Risky Mortgage Bonds Are Back and Delinquencies Are Piling Up
bloomberg.com
bloomberg.com
Corporate debt may be: https://imgur.com/a/b54hMSg
And frankly with the amount of outstanding US govt debt and underfunded pension & healthcare liabilities the USD may either get dethroned and devalued or sent into the negative interest rates purgatory like Japan is currently living in. Japan cannot possibly ever raise rates, at 2% rates 100% of their tax take will go towards paying the interest on their 250% national debt.
Add to that the history of Smoot-Hawley and the general outlook of the 1930s ...
When shit hits the fan probably all delinquencies and spreads will go up, including mortgage.
It's complicated, its nation of nations. Still caste is a still is strong basis of political patronage. It has come a long way, but has long way to go!
India's Navy is a joke, Airforce is a flying junkyard and Army is an amalgam of bad ideas, and pension commitments.
I do not see India going anywhere. India has been hope of Asia since 1950s, and it will remain that way into 2050!
IMO Americans are biased to overweight this. It doesn't matter as long as China can keep up appearances better than other countries for long enough. Investors will happily invest in a bubble believing that they are smart enough to get out before everyone else if things go south.
Bad bookkeeping doesn't keep the NBA and Activision from kowtowing to China, I don't see why it would keep people from investing there either.
2. The nba & activision are selling goods to China, or maybe they put a little money into real assets to reach that audience. They’re not investing in Chinese financial instruments which is what the entire thread is about
https://en.m.wikipedia.org/wiki/Chinese_accounting_standards
By all means, investors want to put money into China. It’s the amount of money you want to put into an immature market that is the question. And that’s not a dig and it’s not jingoistic, it’s just a fact, when you run a large market for over a century you kinda build solid foundations that can’t just be replicated on the spot. China’s market developing is a great thing but it’s just too young to seriously think it’s ready to be a reserve currency today.
Gold has always been touted as a hedge against inflation, it's not, it's a hedge against financial system instability, inflation being a major symptom of such instability.
Calculator thinks $6,000/kg => $41,000/kg, actual price $6,000/kg to $48,000/kg. That makes sense because 'true' inflation (consumer goods + assets) probably outpaces official inflation (consumer goods only).
Gold can't exactly get more or less valuable over time. It is a rock. We have no practical uses for it.
My impulse to point out that it's a very useful metal is tempered by my surprise that only 10% of gold production goes to applications where gold does something other than look golden or just exist as a physical store of value. It seems a little silly. Gold mining is quite destructive; environmentalists should fly around the world, giving speeches on the worthlessness of gold, but where's the glamor in that?
> Gold mining is quite destructive; environmentalists should ...
If it makes you feel better, it is common for gold to be found as an enriched layer sitting on top of a copper deposit. So a big chunk of gold mining isn't gold-for-gold's sake, it is something mined on the way to a much more practical substance - copper.
Actual gold mines doing environmental damage are a thing (cyanide ahoy!) but the footprint is small and hopefully not important.
As crazy as this sounds I think it makes sense - just admit honestly that the situation is fucked up, monetize, generate stagflation and eventual normalization.
It seems like demand should have increased when the government sold the bonds and spent the money.
I wonder if there's something about culture and having basic survival needs met. Most economic models assume effectively unlimited long-term demand: as productivity grows and people in existing sectors are thrown out of work, they will find new things to do, and the people who have reaped the financial rewards of productivity growth will find things that they want to spend money on, creating new jobs for the previously unemployed. What if this doesn't happen? What if instead of using money as a means to an end, people use it as the end itself, effectively treating it as a scorecard to be maximized without spending it? And what if on the other end, instead of people finding new ways to obtain money, they opt out of the economy instead, creating alternate games (literally - video games are apparently the main extra-economic outlet) to play. With basic survival needs taken care of by parents, there's no forcing function that makes them participate in the economy. You'd get a reality that looks fairly similar to our actual reality, in Japan and increasingly in other developed areas of the globe.
