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Daal
Registered: Oct 2002
Posts: 9019 |
03-21-12 09:54 AM
Quote from Martinghoul:
If I remember correctly, there's been some discussion of margins. While I am not sufficiently informed to have a view, I am a huge fan of James Montier. He published this recently and I intend to read it to educate myself:
https://www.gmo.com/America/CMSAtta...279ii1ThA%3d%3d
(if the link doesn't work, just click on "What Goes Up Must Come Down")
Very interesting letter. To me a key takeaway from all of this is: the drivers of the Budget Deficit have already announced their intentions. Gridlock is already making it impossible to keep the deficit where it already is as the economy improves, the pressures to reduce it are mounting
A scenario where the budget deficit doesn't break profit margins is if the Democrats take over congress, which is not going to happen
The deficit projections are already showing quite a bit of decline for the coming years, which means deleveraging will have to turn into leveraging in the form of decreased household savings and increased investment in order to keep profits stable. That scenario is less likely than the historical norm of profits reverting back to the mean
This seems to explain a lot of the obsession with the debt ceiling and S&P downgrade last year
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Debaser82
Registered: Aug 2008
Posts: 3477 |
03-21-12 11:01 AM
Quote from Daal:
Very interesting letter. To me a key takeaway from all of this is: the drivers of the Budget Deficit have already announced their intentions. Gridlock is already making it impossible to keep the deficit where it already is as the economy improves, the pressures to reduce it are mounting
A scenario where the budget deficit doesn't break profit margins is if the Democrats take over congress, which is not going to happen
The deficit projections are already showing quite a bit of decline for the coming years, which means deleveraging will have to turn into leveraging in the form of decreased household savings and increased investment in order to keep profits stable. That scenario is less likely than the historical norm of profits reverting back to the mean
This seems to explain a lot of the obsession with the debt ceiling and S&P downgrade last year
Daal, you think it is possible for US debt to rise to 120%, 140% or higher without it having much of a real effect other then the debt burden is having today?
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Daal
Registered: Oct 2002
Posts: 9019 |
03-21-12 11:35 AM
Quote from Debaser82:
Daal, you think it is possible for US debt to rise to 120%, 140% or higher without it having much of a real effect other then the debt burden is having today?
Yes, I think it's possible. I'm not sure that is likely though. Taking a pure probabilistic view, according to the RR This Time is Different view, sovereign debt crisis usually follow banking crises, that combined with the rare 120%+ debt levels which very few countries were able to sustain tells you that a sov debt crisis would be triggered along the way
I also think there is not much of a chance of a Japanese scenario in the US as the Fed is far more active and so far has been highly successful in reaching its 2% inflation target
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Debaser82
Registered: Aug 2008
Posts: 3477 |
03-21-12 11:50 AM
Quote from Daal:
Yes, I think it's possible. I'm not sure that is likely though. Taking a pure probabilistic view, according to the RR This Time is Different view, sovereign debt crisis usually follow banking crises, that combined with the rare 120%+ debt levels which very few countries were able to sustain tells you that a sov debt crisis would be triggered along the way
I also think there is not much of a chance of a Japanese scenario in the US as the Fed is far more active and so far has been highly successful in reaching its 2% inflation target
If I may ask you, how is a sovereign debt crisis defined in the strict sense? A higher intrest rate? Or simply the impossibility to pay?
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Daal
Registered: Oct 2002
Posts: 9019 |
03-21-12 12:15 PM
Quote from Debaser82:
If I may ask you, how is a sovereign debt crisis defined in the strict sense? A higher intrest rate? Or simply the impossibility to pay?
I don't remember the R and R definition but my own is: a bear market in gov bonds fueled by concerns of the country's public finances. A default does not necessarily have to happen
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