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"Do you know what the loss would be on a 30-year Treasury if it went back ... just to the yield...

"Do you know what the loss would be on a 30-year Treasury if it went back ... just to the yield in force in 2011?" asks Jeff Gundlach, incredulous anybody would buy one (answer: 37%). If you need safety and yield, he says, buy Campbell Soup (CPB) instead. Listen to why the hot-shots at his firm would rather day-trade Facebook than divine the Treasury market.
Comments (48)
  • If you think treasuries are overvalued, short them. Why not buy TBF?


    You can do the same thing with any stock. Do you know what AAPL would look like if it dropped to 2011 levels? Answer: -55%. Cool, thanks for the info. But will it actually reach that level in the near future? If so, why don't you short AAPL?


    I would love to short TLT or buy TBF. But ZIRP/QE has distorted fundamentals, and this market cannot be trusted.
    15 Sep 2012, 11:22 AM Reply Like
  • bos:


    The problem with these games, as always, is timing. And, time is money.


    That's why a better strategy than playing short guessing games with overvalued issues is to do the reverse and find long plays with undervalued issues, particularly those with handsome yields. Just as the obviously overvalued stuff will fall, at some point, the undervalued stuff will again appreciate. It never fails.


    But -- and this is the huge but -- the major difference between these two strategies is that the undervalued long investor can mitigate the inability to predict the timing of these events by collecting nice yields while one waits, while the short player cannot collect interest/dividends, but, even worse, must pay them.
    15 Sep 2012, 11:39 AM Reply Like
  • Comparing duration risk on a 30-year fixed income instrument yielding 3% to the risk of owning Apple. That's a good one. :)
    15 Sep 2012, 11:39 AM Reply Like
  • Tack,


    Your advice is so simple but so true.


    15 Sep 2012, 11:46 AM Reply Like
  • "Comparing duration risk on a 30-year fixed income instrument yielding 3% to the risk of owning Apple. That's a good one. :)"


    Would you buy the debt of one entity borrowing $1,600 billion annually, or the share of another entity generating $50 billion each year in cash? The first yields 3%, the second yields 1.5%.
    15 Sep 2012, 02:00 PM Reply Like
  • Here are some thoughts and facts


    The German 10 yr Bund went up about 0.5% in the last 2 weeks. It's current 1.7% yield is a floor to the US 10 year. The US 10 year yields should be at least 0.2% yield above the Bund (usually a much wider margin), and the Bund is climbing up steeply these days because of the shrinking European Bond yields gap between the North and the South.


    The Chinese promised the European leadership Europe Bond purchasing, to anyone who doesn't watch the news.
    My guess is that Chinese' shift is on already. I also feel the Chinese would like to send a message to the US, a little kick in the knee, so that we don't take them for granted and pay them a little more respect.
    China is the biggest bond buyer...


    For global investors you have to adjust for forex - and the Euro did 9% over the $ in the last 2-3 weeks. These forex moves are a good indication of bond flows.


    The 40B of Bernanke's bond price manipulation is a drop in the bucket compared to the US Treasuries dumped by China, PIMCO and other big bond players


    Inflation raises bond yields, and the bigger Bernanke's bond purchases => the bigger the inflation. He is caught in a no win situation.


    Risk on works for stocks and commodities and against bonds


    and there is more...


    On the flip side - you have Bernanke 40B/month (on a 7T market)
    That's it.


    It's one of the easiest calls in the market these days.
    They say "don't fight the Fed", well it's a rare opportunity to do just that right now, and collect on their losses for once.


    I placed 10% of my portfolio in DTYS (makes about 1% for every 0.03% rise in 10 year yields - 4% on Friday...). Will start peeling off profits when the 10 year is at 2.35% yield.. until ~ 2.6% - 2.8%
    Then I'll add the bond profits to my AAPL which will likely be @ $800 (after the 4Q earnings), and on it's way to $1000


    That's why - IMHO
    15 Sep 2012, 04:28 PM Reply Like
  • Tack,
    Spoken like a true Dividend Growth Investor!
    15 Sep 2012, 06:20 PM Reply Like
  • In the interview, Gundlach said something that is a classic:


