Cyprus

[The-Shoveler]

[quote=The-Shoveler]
Yea I could see a small pull back, but not a major correction until inflation has a chance to take hold.
.[/quote]

Of course all bets are off if we end up in something resembling WWIII,

then nothing is off the table.

[spdrun]

Are we talking about the North Koreans playing child’s games here? They’re stupid, but not that stupid.

[The-Shoveler]

I was referring to the whole big blue ball.
Syria , Iran, Russia because of Syria , china because of NK,
what a mess, seem like 1980 all over.
Syria stepped over the thin line in the sand today.

[spdrun]

NK is a piss-ante little dictatorship looking to blackmail/threaten others into giving it handouts. Iran, I suspect that the leadership is much saner than our media leads us to believe it is. Syria is a mess, but it doesn’t have to be OUR mess.

[livinincali]

[quote=SK in CV]livinincali…we must have been talking about two different bond bubbles. I was talking about valuation of government long-term bonds, which have been in a bull market for 30 years.

You’re apparently talking about the increase in debt over the last 60 years. It’s a concern. Not an emergency. I’m a bit confused by it though, what is the source? Not sure what GSE debt is doing in there. It would essentially be counting the same debt twice.[/quote]

The Fed Z1 is the source of the chart. Not really sure is we can consider GSE (which are the Freddie, Fannies, etc of the world) as being double counted in household debt or not.

[SK in CV]

[quote=livinincali]
The Fed Z1 is the source of the chart. Not really sure is we can consider GSE (which are the Freddie, Fannies, etc of the world) as being double counted in household debt or not.[/quote]

I’m not really sure either. It’s a bit misleading, since the evolution of mortgage financing has changed things. It used to all show up as bank equity and debt, now its the GSE’s.

I’m also presuming what’s called “financials” includes debt obligations securitized by mortgages, which would also be double counting mortgages. Take those two out and the total debt probably wouldn’t look a lot different than what it looked like 40 years ago. Have to think that one through some more.

[dumbrenter]

[quote=SK in CV][quote=livinincali]
The Fed Z1 is the source of the chart. Not really sure is we can consider GSE (which are the Freddie, Fannies, etc of the world) as being double counted in household debt or not.[/quote]

I’m not really sure either. It’s a bit misleading, since the evolution of mortgage financing has changed things. It used to all show up as bank equity and debt, now its the GSE’s.

I’m also presuming what’s called “financials” includes debt obligations securitized by mortgages, which would also be double counting mortgages. Take those two out and the total debt probably wouldn’t look a lot different than what it looked like 40 years ago. Have to think that one through some more.[/quote]

I do not get what you mean by double counting debt.
Say I, as a homeowner take on mortgage to buy a home. I am in debt to the bank and it shows up on the asset side of the bank. If the bank sells my debt off to financial companies or GSEs, then I am still the debtor while the financial companies become the creditors. What I owe them will be listed on the asset side of their balance sheet.
Not a financial expert, but am I missing something in this example?

[SK in CV]

[quote=dumbrenter]
I do not get what you mean by double counting debt.
Say I, as a homeowner take on mortgage to buy a home. I am in debt to the bank and it shows up on the asset side of the bank. If the bank sells my debt off to financial companies or GSEs, then I am still the debtor while the financial companies become the creditors. What I owe them will be listed on the asset side of their balance sheet.
Not a financial expert, but am I missing something in this example?[/quote]

Yes, you are missing something. And so was I. The bank or whatever lender you used sold the debt to either one of the GSE, or in the private mortgage market. They, in turn, collateralized it, creating new debt. So both you and the buyer of your loan both owe the same money. Forty years ago, the bank loaned you the money and most often kept the loan. After thinking it through, its not that different. The bank mostly used depositors money, not equity, to make the loan. It’s slightly different, the bank did have some equity in the loan. But nowhere near 100%, so it partly resulted in doubling the amount of debt then too.

[livinincali]

[quote=SK in CV]
Yes, you are missing something. And so was I. The bank or whatever lender you used sold the debt to either one of the GSE, or in the private mortgage market. They, in turn, collateralized it, creating new debt. So both you and the buyer of your loan both owe the same money. Forty years ago, the bank loaned you the money and most often kept the loan. After thinking it through, its not that different. The bank mostly used depositors money, not equity, to make the loan. It’s slightly different, the bank did have some equity in the loan. But nowhere near 100%, so it partly resulted in doubling the amount of debt then too.[/quote]

There is certainly some aspect of a circular reference. For example say you have a defined benefit pension that is operated by CalPERS. Suppose also that you recently purchased a house and expect that sometime in the future you’ll use that pension to pay the mortgage each month. Suppose also that CalPRES holds loans issues by Freddie Mac which is the holder of your mortgage. In essence that mortgage payment you make each month is coming back around to pay you your pension. Of course that’s minus a bunch of fees and some interest spread.

There’s plenty of people that might hold a $500K mortgage at 3.5% and at the same time have $500K invested in corporate bonds at 6%. Obviously not everybody can win that arbitrage game but almost everybody tries to and for the most part it makes wall street rich and the few lucky ones. Everybody else would be better off paying down their debt as fast as possible but we’re all convinced that individually we’ll win at that game.

[Jazzman]

Looks like Cyprus has rejected the levy deal and is going cap in hand back the Russians, who want rights to their offshore gas. Cyprus would probably be better off remaining in the EU, but have their backs to the wall. It’s their own fault. I don’t understand why they can’t just raise taxes elsewhere. Nationalizing corporate pensions seems like stealing as well.

[The-Shoveler]

You would think telling the EU and Russian’s to both pound sand would be the correct choice.

This is what happens when you give up your rights in exchange for being in the EU.

Not like people would stop coming to vacation or they could not write a better contract for the offshore rights,

What the heck maybe they plan to nationalize later anyway.

[livinincali]

[quote=The-Shoveler]You would think telling the EU and Russian’s to both pound sand would be the correct choice.

This is what happens when you give up your rights in exchange for being in the EU.

Not like people would stop coming to vacation or they could not write a better contract for the offshore rights,

What the heck maybe they plan to nationalize later anyway.[/quote]

I don’t think they need to tell the Russian’s to go pound sand. As far as I’m aware as of right now they could allow an orderly bankruptcy of their local banks, wipe out equity, junior bond holders and some senior bond holders and still honor the depositors. The problem is that entities like the ECB which aren’t allowed to take loses, hold some of the senior bonds that would be wiped out. This potentially would start a domino effect and the Euro would eventually fail. It’s the mountains of debt that is guaranteed by other debts that this crazy house of cards was built on. You default on a small part of that debt and everything falls apart. Realize that Lehman was smaller than Cyprus and you see where the trouble lies.

[spdrun]

“Lehman event” would be one mean mofo of an investment opportunity.

[Author]

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