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- 18 June 2004
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Its been a while :}
Markets ... basically even more worried for the future despite the Greek solution overnight. Longer term it was a pimple in the overall situation and does everyone everywhere take a haircut ?
The total debt problem even for the EU worries me ... for the USA the official debt at 14.2 trill ... the measures to date budget ones there don't even come close to addressing the problem. Real hard debt scary at 40 plus trillion if not even higher via Medicare stuff. They need to slash this exposure ....
Even when I go ok they radically cut exposure social security and cut benefits and raise the retirement age which they seriously have to ... current social security liability somewhere around 13.6 trill ... cut it to 6. Likely via raising the retirement age to 70 if not 75 !!
Still have unfunded govt benefits pensions at 4 trill plus their medical plans 1 trill ... if they really slash the contingent liability of Medicare and Medicaid ... in its present form something like 60-70 trill ... slash it to 10 ... Basically you get sick and its tuff .. . and then the cost of the bailout of the financial sector at somewhere around 2 trill. The total of the unspoken stuff .... currently say 80 trill ... after massive cuts and ones govt. will serve one term on ... the lowest I can see it going is Soc Sec 6 + Govt employee 5 + Medical 10 + Bailout 2 = 33 trill. Add this to 14 its 47 trill,
This is after insane slashes and cuts all over the place ... raising retirement age to 70 in 15 years for social sec ... reducing payouts ... medical side just awful cuts.
So ... hmm sorry rambling .... Lets pretend the US govt is a household.
Current
US tax revenue 2.17 trill
Budget 3.82 trill
Deficit 1.65 trill
Recent proposed tax cuts 0.35 trill
Numbers don't work out ~~~ !!!
Slash it down to a household budget
take lots of zero's off it ...
Revenue 21,700
Spending 38,200
New onto credit card each year 16,500
Already owing on credit card 142,700.
Budget cuts $385-
Make sense ???? Doesn't to me.
When I add the rest of the unspoken but very real debts and obligations the US has ... even the massive slashing I am talking about which aint going to happen
How can they even ever repay this debt ? Let alone the 33 trill extra ?
Its insane
Revenue 21,700-
Debt 472,700- and this is very much cut down !! Right now if unchanged its about 40 trill higher via Medicare or 750,000 debt vs income of 21,700.
HOW DO YOU REPAY A DEBT OF $472,000- with an income of $21,700- ?
HOW LONG WOULD THIS TAKE ?
AT even 2% the interest alone is over 33% of your income.
If the market decided to charge a real rate of return such as one 2% over the inflation rate of 4% right now it would be 120% of household income.
Even if they decided to go nuts and try and repay it or reduce it allocating 40% of all income to the problem it would take 150 years to get it back to zero. That is if the market was willing to get negative real returns !!!
If allowed and the market is allowing it AT PRESENT ... The US is understating their real inflation picture by 2% or so which erodes the value of the real debt and has to date been able to borrow at insane rates which guarantee holders of us bonds take a real loss if held to maturity on a 10 year bond of 25% on official inflation rates and likely 50% in purchasing power at the end of the term.
Does this lovely state of affairs continue ? As someone who have been involved in financial markets and bond markets for nearly 30 years there is a simple rule. When inflation is eroding the real value of your money and purchasing power YOUR AN IDIOT NOT TO DEMAND A HIGHER RATE OF RETURN ... VIA INTEREST RATE to compensate you for the high rate of inflation.
Sobering stuff.
Just worries me as the USA eventually has to give a haircut to everyone ... when the market wakes up to this eventually bond rates will go nuts as they should have already. Opposite of course has happened to bonds and the lesson with Greece and many of the past Mexico three times I can remember Russia ... Argentina Brazil and a long list ... seems to have been lost at present in the market.
The USA is paying 2% for 10 year bonds when the inflation rate the official one is approaching 4% and likely real rate is MUCH higher. In other words investors are willing to earn and loose 25% of their money on official inflation numbers and likely loose 50% of their purchasing power over the course of a 10 year bond.
Is this how the USA deflates its way out of debt ? I do strongly suspect at some stage maybe not next week or even next year the market DEMANDS what it should already be getting. What happens to equities with rising interest rates when the US fed runs out of ammo is pretty obvious,
Suspect maybe a bit more this rally 4,500-4,550 on the ASX 200 but for me have to not be invested much up there as the overall picture is quite sobering.
Clapping our hands as the Greek situation is resolved when the overall situation is a government debt and obligations right now of around 200 trillion vs the 100 billion just solved. This is including all EU and UK and Japanese and US problems as they stand. In other words 1/2000 th of the problem solved and it inspired the market. Happy for it to continue for a while but not inspired longer term.
On one hand China and emerging nations keep going despite the doomsdayers predicting a crash and since 1990 I have heard at least two predictions about China each and every year. During the GFC what happen to them ? Nothing. Second tier ones like Indonesia enjoyed a 5.5% GPD growth during the worst of it.
Sadly with over 6.9 billion people on the planet and about to hit 7 billion the emerging nations with low per capita GDP will keep growing as they aspire to become western consumers.