    "...the definition of an investor is a trader underwater..."
    15 Sep 2012, 11:36 AM Reply Like
  • Very good interview with Gundlach. Interesting that he is essentially moving towards becoming a day trader of sorts. Have very much felt the same way for well over 2 years now. Banana Ben and Super Mario have so distorted markets that becoming a ST trader is about the only viable "investment" option out there now.
    15 Sep 2012, 04:35 PM Reply Like
  • In two years, where one supposedly should have been a day trader, for those holding "nonviable" investments, the SPX is up over 30%, plus two years of dividends, good for another 5% or so.
    15 Sep 2012, 04:41 PM Reply Like
  • Those non-viable investments of gold and silver are up 40% and 70% over the same time frame, trouncing stocks.
    16 Sep 2012, 03:45 AM Reply Like
  • Look at the performance of CPB vs TLT during the Great Meltdown of 2008/2009 and then decide which one is better if you fear a correction.
    15 Sep 2012, 11:48 AM Reply Like
  • I am a big holder of Gundlach's Total Return Fund (DBLTX) and he puts his money where his mouth is because he is also a substantial owner of his fund. Right now he has the lowest duration in the history of the fund at 1.2 which means he is expecting interest rates to rise. The MBS portion of the fund acts like "negative" duration because of FED buying and rising interest rates making it more valuable.


    He is the most sophisticated bond investor in the industry and when it comes to bonds you want an active manager. Passive management (indexes) can get you killed if you don't pay attention to how they are structured. The Barclays' universe of bonds has become so weighted with Treasuries that on a historical basis it does not resemble anything close to what it looked like 10 years ago.


    It was like the composition of the S&P500 prior to the 2000 dotcom bomb where a couple of stocks comprised a huge portion of the overall value of the stock index which meant that individual company/stock risk had increased dramatically but was masked by the fact it was an "index".


    This is definitely a challenging time to be an investor.
    15 Sep 2012, 12:21 PM Reply Like
  • CPB sounds like a good bet. The soup kitchens in my city are overwhelmed.
    15 Sep 2012, 12:56 PM Reply Like
  • "A first-rate soup is more creative than a second-rate painting."
    ~ Henny Youngman
    15 Sep 2012, 01:46 PM Reply Like
  • Mine too, in fact they are advertising on tv here inviting applications for jobs in the safety net industry of shelters and food banks.
    15 Sep 2012, 03:49 PM Reply Like
  • no soup for you
    15 Sep 2012, 01:27 PM Reply Like
  • The treasury market is now so rigged by the Fed that interest rates no longer reflect supply and demand.


    Going long T-bonds would be foolhardy. Shorting can only be profitable when nobody but the Fed is willing to buy America's debt. That day is coming but the timing is unknowable.
    15 Sep 2012, 01:28 PM Reply Like
  • The notion that Fed support of Treasuries means is a declining yield is simply false. Just cause the Fed says it, doesn't mean it's true. Like a "stable currency", stated goals and actual goals aren't at all the same. I don't believe the Fed cares about falling Treasury prices, they care about falling stock prices. In both QE1 and QE2, Treasury yields spiked. They are well on their way to spiking again. Until stocks are ready to correct meaningfully, Treasuries can be shorted for a healthy gain, imho.
    15 Sep 2012, 10:28 PM Reply Like
  • ......"they care about falling stock prices..."


    I totally agree, Ponzi....and I would change the word stock to "assets."


    He is playing a fool's game. Keeping rates low to pump RE assets, etc etc etc........


    THERE IS NO DEMAND. Look at the Velocity of Money...this is ALL we should focus upon and that will tell us the state of the game and the game is over and out!
    6 Nov 2012, 02:32 PM Reply Like
  • When Treasuries finally come under selling pressure it is going to be because we have an expanding economy, inflation or both. The better play than shorting Treasuries is to be long a mix of equities and commodities because it's highly unlikely that money exiting Treasuries is going to sit in cash at even worse yields than Treasuries.


