# US Economy



## Statesman (31 December 2007)

I am currently sifting through the mountain of information on investing in shares/funds/commodities etc and was wondering how a recession in the US if it occurs would effect some of Australia's leeading company values ie CBA and the likes. Also if it does adversly effect these companies to diversify and limit risk of loss in the face of a slide what are the better investment options, Gold? Thanks for entertaining the Q's of an ignorant!


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## dhukka (31 December 2007)

Statesman said:


> I am currently sifting through the mountain of information on investing in shares/funds/commodities etc and was wondering how a recession in the US if it occurs would effect some of Australia's leeading company values ie CBA and the likes. Also if it does adversly effect these companies to diversify and limit risk of loss in the face of a slide what are the better investment options, Gold? Thanks for entertaining the Q's of an ignorant!




IMHO you need to look at company specifics more than a US recession. For example we are in the midst of a credit contraction. The days of cheap and easy money for all have come to a close (at least until the Fed lowers rates to 1% again). This will have a direct effect on banks such as CBA as funding becomes more expensive and banks facing higher risks of default on all credit types including residential, commercial and consumer loans, will reduce their willingness to lend. All the major Australian banks have started to hike their loan loss reserves in anticipation of this. 

That said Australian banks' balance sheets are in great shape. At least that is what they tell us in their financial statements.  I doubt we will see any kind of Citibank equity injections into the likes of CBA to bolster capital reserves (famous last words?) The chart at the bottom attests to the health of Australian banks. You'll notice impaired assets are beginning to rise and they will continue to do so as we move closer to the end of this credit cycle however a repeat of the early 1990's is very doubtful. A rise back to Sep 01 level is a definitely possibility.

In a generalized economic downturn, few stocks will not be effected. Look to the more defensive plays with solid earnings. As for other investments such as gold, commods etc. I'll leave that to someone who knows what they're talking about.


_*Numbers on the left hand side of the graph are in millions_


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## noirua (28 May 2020)

*U.S. Economy Contracted 5% in First Quarter, Slightly Steeper Than Initial Estimate -- Update*
https://uk.advfn.com/stock-market/s...s-economy-contracted-5-in-first-quarter-sligh
WASHINGTON -- The U.S. economy's first-quarter contraction was slightly steeper than initially estimated, and a key measure of corporate profits weakened as coronavirus-related shutdowns began to come into effect.


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## sptrawler (28 May 2020)

noirua said:


> *U.S. Economy Contracted 5% in First Quarter, Slightly Steeper Than Initial Estimate -- Update*
> https://uk.advfn.com/stock-market/s...s-economy-contracted-5-in-first-quarter-sligh
> WASHINGTON -- The U.S. economy's first-quarter contraction was slightly steeper than initially estimated, and a key measure of corporate profits weakened as coronavirus-related shutdowns began to come into effect.



I didn' t think there was any shutdowns? I thought Trump just let it run rampant?


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## noirua (29 May 2020)

sptrawler said:


> I didn' t think there was any shutdowns? I thought Trump just let it run rampant?



 This situation looks to be hoping for the best and touting it whilst ignoring the worse situations. Many companies will go to the wall though like the 'Industrial Revolution' in the UK and Europe between 1820 and 1840 a lot of people will end up jobless.
Those who are in the know are buying precious metals and bitcoin to put off the fateful day. The stock market recovery is the same as in 1929-1930 when major markets recovered 48% before crashing to be down 90% at the floor during 1932.

*Australia - Watch for a Rally - Then Jump Ship*
https://www.tradingview.com/chart/XAO/Riz7XLyH-Australia-Watch-for-a-Rally-Then-Jump-Ship/


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## sptrawler (29 May 2020)

noirua said:


> This situation looks to be hoping for the best and touting it whilst ignoring the worse situations. Many companies will go to the wall though like the 'Industrial Revolution' in the UK and Europe between 1820 and 1840 a lot of people will end up jobless.
> Those who are in the know are buying precious metals and bitcoin to put off the fateful day. The stock market recovery is the same as in 1929-1930 when major markets recovered 48% before crashing to be down 90% at the floor during 1932.
> 
> *Australia - Watch for a Rally - Then Jump Ship*
> https://www.tradingview.com/chart/XAO/Riz7XLyH-Australia-Watch-for-a-Rally-Then-Jump-Ship/



So is this imminent?
Or just speculation?
Are we talking weeks, months, or years, before the collapse?


