Any idea why notes show a disproportionate amount of public ownership ? Do institutions think the longer maturity is not worth the slightly higher yield ?
I was thinking about this, I believe this is more of a function of what the government wants to issue. If the Treasury decided only T-Bills were worth issuing, the public would own 100% in T-Bills. Same thing with T-Bonds. Afterall, even if I want to own 2y notes, if they dont exist then I cant buy it. But at the same time, the treasury probably does try to get a sense of demand in order to avoid bad auctions and stuff. I'm not sure
From 1967 to 2017 the US Debt to GDP ratio grew from 39% to 103.5%. I did a quick analysis to see how much of that happened due to recessions. It turns out that 51% of that jump were associated with recessions. I did this by seeing how much did the debt to GDP ratio grew during recession periods +1 quarter after that for shallow recessions or +2 quarters after that for deeper recessions. So half of the increase in debt to GDP were the result of recessions. 2/3 of that happened as the result of the Great Recession (21 percentage points increase in Debt to GDP). The other big ones were the 1981-1982 recession (6 percentage points) and the 99-91 recessions (6.9 percentage points). The contributions of the other recessions were actually negative (meaning, Debt to GDP actually went down) by a total of 1.1 percentage points The US better hope that the next recession is not deep, because if it is, fiscally its going to be a mess
Oh... I'd misunderstood the graph, thought non institutional investors held 60.54% of all notes vs only 12.38% of all Tbills, when actually it means 60.54% of Gov debt held by public is held in Notes. Not quite the same... and yes, your explanation makes sense, this would depend on supply from the US Treasury. Not clear what The Public means without more explanation though.
Leon Cooperman makes the point that US equities are priced at 16x fwd PE vs 15x historical when historical rates were around ~5-6% vs the current ~2-3%. So he says that the market can withstand an increase in rates. That seems right to a degree, but where he is wrong is in the fact that the US is very late in its leverage cycle (Dalio's long-term debt cycle). Leverage ratios (for the consumer, corporations and the government) is much higher than it was through all that historical period. That makes the market a less compeling buy vs those periods as all kinds of risks are higher. This is yet another reason on why the next US recession will be downright ugly. I bet a lot of smart money managers are seeing the same thing (Copperman certaintly is as recession probability is one of his key indicators to sell everything). In 2016 the market tanked -13% in a very short period on mere signal that a recession could happen. The internet has made data/stats/information super avaliable. The next US recession, I believe, will be recession with the most participants trying to time it in the history of the United States. I'm not quite sure yet all the implications of that but I'm sure there are many
Good Article https://awealthofcommonsense.com/2018/10/the-worst-kind-of-bear-market/ "Either way, these numbers highlight the different types of risk investors can experience. In his book Deep Risk, Bill Bernstein describes two different types of risks in the financial markets: Risk, then, comes in two flavors: “shallow risk,” a loss of real capital that recovers relatively quickly, say within several years; and “deep risk,” a permanent loss of real capital. Put into different words, shallow risk, if handled properly, deprives you only of sleep for a while; deep risk deprives you of sustenance." I really like this breakdown of risks in these two different categories. I have tried to write out that concept in the past but wasnt able to precisely. I recall writing about large losses 'relative to expectations' as being dangerous (as it happened to US stock investors in the Great Depression). Whereas "shallow risk" losses are largely BENIGN. Meaning, they are good, as they provide the opportunity for investors to deploy new capital (coming from income saved, dividends or interest income earned or any other source)) at lower prices. Deep risk is the type of risk that really matters. Greek stock investors faced deep risk, they were investing back in the 2000's expecting a fair rate of return for the coming decade. The subsquent depression lead to losses that will not be made up for anytime soon (it will probably take decades). Relative to expectations there was a large loss The US is interesting because its one country where it seems that deep risk is a lot lower than other countries. Most EMs and some developed markets seem to have a fair amount of deep risk. That is why is so dangerous to try to apply Buffett type advice/mentalities outside the United States
But I dont like the description that Deep risk leads to a 'permanent loss of capital'. Even Greek stock investors dont have a permanent loss, eventually (if you give enough time, say 20-30 years) they will make their money back (in the majority of the cases). But they did suffer a large loss relative to prior EXPECTATIONS. That's what I consider "Deep risk", to buy a market that is likely to face huge adverse fluctuations relative to expectations. To be long equities in Russia in 1917 or Cuba in the 60's. That's real risk, not these 7-8% drops in SPX that the financial media feasts on
How about Japan? Almost 30 years of the "deep risk" phase with the Nikkei225 peaking back in 1989 to around 39000 and plunging to 6990 in 2008 and still only recently back to 24400. It has taken QE by the BOJ, including massive stock and JGB purchases to prop it up and yet it has only recovered to 60% of peak. An end to QE; increase in int rates; severe population decline and a falling competitive economy certainly paints a bleak picture of even further "deep risk".
Dr. Bernstein is one of my favorite author. For a person who doesn't have formal education in finance, he has deep understanding of investing. He is more worried about the bonds and loss of real capital due to bonds, rather than stocks. Quote from his book" Ferocious loss of real capital suffered over long periods of inflation in fixed income securities, as opposed to milder losses in stocks, to the extent they occurred at all, during the twentieth century. To oversimiplify only slightly, inside the black box, the conventional "shallow" risk f stocks is greater than that of bonds and bills, but in the world of deep risk that plays out, not in the microprocessor, but in the battlefields of finance and war, the reverse is true" I am paraphrasing. "Easiest way to think is after second world war, In Japan and Germany both stocks and bond fell about 90%. But bond investors lost all the real value, stocks after recapitalization regained all most all in Germany and about half in Japan in less than a decade"
That is not deep risk. Well diversified Japanese investor who invested portion of his funds in international and bonds did fine. It is more of a shallow risk