the "The bond market is on the cusp of a collapse." Greenspan

[tabs]

https://www.cnbc.com/2017/08/04/greenspan-bond-bubble-about-to-break-because-of-abnormally-low-interest-rates.html

8 Hours Ago | 01:44

Former Federal Reserve Chairman Alan Greenspan issued a bold warning Friday that the bond market is on the cusp of a collapse that also will threaten stock prices.

This essentially goes hand in hand with what I have been saying about having a SOVEREIGN DEBT crisis that will rock your world.

And that will drag the US economy right with it. As debt service levels rise the US government will have ever more trouble in meeting it's obligations. Which is likely to increase deficit spending to meet it's obligations. It is a vicious Catch 22 cycle that we have painted ourselves into.

There has been a Bull market in Bonds since interest rates started declining in the early 90's. The American interest rate environment has been kept abnormally low by an inflow of foreign capital as a flight to quality and safety. At some point debt levels will have become egregious and their will be a refutation of American debt. Interest rates will have to rise to entice buyers of that debt to subsume the risk they are taking with such a heavy American debt load.


Perception in the world plays a large part as to the desirability of American debt. With the perception that Trump will make things swell again in America, optimism increased and people did not feel as much need for the safety of holding US Treasuries. Thus interest rates climbed from a low point on the 10 yr Treasury of 1.47% in the middle of 2016 to 2.24% today. Also economic strength in the EU coupled with the expectation of Central bank tightening is causing an out flow of capital out of US bonds. In other words they can get a better than before ROI in their own Bonds.


I am really surprised no one picked up on this today. I guess you all are too busy arguing about trivialities.

[SoCal911T]

I read your comments in the other thread too and I'm curious, if you were sitting on cash, where would you park it?

[tabs]

Originally Posted by SoCal911T

I read your comments in the other thread too and I'm curious, if you were sitting on cash, where would you park it?

Spread it around...

Money Market is based upon very short term bonds.

Bank Saving Deposits

In your mattress/safe deposit box.

[Sooner or later]

Is this the same Greenspan that railroaded Brooksley Born since she wanted to increase regulation on the derivitive market? The same Greenspan that said the LTCM bankruptcy was nothing to worry about?

[pwd72s]

Originally Posted by Sooner or later

Is this the same Greenspan that railroaded Brooksley Born since she wanted to increase regulation on the derivitive market? The same Greenspan that said the LTCM bankruptcy was nothing to worry about?

Doesn't mean he isn't right this time. Cindy bought a sizeable batch of I bonds over a decade ago. We're not cashing them in.

There's a reason the fed no longer sells them.

[Mad Max]

Originally Posted by Sooner or later

Is this the same Greenspan that railroaded Brooksley Born since she wanted to increase regulation on the derivitive market? The same Greenspan that said the LTCM bankruptcy was nothing to worry about?

Sure Alan, nothing to worry about until there is a problem.

Thanks Alan for bringing us closer to the edge, after all, you were at the helm for how long?

[HardDrive]

So you guys are taking investment advice from a guy you came across in a car forum on the internet......well played....

[tabs]

Originally Posted by HardDrive

So you guys are taking investment advice from a guy you came across in a car forum on the internet......well played....

Perhaps you would like it better if I sent emails to CNBC and they repeated the content to you? That would make it OK for you?

[pwd72s]

Originally Posted by HardDrive

So you guys are taking investment advice from a guy you came across in a car forum on the internet......well played....

Nope, not me. I take investment advice from a woman I know. She gets naked, smears herself with wood ashes, and reads chicken entrails.

So far, so good...

[tabs]

It is really depressing to have some people question the veracity of my commentary. I present a very well thought out, logical narrative, which I back up with fact. I have only one loyalty and that is to the truth of the matter. As stated long ago I ask no one to believe me, but to think about my narrative and see if it makes sense to you.

Over time I have found the less bright among you have a lessor capacity to abstract ideas and only can see the literal translation and not the figurative. I think of those people as having cement between their ears. That in essence is the truth of the matter.

I was having a conversation with a friend of mine who said that he thought Donald was very smart. I said, "Ohh really?" What I have to realize is that from his vantage point the Donald appears to be a very smart cookie indeed. However not from mine. The same can be said about BO. I have never thought that he was exceptionally smart. He could never untie his own personal narrative to makes changes to his policies to meet the exigencies. Nor could Clinton see what it was in himself that alienated Conservatives, instead it was the "vast right wing conspiracy." It was all their...somebody else's fault.

[KFC911]

Originally Posted by pwd72s

Nope, not me. I take investment advice from a woman I know. She gets naked, smears herself with wood ashes, and reads chicken entrails.

So far, so good...

I need to get me one of them...for investment advice of course !!!

I enjoy reading your perspectives Tabby....sometimes I even agree .

I haven't watched CNBC in years, though it used to accompany my morning coffee....now I have to come here for advice!

Greenspan? A REALLY smart cookie...who could not have been more wrong back when
And it was obvious too at the time....

Actually....I don't take investment "advice" from anyone....but I get ideas, information, etc. and then do my own thing....everyone's situation is different imo.

