US Federal Reserve loss tops 300 billion and it turns 100 years old

[Wysiwyg]

If that was the question to me, YES.

I sold in 2007 went long into late 2008 early 2009.

I sold the lot because yes I fear another correction.

I can see you're perception and what is actually happening quite opposite. You aren't the only one though. I and I am sure others 'thought' the GFC issue would be a protracted affair. History has shown this not to be the case with U.S. indices almost tripling from their lows in March 2009. Deep seated fear of losing (only one 'o' in lose) further stock value would have kept many "on the sidelines" but woo wee, for those that bought quality stocks at the apocalyptic lows have had a dream run both dividend and price wise.

I look forward to the next decent market crash.

 

[qldfrog]

Trembling Hand, Kahuna,
my own inexperienced input: I believe you are both in the right;
are we getting ready fro a nice crash: I have no doubt myself.
Is the answer getting out altogether probably not

I went out asx shares in november and bought put options:
all went very well till mid decmber..and loosing since...
Logical based on my feeling ut not a good move as the options will expire and I will be left with a loss.
My experience is that money wise you have to run with the lemmings and I started learning this the hard way nearly 20 years ago
....
Telstra share offer was a dud (I was working in telco at the time) I did not get in and so the price jump;
Real estate was going to surge a year ago, I restrained as I believe it is massively overpriced in australia and every colleague boast of the paper profit they made in the last year...

So how do you protect yourself?
I believe this is the question or am i wrong.
Kahuna, while your style is hard to follow (I am not a native english speaker) I do appreciate your analysis.
TH, I value highly your input as well, even when I disagree
My summary is:

You need to profit from bubble but be able to disengage quick as heel as soon as the bubble pops.
I have spent some time playing the market and expecting stop loss to be the safety switch..but after two years, I have seen too many cases where my stops were just sped past, or triggered after abject manipulation of the market,
[interesting to see post mortem when you see shares packet of 5 or 10 $ sold/bought probably by the same entity and trigering my stop loss;]
Is the answer playing asx200 etf only to be protected from these ripples and have the chance to have the stop loss activated?but what is the liquitity of an ETF on a panic day???
Any of your opinions would be very welcome
Have a nice week end
PS:
TH do you have a new website, I only saw pre 2010 pages???
cheers

 

[kahuna1]

Howdy,

Yes sorry my writing style is rambling.

Trembling, Many thanks.

I am not a trader as such. I once was for a very long time. There is a big difference between being a trader and an investor.

I don't use margin ... or use it very sparingly.
I rarely if every day-trade shares or even weekly. Sometimes yes an opportunity happens and i am in and out quickly but rarely in a day. Often I have looked at a share or a sector for many years waiting.

What do I do if I am wrong ?? Stop loss ... second move stop loss.
Being bearish when others are bullish I agree is foolish. I have been bearish overall not for long, yes the USA market is 3% higher at one end from where I exited. It has been 4% lower than where I exited as well.

Neither prompts me to take action.
I feel this move, as I did in 2007-2009 will be a big one.
In 2007-2008 I stayed out for months on end ... I only entered twice for the quick bounces and only partially. the low of October 2008 i felt was near the low of our market so i went fully invested plus a very small margin 22% I think.
It bounced, too hard and fast for me, I thought correctly the USA was not showing enough respect for risk and still had to see panic and when it bounced massively Oct-dec 2008 i exited and waited and by end of March 2009 I got back in. From then till when the index hit 5,000- which was not so long I was long fully invested. I became less so when it hit 5,000 or near there and failed. RBA just kept raising rates and I thought it was stupid ... or too much on their part ... and exited. As it fell into 4,000 I became long again eventually it tested the other end of the scale and that was the magic 3,750- on the ASX which it hit late 2011 after being 25% higher post GFC I was again leveraged but TINY ... 138% ... and rode it upwards.

Exiting here, or actually being invested in the US vs Australia for the last rally, our market whilst its done ok, the USA put on 30% in 2013 and the currency went down adding to it.

What do I do if it goes up 10% ? I actually go ok, that's fine. I don't need to do anything I can watch my cash earn interest all be it not a great amount but my capital remains 100% intact.