Demographics of the developed nations is that the percentage of people over 65 and drawing on pensions in the USA will go from 12.3% in 2010 to over 21% in 2030. In other words the number will rise 70% and pressures on the unfunded Medicaid and Medicare will crush the living daylights out of them. As for the social security hole at 13.6 trillion even raising the retirement age to 70 will still have it at 9 trillion and I used the age of 72 to come up with my best case for them at a hard debt of 6 trillion.
Australia will of course fare better than this as this sort of debt is not even a decent fraction of GDP vs the real US one at 300% of GDP. As to the aging population with our underpopulated nation and immigration we actually have some years a decent percentage arriving in net migration and likely to rise to around 0.5% of our overall population by 2015. Yes we will also have an aging population but the rate will be far less than the USA.
All of this is still the old game of musical chairs and when the music stops as it will again I do wonder what the outcome will be. Given the devaluation in real terms of US dollars and likely at some stage implosion of US and others debt I would prefer to be holding hard assets but none of them attract me at this stage and shall wait till the wheels fall off again.
Cash is king for short term, but longer term not sure cash will be worth much especially US Dollars. It is the last place I really want to be but right now have little choice. Getting a safe 6% vs bloated asset prices on real estate leaves me wondering what was learnt via the USA and UK and EU debacles. Eventually this state of unreal affairs has to end. When it does I would like to see a real rate of return on bonds for EU and USA charged. Holders of Greek debt just lost 50% of their investment. US bonds and given the picture painted above leaves me gasping for air.
At some stage I want to buy into a business via shares that can adjust its prices according to inflation but pay about 33% less than current levels. Call me greedy but this GFC continues on its merry way and eventually as was the case late 2007 someone will blink.
Debating about the scale of the oncoming debt disaster a waste of time. Numbers on Medicaid and Medicare liabilities along with social security and unfunded US pensions for govt workers pretty well known.
This is the first time in recorded history a borrower has been able not only to pay negative real interest rates for any period of time but also dramatically increase the amount of its actual borrowings along with it. Neither makes sense and these things having seen around 15 of them over the course of the last 29 years end badly. This one is on a scale that would make the high flyers of the late 1980's and early 1990's very proud. The NASDAQ at 5,000 vs its low nearly 80% lower a few years latter comes to mind.
Would love to see another few %% on the upside to exit everything other than ultra conservative shares.
Have fun
Mark
Written yesterday morning. Obviously the close was nearly 2% lower than the highs and happy to have taken some risk off the tables. Still of the same view the 4,500-4,550 should contain the upside on the ASX 200 if we get there for now. US problem being ignored as per normal and the musical chairs continues.
Markets ... basically even more worried for the future despite the Greek solution overnight. Longer term it was a pimple in the overall situation and does everyone everywhere take a haircut ?
The total debt problem even for the EU worries me ... for the USA the official debt at 14.2 trill ... the measures to date budget ones there don't even come close to addressing the problem. Real hard debt scary at 40 plus trillion if not even higher via Medicare stuff. They need to slash this exposure ....
Even when I go ok they radically cut exposure social security and cut benefits and raise the retirement age which they seriously have to ... current social security liability somewhere around 13.6 trill ... cut it to 6. Likely via raising the retirement age to 70 if not 75 !!
Still have unfunded govt benefits pensions at 4 trill plus their medical plans 1 trill ... if they really slash the contingent liability of Medicare and Medicaid ... in its present form something like 60-70 trill ... slash it to 10 ... Basically you get sick and its tuff .. . and then the cost of the bailout of the financial sector at somewhere around 2 trill. The total of the unspoken stuff .... currently say 80 trill ... after massive cuts and ones govt. will serve one term on ... the lowest I can see it going is Soc Sec 6 + Govt employee 5 + Medical 10 + Bailout 2 = 33 trill. Add this to 14 its 47 trill,
This is after insane slashes and cuts all over the place ... raising retirement age to 70 in 15 years for social sec ... reducing payouts ... medical side just awful cuts.
So ... hmm sorry rambling .... Lets pretend the US govt is a household.
Current
US tax revenue 2.17 trill
Budget 3.82 trill
Deficit 1.65 trill
Recent proposed tax cuts 0.35 trill
Numbers don't work out ~~~ !!!
Slash it down to a household budget
take lots of zero's off it ...
Revenue 21,700
Spending 38,200
New onto credit card each year 16,500
Already owing on credit card 142,700.
Budget cuts $385-
Make sense ???? Doesn't to me.
When I add the rest of the unspoken but very real debts and obligations the US has ... even the massive slashing I am talking about which aint going to happen
How can they even ever repay this debt ? Let alone the 33 trill extra ?
Its insane
Revenue 21,700-
Debt 472,700- and this is very much cut down !! Right now if unchanged its about 40 trill higher via Medicare or 750,000 debt vs income of 21,700.
HOW DO YOU REPAY A DEBT OF $472,000- with an income of $21,700- ?
HOW LONG WOULD THIS TAKE ?
AT even 2% the interest alone is over 33% of your income.
If the market decided to charge a real rate of return such as one 2% over the inflation rate of 4% right now it would be 120% of household income.
