Saturday, February 19, 2011

What a Joke

Here's how the NY Times describes it:

The House voted early Saturday to slash more than $60 billion from the federal budget over the next seven months, showing how powerfully the grass-roots, antispending fervor of the November elections is driving the new Republican majority’s efforts to shrink the size and scope of government.
What a joke! Sixty billion is nothing, chump change, basically meaningless. Here's a bunch of easy decisions to cut expenditures that were considered; the first one barely passed and the rest were rejected:
  • An amendment to reduce financing for the National Endowment for the Arts back to fiscal 2006 levels (about $21 million) passed in a tight vote.
  • Rejected the amendment that would have prohibited the Defense Department from sponsoring cars in Nascar races. "Incredibly, over the past decade hundreds of millions of taxpayer dollars have subsidized race car owners and millionaire drivers in the name of military recruitment," she said.
  • Rejected the amendment that would have prohibited financing of the war in Afghanistan to no more than $10 billion.
  • Rejected the amendment that would have eliminated $1.5 billion allocated for security forces in Iraq.
  • Rejected the amendment that would have eliminated the Selective Service System.
  • Rejected the amendment that would have eliminated $415 million in financing for the V-22 Osprey aircraft. 
So, since Congress will never stop spending until the empire collapses, you think you should run out and short TLT or buy TBT, right?

Wrong. They still have aces up their sleeve. First, they can and will raise taxes and especially corporate taxes. That will savage corporate profits and lead to lower equity valuations. Second, the Treasury market still benefits from "flight to safety", so when the equity market collapses there will be a stampede into treasuries.

21 comments:

getyourselfconnected said...

The era of the US reserve currency when it ends will demand better politicians thatn what we get.

Stagflationary Mark said...

Recent Treasury Auctions:

13-Week Bill

Noncompetitive/Total: 3.6%

30-Year Bond

Noncompetitive/Total: 0.26%

30-Year TIPS

Noncompetitive/Total: 0.65%

Noncompetitive retail investors *know*, even with the incredibly steep yield curve, that there's no value in long-term bonds. It is common knowledge. It is always better to chase things that pay no yield. ;)

For what it is worth, I participated in the 30-Year TIPS auction. I represented 1/584th of all noncompetitive retail investors. Talk about feeling lonely, not that I'm complaining!

CP said...

No one has guessed what my secret inflation hedge is yet.

It's tangible and "guaranteed" by the federal government.

Still working on the post about it.

Stagflationary Mark said...

I meant to add that I'm too cowardly to forgo inflation protection long-term. I prefer inflation protected treasuries.

In my defense...

The TIPS I bought heading into the dotcom bubble did well.

The TIPS I bought heading into the housing bubble did well.

If and when the commodity/stock bubble pops again, I should do okay (especially long-term).

Stagflationary Mark said...

"No one has guessed what my secret inflation hedge is yet."

Forever stamps?

CP said...

Nice guess, except it is actually the inverse of a forever stamp.

Protection against deflation is guaranteed by the government; protection against inflation is an intrinsic property of the item.

Stagflationary Mark said...

"Protection against deflation is guaranteed by the government; protection against inflation is an intrinsic property of the item."

Sounds like the inflation protected I-Bonds I've been buying since 2000. I really backed up the truck on those.

1. Tax deferred up to 30 years
2. Cannot deflate, even month over month
3. Growth tied to the CPI-U
4. Pay a fixed rate over inflation

#4 is a bit weak right now. The current 0.0% rate means the gravy train is gone. They also lowered the amount we can buy each year by 83% recently.

However, even 0.0% I-Bonds will perform at least as well as cash no matter what happens.

It is even possible that you could have real profits if we continually toggle between deflation and inflation. The bonds can't fall in nominal value during the deflation but they can gain in nominal value during the inflation.

CP said...

Nope, not bonds. Tangible!

It is even possible that you could have real profits if we continually toggle between deflation and inflation.

That would mean you were long inflation volatility. Sounds like a great bet! (As we oscillate between enough inflation to save the insolvent financial system and enough deflation to crush out of control commodities prices.)

Stagflationary Mark said...

"Nope, not bonds. Tangible!"