    For some reason, since the 2008 crisis, a specious notion has been perpetrated, and subscribed to by some, that asset prices (equities, real estate, etc.) are somehow inversely related to interest rates. History shows that this isn't the case unless rates rise to the higher ends of the curve, whereupon economic activity is stunted. we're nowhere near such levels and won't be for a considerable time.
    6 Nov 2012, 02:41 PM Reply Like
  • I completely agree. Historically, asset prices and interest rates have risen in tandem (thus the idea of a "balanced" portfolio where stocks and bonds balance each other out on the price see-saw). My speculative notion (I have not looked into data to back this up) is that the 'specious notion' (well said) of lower rates leading to higher asset prices can be laid at the feet of the Fed. Starting with the Meistro's debt-bubble and running the policies of Bernanke, the Fed has insisted that lower rates will lead to growth and taken an increasingly direct role in trying to force rates lower. The Fed has finally done away with all pretense of "price stability" for the currency. The market has come around to play the rigged game and now responds like Pavlov's dog.


    But the idea of lower rates driving economic activity is strictly tied to ever-expanding debt, and the idea that debt - not wealth/capital - drives growth. (I'm sure many would say they are the same thing. I would not.) It's a notion the requires perpetual growth and infinite debt/monetary expansion. To the extent that those two things can be achieved, the merry-go-round can continue to spin... though it seems possible that with rates limited to 0 and hard assets like physical gold and silver becoming increasingly reasonable options versus a potentially fragile banking system that offers no yield, the great ponzi may be closer to the end than some suspect.
    6 Nov 2012, 03:10 PM Reply Like
  • Tack


    General rules like "asset prices (equities, real estate, etc.) are somehow inversely related to interest rates" always have limited usage and especially at the extremes. However they should not be ignored as there is some real math behind those rules.


    Generally I think you are right that cash will not be the place to be when Treasuries fall with the caveat we could see the entire yield curve rise as risk is recognized across all maturities.


    I would say to be very careful of stocks that are interest rate sensitive like REITs so pick out stocks that are not reliant on cheap money and have high growth rates. And in the case of the US be careful of stocks who rely on a lot of government business. Banks could get crushed especially if they do not have any interest rate derivatives in place to shield them from rising rates and they are long on loans with long maturities. Commodities could take a big hit if they are underpinned by cheap money.


    I think we are sitting in a very unsustainable position and at some point we have to get to a new normal that is more sustainable and the risk of that migration is extremely high so take nothing for granted.
    6 Nov 2012, 03:53 PM Reply Like
  • TVP:


    Vigilance always warranted.


    My own "favorite" sectors for potential rising rates:


    -- real estate and related issues
    -- energy (oil, coal & natural gas issues)
    -- commodities (especially those tied to real estate and construction)
    -- banking (on the contrary, I see rising rates initially benefiting banks and finally allowing lots of fallow cash to be put in play at acceptable rates)
    -- convertible debt & floating-rate loans
    6 Nov 2012, 04:11 PM Reply Like
  • Tack


    Interesting. With banks you have to be aware that if they are in long naked positions on their loans they will get hammered. It is just like buying a bond fund. If you don't know then stay clear. Likely the larger banks will handle the increase in rates better. Small banks could be the most exposed. There is also an issue of how fast the rates increase and for how long.


    How do higher rates help real estate? And the other sectors?


    Agree on convertible debt and floating rate loans.
    6 Nov 2012, 07:06 PM Reply Like
  • TVP:


    Large banks have lots of idle cash and short-term paper because they have been unwilling to make longer-term commitments at these artificially-low rates. If rates rise, those funds will get redeployed to better-yielding loans.


    Many people have mistakenly decided that real estate and interest rates are inversely related when any look at historical charts shows that not to be accurate. With rates so low, any rise in rates will be ineffectual in stifling real estate demand, and that demand has been growing noticeably, and I expect it will continue. This will prove very beneficial to all banks, and especially so for regional banks, which are heavily involved in construction finance and mortgages.


    Banks have had laggard profits because they have low-yielding, but safe, cash deployment, presently. That will change at higher rates.
    6 Nov 2012, 07:16 PM Reply Like
  • Tack


    I think all these 1 or 2 step algorithms are just not representative of how the world works. With respect to banks you really have no idea of the average terms of the loans held even though the common wisdom is that they are all buying treasury securities. However longer term loans are the only thing they do have that is yielding anything. Borrowing at zero and lending at 3.75% is better than buying treasuries. Nobody is making short term loans because the cost of underwriting is more than the revenue of the loan. Secondly if rates rise this will either spur borrowing in a rush to get in or if rates spike the demand will be crushed. Thirdly banks profits are hurt not only by low rates but by legislation that is targeting their fee income which has risen dramatically in the past 20 years.


