Investment Thread

[Jeffrey]

10 and 30 year Treasuries hit historic lows today as people seek safe harbor. If this holds up we might see negative rates on new issues. Let’s refinance all the US debt!

If I were running the USA, I'd issue massive 50 and 100 year debt, at less than 2.5%, and invest the money in incoming producing investments (such as infrastructure) yielding substantially more. Government spending and employment would increase substantially.

All Germany debt is negative as is most French but surprised to see short term negative rates in Italy...Italy! Do these traders not know history? That’s fear.

You say fear, I say stupidity.

[PackMan97]

I would not want to be investing in car loans right now.

[Jeffrey]

I would not want to be investing in car loans right now.

Why?

[PackMan97]

Why?

I see the risk of defaults to be quite high if this virus destabilizes the economy.

Maybe in chicken littling to much.

[Jeffrey]

I see the risk of defaults to be quite high if this virus destabilizes the economy.

Maybe in chicken littling to much.

I'm obviously not showing my true hand on a public forum, but this is definitely not my current game. My current reason is there's too much price competition relative to anticipated default risk. This was my game from early '09 to late '10 when there was very little price competition. IMO, and experience, the prime default risk can be priced appropriately even in bad economies. Subprime is another story.

[OldPhiKap]

I'm paid to put money to work at the best risk/return space on the curve, but do not have to buy bonds. Here's a simple example. Usually, I run a duration (life of the instrument) matched book (asset and liabilities of the same duration), to minimize repricing risk. So, I take 4 year duration capital and invest it into a 4 year duration instrument to yield a desired net spread. Let's say the current cost of my 4 year capital is 1% and my desired net spread is 100 basis points. If I currently invest that capital in a 4 year Treasury, I'm going to gross 70 basis points and earn a net spread of negative 30 basis points (my Board of Directors will not be happy). However, if instead I invest in 60 month car loans (with a 48 month duration), at a 3.9% rate, then I can yield my desired net spread of 100 basis points, if I keep my origination and charge-off costs below 1.9%. Lower bond yields also decrease my cost of capital and enable me to reduce consumer interest rates, while still earning my desired net spread. Make sense?

Thanks for the thoughtful response as always, let me mull this when I have more time. But in that hypothetical, what's the difference in a half point rate cut? Simply that it is easier to keep your origination cost lower, and therefore you would rather borrow the money and lend it out (with the risk of your charge-offs exceeding expectations) instead of buying the safer but lower-returning bond?

Sorry to ask thick questions; I know what I know and I don't know what I don't know. And the former is a much smaller set of topics than the fathomless latter.

[Jeffrey]

Thanks for the thoughtful response as always, let me mull this when I have more time. But in that hypothetical, what's the difference in a half point rate cut?

Last night, I was making my desired net spread of 100 basis points on my overnight investments. Tonight, with the 50 basis point rate cut, I'm only making 50 basis points, which forces me to another investment alternative.

[YmoBeThere]

And back up again!

[PackMan97]

And back up again!

dead cat bouncing. We are at most two weeks away from schools closing. How will Wall Street react to that?

[MChambers]

dead cat bouncing. We are at most two weeks away from schools closing. How will Wall Street react to that?

Nothing that a few rate cuts can't overcome!

[PackMan97]

Nothing that a few rate cuts can't overcome!

I'm waiting till rates go negative to refinance. I have no problem with the bank paying me money...although I guess I'll owe taxes on my mortgage income then instead of getting a deduction on interest paid. That will be strange.

[budwom]

I'm waiting till rates go negative to refinance. I have no problem with the bank paying me money...although I guess I'll owe taxes on my mortgage income then instead of getting a deduction on interest paid. That will be strange.

set aside some money for a new mattress, cheaper to store your cash there than in a bank.

[YmoBeThere]

And back down again?

[HereBeforeCoachK]

dead cat bouncing. We are at most two weeks away from schools closing. How will Wall Street react to that?

If that happens this will be the biggest self inflicted financial disaster in world history. This is still a TINY disease...it's less deadly than your basic annual flu....and without the internet, none of us would have ever heard of it. This is the silliest most idiotic potential catastrophe I've ever seen.

[YmoBeThere]

If that happens this will be the biggest self inflicted financial disaster in world history. This is still a TINY disease...it's less deadly than your basic annual flu...and without the internet, none of us would have ever heard of it. This is the silliest most idiotic potential catastrophe I've ever seen.

Some schools in the Seattle area are closed for the next two weeks.

And I think your estimates of the mortality of this disease is off. I’m not saying it is 10% or 3.4% but it is likely higher than the 0.05% for the flu.

[Mtn.Devil.91.92.01.10.15]

If that happens this will be the biggest self inflicted financial disaster in world history. This is still a TINY disease...it's less deadly than your basic annual flu...and without the internet, none of us would have ever heard of it. This is the silliest most idiotic potential catastrophe I've ever seen.

Feels a lot less like a potential catastrophe if you live in Seattle.

https://komonews.com/news/coronaviru...navirus-spread

[El_Diablo]

If that happens this will be the biggest self inflicted financial disaster in world history. This is still a TINY disease...it's less deadly than your basic annual flu...and without the internet, none of us would have ever heard of it. This is the silliest most idiotic potential catastrophe I've ever seen.

Let’s set aside the fact that every single expert appears to agree that mortality rates for COVID-19 are higher than your basic annual flu.

Now, if you only want to focus on aggregate numbers, isn’t the flu a clear example of why the goal should be to keep it TINY? If this were an alternate universe where influenza were first emerging, wouldn’t it be a good idea to try to halt its spread in its early stages? Or would you still be sitting there saying, “Bah, this influenza thing is a TINY disease...it’s less deadly than malaria!”

[JasonEvans]

My wife and I took about 10-15% of our stock holdings off the table in January because we thought the market was too high. We just put in orders at 5%, 10%, and 15% below market in areas like cyber security, tech, and S&P/Dow index funds.

So, I guess I'm sorta rooting for the market to go down. I sorta doubt we will get all the orders filled, but the 5% feels like it will get invested.

-Jason "not making these calls on our own... we have a financial adviser that gives us good advice" Evans

[OldPhiKap]

If that happens this will be the biggest self inflicted financial disaster in world history. This is still a TINY disease...it's less deadly than your basic annual flu...and without the internet, none of us would have ever heard of it. This is the silliest most idiotic potential catastrophe I've ever seen.

Coronavirus could cost China's economy $60 billion this quarter alone.

https://www.cnn.com/2020/01/31/econo...rus/index.html

Not to mention the ripple effects of manufacturing, supply, and goods disruptions from there.

[YmoBeThere]

FWIW, I did short an airline into yesterday’s strength. I don’t think there is huge downside, but the reality of more canceled flights and lower passenger loads will be even more evident soon. The companies are better run than they used to be, but the industry has a short term problem. (Strictly a trade for me.)