I was hoping I'd get partial credit (pun intended).

The bonds are printed on really nice paper! ;)

Stagflationary Mark said...

T. Rowe Price just offered tighten your belt advice to retirees.

They didn't suggest selling stocks in advance of the belt tightening though.

Perhaps that comes later if the belt-tightening advice is widely accepted, lol. Sigh.

Joe Nelson said...

Nickels?

CP said...

Correct!

LangoneRedStudyGroup said...

Feel like quoting your source CP? This isn't an original idea on your part..

CP said...

The idea is definitely starting to propagate.

I have a couple unique insights in the post I am drafting.

Also, I ultimately expect the metal content in the nickel to go back to 3-4 cents, but it is a free hedge and you can't beat free.

LangoneRedStudyGroup said...

Michael Lewis talked about this on the Colbert report a while back. It's "free", except for the facts that

1) It's very hard (though possible) to do on a large scale
2) It's illegal to melt down US currency to use for its metal content
3) You lose the opportunity cost of the money as it sits there
4) Your time and energy to do this are worth zero
5) Your risk of holding such currency are zero (being robbed/fire burning down the place)
6) Your storage costs are zero (to avoid #5 by holding in a vault somewhere)

etc..

CP said...

I will address those points in the essay.

Some of them could be said with regard to silver, and the essay will be about nickels as a much more attractive alternative to silver. It is a thought experiment.

Anyone who watches TV or professional sports values his time at zero, anyway, so there are a few hundred million people for whom this should be a no-brainer.

LangoneRedStudyGroup said...

What kind of dipshit logic is that? So in your book, everyone that does not spend 100% of their time pursuing income values their time at zero?

You could say a lot of this about physical silver, absolutely, but a silver investor can get skin in the game without taking physical delivery.

Let me add some more items to your list:

1) Your melting and purification costs are zero
2) Your resale/transactional costs are zero

I'd like to see you actually go through with doing this, and see how it works out for you.

CP said...

People who watch TV do it because it is "free" - they don't perceive any cost because there isn't an out-of-pocket cash cost.

One cost is opportunity cost. You could be doing something "booring" like buying something worth 50% more than the purchase price with guaranteed no downside.

Another cost is the mental noise and brainwashing.

The melting cost and current ban on melting are both irrelevant. Think of it like a stock that doesn't pay a dividend.

Taylor Conant said...

In Langone's world, apparently a person has two options for how they can spend their time:

1.) Pursue productive investment opportunities
2.) Watch TV

Based off that premise, his response makes sense. Based off the premises of reality, whereby every individual is faced with a multitude of choices as far as how they spend their time, and CP has picked just one of those alternatives (TV watching) to criticize, Langone comes across like a bit of an enraged ape.

The problem related to TV watching isn't just that it's a "waste of time", it's WHO primarily wastes their time that way-- the hopelessly in over their head average American lard ass, with negative equity in their home, auto payment, just lost their job, 401k obliterated once and working on round 2, etc. Basically, all the whiny dupes from "Main Street" who think that since Wall Street got a bailout, it's only fair they get one, too.

But they can bail themselves out. And the first step would be to stop wasting time watching TV and feeling sorry for themselves.

TV is an interesting form of diversion because it's one of the few things you could spend 10,000 hours on which would yield no practical results and no development of new skills, ideas or personal improvement. Hell, as sex-addled as this country supposedly is, if people spent as much time having sex as they did watching TV they'd at least get better at it and enjoy the sustained euphoria and psychological benefits caused by the release of hormones, and maybe even burn a few calories!

CP said...

TC, you make an excellent point about the 10,000 hours.

Can we think of any other activity that would yield so little practical benefit for the participant? I'm hard pressed to think of anything. Maybe facebooking or playing angry birds.

Hence my idea that TV is uniquely evil and destructive.

LangoneRedStudyGroup said...

Well we can all thank Taylor for once again proving the anonymous internet fuckwad theory is still alive and well - great diatribe about TV, really. It's much worse than watching movies, sports (in person), playing fantasy football, video games, going fishing, or the host of things people do for leisure outside of reading.

CP, this is such a great idea, I'm waiting for you go do it. Please let me know how it works out.