[MRM]

People have lost fortunes betting the bond market will crash ever since the end of the Great Recession. Every time rates hit an historic low they somehow find aWay to go lower. This can't go on forever. Rates will have to go up someday and that will cause the bond market to crash, but when it happens is anyone's guess. The bond market had been defying gravity for almost a decade. The lesson of The Big Short is that bubbles can't defy gravity forever, but they can last longer than a reasonable person can imagine.

[tabs]

Originally Posted by MRM

People have lost fortunes betting the bond market will crash ever since the end of the Great Recession. Every time rates hit an historic low they somehow find aWay to go lower. This can't go on forever. Rates will have to go up someday and that will cause the bond market to crash, but when it happens is anyone's guess. The bond market had been defying gravity for almost a decade. The lesson of The Big Short is that bubbles can't defy gravity forever, but they can last longer than a reasonable person can imagine.

Can I quote you?

As stated the reason why the USA has ENJOYED such a low interest rate environment for "for almost a decade" is because the rest of the world is in such a mess and the USA economy is anemic.

I wonder what the threshold interest rate would have to be before massive amounts of money start pouring out of Equities and back into Bonds? A slight move upward would not prompt a move as higher interest rates would be expected and principle would be at risk.

Debt levels so far have not seemed to matter, as the economic weakness and a flight to safety has been the driving force behind a low interest rate environment. At what point does debt level and attending service cost start to drive interest rates upward? At what point does debt risk out weigh safety and in of itself become a liability? Secondly at what point does increased economic activity calm the jitters people have which will sound the all clear to move out of bonds and into other asset classes? Which will then push interest rates higher.

As you can see interest rates are a complicated issue with multiple factors being intertwined. In that I have no real good answers for you about the future of interest rates. Except to say that interest rates seek an equilibrium in adjusting to all of the factors discussed above at any given moment. So the question becomes what will spook the complacency of the herd?

[svandamme]

the entire system has to crap out, i've said it before , here in 2004.
everything is based on growth.
Nobody is happy with just a successfull but steady income
It has to grow

Everybody has the same idea : politicians, banks, business, shareholders, people.

The world does not grow
the resources do not grow

something has to give.

2008 was just an initial hit
We are doing the yo-yo.

[daepp]

Tabs - if investors loose their appetite for debt as rates rise and bond values drop, won't they shift to equities?

[pwd72s]

Originally Posted by daepp

Tabs - if investors loose their appetite for debt as rates rise and bond values drop, won't they shift to equities?

What Tabs is referring to is that the market price for existing bonds would tank. Bonds have a value that varies depending on the interest they pay and the amount they represent. If interest rates rise, people looking for security will buy new bond that pay a higher interest rate. Old bonds would be considered a negative investment.

Shift to equities in a volatile market? Damn risky for old folks like me. When young with time to ride out a market downturn that could last a decade or more is risk tolerant. When in your mid 70's with a heart condition? Well, you shouldn't be as tolerant of risk. Preservation of capital takes on more importance than potential gains (or sudden loss) through equities.

Yep, the market has done extremely well since Trump's election. But those of us who look at P/E ratios and other factors wonder how long the bull will last...

[KFC911]

^^^^^ Paul....you learned a thing or two along the way....was it from lumberjacks, down at the pool hall, or from that nekkid lady ? But that was great!

After the Fed quit buying 4.5 Trillion in bonds during the QEs, and Fed interest rates were 0 for years, I had some bond funds, but a relatively small amount. When the Fed started raising rates a bit (long overdue IMO), those bonds funds tanked. They've done OK since, I don't keep track, but now the Fed is talking about reducing it's balance sheet and interest rates WILL be higher than now.....they've been pretty clear with their game plan. That's my perspective....I moved to relatively short term, individual, investment grade corporate bonds, and will hold them to maturity instead of bond funds....I sleep better that way . Thoughts????

[Helix8]

Originally Posted by tabs

Can I quote you?

As stated the reason why the USA has ENJOYED such a low interest rate environment for "for almost a decade" is because the rest of the world is in such a mess and the USA economy is anemic.

I wonder what the threshold interest rate would have to be before massive amounts of money start pouring out of Equities and back into Bonds? A slight move upward would not prompt a move as higher interest rates would be expected and principle would be at risk.

Debt levels so far have not seemed to matter, as the economic weakness and a flight to safety has been the driving force behind a low interest rate environment. At what point does debt level and attending service cost start to drive interest rates upward? At what point does debt risk out weigh safety and in of itself become a liability? Secondly at what point does increased economic activity calm the jitters people have which will sound the all clear to move out of bonds and into other asset classes? Which will then push interest rates higher.



As you can see interest rates are a complicated issue with multiple factors being intertwined. In that I have no real good answers for you about the future of interest rates. Except to say that interest rates seek an equilibrium in adjusting to all of the factors discussed above at any given moment. So the question becomes what will spook the complacency of the herd?

Economist Lacy Hunt at Hoisington Management has had an interesting and long standing take on why interest rates remain low. Debt levels matter. I like to read their quarterlies for a different perspective. Enjoy.

[cairns]

He's married to Andrea Mitchell. I don't think we need to say anything else.

[javadog]

^^^^

Well, we're past halfway in the weekend and the bond market hasn't collapsed. So much for tabs' prognosticating.

I always expect so much more from him.