One side, is the opportunity cost. As most are traders, they look at it as a loss. It is in one persons eyes, missing out on something. I prefer to keep my assets hard fought safe. I believe and with a degree of conviction that is very high, that I will be able to buy a lot lower over time all of these shares. This move, the forces at work on the US market have been ignored as the price raises and risk of being long goes to nutty levels.

Since I am not margin ed and could live very happily even off the measly interest I am able to stand back and go whatever to the market at times.

Long term for me I agree its the only place I want my investments. I see it as the BEST place to protect the value of my capital long term. having money in cash for any length of time will not be a good thing. This said, for very extended periods sometimes it is needed when the market looses its mind on values. It all appears fine when you have your face planted in the screen all day. What seems normal then and a share that was $1- trading at $10- still worth $1- seems ok at the time.

Different strokes for different folks.

If the USA took the S+P 500 to 2000, i honestly would not care. Yes I would be upset at my loss or an opportunity NOT being there for the last 10% or whatever, but believing it will correct at least 33% if not 50% is not an irrational fear. The forces that caused the last fall are alive and well. In fact they have been joined by several others which dwarf them in importance.
I saw my first collapse as i became a trader in 1982, yes I too once was a trader, and I have seen many since. This one has the makings of the worst types of them all added together.


Good luck

 

[kahuna1]

Hi

Interesting times. For me, for now, I will sit and watch the markets. At some stage the last place I want to be is in cash. The USA federal reserve in March 2014 has confirmed its intention to run these 3.3 trillion bond assets till maturity. It intends NOT to revalue them and intends to NOT do anything other than fund them for the lowest possible rate forever. All of this hinges on one thing, how long does it take the global markets to work out that fiscally USA is not ready in any way for its aging population and cannot fund its promises ? When do people accept eventually they will be getting a haircut on USA treasuries if nothing is done ?

Its strange and amusing, and sad, USA Budget this year appears to be getting better. It is. USA Federal reserve by NOT marking to market and just amortising the bonds, ignoring that if marked to market they would lose 330-350 billion for the 2013 spike in bond rates, instead of that, the USA now able to fund them at 0.25% vs interest rates of 3% on most of the bonds was able to send the USA Treasury 79 billion in profits this year and IGNORE the losses of 330-350 billion if marked to market.

I am sure this may actually keep things alive for another few months. The Deficit as a result is LOWER than expected. I am left wondering if China or Japan or OPEC who funds this debt and funds the US federal reserves bond and asset buying program is happy about the fact that the USA government is booking 80 billion in profit a year ? And conversely paying them 1.4% overall on the debt of 17.5 trillion. Not even that, if one takes the PROFIT of 80 billion off the total interest cost of $250 billion, that’s leaves the USA paying $170- billion net interest on 17.5 trillion in debt. That’s 0.97% an astounding number. But NO it actually gets worse than that. You forgot the US federal reserve has 3.3 trillion MORE of bonds and it pays just 0.25% interest as required on these debts.

So that’s a mere 8.25 billion the USA federal reserve pays for the 3.3 trillion more. So the sum total is 20.8 trillion debt, or 122% of GDP the USA gets to fund at a total NET cost of 178.25 billion in interest and that equates to a loan at 0.8569%. Talk about a great deal, or a nightmare waiting to happen> that is if you know anything about RISK. Inflation at 1.8%, actual cost of living as per normal is 0.75-1% higher than that, but USA gets to borrow for 122% of GDP at 1% BELOW inflation. Maybe the US fed could buy all treasuries not just the 3.3 trillion but all of them and fund the whole debt at 0.25% ? wouldn't that be neat !!

I talked about assets being allocated incorrectly to junk bond people being able to borrow at 5%, I honestly have never seen, or heard of anything like this. We plan to have a deficit of 30% of GDP in 2030, but must not mention it. In 2014, we have magically made our budget appear ok because the USA central bank which lost 330-350 billion on a bond position in 2013 is Not going to mark to market but expects China and Japan and OPEC to fund at 0.25% for 30 years on 3.3 trillion, so doing this, we at the USA federal reserve can ignore the very real loss, declare a profit, hand the profit to USA treasury who will then declare a lowering of the USA budget deficit as a result and for now the problem is swept further under the carpet.

Must not speak about this of course. Obama will not invite me over for ribs. Likely he means my ribs !! Strange strange world.

