Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1323.7 | -9.7 | -0.73% |
| Eurostoxx Index | 2162.6 | 2.3 | 0.10% |
| Oil (WTI) | 89.51 | -1.2 | -1.38% |
| LIBOR | 0.467 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 82.54 | 0.056 | 0.07% |
| 10 Year Govt Bond Yield | 1.69% | -0.05% | |
| RPX Composite Real Estate Index | 177.5 | 0.1 |
A sloppy tape to start the day as Euro fears take center stage. Spanish credit default swaps are at 522 basis points, an all-time high. Troubled Spanish lender Bankia continues to fall. Greek sovereign debt is over 30%. The beneficiary of the risk-off trade is the US 10-year, where yields are down 6 basis points. Meanwhile, oil cannot get out of its own way, with WTI down 15% this month.
The 10-year yield is flirting with the Sep low of 1.673%. MBS are unchd, and we are witnessing a similar phenomenon as last fall, where the 10 year rallied and MBS underperformed. The spread between the Freddie Mac generic 30 year fixed mortgage and the 10-year bond yield is 2.04%. Here is a chart of the generic 30 year fixed rate mortgage, the 10-year bond, and the spread between the two.
While mortgage rates are falling as the yield on the 10 year falls, they are falling much more slowly. So, if you are facing a lock decision, you have are faced with a bit of a conundrum: If the 10 year yield continues to fall, mortgage rates might not participate. In other words, we may be reaching a floor in mortgage rates. Which means you might as well lock. On the other hand, if the 10 year yield starts backing up, mortgage rates should rise much slower since they really didn’t fall that much to begin with. Which means you have some room to wait and see what happens, and you might want to float. So, lock or float? IMO, when markets crack, they crack quickly. And the 10 year is at very lofty levels. It could go from 1.7% to 2.4% in a hurry. The risk is more skewed towards mortgage rates increasing quickly than falling quickly. I would lean short in mortgage rates, or in other words, lock.
Part of the reason why the recovery has been so halting has been that the job market for those in their prime earnings years has been horrendous. Instead of making the top salaries of their lives (which they need to pay for college for their kids and also retirement savings), many people in their prime earnings years are either unemployed or underemployed. This is a huge drag on the economy.
Filed under: Morning Report |
All Things in Moderation 
Strong dollar and high unemployment. Well this is a fine kettle of fish!
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1.65% on the 10 year.
Who would have ever believed!
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1.633%, actually. No ceiling, it seems.
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Brent….good one.
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No debt ceiling for sure!
I wouldn’t invest in Treasuries now unless required by law.
Look at it this way. In order for Obama to win in November, there has to be an improved economy. If the economy doesn’t improve and Obama is beaten, as soon as the polls indicate this in the fall, the market will improve.
So either way, unless we see 2008-2009 all over again, equities and commodities wil outperform bonds by the end of the year, no?
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banned:
I wouldn’t invest in Treasuries now unless required by law.
You seem to be the only one alive thinking that way at the moment Never ending rally.
So either way, unless we see 2008-2009 all over again, equities and commodities wil outperform bonds by the end of the year, no?
Probably by the end of the year. But in the short term nothing seems to be stopping the bond market.
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Would I buy Treasuries? Not with your money!
Would I short Treasuries? Not that brave to step in front of a blow-off top.
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Whether Walker is a devil or angel, there’s a sea change coming and Wsiconsin and Rhode Island are just the beginning. As the NYT pointed out this weekend, (long after I and a few others did, ahem) most public pension funds are incorporating 7-8% returns in their projections.
With Treasuries at an all time low, funds either have to face the politically untenable reduction in pensions both current and future, OR they have to engage in massive financial gambling with hedge funds, of the kind that occured in the 2000s
So in truth, every dollar spent to recall Walker will have been wasted, no matter which way the election goes.
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scott:
I actually bought some Europe indexes today too, with a July date.
Riding inside the truck is for sissies who use air conditioning. Standing up in the back of the bed is the way to go.
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brent:
Forget the Japanese:
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The last time WTI was this low, the S&P was about 6.5% lower than it is today.
be brave when others are fearful
be brave when others are fearful
bebrave when others are fearful
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Scott, how much of the Treasuries rally is the Fed, using proxies to monetize the debt?
