Monday, August 8, 2011

The latest crash

A debt deal at last, and an S&P downgrade for Treasuries - and a plunging stock market.

There's plenty of blame to go around. To Congress, not just for their dithering and lack of willingness to compromise, but for having a debt limit at all. It's crazy to appropriate all this money (which must by law be spent) and then have a separate debt limit that contradicts the appropriations. To President Obama, for not invoking the 14th amendment as advocated by former president Clinton.

I don't think the market drop is due to the S&P downgrade, which after all only reflects the anxiety bondholders felt watching Congress debate whether to pay them back. It's due to the debt deal, which cuts the deficit. The economy is weak and the conventional economic remedy is to have low interest rates and a large deficit. Cutting the deficit now is reminiscent of 1937 when the Great Depression had a double dip.

But I digress into politics. The investment lesson is to diversify. It's a big world. I have some exposure to Europe, which has its own problems, but I need to have some to the rest of the world, too.

Thursday, July 14, 2011

Treasuries risk free no more

I decided to sell my ETF for Treasuries. It pays only a little interest, and that was a tradeoff for its supposed great security. Now that paying interest on the national debt is a political football, I don't feel that secure and so it makes no sense compared to other fixed income investments. I see the credit rating agencies are starting to warn about the US Government AAA rating. Pretty late I'd say.

Monday, July 11, 2011

US Default?

What are the chances of the US defaulting on its debts, due to the law that limits borrowing failing to be modified? The Sovereign Credit-Default Swaps market puts long odds on it, but I'm not so sure. We've seen how the Minnesota government was shut down (still is at this writing). The political parties have never been more at loggerheads.

What's a regular investor to do? Sell our treasury funds? Buy gold? Buy a put option on treasuries? A big enough bet to make a difference would cost money if it doesn't happen. I'm not sure myself what to do and welcome comments on this topic.