Treasuries safe?

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erik265
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Treasuries safe?

Post by erik265 » Wed Oct 17, 2018 11:45 am

How safe are they? If China starts to sell as well as Saudi Arabia what will US do to insure treasuries are stable and safe?

Thegame14
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Re: Treasuries safe?

Post by Thegame14 » Wed Oct 17, 2018 11:48 am

most of the US debt is held by the US. China accounts for the largest non US portion but it isn't as much as people think. Total debt is like $20Trillion, only foreign debt is 6.28 Trillion and China holds about 1.2 Trillion of that

123
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Re: Treasuries safe?

Post by 123 » Wed Oct 17, 2018 12:03 pm

Treasuries are backed by the printing presses and taxation ability of the United States government. They are generally considered to be the safest investment in the world. Depending on the interest rate and maturity date there is buying and selling in the secondary market. Even if the treasury security sells at "a loss" in secondary market the person who buys it only buys it because there is still the expectation that it will be paid in full on its maturity date. For the routine customer who buys them on their original issue date as an alternative to CDs and holds them to maturity the secondary market is just noise and largely irrelevant.
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UniversityEmployee9
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Re: Treasuries safe?

Post by UniversityEmployee9 » Wed Oct 17, 2018 12:08 pm

If China were to dump $1T in treasuries it would probably cause a global panic that would be of no benefit to them. China is heavily dependent on Western importers, they're not in a position to do anything so dramatic.
Last edited by UniversityEmployee9 on Wed Oct 17, 2018 12:43 pm, edited 1 time in total.

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Re: Treasuries safe?

Post by 123 » Wed Oct 17, 2018 12:20 pm

If anyone (individual or foreign government) dumped a large amount of Treasury securities at low prices (causing themselves a great loss) the US Treasury might well buy those securities up itself and, in effect, buy back the debt of the United States at a discount. It would likely be great event for all US taxpayers.
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pdavi21
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Re: Treasuries safe?

Post by pdavi21 » Wed Oct 17, 2018 1:06 pm

Short and intermediate term treasuries are pretty safe. Long term treasuries are just as risky as stocks.
For example, EDV (extended duration treasury) has ranged from 75-150 over the past decade with a 3-4% yield
VTI (Total US stock) has ranged from 40-150 with a 1.5-3% yield

Treasuries can be more risky than total bond funds because they only contain one type of bond, some companies have higher credit ratings than the US gov't, and treasuries generally have lower yields than other bonds.

However, a portfolio (that includes US stocks) using treasuries instead of total bond is safer in my opinion because treasuries have a lower correlation to stocks than total bond funds (which include corporate bonds). Haven't calculated it, but I would imagine the total return would be higher with treasuries than total bond in an AA that is frequently re-balanced.
Last edited by pdavi21 on Wed Oct 17, 2018 1:13 pm, edited 1 time in total.

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permport
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Re: Treasuries safe?

Post by permport » Wed Oct 17, 2018 1:13 pm

U.S. Treasurys aren't really that safe. We use them as a proxy for the "risk free asset" in our financial models because there isn't a better alternative.

However, people over the years have now taken it to be literally risk free, which is a mistake IMHO.

When you apply normal credit underwriting standards to Treasury securities you find the risk is higher than most appreciate. The ratings agencies caught on to this years ago, and even the market itself has implied default risks being priced in according to some of the latest literature.
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randomizer
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Re: Treasuries safe?

Post by randomizer » Wed Oct 17, 2018 1:14 pm

Damn safe.
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Re: Treasuries safe?

Post by roymeo » Wed Oct 17, 2018 1:20 pm

Direct purchase of treasuries, or mutual funds holding them as their primary investment?
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jacksonm
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Re: Treasuries safe?

Post by jacksonm » Wed Oct 17, 2018 1:26 pm

permport wrote:
Wed Oct 17, 2018 1:13 pm
U.S. Treasurys aren't really that safe. We use them as a proxy for the "risk free asset" in our financial models because there isn't a better alternative.

However, people over the years have now taken it to be literally risk free, which is a mistake IMHO.

When you apply normal credit underwriting standards to Treasury securities you find the risk is higher than most appreciate. The ratings agencies caught on to this years ago, and even the market itself has implied default risks being priced in according to some of the latest literature.
If U.S. treasuries ever actually get to the point of being generally considered "unsafe" I think we are all in a world of hurt (ALL, as in the entire world, not just U.S. citizens). Having said that, 20-25% of my total portfolio is gold so I don't consider it outside the realm of possibility.

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whodidntante
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Re: Treasuries safe?

Post by whodidntante » Wed Oct 17, 2018 1:30 pm

China has already been selling treasuries. It was hardly a blip. The USA is far from perfect but it will take a fat black swan to trigger defaults on treasuries. What is much more likely is a loss in real terms, especially after tax.

erik265
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Re: Treasuries safe?

