yada yada

The Meaning of Risk: A Proprietary Index for Current Times

On Sep 29 10:33 AM chap08 wrote:

> I agree. But if you think cash is risky, how about Tbonds?

to me, no difference between Tbonds and cash in terms of risk. the ultimate cash risk is a government default, which seems inevitable to me, though i can't say whether that is this month or 10 years down the road. if i could, it would feel a lot less risky...

see also this interview with marc faber: seekingalpha.com/artic...

The Meaning of Risk: A Proprietary Index for Current Times

i think that in the current environment, the concept of "risk" requires a complete re-definition that takes into account the fact that currency, the "asset" that "risk" is conventionally baselined against with a nominal risk of zero, is no longer being seen or treated as such.

in the current global economic environment, fiat currency has become just another asset, and the value of currency itself is clearly "at risk" and being treated by many as a potentially risky asset.

in the past, you could talk about the purchase of equities as a "risk-taking" activity. implicit in that description is the idea that leaving capital in currency/cash was the "risk-free" alternative to the more risky purchase of equities. and all kinds of measures of risk and strategies to mitigate risk have evolved, all based on the implicit or explicit assumption that cash has a risk of zero.

i don't know about you, but i am currently just as concerned about my cash position as i am about any of my equity, commodity, or real estate investments. to me, the cash feels every bit as risky as the equity investments. i doubt that i am alone in this, and i think that a lot of recent divergences in correlations that have held over time is at least partly due to this phenomenon of risk being re-defined, whether explicitly or implicitly.

America: Is This the End of an Era?

Hello?

Is it just me, or does nobody in the mainstream realize that the US is totally and absolutely irrevocably insolvent? I realize that this is not an original point of view and that many smart people on the margins have been banging this drum for years, but how is it that this plain fact is not common knowledge by now, and the fundamental basis of all collective domestic and global economic policy as well as individual investment planning?

We seem to be living in a literally insane mummery where people somehow believe that you can borrow your way out of a crushing debt burden and counterfeit your way out of a crisis of confidence in the currency. Kafka would have been proud to have created a fiction on par with the US of today.

Again I ask: Hello?

I do not have a degree in physics, but I did pass some of those classes in university. For those who have perhaps forgotten some fairly basic laws of conservation, let me review a little here. I have read that in recent years consumer spending is on the order of 72 percent of US GDP. How far out of my way do I need to go to point out that consumption, which is the literal DIGESTION of wealth (with the usual end product of digestion...) is not PRODUCTIVE. What genius decided that you should count consumer spending as a productive output of an economy?

On the other hand, perhaps consumer spending really is the primary product of the US these days. And that is exactly the issue. Leaving aside questions of accuracy in the percentages of the components of the GDP number, any percentage of real GDP that represents consumption of more than 50% leads to insolvency. It's pretty simple physics. If you consume more than you produce, eventually you run out. If you are somewhat prudent, you would want to actually consume somewhat less than you produce, so you could save up a little surplus for unexpected costs that might crop up from time to time, like insane wars to secure supplies of foreign oil.

Does anyone really, truly believe that the US at some point is going to actually make good on all of its foreign and domestic debts and financial obligations (including the various entitlement programs)? Are you kidding me? There are three choices for the US:

1) The US can default on its obligations
2) The US can massively inflate the dollar by printing to nominally pay down its obligations with the resultant debased currency
3) The US can do both 1 and 2

One interesting question is how long this train wreck is going to take to play out. Lately, things sure do seem to be accelerating a bit. Another interesting question is how bad the fallout of this US-led train wreck will ultimately be in the parts of the world that are net productive rather than net consumptive.