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## noirua (29 May 2020)

sptrawler said:


> So is this imminent?
> Or just speculation?
> Are we talking weeks, months, or years, before the collapse?



Though the market did not fully recover in 1930, it did go through a series of rallies and drops as it tried to mount a revival. New York Stock Exchange stocks recovered 73 percent of their losses in 1930. Each rally was met by a disappointing drop, but the market never went back to its *1929* state of chaos and panic.


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## sptrawler (29 May 2020)

So is the crash imminent.
Or just speculation.
Are we talking weeks, months, or years before the collapse.


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## noirua (12 June 2022)

"The Biggest Stock Market Crash Is On Us NOW" - Robert Kiyosaki's Last WARNING​May 31, 2022


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## Tropico (12 June 2022)

I guess the video touches on quite a few conspiracy theories, but true or not, it is starting to feel a bit like the GFC all over again.
Too much credit (Edit: Or should I say debt) and easy money.
Time will tell how it pans out, but I am getting the feeling its not going to be good.


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## wayneL (13 June 2022)

Tropico said:


> I guess the video touches on quite a few conspiracy theories, but true or not, it is starting to feel a bit like the GFC all over again.
> Too much credit (Edit: Or should I say debt) and easy money.
> Time will tell how it pans out, but I am getting the feeling its not going to be good.



Watch the debt market, bonds. This is where everything is going to blow the @#$& up.

This time it's going to be epic, absolutely biblical in proportion. Everything is a derivative of the bond market... Real estate, stocks, everything.


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## Value Collector (13 June 2022)

wayneL said:


> Watch the debt market, bonds. This is where everything is going to blow the @#$& up.
> 
> This time it's going to be epic, absolutely biblical in proportion. Everything is a derivative of the bond market... Real estate, stocks, everything.



While it’s true that as interest rates rise, longer dated bonds with lower interest rates will have their price drop. Bond holders with longer term outlooks will be spared from any carnage simply by the fact that if they hold their bonds until maturity they will get the face value of the bond back.

So the shorter dated bonds aren’t really at risk of big capital losses, because the bond fund or insurance company or who ever owns it can just be hold until maturity and feel confident of getting the face value back, while the longer term bonds will see some capital losses as interest rates rise, however these losses will evaporate as time passes and they get closer to maturity.

Over all the bond owners will probably be happy that interest rates are rising, because even though initially they will see some unrealised paper losses across their portfolio of bonds, actual income will rise as the capital is recycled into new bonds with higher interest rates, and the paper losses will disappear as the older lower interest bonds move closer to maturity.


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## wayneL (13 June 2022)

Value Collector said:


> While it’s true that as interest rates rise, longer dated bonds with lower interest rates will have their price drop. Bond holders with longer term outlooks will be spared from any carnage simply by the fact that if they hold their bonds until maturity they will get the face value of the bond back.
> 
> So the shorter dated bonds aren’t really at risk of big capital losses, because the bond fund or insurance company or who ever owns it can just be hold until maturity and feel confident of getting the face value back, while the longer term bonds will see some capital losses as interest rates rise, however these losses will evaporate as time passes and they get closer to maturity.
> 
> Over all the bond owners will probably be happy that interest rates are rising, because even though initially they will see some unrealised paper losses across their portfolio of bonds, actual income will rise as the capital is recycled into new bonds with higher interest rates, and the paper losses will disappear as the older lower interest bonds move closer to maturity.



In a normal cycle that may be true, but these are different times and your thesis above highlights the problem "total return". Peruse any of the bond total return indices or funds reveals a bond market making losses. Chuck in inflation and real returns into the equation... and indeed other structural anomalies and you have a bond market at the precipice of the abyss.

There's plenty of macro analysis out there from credible sources (Jim Bianco for eg) which details the possibilities, so DYOR there.


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## Value Collector (13 June 2022)

wayneL said:


> In a normal cycle that may be true, but these are different times and your thesis above highlights the problem "total return". Peruse any of the bond total return indices or funds reveals a bond market making losses. Chuck in inflation and real returns into the equation... and indeed other structural anomalies and you have a bond market at the precipice of the abyss.
> 
> There's plenty of macro analysis out there from credible sources (Jim Bianco for eg) which details the possibilities, so DYOR there.
> 
> View attachment 142826



The large insurance companies, pension funds, endowment funds etc etc aren’t buying bonds to make large returns, mostly it’s just a way of having some capital stability for funds that they need to pay out over the next 5 years or so, and most of them would be planning on holding the bonds till maturity and would be holding bonds across a wide range of maturities.

