Additional Thoughts on US Debt and Treasury Shorting

To add to my prior posts on the S&P “Downgrade” and treasury shorting, here are a few additional thoughts and links: Via Ezra Klein, more on why the end of quantitative easing is bad for treasury prices: The dominant view among liberals is that the low, low yields on Treasurys reflect the market’s serene confidence that America will make good on its debts. But some of the investors and economists I spoke to while reporting out my piece on the debt ceiling disagreed. PIMCO’s Bill Gross and former-Reagan budget director David Stockman both think Treasurys look safer than they are because the central bank, as part of quantitative easing, is buying up so many of them. “There’s a terrible mispricing of

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Well? Why Are You Short Treasuries?

In response to my last post on the S&P “downgrade,” Matt asks, “Well?  Why are you short treasuries?” Fair question. A couple very simple reasons (with slightly detailed explanations). First off, this is not investment advice! Now that I really think it through, there are actually two and a half reasons I’m short treasuries. The first two reasons are based on my market outlook and expectations of monetary policy. I’ll start with these. 1.) Short term interest rates have essentially been at zero percent since December 2008. That’s more than two years, and is unprecedented. Given that we experienced an unprecedented recession (unprecedented at least in recent memory), sustained low interest rates were absolutely the correct policy. In fact, according to Paul Krugman’s

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A Summary of Summaries on the S&P “Downgrade”

James Fallows summarizes two thoughts that pretty much summarize my thoughts on the topic: I agree with Clive Crook’s puzzlement about the S&P downgrade “bombshell” today: “S&P adduces no new information that I can see. Competent ratings of opaque instruments such as, oh, mortgage-backed securities would be very useful to investors (not that ratings agencies troubled to provide competent ratings in that case, obviously). But why should anybody need that kind of help in judging the soundness of US government bonds? S&P knows nothing about them that you or I don’t know.” And I like James K. Galbraith’s derisive guffaw, as reported by Dave Lindorff: At least one economist burst out laughing on hearing about the S&P announcement. “They did what?” exclaimed James Galbraith, a

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The Global Stock Market

For a while now I’ve been curious to see a time-series chart of global stock market capitalization by region. I’ve looked, and have been unable to find one. So I downloaded some data from the World Federation of Exchanges, and made my own. Whenever someone says “the world stock market,” this is what they’re talking about: And in real 2010 dollars:

Get Your Trade On

The physical kind. Kid Dynamite has an interesting post on buying nickels. There’s no good way to quote it, so here’s the entire post: Ok kids – I’m going to let you in on another blockbuster trade.  This one is a slam dunk – principal protected, GUARANTEED not to lose money (in notional terms at least), and I’m not even kidding about that.  I debated writing about this, as Redhead Ted and I gave serious thought to putting this trade one, but perhaps one of my readers can suggest some logistical improvements that would make the trade possible.  Here goes: NICKELS. Yep – I said it – United States Nickels – the 5c kind.  Like minded arbitrageurs already know that

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Tax Advice From Greg Mankiw

Or not. Yesterday Professor Mankiw posted this on his blog: Tax Fact of The Day “The U.S. effective corporate tax rate on new investment was 34.6 percent in 2010, which was the highest rate in the OECD and the fifth-highest rate among 83 countries. The average OECD rate was 18.6 percent, and the average rate for 83 countries was 17.7 percent.” Okay. He chose not to add any commentary, but he’s obviously implying that he believes the rate is too high based solely upon the fact that other countries have lower rates. I suppose that’s a reasonable starting point for a discussion. But his data is extremely misleading. Because the correct way to measure the tax burden on U.S. corporations

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An Interesting Take on the Market

I’m not sure how many of my readers will find this interesting, but I did. Even though the stock market has practically doubled in value since the low in March 2009, when evaluating cumulative returns over the prior 10-year period, we’re only up 1.4%. Which is in the lowest decile of quarterly cumulative 10 year returns over the period 1926-2010. One could interpret this to imply that the market still has a ways to go.

We Make Lots Of Stuff

About 20% of all stuff in the world, actually. From the Boston Globe, via Colin Whooten (no blog) and Scott Sumner: Americans make more “stuff’’ than any other nation on earth, and by a wide margin. According to the United Nations’ comprehensive database of international economic data, America’s manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China’s output of $1.48 trillion by nearly 46 percent. China’s industries may be booming, but the United States still accounted for 20 percent of the world’s manufacturing output in 2009 — only a hair below its 1990 share of 21 percent. “The decline, demise, and death of America’s manufacturing sector has been greatly exaggerated,’’ says economist Mark Perry, a

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Food Prices

There’s been much talk in the media about how the initial protests in Tunisia, Egypt, Yemen, and Jordan were, at least partly, sparked by unrest due to rising commodity and food prices. What’s been discussed much less is the underlying cause of these price spikes. Is it speculation, or an actual increase in consumption (or a decrease in yields)? I hadn’t thought much about it until a reader sent me this article written by Joel Brinkley, a Stanford journalism professor who’s a foreign correspondent for the NYT (syndicated in my hometown’s daily newspaper): The world is heading into a food crisis again, barely three years after the last one in 2008. That, not political reform, animated the riots and demonstrations

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Tuk Tuk Rides

I’ve always found bargaining to be interesting from both a behavioral economics and a cultural perspective. Chris Blattman had a great post on bargaining fractions a couple years back, specifically focusing on taxi fares. To summarize, in many countries there’s no taxi meter, and it’s appropriate (and often necessary) to negotiate a rate. Chris has found that the final negotiated price in a given country is usually a pretty consistent fraction of the driver’s initial offer price (assuming you’re a decent negotiator). But what’s interesting is that this fraction varies significantly between countries. Chris then talks about a few negotiation strategies that will help a traveler get down to a given country’s fraction without paying too much of a “foreigner

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