Tuesday, May 12, 2020

A Trend That Isn't Failing

With each crisis during the Triple Bubble (that is, the three bubbles over the past 25 years), the federal deficit has gotten even bigger. We should be able to beat 2009 as a percentage of GDP on this one.


Stagflationary Mark said...

Here’s another trend that isn’t failing.

Anyone who thinks banks will soon be paying more interest to depositors needs to seek therapy ASAP. Why would banks pay more interest to attract more deposits when there is so much money deposited already?

What banks really want now is for people to pay their loans on time. Unfortunately, the people depositing the money are not necessarily the same people who borrowed it. Go figure.

True story: My dad was a bank manager in a small rural community in the 1970s. One day, a customer came in and paid off his 250k loan with his 250k in savings. In one day, my dad lost 2 big accounts. Head office was very upset with him. Said he should have tried harder to talk the customer out of it. Of course, there was no way that was going to happen. Customer’s actions were completely reasonable.

Banks really only want to lend money to those who don’t really need it. The perfect customer is one who borrows the money and then deposits it as savings. Not many of those out there though. Ha!

CP said...

Another trend that isn't failing, sadly for many:


The ratio of Tesla to Scorpio Tankers shares.

Allan says we can call it the Alpha-Fraud Ratio and monitor it for an exponential trend failure.

CP said...

Mark, I always suggest people look at balance sheet reduction and financial disintermediation for personal and corporate finance.

For example, check out this personal finance blog:

Assets $2.5 million
Liabilities $0.5 million
NW of $2 million

What's in the taxable brokerage accounts? Wouldn't it be better to dump overpriced stocks and pay down debt?

Stagflationary Mark said...


Wouldn't it be better to dump overpriced stocks and pay down debt?

Preaching to the choir.

An investment of mine paid off big in 1999. The first thing I did was pay off my 7% mortgage. Told my tax preparer. She said that I could probably make more money in the stock market. A few years later, she told me that people who paid off their mortgages did better than stock market investors. She apparently forgot what she had told me when I did.

3% is the new 7%. Just as I could not safely earn more than 7% then, I cannot safely earn more than 3% now. Safe yields have deteriorated.

If my story repeated right now and I had a 3% mortgage, the first thing I would do is pay it off. I would tell my tax preparer. She would no doubt tell me I could make more money in the stock market. A few years later, she might be telling me that people who paid off their mortgages did better than stock market investors. And she’d probably forget what she told me when I did.

In order to want to borrow money to invest, I would need to know the unknowable. I’m retired. I can’t afford to take unnecessary risks. The average return does not interest me. I don’t plan for average returns. I plan for something approaching worst case returns. (Can’t plan for absolute worst case returns, since worst case returns mean I lose everything.)

My happiness level would not double if my net worth doubles. My basic needs are met. I have few wants. I highly value my free time. On the other hand, my happiness level would drop enormously if my net worth was cut in half. My basic needs would no longer be met. I’d be forced to go back to work, quite possibly when many others were also forced to do so. You know, like when unemployment is high. Like right now. Sigh.

Hope for the best, plan for the worst. I did not require the markets to supply me with toilet paper during this pandemic. I already had plenty in reserve. For the same reason, I did not require the stock market to supply me with positive returns during this pandemic.

I wasn’t always this way. When I was young, it was my goal to retire early. I was swinging for the fences just like many others. The difference is that I definitely stopped swinging hard once I hit a home run. There’s now no reason for me to risk striking out.

Many people who receive a financial windfall eventually go bankrupt. Easy come, easy go. I would rather learn from their mistakes than my own. I feel very lucky. I’m thankful each and every day. I do not take the windfall for granted. I never assume that there will be another.

CP said...

I've blogged about strange trades before. There's Kyle Bass's bet on 5-cent coins. The great Japanese gold trade of 1859. And the epic bull market in shares of the Swiss National Bank, Switzerland's central bank.

This post is about the best investment in the world. I won't leave you hanging. It's the U.S. "Series EE" savings bond.

The coronavirus pandemic has led to a huge collapse in U.S. interest rates. As of April 21, the 30-year U.S. government bond rate was at 1.17%, down from 2.33% at the beginning of the year. The 20-year rate was at 0.98%, down from 2.19%.

But there's one corner of the U.S. government debt market where a a juicy 3.5% interest rate is still to be had: grandpa's savings bond. Snap it up quick, because it may not last.


CP said...

In March 2020, the U.S. government issued just $5.2 million in Series EE savings bonds. That's hardly anything! Back in 1998, it was issuing a cool half a billion dollars worth of EEs each month. (The big drop in 2011 is when the government stopped printing paper savings bonds. Conveniently, they could be bought at the post office. The government now only issues them in electronic format.)

Stagflationary Mark said...



In 2003, you could buy the 20-year Treasury bond and get about 5%. Or, you could buy an EE savings bond and get 3.53% if and only if held 20 years.

17 years later, you can buy the 20-year Treasury bond and get about 1%. Or, you could buy an EE savings bond and get 3.53% if and only if you hold for 20 years.

On a relative value basis, the EE savings bond is the best government bond bargain I could ever hope to see in my lifetime.

I think the government would love to increase the maturity from 20 years to something higher. It wouldn’t be the first time. I don’t think they have the courage to do it though. How can you claim the savings bond is great for saving for the future education expenses of your children with a maturity of 25 years? Are you supposed to buy it 7 years before you have a child? Are you supposed to buy it when you are still in college for children you might someday have? I don’t think most Americans think that far ahead.

I think it’s telling that fewer are buying them now since they are less convenient. Are we really too lazy to login to the treasury direct website to click the buy button? Or is it just so much easier to buy TLT (a horrible relative bargain) in one’s brokerage account? Or are we all day traders? Or is 3.53% still thought to be a lousy return in a world where everyone expects and demands the get rich quick “sure thing” option?

For the record, I love EE savings bonds. I’m lazy, but they are convenient. No hardship to click buy. Don’t even need to leave the house. I’d rather hold EE bonds than TLT. I’m not a day trader. I think hindsight could easily show that a guaranteed 3.53% yield was a good return. I have no interest in get rich quick schemes. Get rich quick schemes can easily become get poor quick schemes.