Chris weighs in on a new SEC proposal.
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Wild guess or not, I agree with you.
I wish I knew. While I appreciated Chris’s comments I don’t think that we should minimize the impact of what is taking place just because the original concept was developed back in 2008. Nor does it give me added confidence that most Mutual Funds have had riders telling you they could pay you “in kind” or that this new policy ONLY applies to a trillion dollars in investments. And none of this is scare mongering or sensational either if it is a fact. To my thinking there is no coincidence that bail-in laws are being promoted at the same time as “gating” regulations are being finalized. Perhaps it is a good thing as he suggests because liquidity will not be impaired under crisis circumstances or because these proposals will shift flows out of some instruments to the benefit of other investment classes. Nobody should be under any illusions here though. There is trouble brewing and I suspect we will discover that not only will bail-ins happen and redemption restrictions come into play but that deposit insurance itself will be found worthless. We should keep in mind two things. First that the financial system almost collapsed some years back and secondly that we are in a more precarious position today than we were at that time. So I really did not understand what Chris objection was unless he is just hoping this is all just a bad dream and maybe it will go away if we don’t worry about it.
Precarious times Bird.
Your comments about bail-ins; redemption restrictions; and, deposit are comments that I agree with.
I think that it is inevitable.
Exactly Birdman. They’re not just doing this for nothing.
Maybe it will be a good thing. Kind of like we might think martial law would be a good thing compared to absolute chaos, but it still might make us uneasy to see preparations for martial law.
Far from that last comment, Bird…as I have mentioned a few times, it’s only a matter of time before these jokers just can’t keep all the balls in the air any longer. Once again quoting the Joker, as played by Jack Nicholson, “This country needs an enema!”
I had no “objection” in today’s comments that I recall…simply trying to point out 1) that some were already exaggerating/hyping the FACTS of this new S.E.C. rule and 2) that this rule, to the extent that it IS significant, will likely serve as an assist to the Fed in moving that much more out of short-term assets into longer-term risky assets. I find it notable here that a Tweet I received today from one wire service is discussing that the Treasury is looking at longer-term bonds with a greater duration than 30 years now (remember not that many years back when it looked as if the 30-year bond was going extinct?)
I agree, too — and have often commented — that there is more leverage in the system today than back in 2007.
Lastly, I still continue to think that — before any onerous bail-ins, at least in this country — we’d get more along the lines of schemes to get Americans to voluntarily (if not happily) turn their savings over to Uncle Sam, as I have opined in the past on this show as well as in my newsletter.
Bottom line — Not only do I also expect the day to come (though I won’t pretend to know when) when we have another big catharsis/crash (or worse), but I in many ways will welcome it. My whole problem is that people need to plan and make decisions based on facts and reason; not some of the goofier misinformation that’s out there.
Thanks for clearing that up, Chris. I must have misunderstood you because after listening to the interview I came away thinking your opinion was it was just childish to think these changes meant anything!
There is a great deal of hype and misinformation out in the blogoshpere though. We will sure agree on that. We get bombarded with it daily and it takes a lot of effort to sort through the sometimes wild interpretations of information that others digest for us. In such cases I often find it most helpful to go directly to the source and read the documents for myself. That was why I posted the SEC proposal for anyone else who had not seen it yet.
It is really interesting to me what you are saying about bonds running out longer than 30 years though. I have noticed something similar where I am living and had not got around to commenting on it yet but over here mortgages run the equivalent of 99 years duration.
I say equivalent by the way because they are actually more like a lease than a true mortgage. They are the standard though. Nonetheless it is a debt that in many cases indentures your offspring and family because it exceeds the lifetime of the buyer.
In the real world these are paid down much more quickly than the actual term though because inflation has run so hot for so many years having exceeded 50% at one time. As long as that continues long term debt will be inflated away fairly rapidly.
But look at what is happening in western countries with car loans that go on for 8 long years. In Canada it was possible to take on 40 year mortgage debt not so long ago (that has now been reduced to 25 in an effort to squash signs of a housing bubble). But maybe this is going to be the trend, Chris. When debt becomes so onerous one of the obvious outlets is to extend maturity dates and amortization periods and reduce payment sizes.
Japan, Switzerland and England have all experimented with 100 year mortgages and interest-only debt before us. And of course in past centuries this kind of debt was quite typical which is how mortgages (until death) got their name in the first place.
So maybe this is the ultimate can-kicking solution to public debt as well where it has become too heavy to carry or where interest rates make it unmanageable. You just stretch out the repayment term and reduce the periodic payments so much that nobody worries about the size of the debt anymore. Someone else (other than us) will end up picking up the tab anyway.
Let the spending begin anew!
Even the professionals don’t know what is going on out there, In fact they don’t have a clue. Take company A which has a 25% interest in company B, and B has an interest in Z, while Z is invested in A, and holds shares in D and all the others. Anyone one if these companies defaults or if cash exits for another venture need I say it won’t take much before we all become bagholders.
Or there is a total freeze up of all markets DT and the whole thing gets settled by decree, cross cancellations and special legislation. It might just wind up being a very long bank holiday so best to keep some cash on hand at all times. I mean physical cash in hand and I am very serious about that. I am quite sure it will keep working while the crisis is in process.
And that too, I agree with. And, yes, we do!
It is the most basic insurance we can have Al. For all intents and purposes under ordinary conditions, physical cash has no counter party risk either. As long as the money is still good you can spend it if you own it and not be subject to a financial system gone haywire.
The music will stop next year.