E.g if you are an insurance company holding funds which you have to pay out fixed payment annuity to car accident survivors over the next 25 years, you aren’t that worried about fluctuations in the bond price in the short term, you would have just invested the cash over a range of maturity dates and interest rates and be sending the victim the interest payments and some capital each year, the capital coming from the bonds that mature at face value that year.

A lot of these insurance companies are required to invest in the bonds by law, and couldn’t trade out of them even if they wanted, rising interest rates will be good for them, not bad.


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## Value Collector (13 June 2022)

By the way, I am not saying there wouldn’t be big fluctuations in price in the short term, I am just saying any one who’s strategy is to hold these bonds till maturity doesn’t need to worry about price fluctuations.


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## wayneL (13 June 2022)

Time will tell VC. This is the thing, there are several competing theses regarding a whole host of macro factors and anything can come from left field at any time.

It's gonna be interesting either way.


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## Value Collector (13 June 2022)

wayneL said:


> Time will tell VC. This is the thing, there are several competing theses regarding a whole host of macro factors and anything can come from left field at any time.
> 
> It's gonna be interesting either way.



People attempting to trade in and out of the bond market can offcourse get hurt, but the long term holder can only be hurt if the bonds are defaulted


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## wayneL (13 June 2022)

Value Collector said:


> People attempting to trade in and out of the bond market can offcourse get hurt, but the long term holder can only be hurt if the bonds are defaulted



...and *currency debasement*


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## Value Collector (13 June 2022)

wayneL said:


> ...and *currency debasement*



Yep, but the big bond holders have already factored that in, in general institutions that hold a lot of bonds would be doing so because they are holding the capital to meet future fixed dollar costs.

Eg the example of an insurance company holding the capital to pay out fixed dollar annuities for life or disability insurance.

So if you signed up for $1 Million of life insurance, that’s all they are going to pay even if the dollar is debased.


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## wayneL (13 June 2022)

That won't stop the debt market blowing up and taking everything else with it.


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## Value Collector (13 June 2022)

wayneL said:


> That won't stop the debt market blowing up and taking everything else with it.



Well I am not sure what you mean by blowing up, but sure there will be fluctuations in the prices of existing bonds, but new bonds that are issued will be issued at higher interest rates, and would be attractive to a lot of people, the older lower Interest bonds will create losses for any short term traders that bought them thinking they were going to go up in value, but as I said the long term guys that just warehouse them on their books till maturity won’t feel a thing.


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## wayneL (13 June 2022)

Value Collector said:


> Well I am not sure what you mean by blowing up, but sure there will be fluctuations in the prices of existing bonds, but new bonds that are issued will be issued at higher interest rates, and would be attractive to a lot of people, the older lower Interest bonds will create losses for any short term traders that bought them thinking they were going to go up in value, but as I said the long term guys that just warehouse them on their books till maturity won’t feel a thing.



So you don't remember the CDO debacle?


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## 3 hound (13 June 2022)

This guy is an idiot, 


noirua said:


> "The Biggest Stock Market Crash Is On Us NOW" - Robert Kiyosaki's Last WARNING​May 31, 2022




scare mongering for views. I used to watch him when I was clueless thinking how edgey he was then every other video was just another version of the apocalypse and impending doom where we will be eating each other for food so he can go to buggery - he is an idiot.


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## Value Collector (13 June 2022)

wayneL said:


> So you don't remember the CDO debacle?



That was caused because the underlying mortgage holders were defaulting on their debt obligations, this is not going to be a problem with USA government debt.

(But as I said above provided the bonds don’t go into default, a long term owner has nothing to fear when it comes to price fluctuations, the institutions that suffered because of CDO’s had either borrowed short term to fund them planning to flip them for a profit but instead got stuck with them and went bust or had bet big that they wouldn’t drop in value by selling credit default swaps on them, it’s a different ball game to long term holding of government bonds)


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## wayneL (13 June 2022)

Value Collector said:


> That was caused because the underlying mortgage holders were defaulting on their debt obligations, this is not going to be a problem with USA government debt.
> 
> (But as I said above provided the bonds don’t go into default, a long term owner has nothing to fear when it comes to price fluctuations, the institutions that suffered because of CDO’s had either borrowed short term to fund them planning to flip them for a profit but instead got stuck with them and went bust or had bet big that they wouldn’t drop in value by selling credit default swaps on them, it’s a different ball game to long term holding of government bonds)



I said the "debt market" which includes bonds, not just fed govt bonds, but municipal, corporate, etc., and derivatives thereof (which are now greater than GFC).

