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The Biggest Short, by Robert Gore

Posted by straightlinelogic 8 years ago to Economics
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Consider the absurdity of loaning money to any of today’s welfare state governments, including the most indebted of them all, the US government. Most of them haven’t run an honest, GAAP budget surplus in decades. They have compiled staggering amounts of debt relative to their economies’ GDPs. Unfunded pension and medical liabilities are many times the amount of the stated, on-the-books debts. Those programs could be cut, but a compilation of such cuts the last thirty years would fill a book slightly thicker than Hillary Clinton’s Integrity. The debt cavalcade will stop only when creditors say “Enough!” or start charging usurious interest rates.

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SOURCE URL: http://straightlinelogic.com/2016/03/23/the-biggest-short-by-robert-gore/


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  • Posted by Lucky 8 years ago
    Consider- since major buyers of debt are the government owned or controlled central banks, the analysis is invalid as few of the creditors of whom you speak are independent. Should those independent creditors do as you say, the central banks can meet any demand for legal tender (I nearly said money) by the keyboard actions we call printing money. What may happen is a continuing decline in the value of money, inflation, (see Zimbabwe) rather than collapse.
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  • Posted by Herb7734 8 years ago
    It won't happen.
    Everybody is too busy scratching everybody's back.
    The entire monetary system is so screwed up and corrupt, even a top-notch accountant couldn't straighten it out.

    However, a good start would be to hire an excellent accounting firm to get to work on the budget, independent of all the gimmees and demands . Over a period of 5 or 10 very painful years it could be corrected.
    Never will happen. Too much pain, not enough honesty.
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  • Posted by $ sjatkins 8 years ago
    I think we are within 365 days of a major economic breakdown. To play it I recommend some effective leveraged PUTs on one or more major indices and on major consumer product companies. Target them for 1 year out and forget about them until it blows up. They should be worth a pretty penny. Getting the money out and into something hard like metal or property while the money is still good will be the only challenge.

    I would have given a lot to have done this before Jan 2009. Remember Jan 2009 when Apple fell from $200/share just after Christmas to $80?
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  • Posted by CircuitGuy 8 years ago
    " The stated goal of the central banks is to increase economic activity and inflation rates, which would increase interest rates and reduce bond prices, inflicting losses on bondholders, including, perversely, central banks."
    But oddly, this doesn't happen, although I expected it to happen when ZIRP started. I don't buy the argument that taxes or regulation are the reason. They're not that far from historical norms on gov't policy, while monetary policy is. In the late 00s, people would say the answer is deleverging. But that's run its course. So I don't get it.

    We have to get the fiscal deficit under control. I wish there were some way the Fed could make a deal with Congress, we'll maintain loose monetary policy if you balance the budget. They say the Fed's job is to take away the drinks right as the party's really getting started. In my scenario, they'd be taking away the booze but keeping the beer or benzodiazapines to stave off the DTs.

    "In the US, the majority of Wall Street sharpies have recommended shorting bonds for several years running, based on an imminent, central-bank inspired economic lift off that has never arrived."
    I shorted the 10-year Treasury in 2007 for these reasons. I figured... actually I don't want to think about it.
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    • Posted by 8 years ago
      Yes, most of us have had similar experiences, which is why I'm suggesting that those who want to try shorting bonds wait until bonds are going down amidst unambiguously bad economic news and financial turmoil.
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      • Posted by CircuitGuy 8 years ago
        "I'm suggesting that those who want to try shorting bonds wait until bonds are going down amidst unambiguously bad economic news and financial turmoil."
        I wrongly thought that's where we were in 2007. I thought the banks must have a plan. I figured the Fed would lower rates, and very quickly a normal level of inflation would return, the inflation would help work through all that bubble debt, and all that would lead to a nice steep yield curve, with expected inflation in 4% range and the 10-year Treasury higher than.

        I oddly remember laughing while I was on my bike with headphones on listening to billionaire Mort Zuckerman saying he was moving his entire portfolio to Treasuries. It was a nervous laugh b/c I knew we were in some trouble. I had sold my house a couple years earlier, and even though I was newly-married we were renting our house. We bought a house again in Nov of 2010. We called that one right. I should have listened to the billionaire, though, on the bond market. .
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