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McWing:
Scott, how much of the Treasuries rally is the Fed, using proxies to monetize the debt?
I don’t actually know, but I doubt it is that much if any at all. This all seems to be related to Greece and fears of a Euro breakup. Euro bond futures with a German-issued underlying note (called the Schatz futures) are currently implying a yield of zero, so it is not just US rates that are sinking. Anything perceived to be a safe-haven from the possible break-up of the Euro is getting bought up like crazy.
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Time to cut Greece loose. The “bailout” flows in a circle back to the lender, untouched by the Greeks.
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http://www.washingtonpost.com/politics/social-security-disability-trust-fund-projected-to-run-out-of-cash-by-2016/2012/05/30/gJQA3AfH1U_story.html?wpisrc=nl_fedinsider
Last freaking chance to fix it before it becomes an actual Ponzi scheme.
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mark:
Last freaking chance to fix it before it becomes an actual Ponzi scheme.
This would have been more apropos had it been asserted circa 1934. 😉
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Thanks Scott.
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Social Security is a general obligation of the government, so there’s literally no way for them to ever stop sending out checks, unless Congress repudiates the obligation through legislation. That’s why i’ts an entitlement and not an investment.
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banned:
How is the amount on the check that the government is obligated to send determined?
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Scott and banned, as to disability, the amount is determined in a different way than old age benefits, and eligibility is somewhat subjective, from what I have seen.
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UT’s LGBT Alums are better looking than your alma mater’s…
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By the amount of quarters you worked and the 5 year average salary I believe, but don’t quote me.
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banned:
Sorry, I was being rhetorical. We’ve been around this block before, but obviously it is a function of what you earned, as is what you are forced to pay into it. Since the payout is (implicitly, if not explicitly) a function of what you contributed, it ostensibly acts just like many other investments. The primary difference is that in a normal investment, what you pay in is actually, er, invested in some money-making proposition, while in SS your contributions are simply spent to pay out other people. This, of course, is the very characteristic that makes a Ponzi scheme a Ponzi scheme.
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nope, because a ponzi scheme is based on defrauding investors with imaginary rates of return in non-existent investments.
There is no fraud involved in SS, nor is anyone offering imaginary rates of return.
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banned:
nope, because a ponzi scheme is based on defrauding investors
Again, we’ve been through this before, but a Ponzi scheme doesn’t cease to be a Ponzi scheme simply because the guy who is running it is honest about what he is doing.
My first week as a freshman in college, some upper classmen came to my room and tried to get me to participate in what is in fact a classic Ponzi scheme. They didn’t offer me false rates of returns or try to defraud me in any way. They simply tried to convince me to give them my money, and assured me that I would get multiples of my money back when I convinced all my friends to join in. According to you, their honesty about what was going on precludes their scheme from being labelled a Ponzi scheme. I say you are wrong.
Deception is, of course, usually associated with Ponzi schemes because people in general are not stupid enough to enter one if they actually understand what is going on. But deception is not the defining feature of a Ponzi scheme. The defining feature of a Ponzi scheme is using the contributions of new entrants to pay out those who have already contributed without ever actually investing in a money-making proposition, requiring an ever expanding universe of entrants in order to continue to make payouts. Which sounds awfully familiar to me.
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mark:
Agreed but the larger point is that the disability checks aren’t based on any investment and won’t stop going out when the fund goes in the red, absent a change in legislation.
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scott:
we just disagree, and that’s ok.
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banned:
If it is really your position that a Ponzi scheme ceases to be one if the person running it is honest about what he is doing, then yes we definitely do disagree.
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It’s not just my position, it’s the law. Without fraud, even the scheme you describe at your college is not a criminal matter, though of course there may be all sorts of other civil issues.
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banned:
So your position now seems to be that an essential element of a Ponzi scheme is illegality. That is, if Congress decided to legalize what Madoff did, we could no longer call it a Ponzi scheme. I disagree with that, too.
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More greenwald on drones.
“By “militant,” the Obama administration literally means nothing more than: any military-age male whom we kill, even when we know nothing else about them. They have no idea whether the person killed is really a militant: if they’re male and of a certain age they just call them one in order to whitewash their behavior and propagandize the citizenry (unless conclusive evidence somehow later emerges proving their innocence).”
http://www.salon.com/2012/05/29/militants_media_propaganda/singleton/
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What ultimately convinced me about Banned’s position on SS is that apparently under the current statues, nothing happens when the “trust fund” is exhausted. Checks going out remain at the same level set by law, only the deficit gets bigger. That tells me it’s just welfare with some fancy packaging.