    A strategy would be to either identify the banks that have insurance against rising rates and buy them or wait 6 months to see who is getting crushed by rising rates and either buy them at fire sale prices or stay away. The large money center banks have the best chance of not getting beat by rising rates.
    7 Nov 2012, 01:10 AM Reply Like
  • Tack-Any favorites you care to share within your favorite sectors? I am a fan of your deep value high yield strategy in out of favor sectors!
    7 Nov 2012, 06:10 PM Reply Like
  • astarr66:


    Some issues I hold or find interesting, as value and/or high-yield investments:


    Energy/Resources: SCCO, AWC, SID, REPYY, TOT, VE, VNR
    Convertibles: NCV, CHI, AGC, JPC
    Country: CH, MXF
    Floating Rate: PFL, VVR, JRO, PHD, SAN-B
    Realty: AWP, JRS, IGR
    7 Nov 2012, 10:07 PM Reply Like
  • astarr66:


    Here are two bottom-fishing opportunities to add to the list:


    9 Nov 2012, 10:24 AM Reply Like
  • Thank you Tack. I have been doing my DD and I find your suggestions excellent as always.


    I much enjoy your economic and political analysis, but would enjoy even better more discussion on specific securities!


    Hope you had a good thanksgiving.
    28 Nov 2012, 06:46 PM Reply Like
  • It's funny, enjoy a big laugh.........but thanks to the Berdonkey WE the taxpayer of the US are the biggest bagholders of that risk.


    This week was a big FU to Romney as well as a Hail Mary to salvage his career and life's work as the great "expert" on the depression. So far he has done nothing. Had they let it fail we would have already had two years of growth without the massive debt buildup and affordable housing.


    AND the real bad guys would be broke instead of the savers and prudent investors of this country.
    15 Sep 2012, 03:00 PM Reply Like
  • With a SAT score of 1590, I think Bernanke can grasp things.


    I would have preffered a $100B monthly purchase program, but oh least he pushed for something.


    If the so called "fiscal cliff" happens, Bernnake is going to boost the purchases by more than $100B per month.


    2013 should be another good year for equities and bonds.
    15 Sep 2012, 03:41 PM Reply Like
  • Sailing Against The Headwinds On The QE Three


    Many people, use the 150 year U.S. annual growth rate in output per capita of 2%. The growth rate for the two decades from 1987-2007 was 1.8%.


    Professor Robert J Gordon of Northwestern University and CEPR research fellow in his Policy Insight No. 63 paper entitled "Is US economic growth over? Faltering innovation confronts the six headwinds". He is one of the world's leading experts on inflation, unemployment, and productivity growth. The full text can be downloaded here.
    or a shorter abstract here:


    The six headwinds referred to in the title are:
    1. The end of the "demographic dividend".
    2. Rising inequality.
    3. Factor price equalization stemming from the interplay
    between globalization and the internet.
    4. The twin educational problems of cost inflation in
    higher education and poor secondary student performance.
    5. The consequences of environmental regulations and taxes
    will make growth harder to achieve than a century ago.
    6. The overhang of consumer and government debt.


    He goes on to explain the reasons for the slowdown and why it will continue with an exercise in subtraction.


    September 2012: An exercise in subtraction.
    "The benefits of ongoing innovation on the standard of living will not stop and will continue, albeit at a slower pace than in the past. But future growth will be held back from the potential fruits of innovation by six "headwinds" buffeting the US economy, some of which are shared in common with other countries and others are uniquely American. Future growth in real GDP per capita will be slower than in any extended period since the late 19th century, and growth in real consumption per capita for the bottom 99% of the income distribution will be even slower than that."


    How large might be the numerical effect of the six headwinds? A plausible set of numbers can be constructed to reduce the growth rate of real per-capita consumption of the bottom 99% of the income distribution down to 0.2% per year,


    "Baby-boomer retirement (the reversal of the demographic dividend) brings us down to 1.6% and the failure of educational attainment to
    continue its historical rise takes us to 1.4%. If inequality continues to rise as it did in the last two decades, income for the bottom 99% of
    the income distribution will grow about half a point slower than 1.4%, bringing us down to 0.9%. Globalization could continue to hollow out middle-level jobs, bringing the rate down to 0.7%. Higher energy taxes could bring the rate down to 0.5%. And a combination of consumer debt repayments, income tax increases, and reduced transfer payments, could plausibly reach the 0.2% annual rate."