Post by erik265 » Wed Oct 17, 2018 1:30 pm

pdavi21 wrote:
Wed Oct 17, 2018 1:06 pm
Short and intermediate term treasuries are pretty safe. Long term treasuries are just as risky as stocks.
For example, EDV (extended duration treasury) has ranged from 75-150 over the past decade with a 3-4% yield
VTI (Total US stock) has ranged from 40-150 with a 1.5-3% yield

Treasuries can be more risky than total bond funds because they only contain one type of bond, some companies have higher credit ratings than the US gov't, and treasuries generally have lower yields than other bonds.

However, a portfolio (that includes US stocks) using treasuries instead of total bond is safer in my opinion because treasuries have a lower correlation to stocks than total bond funds (which include corporate bonds). Haven't calculated it, but I would imagine the total return would be higher with treasuries than total bond in an AA that is frequently re-balanced.
So I assume VUSXX is short term and as safe as you can get correct? VUSXX is at least as safe as CD's Insured up to $250,000 Could one default before they other or they would be correlated?
Last edited by erik265 on Wed Oct 17, 2018 1:33 pm, edited 1 time in total.

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permport
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Re: Treasuries safe?

Post by permport » Wed Oct 17, 2018 1:33 pm

jacksonm wrote:
Wed Oct 17, 2018 1:26 pm
permport wrote:
Wed Oct 17, 2018 1:13 pm
U.S. Treasurys aren't really that safe. We use them as a proxy for the "risk free asset" in our financial models because there isn't a better alternative.

However, people over the years have now taken it to be literally risk free, which is a mistake IMHO.

When you apply normal credit underwriting standards to Treasury securities you find the risk is higher than most appreciate. The ratings agencies caught on to this years ago, and even the market itself has implied default risks being priced in according to some of the latest literature.
If U.S. treasuries ever actually get to the point of being generally considered "unsafe" I think we are all in a world of hurt (ALL, as in the entire world, not just U.S. citizens). Having said that, 20-25% of my total portfolio is gold so I don't consider it outside the realm of possibility.
20 - 25%? Permanent Portfolio?

Where do you think my username originally came from? HA! :mrgreen:
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Re: Treasuries safe?

Post by Grt2bOutdoors » Wed Oct 17, 2018 1:33 pm

permport wrote:
Wed Oct 17, 2018 1:13 pm
U.S. Treasurys aren't really that safe. We use them as a proxy for the "risk free asset" in our financial models because there isn't a better alternative.

However, people over the years have now taken it to be literally risk free, which is a mistake IMHO.

When you apply normal credit underwriting standards to Treasury securities you find the risk is higher than most appreciate. The ratings agencies caught on to this years ago, and even the market itself has implied default risks being priced in according to some of the latest literature.
Hmmm....the same credit rating agencies who rated “junk” CDOs, CMBS and certain super subordinated MBS as AAA?? Turns out the rating agencies did not apply “normal” credit underwriting standards in those cases either.
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erik265
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Re: Treasuries safe?

Post by erik265 » Wed Oct 17, 2018 1:35 pm

So FDIC up to $250,000 VS VSUXX would default be correlated ?

pdavi21
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Re: Treasuries safe?

Post by pdavi21 » Wed Oct 17, 2018 1:42 pm

erik265 wrote:
Wed Oct 17, 2018 1:30 pm
pdavi21 wrote:
Wed Oct 17, 2018 1:06 pm
Short and intermediate term treasuries are pretty safe. Long term treasuries are just as risky as stocks.
For example, EDV (extended duration treasury) has ranged from 75-150 over the past decade with a 3-4% yield
VTI (Total US stock) has ranged from 40-150 with a 1.5-3% yield

Treasuries can be more risky than total bond funds because they only contain one type of bond, some companies have higher credit ratings than the US gov't, and treasuries generally have lower yields than other bonds.

However, a portfolio (that includes US stocks) using treasuries instead of total bond is safer in my opinion because treasuries have a lower correlation to stocks than total bond funds (which include corporate bonds). Haven't calculated it, but I would imagine the total return would be higher with treasuries than total bond in an AA that is frequently re-balanced.
So I assume VUSXX is short term and as safe as you can get correct? VUSXX is at least as safe as CD's Insured up to $250,000 Could one default before they other or they would be correlated?
Technically Cash and short term CDs are probably safer because they are FDIC insured (even though FDIC only has enough to cover like 3% of existing accounts or something). I would also consider more balanced bond funds with low credit risk safer than treasuries because the risk of default of the US gov't and a bunch of great companies and a bunch of foreign gov'ts is lower than just the US gov't defaulting.

EDIT: Also keep in mind, treasuries can have lower returns from QE/ZIRP. Physical commodities that are useful and don't spoil would be even safer than cash in the event of a total collapse of the US gov't/hyperinflation/etc., but are unlikely to have positive returns.
Last edited by pdavi21 on Wed Oct 17, 2018 1:46 pm, edited 1 time in total.

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Re: Treasuries safe?

