Random Musings About the Business Cycle
Jul. 12th, 2018 08:02 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
walkitoutFirst: CR says no recession anywhere in sight:
https://www.calculatedriskblog.com/2018/07/investment-and-recessions.html
Trust him. He’s a numbers guy and he’s good at this.
OK. Now that that’s out of the way.
Once upon a time, over a decade ago, a financial advisor type person talked me into putting my cash in auction rates. I asked for a prospectus. No prospectus. Guaranteed. Safe. Insured. Never blah blah blah.
I _did_ get my money back. But here is the wikipedia entry on what happened:
https://en.m.wikipedia.org/wiki/Auction_rate_security
Now, if someone says, there is no prospectus, I tell them politely that I am _not_ actually laughing at them, and _thank you_ for thinking of me, but _no thank you_. If there is a prospectus, I read the prospectus, and generally say no thank you anyway. I operate from a modified _Gift of Fear_ perspective. Investments which choose me do not have my best interests in mind. I will do better picking randomly, than saying yes to what has zeroed in on me.
But there is a special place in my heart for investments which would like to help me make a little interest on cash which is sitting on the sidelines to ensure that, in the event of some awful liquidity crunch event (yeah, remember that?), I won’t have to sell at very low, fire sale type prices. That special place in my heart is essentially a canary in the coal mine. If you want me to make some small amount of interest on that cash which is _supposed_ to be the Most Liquid Thing Ever, by having me invest in something that is the Least Liquid Thing Ever in a crunch, well, not only will I say no, I will go, hey! You have used up the Smart Money and are now forced to market to Stupid. That means you are desperate.
This time, it is some sort of short term commercial paper that would supposedly once have been Safe As Houses and in a Money Market except they don’t let them do that any more, because Look How That Turned Out. I said no. I explained why I said no. I mentioned the auction rates parallel, observed pre-emptively that history does NOT repeat itself but sometimes there are patterns and thank you for the data point.
We then talked about housing and homelessness.
I don’t know who the short term commercial paper was issued by, but I will make the following observations.
(1) Amazon is busy wiping out established players in market after market.
(2) The Fed is trying to normalize rates, which means that zombie companies which have continued to limp along by rolling paper are under stress.
(3) Smart Money knows this, and is balking, because the odds of a near term, BK (of the liquidation variety, a la Toys R Us) event is going up, in part because of Fed normalizing and in part because of the increasing likelihood of wage pressure and in part because of (impending) trade war / tariffs making marginal business models non-viable.
So the commercial paper — thus far A+ — is being shunted over to Stupid Money.
Here are my predictions:
(1) Correction event in under 3 years, bigger than 10%, probably smaller than the Great Recession.
(2) Short term more than one national retail chain folding in more or less the same way Toys R Us went under.
(3) Increasing numbers of scandals hard to suppress where entrenched money squawks because they bought something that stank to high heaven but was promised it was “safe” and they want their money back. They will get their money back. But still.
I don’t give financial advice. This isn’t financial advice. Please feel free to come back and laugh at me. I know I will.
ETA: Arguably, I should not have posted any of this at all. But hey, as long as I am:
https://mobile.reuters.com/article/amp/idUSKCN1GR2Y2
That’s a few months old. It is interesting to think of this not just in the context of rising Fed rates, but also increasing supply of alternative short term instruments.
https://www.calculatedriskblog.com/2018/07/investment-and-recessions.html
Trust him. He’s a numbers guy and he’s good at this.
OK. Now that that’s out of the way.
Once upon a time, over a decade ago, a financial advisor type person talked me into putting my cash in auction rates. I asked for a prospectus. No prospectus. Guaranteed. Safe. Insured. Never blah blah blah.
I _did_ get my money back. But here is the wikipedia entry on what happened:
https://en.m.wikipedia.org/wiki/Auction_rate_security
Now, if someone says, there is no prospectus, I tell them politely that I am _not_ actually laughing at them, and _thank you_ for thinking of me, but _no thank you_. If there is a prospectus, I read the prospectus, and generally say no thank you anyway. I operate from a modified _Gift of Fear_ perspective. Investments which choose me do not have my best interests in mind. I will do better picking randomly, than saying yes to what has zeroed in on me.
But there is a special place in my heart for investments which would like to help me make a little interest on cash which is sitting on the sidelines to ensure that, in the event of some awful liquidity crunch event (yeah, remember that?), I won’t have to sell at very low, fire sale type prices. That special place in my heart is essentially a canary in the coal mine. If you want me to make some small amount of interest on that cash which is _supposed_ to be the Most Liquid Thing Ever, by having me invest in something that is the Least Liquid Thing Ever in a crunch, well, not only will I say no, I will go, hey! You have used up the Smart Money and are now forced to market to Stupid. That means you are desperate.
This time, it is some sort of short term commercial paper that would supposedly once have been Safe As Houses and in a Money Market except they don’t let them do that any more, because Look How That Turned Out. I said no. I explained why I said no. I mentioned the auction rates parallel, observed pre-emptively that history does NOT repeat itself but sometimes there are patterns and thank you for the data point.
We then talked about housing and homelessness.
I don’t know who the short term commercial paper was issued by, but I will make the following observations.
(1) Amazon is busy wiping out established players in market after market.
(2) The Fed is trying to normalize rates, which means that zombie companies which have continued to limp along by rolling paper are under stress.
(3) Smart Money knows this, and is balking, because the odds of a near term, BK (of the liquidation variety, a la Toys R Us) event is going up, in part because of Fed normalizing and in part because of the increasing likelihood of wage pressure and in part because of (impending) trade war / tariffs making marginal business models non-viable.
So the commercial paper — thus far A+ — is being shunted over to Stupid Money.
Here are my predictions:
(1) Correction event in under 3 years, bigger than 10%, probably smaller than the Great Recession.
(2) Short term more than one national retail chain folding in more or less the same way Toys R Us went under.
(3) Increasing numbers of scandals hard to suppress where entrenched money squawks because they bought something that stank to high heaven but was promised it was “safe” and they want their money back. They will get their money back. But still.
I don’t give financial advice. This isn’t financial advice. Please feel free to come back and laugh at me. I know I will.
ETA: Arguably, I should not have posted any of this at all. But hey, as long as I am:
https://mobile.reuters.com/article/amp/idUSKCN1GR2Y2
That’s a few months old. It is interesting to think of this not just in the context of rising Fed rates, but also increasing supply of alternative short term instruments.