    Why 0.2% you may ask. According to his paper he explains, "The particular numbers don't matter, and there is no magic in the choice of 0.2% as the long-run growth rate. That was chosen for "shock value" as the rate of growth for the UK between 1300 and 1700. Any other number below 1.0% could be chosen and it would represent an epochal decline in growth from the US record of the last 150 years of 2.0% annual growth rate in output per capita.


    The insights presented in this paper could very well explain why the FED is "agog" that the inflationary policies of QE1 and 2 have failed to produce the desired and expected results, and why the "all in" and "unlimited" QE3 will also fail as they do not address the real systemic problem.


    Professor Gordon makes a compelling case that the economy of the past 150 years is and was a singular event in human history, a 'pulse' as it were and is now in the process of reverting to its historical mean average of 0.2% without so much as a courteous "by your leave, sir".


    The most frightening aspect of this journey back to medieval times is that we will be taking 19000 nuclear warheads with us which is playing out as a preview of "Coming Attractions" on a television set near you. The sad fact that we still have unresolved racial, ethnic, religious, and financial inequities will make the journey more dangerous.
    15 Sep 2012, 03:57 PM Reply Like
  • Yes, we're all just going to sit around at home tending to our own vegetables.


    The most worrisome thing about nonsense, like the foregoing, is that some people will mold their investment philosophies around it, and the rest of us will have to support them, too, given today's wonderful socialistic view of how the world should work.
    15 Sep 2012, 04:12 PM Reply Like
  • The economy of the last 150 years is also where the world went through the industrial revolution and the US emerged as a world power. And the US provided a lot of freedom to its citizens to drive that growth. Freedom is a positive force in setting the stage for growth. That is whole other discussion.


    If we maintain freedom in the US and if other countries like India and China also provide enough freedom to grow we can do OK.


    Having said that there are a number of headwinds as you point out and the aging population is putting a huge strain on the nation's finances and since we are the largest economy in the world we negatively impact the world economy when we struggle. It is the US that is struggling while other countries have a lot of growth ahead of them.


    Economists are good for pointing out issues, putting a narrative around and then modeling outcomes but it is not cast in stone that it will play out like they model as policy makers can address some or all or an external or unknown factor can mitigate them.


    Having unresolved racial, ethnic, religious and financial inequities is a given. When has there ever been a time without these issues. On the financial side if top income earners only took home 10% more than the tier below it we would have noise and animosity. Until we all are dirt poor and miserable some people will not be happy.
    15 Sep 2012, 07:53 PM Reply Like
  • Tomas; The freedom you are referring to was inaugurated 237 years ago before the 3 industrial revolutions which precipitated the phenomenal growth this paper refers to. At that time there was virtually no economic growth before 1750. American style democracy is an artefact of the industrial revolutions and likely will not survive in a negative growth environment for many of the same reasons you mention. Poor and old people use their vote to elect politicians who will make unsustainable promises to benefit them much to the chagrin of the ruling class who are taxed to fulfil those promises.


    This paper does not suggest that everyone should be dirt poor and miserable. There has never been a time in history that I can think of when there has not been an extremely rich and extremely poor population and no reason to think that would change.


    The change is being described is a transformation of the world economy as depicted here in this graph from Goldman Sacks recently.
    15 Sep 2012, 08:29 PM Reply Like
  • Amadon


    I was not dating freedom in my comment but what I am thinking of is the freedom to attain the capital and tools of production by anyone to create a business and produce things of value that enables commerce. The US was the place where people from around the world came to gain farms either through purchase or outright gift or engage in trade. On a relative basis it was extraordinarily free economically.


    I think you are commenting on one of Thomas J's biggest concerns about a democracy and that is that people would vote for things that would be self serving and thereby bankrupt the government or at least misuse it.


    My observation based on history is that there will always be resentment of people who are richer whether it is by order of magnitude or incremental.