If that’s not accurate and the checks do change when the SS “trust fund” is exhausted, then it’s a legal Ponzi scheme.
“When the government does it, then that means that it is not illegal”
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jnc:
That tells me it’s just welfare with some fancy packaging.
There is no reason to think it cannot be both welfare and a Ponzi scheme. Indeed, any welfare program under which virtually every taxpayer into perpetuity is a beneficiary is, almost by necessity, a Ponzi scheme, unless the amount of the benefit promised equals simply the amount paid in by each taxpayer, in which case the program is nothing but a useless circle jerk. The government’s only revenue stream is taxpayers. The only way in which a welfare program which pays out more to taxpayers than they paid in can be sustained in perpetuity, even assuming deficit borrowing, is if there is an ever increasing number of taxpayers providing an ever increasing revenue stream to cover an ever increasing expense base.
I suppose on one level I understand the reluctance of some to call SS what it plainly is. Afterall, Ponzi schemes are widely perceived to be Bad Things, and so anyone who thinks that SS is a Good Thing will instinctively reject the label. But the fact is that SS contains all the elements of a classic Ponzi scheme except perhaps the element of fraud, an element made unnecessary only by the government’s power of legal coercion. But even such a power cannot turn a thing that cannot last forever into something that can last forever. All Ponzi schemes collapse eventually, and SS will be no different, whether we call it what it is or call it something more benign.
BTW, with regard to the element of fraud, I even think there is a reasonable case to make that the government has indeed engaged in fraud, particularly if it is the case that SS is in fact simply another welfare program. Afterall, it was (and is) sold to the public as a self-financing “insurance” program.
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Worth a read
http://www.huffingtonpost.com/simon-johnson/euro-collapse_b_1549444.html?view=print&comm_ref=false
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Thanx, JNC. This finally becomes crystal clear. Surely the bankers see this, even if the politicians do not.
In an “orderly” collapse, we have huge haircuts to go around, don’t we? And the pols would rather pressure the bank to lend more than take a haircut now, even ‘though that would assure of a scalping down the line.
Glad I am not an elected official, having to declaim about this every day.
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Mark:
Surely the bankers see this…
At least some bankers saw this years ago.
Back in 1999 when the Euro was introduced, I had just moved to London and there was a raging debate going on in the UK about whether they should join the single currency. I remember telling my UK colleagues that they would be nuts to ever join, as there were only 2 possible outcomes. Either Britain would have to give up its sovereignty to a new European government, or the single currency would eventually collapse. I figured a single currency could not work with multiple political authorities ungoverned by a single sovereign. Happily, the Brits turned out not to be nuts.
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Here’s a claim that Spain is totally unlike Greece in that the government was doing well and balancing its budgets but the housing bust raised private debt too high. Thus a “banking” solution is alleged to be possible.
http://www.economist.com/node/21556238
I think that the Common Market should be saved and to do so while devolving the Euro into national currencies again seems to me to be within the realm of human possibility, if not readily grasped by the flyaway forces of daily politics.
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mark:
I think that the Common Market should be saved and to do so while devolving the Euro into national currencies again seems to me to be within the realm of human possibility, if not readily grasped by the flyaway forces of daily politics.
I agree, although devolving back to national currencies will present significant challenges, and the longer it takes to happen the more challenging it will become.
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“The government’s only revenue stream is taxpayers. The only way in which a welfare program which pays out more to taxpayers than they paid in can be sustained in perpetuity, even assuming deficit borrowing, is if there is an ever increasing number of taxpayers providing an ever increasing revenue stream to cover an ever increasing expense base. ”
The government’s other revenue stream is printing money, i.e. seigniorage. If there are no changes to the level of payouts when the “trust fund” runs out of treasury debt to redeem, then it’s something other than a Ponzi scheme because it doesn’t blow up in the same way. A key feature of Ponzi schemes is the method by which they collapse, and that appears to be different for SS due to the ability of the government to print money.
Note that SS can still be “Bad Thing” just of a different nature.
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