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Thread: You cannot ignore economic reality.

  1. #641

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    Quote Originally Posted by vertical1 View Post
    Sounds like a Heads up to me Brutus2.Thank you for keeping tabs on that quagmire...googled illiquid assets, they are not
    many at my place....my house will stay my house long as I dont get taxed out....
    PM's are not listed as illiquid assets neither were my other arenas.
    You are correct Vertical1 - things that have a deep market ( lots of buyers) and can be converted into cash quickly at or near their prevailing value are considered liquid
    This covers assets like gold, stocks and bonds sold on major exchanges, money market funds etc. The latter being considered one of the most liquid as it can be sold at face value almost always.

    However, in a serious meltdown such as 2018, only cash in hand can truly be considered liquid in the sense that it is worth its face value and you do not need a market as you already hold it. Other, normally liquid assets, most probably will have a ready market still, but at a very expensive discount. Note even assets that hold up in this environment, may be sold first, thus driving their discount up, in the panic to raise cash.
    Markets(people) can become quite irrational given enough fear. ( and greed going the other way)

    Here is an example of one of the most liquid of investments becoming illiquid in the right circumstances.

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    Anatomy of a Meltdown
    The Reserve, a New York-based fund manager specializing in money markets, held $64.8 billion in assets in the Reserve Primary Fund. The fund had a $785 million allocation to short-term loans issued by Lehman Brothers. These loans, known as commercial paper, became worthless when Lehman filed for bankruptcy, causing the NAV of the Reserve Fund to fall below $1.

    Although the Lehman paper represented only a small portion of the Reserve Fund's assets (less than 1.5%), investors were concerned about the value of the fund's other holdings. Fearing for the value of their investments, worried investors pulled their money out of the fund, which saw its asset decline by nearly two-thirds in about 24 hours. Unable to meet redemption requests, the Reserve Fund froze redemptions for up to seven days. When even that wasn't enough, the fund was forced to suspend operations and commence liquidation.

    It was a startling ending for a storied fund, and a sobering wake-up call to investors and the financial services industry. It focused attention on the credit markets, where a full-scale credit meltdown was in progress, with commercial paper sitting at the epicenter of the debacle.

    Commercial paper had become a common component of money market funds as they evolved from holding only government bonds—once a mainstay of money market fund holdings—in an effort to boost yields. While government bonds are backed by the full faith and credit of the U.S. government, commercial paper is not.

  2. #642

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    Good morning viet... oh sorry wrong script. Good morning all, there that's better.

    Does anyone know what eft or equity redrum was putting spare cash into when not in an equity? something like UST?

    Do I have it correct that it, at least partly, kept up with inflation so as not to lose too much purchasing power while being very liquid?

  3. #643

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    Thomas Jefferson is credited with writing, “When injustice becomes law, resistance becomes duty.” The seceding states in the Civil War period issued a similar declaration using the word “tyranny” as opposed to “injustice.”

  4. #644

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    Quote Originally Posted by ynot2k View Post
    Good morning viet... oh sorry wrong script. Good morning all, there that's better.

    Does anyone know what eft or equity redrum was putting spare cash into when not in an equity? something like UST?

    Do I have it correct that it, at least partly, kept up with inflation so as not to lose too much purchasing power while being very liquid?

    I think it was a short term bond fund called SHY. It is liquid and it is pretty safe. The yield has something to be desired vs other alternatives currently.

    I use alternatives I would not recommend for others for both yield and taxation concerns and also Canadian$ so I am not of much assistance for you.

    I do have a small US$ money market fund at TD which was yielding at least 5% last I looked and is very liquid and safe ( relative term)

    I would be surprised if you could not get that at any brokerge or just but from Fed direct at shortest duration.
    money market accounts direct from a bank are great as they are Fed insured as they are simply your money getting a rate. I believe some offer over 4%

    Again I am not that familiar with US short term income vehicles but I am sure some others on this site are.

  5. #645

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    Good video on Market Liquidity from Heresy Financial. easy to understand

    I think he has left out some important factors ( this time around) about the reverse repo facility (delaying the liquidity problem) and also needs to adjust for the TGA with the Treasury debt but still very informative and predictive.

    Also at the end, very scary prediction about the possibility that the Government will use the next financial crisis to issue in Central Bank Digital Currency, which will fix the originating problem
    but will eliminate financial freedom.

    https://www.youtube.com/watch?v=OTcSUe_naxo

  6. #646

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    Thank you brutus2.

  7. #647

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    I do not want to be on never ending 24/7 guard duty over my $.XX M held in a Blackrock managed IRA by cashing out and stuffing mattresses....

    No good safe haven. TL 90 Safe is no match for the trained maurading gangs now hitting upper end abodes.

    Blackrock managed IRA somehow wins my confidence.
    Thomas Jefferson is credited with writing, “When injustice becomes law, resistance becomes duty.” The seceding states in the Civil War period issued a similar declaration using the word “tyranny” as opposed to “injustice.”

  8. #648

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    I will try to give weekly readings on debt to GDP as it soars to the moon. Oh I forgot debt does not matter, how silly of me.
    I will just phone my MP and tell him to send everyone a million dollars, that should really boost GDP. Then we can all say the economy is really cooking.

    So here is the US situation from the start of their new fiscal year on 10/01/2023.
    I have information up until close of 12/12/2023 which is exactly 20% of a year.

    Starting cking account (TGA) was 657 billion. Now is 648 billion so draw down of 9 billion.
    Starting total public debt was 33,167 billion . Now is 33,851 billion so increase 684 billion

    So that means 693 billion has been spent into the economy or into someones pocket in 73 days.

    So if you assume the GDP of entire US economy is around 27,750 billion around now, that means that Treasury is pump priming
    at a rate of .025/.2 or 12.5%. on a annual basis.

    Now lets see what the nominal GDP increase in that period is roughly and that will give you the fantastic pump priming that is going on. ( I will leave politics out of it)

    So Atlanta Fed latest projection of GDP in 4th quarter is 1.2% and the CPI for 4th quarter is going to be almost 0 ( 0 plus .1% and lets say .1% for December)
    That means nominal GDP increase will be roughly an increase of 2% annualized.

    Now if an economy is sizzling along economic theory holds that you should have deficits lower than the growth rate of the economy. Many would argue that you should be taking this opportunity to pay down the debt, if not in absolute terms, surely in a percentage of the GDP terms.

    Is the US doing this, Why no, they are pump priming at a rate more than 6 times higher than at a neutral rate.

    I simply cannot imagine this continuing, as it is an extreme figure ( but who knows), Even if it goes way down, it will still be extreme.

    I will keep us informed, as it is hard to fight the Nirvana of all this drug entering the system, until it diminishes. Anyone that has experienced this, or seen others, knows what happens next.

  9. #649

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    I think I should rake all my chips in off the table....but that puts me on guard duty 24/7.....I cant sleep the big eyed sheep travel on my ranches....
    Thomas Jefferson is credited with writing, “When injustice becomes law, resistance becomes duty.” The seceding states in the Civil War period issued a similar declaration using the word “tyranny” as opposed to “injustice.”

  10. #650

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    Quote Originally Posted by vertical1 View Post
    I think I should rake all my chips in off the table....but that puts me on guard duty 24/7.....I cant sleep the big eyed sheep travel on my ranches....
    No need to take your chips anywhere ( as you are alluding) if they are mostly in the right places. Sometimes it pays to just move a couple chips here and there depending on the current circumstances. For many people it is not worth the effort, and I totally agree. Just depends on personal circumstances.

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