    I am not sure what the Goldman Sachs graph is news to anyone.
    15 Sep 2012, 10:23 PM Reply Like
  • Tomas;


    Let me respond to "I am not sure that the Goldman Sachs graph is news to anyone." It is not news to anyone. It graphically depicts what the article refers to as "The most daunting is headwind (4), the interplay between globalisation and modern technology, which accelerates the process of catching up of the emerging markets and the downward pressure on wages and real incomes in the advanced nations."


    Next: "On a relative basis it was extraordinarily free economically". Was is the operative word here. The U.S. is now the most repressive of upward mobility of all the developed markets. I will provide sources for this statement if desired.


    Next: "I think you are commenting on one of Thomas J's biggest concerns about a democracy and that is that people would vote for things that would be self serving and thereby bankrupt the government or at least misuse it." The same thing could be said and often is said here on SA concerning banks and Wall Street. In fact it is Wall Street and the banks who are generally held accountable for every financial disaster in history including the one in 2007 yo the present failed recovery. Blaming the 99% is like blaming the victim of a mugging.


    Next: "My observation based on history is that there will always be resentment of people who are richer whether it is by order of magnitude or incremental." That must have been the observation of Moses also as he wrote the 10 commandments, which mostly deals with coveting your neighbours stuff.


    The article is describing an evolutionary process that is and has been occurring which has resulted in the U.S, economy entering a negative growth phase that might be best expressed by "Money goes where it is treated best."
    15 Sep 2012, 11:09 PM Reply Like
  • Amadon


    I agree with a lot of what you say. I would add that a lot of our work force has been trained to do low skill jobs or not trained at all and there is a glut of non skilled employees in China and other places that will work for a fraction of the cost. Our government, our education system and our values are not aligned to help our citizens compete.


    With respect to your analogy of 99% being blamed for a mugging it really does not fit. Practically speaking 1 person cannot mug 99. You also exaggerate on banks being accountable for every financial disaster in history. In ancient history the king often issued his own currency and he was the bank so to speak. Corporations also issued script so they were acting as bankers. A lot of other non-bank players have acted like banks and caused major problems in FS. The Medici's were forerunners of modern bankers and operated in the 16th and 17th century.


    Much of the real estate lending machine has been outside of the banking system and going through brokers which then shopped the loans to banks or to WS. People have willingly lied on their applications or speculated on RE along with a lot of prodding by mortgage brokers. Regardless of which part of the elephant one looks at there is corruption and any sector saying they are clean just continues the lying that got us here in the first place.
    16 Sep 2012, 01:58 AM Reply Like
  • Tack; What is it exactly that you think is nonsense? Do you disagree with any or all of the six headwinds Professor Gordon describes in his paper? As far as I can tell all of the six are covered extensively in the news and here on SA daily and almost universally acknowledged to be problems with the economy.


    If you accept the six as problems facing the economy which of them do you feel can be solved by money printing and adding debt?


    If you are a part of the 1% you will be sitting around in your castle while the 99% tend to your gardens very much like the early 20th century in the U.S. Not so long ago.
    15 Sep 2012, 06:09 PM Reply Like
  • A:


    I tend to my own castle, thank you.


    Look, it's one thing to talk about challenges and headwinds; it's entirely another to suggest we're going back to medieval times. That kind of utter nonsense is great for attracting media appearances, but, as practical guidance for making investment choices, it's useless, even damaging for the more impressionable.
    15 Sep 2012, 06:21 PM Reply Like
  • Tack; Robert J. Gordon is Stanley G. Harris Professor in the Social Sciences and Professor of Economics at Northwestern
    University. He is one of the world's leading experts on inflation, unemployment, and productivity growth. His recent
    work on the rise and fall of the New Economy, the revival and “explosion” of U. S. productivity growth, the stalling
    of European productivity growth, and the widening of the U. S. income distribution, have been widely cited. Gordon
    did his undergraduate work at Harvard and then attended Oxford University on a Marshall Scholarship. He received
    his Ph.D. in 1967 at M.I.T. and taught at Harvard and the University of Chicago before coming to Northwestern in
    1973. He is a Research Associate of the National Bureau of Economic Research, a Research Fellow of the Centre for
    Economic Policy Research (London) and the Observatoire Français des Conjunctures Economiques (OFCE, Paris),
    and member of four U. S. government academic advisory committees.