This line got me thinking about so many things from my own life. You opened my eyes to another view point I had missed for the past 10 years. I am truly thankful to you for posting this comment.
This is pretty much the definition of hyperinflation, so there's a template for what happens here, but not in the developed world.
I suspect that a lot of the demand for Bitcoin is also driven by fear of this scenario. In the world above, the incentive for savers is to simply not play in the established financial world; they'll take their savings and put it in assets that are not rapidly going to zero. If only there were a transferrable currency that's deflationary by design and immune to manipulations of supply & interest rates...
It comes from weakening the perceived future security of the currency, which reduces demand for it; once you monetize fiscal needs, your currency is perceived as one more at risk of being devalued to monetize fiscal needs, which itself devalues it.
[1] https://www.japantimes.co.jp/news/2019/08/23/business/econom...
Monetizing the debt overnight is like a dam braking.
When you sell a house and the buyer is paying via mortgage, do you get paid cash by the mortgage company in full (the purchase price) at once, or do you receive a monthly amount from the mortgage company that sums up to the house price you sold for?
Disagree if you consider that many people are getting mortgages on overvalued properties at or near market peaks now, and in another significant downturn those could easily be underwater by 15%-50%. The same thing happened widely in the prior real estate bust in many trendy areas, leading to many foreclosures.
Not saying it _isn't_ part of the story, but I don't think it's as big of a factor as folks might initially (or anecdotally) believe.
Depending on how the student loan bubble bursts, it could wind up with a number of institutions being forced to shut their doors, or make large cuts to staff/programs/etc.
in the old days, people could pay tuition with a part-time job.
I'm not sure I agree with your math. Care to elaborate a bit further?
1. Japan's debt is 250% GDP (from GP)
2. At 2% interest rates, 100% of the tax haul will go towards servicing debt (from GP)
3. 2.5*0.02 = 0.05; Japans tax take is 5% of GDP?
#3 seems off by a factor of 6. So No clue what GP was suggesting.
I'm gonna need to see a lot more than a tiny fraction of investors / loan makers dealing with non-QM bonds before I'd say that 2007-era silliness has come back.
This looks a lot more like some banks filling in the gaps in the QM market than anything else.
I've spoken to other founders and small business owners and they say similar. I've also heard anyone who can fog glass can get a car loan.
It reminds me a lot of how people were being basically nagged and cajoled into taking out huge mortgages in the early 2000s. There seems to be a lot of demand again for debt mystery meat to make debt sausages.
Morgan Stanley, The Nature of the BBBeast https://www.sec.gov/spotlight/fixed-income-advisory-committe...
And then you have non-systemic but ridiculous things like Brex which issues credit on revenue data alone. Revenue is meaningless, Moviepass had great revenue. And those robocalls you're mentioning. Try a Google search on "revenue based credit" on a mobile phone from the US and read what are the ads saying ...
This sounds more like "small business owners are underserved by QM products and more risk-tolerant investors are filling the void," much more so than the "it's 2007 all over again" tone of the headline and parts of the piece.
Business models that exploit consumers seem to be some of the only plays with any movement or staying power during the current innovation wave, but prosperity fueled by debt can only go so far.
We'll see how the "decade of sustainability" (2020-2030) pans out, but if greed turns to desperation, its definitely going to get messier/wreckless/more complicated.
It's odd when articles like this don't specify whether the increase they're reporting was inflation-adjusted or not. It makes a big difference. If not inflation adjusted, then 2% represents almost no increase given the trailing 12 month CPI change of about 1.7%.
Compare this to the ~$17 trillion of mortgage backed securities that existed prior to the financial crisis. $18 billion is peanuts, and hardly a systemic concern.
