|Great post Jesse. Appreciate the time. Ok, I lost on some lottos which I posted were irresponsible. So what. It's my macro plays of late. I am shorting Goog and making some nice scalps against a melt up market. Time to take a seat and recheck the DD. So much is wrong...still....and the NYFED just continues to buy the mkt. Hey, don't fight the Fed....like shorting goog...lucky. Gonna do some watching this week, although long silver. Re: The irony is that in the end, it is the administration's fault, but not f...|
| Reply to JesseLivermore - Msg #2305034 - 08/19/2012 10:08|
Re: The irony is that in the end, it is the administration's fault, but not for the reason noted.
What Obama, in conjunction with Wall Street, and the Fed are guilty of, is encouraging people like Bulmahn, and everyone else, to lever up to the hilt on cheap, cheap debt. The more debt the better: just ask America's student and the record $1 trillion in debt they currently hold, more than all credit card debt combined, and the next credit bubble to pop. Just ask the second coming of the housing bubble as Wall Street investors, eager to build out rental empires are engaging in a wild borrowing spree to be among those participating in the REO-to-rental program, which too will soon implode. Also, blame the administration for allowing companies with atrocious balance sheets (if quality assets) such as Chesapeake to remain in existence, as despite an untenable leverage profile, ZIRP forces investors to plough ever more money into unsustainable businesses such as CHK. Why? It provides just a few more bps of yield, which in the past three years has become the mantra among the fixed income community.
ATP is just the first: massively levered company, with a balance sheet priced to perfection, ignorant of the risk borne by a massive debt load. Yes: interest rates may be at record lows, but soaring debt still has to be serviced. When the money inflows end, for one reason or another, and the debt interest can no longer be paid, it is game over.
This is what Obama is guilty of: forcing everyone in America to increasingly rely on debt as the only source of capital, leading to a world where even the tiniest gust of wind in an unexpected direction, or any other unpredictable development, can lead to immediate insolvency. Unless one is Too Big To Fail of course, and can afford to hold the world, and the US economy hostage.
And finally, since there is no such thing as a free lunch, as that the current administration is doing in allowing record low interest rates, is onboard the balance sheet risk to the tune of $1+ trillion in sovereign US debt added to the tally of current and future generations of Americans. Why not: after all rates are low, and the USD is the reserve currency. What can possibly go wrong.
In a word everything: as the last 3 weeks showed, a year's worth of gains in the bond market can go poof in the span of days, if not hours.
As for the reserve currency argument, well, there is always our favorite graphic.