Eventually people do catch on. The elderly are real. The costs are real, the loss, well I would have said its real and thought it wise, not to declare a paper profit and just amortise the value of the bonds upwards rather than pass one fake bit of paper to another side of the government and hey presto the deficit is reduced by 15% this year !! It's like that trick they pulled in 2013 where one day the GDP of the USA was 16.1 trillion and the next it was 17 trillion. Nothing better when your dent was approaching 110% of GDP to produce 5% more GDP out of thin air.

This is what the house of cards is built upon. Am I being politically incorrect mentioning it ? Do I care. I am a nobody to them. If you wish to ignore a loss of 330 billion and declare a profit of 80 billion, your making one hell of an assumption. I now understand what Jack Lew said when they had made some progress on the budget. They decided to take 80 billion there and add 5% to the total GDP of the USA there and all is apples. Will anyone notice ? Or actually react ? Or even care ? Or will the rally resume until it hits the sun and turns to cinders ?

Honestly, if the Chinese and Japan and others are willing to lend at negative rates below inflation, with no premium for RISK, or TIME, or even INFLATION and watch their real money evaporate in every sense, that is not something I can predict when it will change. It is NEW territory, does the demographic train hit first, or will this stalemate continue for another 12-24 months ? The asset prices are there at 200% of value, the debt is what it is. The risks are what they are, and the outlook is also cast in stone. I choose NOT to get involved in any of it. I choose NOT to own assets that rarely trade at 200% of value but here we are. I choose NOT to lend to the USA at below inflation. I choose to accept an OK deal to earn 4-5% on my money and sit out of this mess.

Whilst I could I suppose have hung onto my pet Telstra or the others, the deal was great at $2.80 and over 10% with franking credits 14% and a whole group of companies paying around 10%. Now in 2014, at 5.5% yield and still the franking credits, for some attractive for me, far less so.



Take care

Mark M

PS end of thread ... USA is going to get China to fund this debt for 30 years.

 

[satanoperca]

PS end of thread ... USA is going to get China to fund this debt for 30 years.

Mark, great insight, but I think you are underestimate the intelligence and capability of the Chinese. They are playing a game, they are fully aware of the rules, they are masters, they conquer by trade not force, this will not unfold as you have predicted in regards to the Chinese. The Chinese will rule the world and the USA will be left with, how did this happen? we are the center of the universe. They will continue to funds the USA debt until they believe that switching hands will give them control. I see this happening over the coming decade.

I for one, find this exciting, the new world is at hand. For those that are ignorant, they will be torched, for those that are wise, they will come out ahead.

I have just returned from another successful trip to China. I have great respect for their culture and ethics. Several successful older Chinese businessman told me over dinner, China is moving into the second phase of it's development - to create and innovate. Watch out world. The only thing that is of a concern is that they have f--kedd their land and environment to get ahead, but then again they have the wealth, desire and ability now to take over countries without force but with wealth, that have clean air and a relatively sound environment to move to. Eg them bidding up properties in Australia. The wealth in China held by 30-40 year old's is staggering.

Got interviewed over dinner with a New York Times journalist that resides in Hong Kong. Even he, a proud American admitted defeat. The Chinese has beaten the US on every level/sector or international trade and our now in the process of ramping up their military resources but %12.3 this year alone.

Cheers

PS running off to my Mandarin classes. Can already catch flies with chopsticks

 

[CanOz]

Mark, great insight, but I think you are underestimate the intelligence and capability of the Chinese. They are playing a game, they are fully aware of the rules, they are masters, they conquer by trade not force, this will not unfold as you have predicted in regards to the Chinese. The Chinese will rule the world and the USA will be left with, how did this happen? we are the center of the universe. They will continue to funds the USA debt until they believe that switching hands will give them control. I see this happening over the coming decade.

I for one, find this exciting, the new world is at hand. For those that are ignorant, they will be torched, for those that are wise, they will come out ahead.

I have just returned from another successful trip to China. I have great respect for their culture and ethics. Several successful older Chinese businessman told me over dinner, China is moving into the second phase of it's development - to create and innovate. Watch out world. The only thing that is of a concern is that they have f--kedd their land and environment to get ahead, but then again they have the wealth, desire and ability now to take over countries without force but with wealth, that have clean air and a relatively sound environment to move to. Eg them bidding up properties in Australia. The wealth in China held by 30-40 year old's is staggering.

