Macro Tourist Likens Bond Bubble To Dot-Com, Real Estate Blowups In Sweeping New Critique

8 thoughts on “Macro Tourist Likens Bond Bubble To Dot-Com, Real Estate Blowups In Sweeping New Critique”

1. Every country has a limit on how much they can borrow. before thet become credit unworthy.

   True…..the USA will likely not default on our debt, but that doesn’t mean rational investors will buy it, if our deficits keep expanding.

2. Where to start? It is not true to say that the bond market in the US has been in a a bull market that has lasted 38 years. The argument is so naive to put it mildly, it is like taking a chart of S&P from 1950 and declaring that S&P has been in a bull run for 69 years. There have been bear and bull markets along the way, enough to bankrupt quite a few people. The idea that the peak of 1980’s at 14% is somehow a starting point or a definition of normalcy is also wrong. It is an aberration, a once in a few lifetimes event. In fact it is a once in a few hundred years event 600 years to be exact. Nobody is buying bonds solely because they expect the Fed to ease, i know of no one at least. People are buying bonds because the macro has deteriorated, because of the yield spread that exists between US and the rest of the world, and yes because the Fed will be forced to ease, and probably also because it is easy return. Japan should be enough to provide a perfect mirror example on why it is not a bubble, and as aggressive as the move has been it is perfectly justified.

3. “And stepping back, the longer-term risks are that we are on the verge of a seismic shift of attitude towards fiscal spending. Trump was the start, and it will spread to the rest of the world. If that happens, don’t get stuck relying on selling to the greater fool.”

   Very true. However, there is plenty of time and space for the U.S. long end to come down further before it takes off to the upside. And, there’s nowhere near enough of the anticipated fiscal policies currently in the pipeline to cause massive steepening yet. I think he’s right that we aren’t looking at NIRP for decades, and I think he’s right about why, but I also think he’s very early on the trade.

4. Japan not in a bubble? Secular stagnation is a bubble for Japan. Without the BoJ running the sluices pretty much wide open for the past 20years, Japan would have fallen into deflationary death spiral long ago. Demography and Japanese immigration policy may render it all just staving off the inevitable.

5. I bought into a long term bond fund less than 4 months ago…..it is currently up 15%. I don’t care how low rates go in the next couple of years…..that bond fund is currently not worth what people are paying…..which sure makes it look like a bubble to me. Even negative rates won’t justify the current price.

   Like Chris suggested, it may be early for a trade……but I am keeping my eye on it.

6. trump’s insane path forward, to embrace Japan’s economic model, needs to be thought of within a much bigger picture with a broader time frame:

   “By some reckonings, the total amount of wealth destroyed in Japan’s bubble collapse was greater, in relation to the size of the economy, than the devastation wreaked by World War II.”

   Some will recall the firebombings of many cities in Japan, the atomic bombs, etc. In all it’ estimated that about 70 million people were killed in Japan and obviously, their paper cities became ashes.

   Thus, as we enter this cool new era of smartphones and super efficiency, pondering the prospect of inflating economic bubbles, to save the wealthy and provide stability to global casinos, we may want to consider that a madman like trump, a prior casino manager with at least 5 known bankruptcies — is hoping to ignite financial bubbles and play games with risk, liquidity and stability. As with the Great Recession, it would have been far better to have let many banks and poorly run institutions Too Big To Fail turn to ash, than to save them and nurture them, so that they can ruin the world again and again and again. Hence, trump the Grim Reaper and his bag of manipulative tricks and falsehoods, is responsible to history. He can either be remembered as hitler-like, a conman or a businessman — and although morals and ethics may not be at the top of any ceo trait, most business people use risk analysis to insure that they don’t commit financial suicide. In that perspective, it seems the Fed and Powell need to accept responsibility to not turn markets into a weaponized tool for madmen like trump. If the Fed causes the stock market to decline, because of a desire to not fuel a bubble, in time, that would be seen as a sign of strength, placing distance between them and him, which would be a stabilizing factor!

7. Two of the largest holders of government debt in the United States are the government and the government. Money paid into Social Security was used to pay for the Vietnam War and the Great Society in the 1960’s, and have been used to patch public finances ever since. If you have full faith and credit that the United States will honor the I.O.U.s the Social Security Administration holds, in accordance to the 14th Amendment, I doubt the public does.

   You can say there is not a chance the United States will default, but I would prefer a reasoned argument. FDR defaulted in 1933 when he devalued the dollar relative to gold, and Nixon defaulted when he pulled the United States out of Breton Woods. The U.S. also technically defaulted in 1979 when they missed some payments. Since these debts are dollar-denominated and Treasury prints and the Fed keystrokes dollars, maybe a fully redeemed Treasury can eventually buy you a cheeseburger and that is good enough to prevent another default – but the United States will no doubt inevitably provoke either a debt crisis or a currency crisis.

8. Was this article published only on HR? I don’t see any updates at MacroTourist since May