Real story: problem housing debt near normal, takes slight tack upward.
the lenders* themselves had borrowed too much
the lenders didn’t know they had borrowed so much
the ratings agencies were not judging the merit of the investments that lenders had invested in
*by lender I mean the ultimate party reliant on payments from the mortgage borrower
much was done to add transparency and safeguards to that specific issue, so just because lending standards are loose again doesn't mean there is systemic incestuous exposure to losses and collateral calls to the world’s most financially important institutions
happy trading
At least for me, there's not a huge gap between "all the other investments crater to the point that my 10% in gold is useful" and "oh boy looks like things are collapsing now", if that makes any sense.
But at about 10k price gold standard starts to make sense. The idea is that during the next big crises central banks will have no tools to use (we are close to 0 in the US and in negative rates across the world) to support a recovery so a radical move will be needed to bring back confidence in the financial system.
A return to gold standard at a much higher gold price (calculated based on the world GDP and GDP growth) would be a very drastic move central banks could go for if situation got very dire but it might be the only choice they will have since we haven't really normalised the financial system after the 2008 crises and during the next crises we will be at 0 interest rates.
And if there is a choice between 556 nato rounds and going back to gold standard and returning back to some sort of stability for the world economy, gold would be much preferred to the anarchy and shots being fired.
On the otherhand, if all you’re looking to do is lower your volatility, gold isn’t a bad choice. Whenever you diversify into different investments you alwaya reduce volatility as long as the correlation is less than one. Though if that is your goal, maybe consider investing in many different metals, as well as crypto.
Anyone who had any large % of their wealth in gold felt & feels very, very clever. Saying 'tanked' is appropriate for day-trader thinking but for investors (which in my book implies return periods of 5-30 years) looking to preserve wealth they'd barely notice.
--- OR ---
Have safer investments with mortgages
(It's one or the other. Which is best?)
Personally, I don't see much upside left in equities for next year or two, but I'm a perma-bear and have been wrong many times before :D
Plus there's not a lot of easy places to stuff money at the moment, hence big investors sitting on piles of cash.
You can’t time the market. Keep buying stocks like they will continue to go up, at the end of the day, if the market crashes and values tank, it’s no big deal. Keep holding your stocks, they will recover, in fact buy while everything is super cheap. If you would have bought back in 09-10 when everything was cheap you would have made mad money like me.
If you are hoarding cash right now, do so with the intent to buy in the next major crash, whenever that is.
Just keep investing, entering at age 30 you are late to the game and need to make up for lost time.
You don’t “lose” until you sell, even if your parents lost value in 09 they would have recovered it all and more after a few years.
If you invested in 1914 German stock market, it didn't recover until 2014.
I'm one of these people that's sitting on more cash than stocks at this point, by about 4x, but I'm starting to question this choice.
My portfolio was down 33% in 2008. That loss was quickly reversed with the 8% on average returns over the last 10 years.
this is no different. you have to factor in potential lost growth when you go risk averse mode; it's against our loss aversion bias but has to be done when thinking long term.
Easier to stay invested. That way you’re fully in whenever the bottom comes.
losing huge amounts of money is going to happen. there's nothing you can do to avoid it, other than not invest in stocks. the tradeoff is that it always comes back higher.
being risk averse will actually cost you hundreds of thousands of dollars in the long term. research cFIRESim and plug the numbers in yourself: the portfolios most likely to survive long retirements with money left are those with higher stock %s (i'm talking 90% plus).
you can't get enough growth with materially high bond %s to survive long periods of withdrawing. satisfying your risk averse reptile brain will actually generally lead to you drawing 100% of your savings down, which isn't great if you aren't earning via something else.
if you are interested in material long term growth, e.g. enough to outpace inflation, you have to accept the fact that you will lose enormous amounts of cash virtually overnight. your other options are to lose your wealth due to inflation/aversion to risk. it's regrettable, but that's the situation we are in with targeted 2%+ inflation.
best of luck!
Depending on the exact strategy it might go well or poorly.
Stocks are pretty low risk if your investment time is long (>10 years)