Got interviewed over dinner with a New York Times journalist that resides in Hong Kong. Even he, a proud American admitted defeat. The Chinese has beaten the US on every level/sector or international trade and our now in the process of ramping up their military resources but %12.3 this year alone.

Cheers

PS running off to my Mandarin classes. Can already catch flies with chopsticks

Cool post satanoperca,we really should meet for brunch one Sunday in shangers!

 

[kahuna1]

Well said,

Have been of the view same as you for some time. A war was fought, an economic war. The USA lost it and lost it by a very long margin.

I do of course expect the Chinese and other creditors to revolt at some stage. The US fed declaring war on them and its NOT going to declare the very real loss it made on QE bonds in 2013. Instead, to my utter amazement its going to NOT market to market, fund them for as long as it can at zero percent and go on as if everything is ok.

In reality the 80 billion positive funding they enjoy, comes from a lot of nations but China is a big part of the lending side to the USA.

In 2014, the 80 billion comes off the USA deficit as its handed from the Fed to Treasury. It appears the deficit drops but the loss in 2013 was real but undeclared.

In 2014 the USA budget deficit as a result closer to 500 billion than 600 as a result. This for me is even an aside. The unfunded pensions and medicare of the US fiscal side goes up 5,000- billion that's 5 trillion in 2014. Eventually when its too late the focus will come back to this astounding 128 trillion hole. Using correct rates its likely even more than that around 180 trillion. Of course things will change ... but when ?

I thought the US fed declaring the loss may be a catalyst, NO. They just swept it under the carpet and actually the fact that they will need to fund 3.3 trillion in bonds some that mature in 30 years time, again ignored. this to me, the funding hole is more important than the actual loss.

Strange but NOT debate, or even mention or discussion of this.

With the 80 billion that the US Federal reserve pays 0.25% to banks and buys bonds at 3%, the funders of this debt and I include Japanese and Chinese housewives, OPEC nations and a long list of others. they are directly supporting the lifestyle of the USA to the tune of donation each year.

Of course this may continue on for some while. One cannot fight progress :}

Having watched many sovereign risk crisis's unravel over the years, there is no signs of this happening right now. Funny thing is that with most, they appear out of the blue and there is a massive loss of confidence in the bonds in a very short period of time despite the fact the problems quite often have been there for decades.

The US fed for this thread, has no intention of doing anything other than its mission. That mission is to stimulate asset prices and ignore all else. I am hoping the bond markets of the world come to their senses, but likely not. Eventually they will be forced to confront these issues but the longer they can delay it they think the better it gets. This belief is incorrect. The official unfunded contingent liability is 128 trillion, likely 180 trillion. This year it goes up 5 trillion. The stop gap of finding or creating the illusion of 80 billion more income is not massive vs the GDP its just over 0.5%. The longer they dilly dally about the fact the USA medicare and Tax system is not able to fund the baby boomers coming the worse the eventual outcome will be for the USA.

Only time will tell, but sorry I was being cynical about the Chinese. I am sure they know what they are doing as do the Japanese. Personally wish they would pull the trigger and act. Its strange to have the borrower dictating terms to the lenders when the borrower is 100% reliant upon the funds. Another thing not seen very often outside the Mafia in the last 3000 years history of money.

take care

 

[satanoperca]

Personally wish they would pull the trigger and act. Its strange to have the borrower dictating terms to the lenders when the borrower is 100% reliant upon the funds. Another thing not seen very often outside the Mafia in the last 3000 years history of money.

take care

I wish they would to, but only a black swan event will see this happening and by the definition of a black swan, nobody knows when and how it will happen.

Do you really think they will mark things to market and tell their 330million citizens, they are broke, have to work for Chinese wages and that they are no longer the center of the universe, don't think any polly would do that.

Secondly, the borrower can dictate to the lender when the borrower has bigger guns, hence why the USA keeps spending a ridiculous amount of $$$$ on funding it's military, money as you have pointed out, it doesn't have.

This will eventually play out, but I don't think I will see it in my lifetime.

Is Australia any different, just on a smaller scale, or to that note, Europe, Russia, UK etc.

Cheers