates. Printing money to buy up the bonds at lower interest rates is probably the way to circumvent this.

The way bonds become worth more is when they're paying ultra high interest rates, people pay higher then face value for those bonds, thereby reducing the effective interest rates.

When people feel that bonds aren't likely to be paid back, they sell them for less (thus increasing the effective interest rates).

If bonds did default, we would likely see face value on those drop, that is when we want to buy them because the government will eventually start paying them off, at which point the bonds become valuable again.

EMan says

In many ways I don't understand the bond markets. I thought that it's simply me giving money to the government and they pay me an interest rate in return. Therefore when there is uncertainty about the investment people loan less to the Feds making these rates go up.

But it does get very confusing with all the bond types out there.

Rates would normally go up but the Federal Reserve drives them down by coming into the market and buying up bonds to prevent the rates on the bonds from rising. Because the Fed prints money to do so, inflation will pick up. At some point, inflationary pressures trump the Federal Reserve's interference into the market and rates will rise no matter what.

Rates won't necessarily, people might want them to raise, but the fed simply needs to print out more money. Take a look at Japan with 0%, going on like 15 years like this. It's not necessary to have them raise.

What might happen is people might start selling bonds at less than facevalue, which will make them appear to be returning more. But the actual redemption/selling probably won't change. A small change at these lending levels would add far to much carrying weight to this debt.

Perhaps in 5-10 years something like you're saying will happen. But I'm betting they can carry this game on for quite awhile, until they're prepared to come out with "plan B"

theoakman says

Rates would normally go up but the Federal Reserve drives them down by coming into the market and buying up bonds to prevent the rates on the bonds from rising. Because the Fed prints money to do so, inflation will pick up. At some point, inflationary pressures trump the Federal Reserve's interference into the market and rates will rise no matter what.

Thanks, so oakman do you buy bonds after the rates rise or do you try to time it before they rise?

Speaking of posture, I don't think Obama will be up for another term. He isn't cut out for this Shit, he loves the part where he's and his family are treated like Royalty Movie Stars. But lacks the dictation when his shoulder has to be put to the wheel.
Like during the Gulf Oil Spill, was when his grey hair started, his speeches lacked the zeal and pep of a snarky smart ass with quick blurbs of optimism lacking concise plans and action.
As poor of a spectacle those Gulf Oil disaster national addresses were.

Tonight's address was not a great leader lecturing his Nation, but a befuddled man, that wishes this would all go away.

EMan says

theoakman says

Rates would normally go up but the Federal Reserve drives them down by coming into the market and buying up bonds to prevent the rates on the bonds from rising. Because the Fed prints money to do so, inflation will pick up. At some point, inflationary pressures trump the Federal Reserve's interference into the market and rates will rise no matter what.

Thanks, so oakman do you buy bonds after the rates rise or do you try to time it before they rise?

I don't buy them at all. When interest rates start rising, they are going to keep going up.

Few talking about their actual positions.

I liquidated portfolio today except for some beer money in gold.

Even my AAPL which has been doing so well, decided to take a chance it'll drop lower again during all this brouhaha in which case I'll reload.

Vicente says

Few talking about their actual positions.

I liquidated portfolio today except for some beer money in gold.

Even my AAPL which has been doing so well, decided to take a chance it'll drop lower again during all this brouhaha in which case I'll reload.

“Eagles are dandified vultures” - Teddy Roosevelt

Roughly:

25% Physical Silver
5% Physical Gold
25% Gold/Silver Mining Stocks
5% Call Options on Japanese Stocks
40% Cash

Any significant pullbacks, I might dive into certain markets.

I too only have beer money in the mix right now.

I'm long a few junior Gold mining stocks.

I'm straddling EWJ, hoping to see it go above 12 or below 9 by January.

I'm short FXI, hoping to see it lose a good 20% or more.

I'm short HRBN, hoping to see it go to the Pinks.

The rest of my cash is going to a major US short that I reveal once I've worked out some remaining kinks in the plan.

I think the much bigger danger is if the US has its debt rating lowered - default or not. Downgraded Treasuries might not look so good and get dumped for that reason alone. All that being said I have some money in a short ETF against Treasury prices. Betting against the US government is a bit risky but I dont think even a QE3 is going to help here. The way the government has held rates down is like holding a basketball underwater. You can only do it so long and when you let go it swosshes up really high before settling.

You can only do it so long and when you let go it swosshes up really high before settling.
Agreed, but I'm willing to bet the government can hold the ball underwater longer than you can stay solvent.

EBGuy says

You can only do it so long and when you let go it swosshes up really high before settling.

Agreed, but I'm willing to bet the government can hold the ball underwater longer than you can stay solvent.

I doubt it. I can stay solvent for a good 30 years right now.

Sold my GLD today, now 100% cash.