Terrific debate on whether US Treasuries are overvalued between James Grant and David Rosenberg:
Great Debate – March 23, 2010
click for video
Courtesy of Grant’s Interest Rate Observer
Hat tip Scott F
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Q: Why do Economists provide estimates of inflation to the nearest tenth of a percent? A: To prove they have a sense of humour.
"The Greek offer is not sufficient and they have to go away to come up with a revised plan," said a spokesman for the German Finance Ministry. The Greeks must first have a plan that satisfies the Germans which this comment states they clearly don't yet and then the Greek Parliament will vote on it this weekend. This said, whatever package gets voted on in Greece is basically an up or down vote on euro membership so we are entering another uncertain weekend for global markets. A failed vote will likely lead to a hard default which may be what...
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April 4th, 2010 at 7:20 pm
Quite a disappointment of a debate.
Rosenberg: Foreign debt does not matter, there is no correlation (sure it does not when debt levels are reasonable! but they are not anymore, and they wont be any better any soon at over 10% Deficits/year?) Ask all the countries that had to go to the IMF..
Rosenberg: Core inflation is what matters to set yields, not fiscal balances (Really? Maybe while debt levels are serviceable, but not when they get out of hand.. Ask Greece, Iceland, Dubai? and fine, if you can print your own debt.. ask the Germans to look at the records of the early 20s..)
A class of 18 year olds could have had better questions.
:)
April 4th, 2010 at 7:55 pm
You are in the minority —
The fund managers, hedgies and strategists I spoke to who attended the debate all raved. That is why I posted it here
April 4th, 2010 at 8:21 pm
I thought it kicked ass — and I was there
April 4th, 2010 at 10:06 pm
Tyler had this up over the weekend………
And, I must concur…….mguerreiro…….you are the contrarian here.
Hard to pick sides on this one……
I tend to agree with Rosenberg……but, the topics that Jim is worried about can’t be distilled into a data set.
I am down with cycles too….and, when you hear Jim say 3 out the last 32 years have produced negative returns for treasuries………..I think the biggest decline was 3% he said?! Amazing……
Rosie counters with 6% of boomer’s balance sheet is in fixed income…..
I’ve watched it 3 times already…….
I think Jim is worried about things he can’t see. He’s looking at past performance and wondering how long “black” will come up. Ultimately, I believe his view will be borne out……..and, to an extent I think Dave concedes that…….but, Dave is talking about the next 5-10 or so years……..and its hard to argue against him with his set.
I just remembered Jim’s anecdote about Wisconsin leveraging their purchase of treasuries…….first I heard about that……….
Scott……did you change your vote?
April 5th, 2010 at 4:54 am
Great interview/debate. Thankx to B.R. for posting it. I too lean towards Rosie. I just feel its almost arrogant for us as investors/traders to be thinking this debt scoff is all over with. I think we had a big belch to the downside into last March{2009},and now we are letting out a few loops of the belt. But with this latest shovel of Gov. debt and just total lurch for anything to grab onto,we want to believe its all over,back to the old day’s. New highs in the markets,all clear on the corporate side,yeah,yeah! What about the new world of Obama and progressive redistributive policies? The next lurch down wont come with the buy the dips mentality,the smart money will dump,hand over fist to the weakest hands. It never changes. The system will clear,we can bite the bullet now and take our pain like adults. Extend and pretend all you can,the depression will take care of all the excess we didn’t want to confront head on, like adults. I can only hope that when the depression hits with full force,it at least wipes out some of the least deserving of our political class. What a smile to think of Pelosi, Rangle, and the rest,having to start over from scratch,like so many Americans,are finding the policies of these miscreant’s to be debt/death sentences. Secular Bear, cyclical rallies,years to clear….
Jerry
April 5th, 2010 at 11:34 am
I love being a contrarian. :)
My main issue was finding that arguments were not that strong enough. For example, saying that for the last 30 years Bonds performed well, yes, I totally agree, how can you disagree, but using this as an argument is not very strong.. yes, it has paid very well to be in bonds, but trends do change, and now that bonds do not have that much upside might be the time. I know this was not the only argument, but I just felt that over all, it could have been more concrete.
Lets say things get worse in the next 2-3 years, the US gov will keep having big deficits as its the best political option to keep your seat, as long as it is possible. In this case, although it might be the case that Total Debt/GDP will keep going down, having deflationary pressures and therefore keeping rates down, what I think could happen is that we could have for a period big negative spreads between treasuries and companies that are AAA/AA/A+, as we have recently seen with BRK, but with much wider negative spreads. This might be good or flatish for Bonds (credit) still, and bad for treasuries, yes, but if things get too out of hand because of high rates, a shock Greece style, another war, or something else, in my mind, it is too tempting for the gov. to pressure the fed and to monetize treasuries, creating inflation resulting primarily from a fall in trust of fiat currencies more than M3 growing, which might not even be the case.
I partially agree with both sides and none, My personal view is that balance sheets do matter when you go over 90% Pub.Debt/GDP, and Japan is the exception, not the norm. And that a very bad economy or simply a muddle through with high deficits, will increase the credit risk and eventually be monetized as its the path of least pain. Of course, I might be totally wrong. My guess is that the timing is now, if we break properly through the LT treasuries H&S, or further down if we do a false break, but again, could be totally wrong.
April 7th, 2010 at 3:28 pm
Let us assume that David Rosenberg is correct in that the developing countries are in the third inning of a long credit crunch during which investors are willing to take on huge amounts of debt and that the velocity of money will continue to drop as a large percentage of people prepare for retirement. This is a very deflationary or low inflationary environment. Would it not be prudent for the U.S. government to actually print money rather than take on massive amounts of debt? The printed money will tend not to increase money velocity but instead continue to end up as bank reserves. The government must replace the money that is being destroyed as it is permanently placed in bank reserves. I understand the knee jerk reaction against printing money due to inflation fears, but now just might be the time to do it.
JR