    Hardly the type of person who would publish nonsense for peer review this month.


    The Centre for Economic Policy Research, founded in 1983, is a network of over 800 researchers based mainly
    in universities throughout Europe, who collaborate through the Centre in research and its dissemination.The Centre’s
    goal is to promote research excellence and policy relevance in European economics. Because it draws on such a large
    network of researchers, CEPR is able to produce a wide range of research which not only addresses key policy issues,
    but also reflects a broad spectrum of individual viewpoints and perspectives. CEPR has made key contributions to a
    wide range of European and global policy issues for almost three decades. CEPR research may include views on policy,
    but the Executive Committee of the Centre does not give prior review to its publications, and the Centre takes no
    institutional policy positions. The opinions expressed in this paper are those of the author and not necessarily those
    of the Centre for Economic Policy Research.


    Not what you would call a part of the 'lunatic fringe'.


    What is being described here is a potential natural disaster for the world as we know it. It is not a question of politics or investment philosophy any-more than a discussion of a huge asteroid discovered to be heading our way would be. There is substantial evidence that civilization is being transformed from a fossil fuel economy into a 'sunshine economy'.


    This is not a conspiracy of the left or right. Whether we are governed by socialist or fascist will not make much difference to the 99%, most of whom will in one way or the other be asked to 'self-deport'.
    15 Sep 2012, 07:05 PM Reply Like
  • Amadon, you make a good case for academia but I have a question. If these guys with so many letters after their name are so smart, why are they almost always wrong? And not just a little wrong but as wide as the Grand Canyon wrong?
    15 Sep 2012, 07:21 PM Reply Like
  • RJK,
    Agree with you. If they were right they would all be rich! VERY RICH!
    15 Sep 2012, 07:34 PM Reply Like
  • RJKRJK; If you mean like believing the earth is the centre of the universe, that the earth is flat, that economic growth has been regarded as a continuous process that will persist forever, that the forest the early settlers found in America would last forever, that electricity when first discovered was believed would be to cheap to meter, or the CEO of IBM saying he thought there might eventually be a market for about 5 computers in the whole world, or Bill Gates comment that 64K of floppy disk space should be enough for any one. Is that what you mean by being wrong by a country mile?


    We as a specie have always been overly optimistic and wrong about just about everything. We disregard natural forces such as entropy, the laws of thermodynamics and diminishing returns. It is not just academia but politicians, clergy, royalty all buying in to ideas that are wrong and in hindsight foolish. We have a long history of burning people at the stake who challenge these long held beliefs.


    I hope that answers your question sir.
    15 Sep 2012, 07:51 PM Reply Like
  • Brendan; The article never mentions peak oil but your point is taken. As a chemist you are familiar with the equation which describes efficiency as energy return on energy invested. If the energy source is finite and if it takes ever increasing amounts of energy invested to locate and exploit it then the ratio will continue to decline toward 1:1. In practice exploitation usually stops when the ratio is about 3.5:1 due to overhead cost. In the early days of discovery about 1900 it was common to have a ratio of 100:1. In the past 100 years that ratio has dropped to less than 20:1 (in fact I think it may now be in the order of 10:1). The point being is that it functions as a vise on the economy or as it is sometimes expressed as 'diminishing returns'.


    However, the oil or gas will never run out, it will just simply become inefficient to produce. The ever decreasing ratio of ERoEI acts as a drag on the economy. You and I will indeed be long dead and gone before the last tea cup is pumped.


    As I have indicated this paper does not mention oil or gas as the cause of this negative growth. The reason that this exact moment in time has caused the paper to be written is that economist have noticed that the U.S. economy has turned negative to the extent that we are now into the third experiment in 12 months to try to turn it around. This last action is extra-ordinary in that it has the smell of fear and panic about it as all the central banks are using terms like 'unlimited' and 'all in' implying that they are going to throw everything into the fire including the 'kitchen sink'.


    I know I have every hope it works as I am sure the author of the paper does, however I would not want to engage in 'happy talk' as we all go whistling past the graveyard.
    15 Sep 2012, 10:20 PM Reply Like
  • took some tlt profits today at 120.75
    18 Sep 2012, 09:37 AM Reply Like
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