Doesn’t the FED have a magical army of hundreds of overpaid Econ PhD that can make everyone happen in parallel just like they did in 2007-2009?
No I think you are probably right regarding FED and Yelllen and that’s why I can’t shake of the suspicion that the treasuries are considered higher risk but thanks to US regulation considered as good as **** for leverage stacking to ‘hedge the risk’
If they were to really do that, 1929 could look like a walk in the park as that would put unsurmountable pressure and risk on the over 2 quadrillion of derivates when the dominos start to fall …
There are so many multi-trillion dollar plates spinning in the air frankly I don't know how they do it. It's all a con-fidence game at heart. I believe the Fed has about 30,000 employees, with hundreds of PhD's. Then there's the BLS, with God knows how many more. It sounds like a cushy job.
But I have a potentially stupid question: why does everyone think that spreads are low because high yield risk is undervalued / ignored?
What if it is the opposite: UST are no longer considered risk less since the downgrade a few years ago, the loss on book from the yield shock and going into this years presidential election and hence the spread gets smaller because UST are considered riskier, more volatile?
Great question! Invert, always invert. That may be the right way to think about it, although I'd still have to think that if people are worried about US sovereign risk, they should be really worried about high yield debtors, who seemingly are counting on Fed support to survive. The Fed might be too busy backstopping Yellen.
Thanks for uncovering and linking to the David Dredge interview. Very telling, in my opinion, that it has so few views. Risk is something that seems to have been mostly ignored over the past couple decades.
It was actually a tough listen for me because, having literally lost a million dollars, not once but twice, I turned into a permabear and while I know that has cost me a lot of lost upside, it’s a tough mindset to undo. LOL.
I also found it interesting because we’ve spent much of the past decade living on our sailboat and crossing oceans. The risks are always out there. Assessing and understanding the risks you can identify and prepare for (for example, hitting a shipping container in the middle of the night, 1000 miles from the nearest land) is what allows us to leave the harbor and head to sea.
But it’s the quality and experience of the crew, and the trust in the boat, that provides the ‘insurance’ for the risks we cannot predict that gives us the confidence that we’ll see land again.
Somehow I should try and take the things he covers in the talk, and overlay that on our voyaging risk mgt philosophy. I might come up with a different mindset when it comes to investment risk taking.
Alternatively I can just keep buying jr mining stocks, figuring if I own enough of them one will eventually go 50x and then I won’t need to worry about risk. Or anything else. Other than the color of the Lambo. Haha.
i'm with marc scharer below
Doesn’t the FED have a magical army of hundreds of overpaid Econ PhD that can make everyone happen in parallel just like they did in 2007-2009?
No I think you are probably right regarding FED and Yelllen and that’s why I can’t shake of the suspicion that the treasuries are considered higher risk but thanks to US regulation considered as good as **** for leverage stacking to ‘hedge the risk’
If they were to really do that, 1929 could look like a walk in the park as that would put unsurmountable pressure and risk on the over 2 quadrillion of derivates when the dominos start to fall …
There are so many multi-trillion dollar plates spinning in the air frankly I don't know how they do it. It's all a con-fidence game at heart. I believe the Fed has about 30,000 employees, with hundreds of PhD's. Then there's the BLS, with God knows how many more. It sounds like a cushy job.
Great write as so often.
But I have a potentially stupid question: why does everyone think that spreads are low because high yield risk is undervalued / ignored?
What if it is the opposite: UST are no longer considered risk less since the downgrade a few years ago, the loss on book from the yield shock and going into this years presidential election and hence the spread gets smaller because UST are considered riskier, more volatile?
Great question! Invert, always invert. That may be the right way to think about it, although I'd still have to think that if people are worried about US sovereign risk, they should be really worried about high yield debtors, who seemingly are counting on Fed support to survive. The Fed might be too busy backstopping Yellen.
Thanks for uncovering and linking to the David Dredge interview. Very telling, in my opinion, that it has so few views. Risk is something that seems to have been mostly ignored over the past couple decades.
It was actually a tough listen for me because, having literally lost a million dollars, not once but twice, I turned into a permabear and while I know that has cost me a lot of lost upside, it’s a tough mindset to undo. LOL.
I also found it interesting because we’ve spent much of the past decade living on our sailboat and crossing oceans. The risks are always out there. Assessing and understanding the risks you can identify and prepare for (for example, hitting a shipping container in the middle of the night, 1000 miles from the nearest land) is what allows us to leave the harbor and head to sea.
But it’s the quality and experience of the crew, and the trust in the boat, that provides the ‘insurance’ for the risks we cannot predict that gives us the confidence that we’ll see land again.
Somehow I should try and take the things he covers in the talk, and overlay that on our voyaging risk mgt philosophy. I might come up with a different mindset when it comes to investment risk taking.
Alternatively I can just keep buying jr mining stocks, figuring if I own enough of them one will eventually go 50x and then I won’t need to worry about risk. Or anything else. Other than the color of the Lambo. Haha.
Have a great weekend.
Great comment, thanks.
As you liked the Moonlight Sonata, try this by far less well-known, Schubert:
https://www.youtube.com/watch?v=-FVzhHtCwY4