Debt ceiling

Joy Pathak

So, in your opinion, if tuesday morning, Obama says that the ceiling was not raised, the markets won't sell off in the short run?

Unfortunately I cannot comment more than what I said. But think about what can happen if ALL CDS contracts get triggered.
Not just "at the moment," but for umpteen years. The whispered message of the Democrats is, "Psst! We're ever so microscopically the lesser evil. Besides, do you want Sarah Palin/Michele Bachmann to be your next president?" To those who follow such puerile arguments I ask, "Tell me in what way does Obama differ from GWB? Military policy is the same (indeed has expanded); Torture continues. Economic policy is the same. Even the personnel in the two administrations is often the same." At least the Republicans are more honest; the Democrats have to "triangulate" more because of a different voter base. So they tell more lies, and engage in more hand-wringing -- while pursuing the same policies. Indeed, they often go further than the Repubs would dare go -- because they know their own base will stand still for it.

Well anything is preferable to a candidate that markets themselves on their faith and ideologies alone as opposed to policy ideas, and Sarah Palin/Michele Bachmann, or any one of those other republican loonies is just a full stop NO.

In truth, I wish we had more choices, but I don't think any third party has won a presidential election (or any other important election) since the 19th century.
Well anything is preferable to a candidate that markets themselves on their faith and ideologies alone as opposed to policy ideas, and Sarah Palin/Michele Bachmann, or any one of those other republican loonies is just a full stop NO.

The Democrats don't put forward any policy ideas either -- it's all vague, mushy stuff. Either the "hope and change" BS of Obama, or the "we can do better" mantra of Kerry. As Nader pointed out, they're both dialling for the same dollars. The things about campaigns today is that they're not fought over issues -- since the parties agree on all the important things like military policy, foreign policy, domestic economic policy. They're fought on image alone. When no real choices are on offer -- akin to choosing between Dr Pepper and Mr Pibb -- we can say say the process itself is a sham, a diversion, a circus.
Well I'll be making sure the balance on my credit card is paid off.
If interest rates go up, then the consumer will get hit there. Glad I don't have an ARM as well.

But think about what can happen if ALL CDS contracts get triggered.

Michael Lewis will be alright for another book ;)


Carpe noctum
Delayed...they refuse to go to rehab.

US economy = Amy Winehouse
You mean dead? Surely it's not that dire.

I believe in the 11th hour the ceiling will be raised, people will just not chance the shaky economy's "recovery". The real question is what kind of deal will they make? Will it be substantial (doubtful) or will they just kick the can down the road (can't wait for the 2nd round)?
Assets whose returns are negatively correlated with US economic stability, what else ;)

Care to elaborate?

Eternal optimist that I am:

Consider a doomsday scenario (not so unlike those toted around in '07/'09 when the viability of the FDIC was called into question alongside everything else that was going on). A US default and subsequent downgrading, in my unprofessional opinion, could send ripple effects not only through the US economy but also through the confidence of ALL markets both domestically as well as globally - to any economy closely tied to that of the US (I'll give you a hint, it's just about everyone).

I would be curious to see how you have modeled such scenarios to build a structurally sound portfolio that would sustain negative correlation. Dynamically hedging a vector autocorrelation strategy would come to mind as a potential option (tho I never really did wrap my head around that) further, the data selection used would greatly impact things and the model tends to blow up (size-wise). PCA could help you out, but in turn introduces more error and harder to interpret results. Again, I don't know how one would set about doing this (and it eerily reminds me of a project I was working on). Perhaps there's a simpler way of doing this? If anyone would care to enlighten me :)

If you are talking about commodities, currencies and ETFs (you already know my thoughts on the leveraged ones as mid/long term holds), I would implore you again to look at data from '07/'09. When the sky is falling, a herd mentality tends to occur - everyone runs to seek shelter in the same assets artificially inflates prices to the point where the hangover the next morning is worse than the problems that caused you to drink in the first place; timing is everything and it paid to be a contrarian.

Treasuries were a safe haven the last go around. I think running to seek shelter here would be too easy. Well, that coupled with the whole credibility thing - I wonder if they will whipsaw the way gold did?

In truth, I don't know what the answer would be. I would probably take a step back from the broad market and look for inefficiencies - arb opportunities - stemming from the chaos. Perhaps less popular ADR vs foreign equities or currencies as a starting point (assuming i had an efficient enough model, and means, to engage in trading such a thing).

In '08, on a purely fundamental global macro strategy, RGR and SWHC were my top holds and I flirted with other names that would withhold a nuclear holocaust, like CPB. As for the vegetable garden, MON could garner a further look ;)

As for wedding rings, there are cheaper avenues to find gold to melt down...

/end rant
The markets have IMO completely ignored the possibility of US default.

I in no way assumed that they will - I am not an economist, after all.

If you find something that will decrease in value should the US default and short it, you have at least a partial hedge for virtually free, since the markets still think the probability of default is ~0.

I think you have ignored some costs here.

Whether your buying power increases is debatable (and is also a function of how much leverage you use...), but should the US default your dollar wealth will increase, and that's probably the most of your worries at the moment since I don't think you or me will be moving to someplace that's not dollar-correlated in the foreseeable future.

Vegetable garden ;)

Also, there are quite a few places that could not care less about whether the USA defaults. Try looking at stable assets that were untouched in '07-'09

Still curious as to what assets you are currently hedged with, assuming after all that:

The markets have IMO completely ignored the possibility of US default.

Perhaps Im thinking too hard?

(hint: look at foreign investments. And no, NOT Russia lol. Don't invest in Russia unless you are crazy...).

Foreign investment alone may not reduce volatility risk. There are several papers out there that look at precisely this during high stress periods in the US; a mid-to-long term foreign hold strategy has been shown to yield little benefit. Having to constantly rebalance you are exposing yourself to additional risk (currency and tax, for instance) timing would have to be on cue as well - you might as well rebalance domestically, assuming you have the ability time your trades appropriately. When day trading, over the course of the day, one really doesn't care if the broad market was up or down - assuming positions are closed by 4pm and your PnL is net positive.

And although Sweden does own a good deal of US debt, I think they will be able to weather the hit because in my opinion they are economically much more sober than we are.

Outside of Greece, most places are more economically sober than us (lets assume corruption flies for a moment) - I just don't believe this translates to immunity.


Psychic in Training
Did I mention I have a country house with a KILLER vegetable garden in Russia?

Aside from the standard fare (potatoes, tomatoes, cucumbers) we also grow pumpkins, raspberries, strawberries (both wild and domesticated), red and black currants, apples, gooseberries, onion, carrot, dill, parsley, sorrel, garlic and I probably missed a few things... :-/