Even if they decided to go nuts and try and repay it or reduce it allocating 40% of all income to the problem it would take 150 years to get it back to zero. That is if the market was willing to get negative real returns !!!
If allowed and the market is allowing it AT PRESENT ... The US is understating their real inflation picture by 2% or so which erodes the value of the real debt and has to date been able to borrow at insane rates which guarantee holders of us bonds take a real loss if held to maturity on a 10 year bond of 25% on official inflation rates and likely 50% in purchasing power at the end of the term.
Does this lovely state of affairs continue ? As someone who have been involved in financial markets and bond markets for nearly 30 years there is a simple rule. When inflation is eroding the real value of your money and purchasing power YOUR AN IDIOT NOT TO DEMAND A HIGHER RATE OF RETURN ... VIA INTEREST RATE to compensate you for the high rate of inflation.
Sobering stuff.
Just worries me as the USA eventually has to give a haircut to everyone ... when the market wakes up to this eventually bond rates will go nuts as they should have already. Opposite of course has happened to bonds and the lesson with Greece and many of the past Mexico three times I can remember Russia ... Argentina Brazil and a long list ... seems to have been lost at present in the market.
The USA is paying 2% for 10 year bonds when the inflation rate the official one is approaching 4% and likely real rate is MUCH higher. In other words investors are willing to earn and loose 25% of their money on official inflation numbers and likely loose 50% of their purchasing power over the course of a 10 year bond.
Is this how the USA deflates its way out of debt ? I do strongly suspect at some stage maybe not next week or even next year the market DEMANDS what it should already be getting. What happens to equities with rising interest rates when the US fed runs out of ammo is pretty obvious,
Suspect maybe a bit more this rally 4,500-4,550 on the ASX 200 but for me have to not be invested much up there as the overall picture is quite sobering.
Clapping our hands as the Greek situation is resolved when the overall situation is a government debt and obligations right now of around 200 trillion vs the 100 billion just solved. This is including all EU and UK and Japanese and US problems as they stand. In other words 1/2000 th of the problem solved and it inspired the market. Happy for it to continue for a while but not inspired longer term.
On one hand China and emerging nations keep going despite the doomsdayers predicting a crash and since 1990 I have heard at least two predictions about China each and every year. During the GFC what happen to them ? Nothing. Second tier ones like Indonesia enjoyed a 5.5% GPD growth during the worst of it.
Sadly with over 6.9 billion people on the planet and about to hit 7 billion the emerging nations with low per capita GDP will keep growing as they aspire to become western consumers.
Demographics of the developed nations is that the percentage of people over 65 and drawing on pensions in the USA will go from 12.3% in 2010 to over 21% in 2030. In other words the number will rise 70% and pressures on the unfunded Medicaid and Medicare will crush the living daylights out of them. As for the social security hole at 13.6 trillion even raising the retirement age to 70 will still have it at 9 trillion and I used the age of 72 to come up with my best case for them at a hard debt of 6 trillion.
Australia will of course fare better than this as this sort of debt is not even a decent fraction of GDP vs the real US one at 300% of GDP. As to the aging population with our underpopulated nation and immigration we actually have some years a decent percentage arriving in net migration and likely to rise to around 0.5% of our overall population by 2015. Yes we will also have an aging population but the rate will be far less than the USA.
All of this is still the old game of musical chairs and when the music stops as it will again I do wonder what the outcome will be. Given the devaluation in real terms of US dollars and likely at some stage implosion of US and others debt I would prefer to be holding hard assets but none of them attract me at this stage and shall wait till the wheels fall off again.
Cash is king for short term, but longer term not sure cash will be worth much especially US Dollars. It is the last place I really want to be but right now have little choice. Getting a safe 6% vs bloated asset prices on real estate leaves me wondering what was learnt via the USA and UK and EU debacles. Eventually this state of unreal affairs has to end. When it does I would like to see a real rate of return on bonds for EU and USA charged. Holders of Greek debt just lost 50% of their investment. US bonds and given the picture painted above leaves me gasping for air.
At some stage I want to buy into a business via shares that can adjust its prices according to inflation but pay about 33% less than current levels. Call me greedy but this GFC continues on its merry way and eventually as was the case late 2007 someone will blink.
Debating about the scale of the oncoming debt disaster a waste of time. Numbers on Medicaid and Medicare liabilities along with social security and unfunded US pensions for govt workers pretty well known.
This is the first time in recorded history a borrower has been able not only to pay negative real interest rates for any period of time but also dramatically increase the amount of its actual borrowings along with it. Neither makes sense and these things having seen around 15 of them over the course of the last 29 years end badly. This one is on a scale that would make the high flyers of the late 1980's and early 1990's very proud. The NASDAQ at 5,000 vs its low nearly 80% lower a few years latter comes to mind.
Would love to see another few %% on the upside to exit everything other than ultra conservative shares.
Have fun
Mark
Written yesterday morning. Obviously the close was nearly 2% lower than the highs and happy to have taken some risk off the tables. Still of the same view the 4,500-4,550 should contain the upside on the ASX 200 if we get there for now. US problem being ignored as per normal and the musical chairs continues.