These things are all interconnected and interdependent.

BTW Japanese 10yr Govt Bonds just ticked over 25bp which was thought to be functionally impossible... Nikkei didn't like that.


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## Value Collector (13 June 2022)

wayneL said:


> I said the "debt market" which includes bonds, not just fed govt bonds, but municipal, corporate, etc., and derivatives thereof (which are now greater than GFC).
> 
> These things are all interconnected and interdependent.
> 
> BTW Japanese 10yr Govt Bonds just ticked over 25bp which was thought to be functionally impossible... Nikkei didn't like that.



Well we will have to wait and see I guess, I am not that worried though.


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## wayneL (14 June 2022)

There are greater implications than the debt market itself, VC. There two overarching questions:

What does a debt market implosion tell us about the health of the entire financial system and its markets, and how will a debt implosion further affect them?

The GFC was at its core, a debt market cluster####. It was debt that blew everything else up and the Fed/CBs are finding themselves in a quandary with multiple issues of their own making.

I haven't pull up the charts yet but there is news of Euro bond yields inverting and lots of other such news, eg:


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## mullokintyre (10 July 2022)

Been reading an interesting article about the stability of US companies.
From Livewire markets


> In 1965, companies in the S&P 500 index stayed in the index for an average of 33 years. By 1990, that figure had dropped to 20 years. At the current churn rate, about half of today’s S&P 500 firms will be replaced over the next 10 years.1
> 
> There are many reasons why companies go backwards or fail. One of the more obvious reasons is the inability for companies to adapt to the changing environments in which they operate.
> 
> ...



It then goes on to look at both Kodak and Blockbuster, two near monopoly megafirms that went bankrupt.




> *What’s the lesson?*
> 
> Many companies fail because they don’t evolve, but there’s also a hidden lesson relevant to index investing. The idea of holding only the top 100, 200 or 500 companies within a given market have greater implications than what meets the eye. For example, only ~10% of companies that were in the S&P 500 in 1955 remain in the index, with the other 90% either failing, merging or falling out of the top 500.8
> 
> But, if you had invested US$100 in the S&P 500 Index in 1955, it would be worth more than US$80,000* today in nominal terms.9 How does that work? As companies come and go, broad-market indices adhere to Charles Darwin’s quote, and systematically evolve with shifts in market dynamics, the introduction of new ideas and the companies at the forefront of change.



Mick


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## noirua (13 September 2022)

US national debt nears $31T: What it means and why it's a concern
					

The U.S. national debt is approaching a record $31 trillion, according to data released by the Treasury Department, and it could have ramifications for the economy.




					www.foxbusiness.com
				




Markets have reversed sharply on the news with Bitcoin down nearly 5%. Currencies have reversed against the dollar as inflation remains high at 8.3% and an interest rate rise by the Fed. moves sharply back into focus. DOW opens 2% down.


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## wayneL (23 September 2022)

wayneL said:


> Watch the debt market, bonds. This is where everything is going to blow the @#$& up.
> 
> This time it's going to be epic, absolutely biblical in proportion. Everything is a derivative of the bond market... Real estate, stocks, everything.



Bumpity bumpity bump bump bump.

Odds of this scenario shortening dramatically.


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## qldfrog (24 September 2022)

wayneL said:


> Bumpity bumpity bump bump bump.
> 
> Odds of this scenario shortening dramatically.



Well is it the start...?
I sold my shorts ETF on the asx yesterday for a handsome profit but i was too early
.too few shorts ammos left.
portfolio climbing but i should make undecent coins.was really too early by one month.
I even bought 5k of GEAR yesterday late arvo. Ishould stop reading the permabulls here 😂


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## wayneL (28 September 2022)

FYI re debt market implosion









						Thread by @biancoresearch on Thread Reader App
					

@biancoresearch: 1/7 Today's edition of all is not well in the bond market. ------ The Move (the "VIX of the bond market") closed today at 158.12. This is its second highest print in 13 years. Since...…




					threadreaderapp.com


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