Post by bberris » Wed Oct 17, 2018 1:43 pm

erik265 wrote:
Wed Oct 17, 2018 11:45 am
How safe are they? If China starts to sell as well as Saudi Arabia what will US do to insure treasuries are stable and safe?
Treasury securities are safe in the sense that you will always get paid at maturity. Ignore anyone who says things like "normal underwriting ...". This just does not apply to an issuer of money.

Long term treasuries have the risk of loss if interest rates rise and you sell before maturity.

And all treasury securities (well, all securities) risk the loss of purchasing power from inflation.

But default risk of US treasuries? From China or SA? No. Nope. No way.

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Re: Treasuries safe?

Post by permport » Wed Oct 17, 2018 1:43 pm

Grt2bOutdoors wrote:
Wed Oct 17, 2018 1:33 pm
permport wrote:
Wed Oct 17, 2018 1:13 pm
U.S. Treasurys aren't really that safe. We use them as a proxy for the "risk free asset" in our financial models because there isn't a better alternative.

However, people over the years have now taken it to be literally risk free, which is a mistake IMHO.

When you apply normal credit underwriting standards to Treasury securities you find the risk is higher than most appreciate. The ratings agencies caught on to this years ago, and even the market itself has implied default risks being priced in according to some of the latest literature.
Hmmm....the same credit rating agencies who rated “junk” CDOs, CMBS and certain super subordinated MBS as AAA?? Turns out the rating agencies did not apply “normal” credit underwriting standards in those cases either.
Yup. And they ended up being riskier than the ratings portended. They were rather "generous" in their ratings.

In the same vein I would say that they are being similarly generous with U.S. Treasurys.
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JoMoney
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Re: Treasuries safe?

Post by JoMoney » Wed Oct 17, 2018 1:44 pm

erik265 wrote:
Wed Oct 17, 2018 11:45 am
How safe are they? If China starts to sell as well as Saudi Arabia what will US do to insure treasuries are stable and safe?
What I think you're describing, isn't really related to the "safety" of treasuries, and more to do with the supply/demand of treasuries, and we would likely see a rising of interest rates on longer term treasuries as the former buyers become sellers. If interest rates rose fast, it would mean the marked to market value wasn't "stable"... but that's never been a guarantee.
Why do you think those countries would decide to take a loss on their investment and choose to dump them on the market?
And a more interesting question (I think), is what would they then be buying with the proceeds? U.S. Dollars are really only good for buying U.S. goods and services or U.S. investments. The reason those countries have so many dollars, is we have massive trade imbalances with them. Will they become big consumers of products exported from the U.S. ?
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Re: Treasuries safe?

Post by jacksonm » Wed Oct 17, 2018 1:46 pm

permport wrote:
Wed Oct 17, 2018 1:33 pm
jacksonm wrote:
Wed Oct 17, 2018 1:26 pm
permport wrote:
Wed Oct 17, 2018 1:13 pm
U.S. Treasurys aren't really that safe. We use them as a proxy for the "risk free asset" in our financial models because there isn't a better alternative.

However, people over the years have now taken it to be literally risk free, which is a mistake IMHO.

When you apply normal credit underwriting standards to Treasury securities you find the risk is higher than most appreciate. The ratings agencies caught on to this years ago, and even the market itself has implied default risks being priced in according to some of the latest literature.
If U.S. treasuries ever actually get to the point of being generally considered "unsafe" I think we are all in a world of hurt (ALL, as in the entire world, not just U.S. citizens). Having said that, 20-25% of my total portfolio is gold so I don't consider it outside the realm of possibility.
20 - 25%? Permanent Portfolio?

Where do you think my username originally came from? HA! :mrgreen:
Yes, I'm using the GB variant of the PP so I'm only 20% gold right now - maybe a little less the way things are going.

If we're seriously talking about U.S. treasuries being unsafe I'm not so sure that percentage is high enough. Another 20% is T-Bills for the cash portion and then there is Social Security of which the trust fund is also backed by U.S. treasuries. So if U.S. treasuries do actually become unsafe we really are in SHTF territory.

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Re: Treasuries safe?

Post by Blueskies123 » Wed Oct 17, 2018 1:50 pm

UniversityEmployee9 wrote:
Wed Oct 17, 2018 12:08 pm
If China were to dump $1T in treasuries it would probably cause a global panic that would be of no benefit to them. China is heavily dependent on Western importers, they're not in a position to do anything so dramatic.
Like 123 said the Treasury could buy them at a discount and not have to pay all the interest. Let's walk through how this would work.

Day 1: China dumps on the market 1T is treasures.
Day 2: Market panics and prices drop 20% to 50% and yields skyrocket.
Day 3: US treasury or some of its allies buy 1T is treasuries at a 20%-50% discount and credits China in the SWIFT clearing system with 1T dollars.
Day 4: China is left befuddled trying to figure out what do with a 1T (less a 500MM loss) SWIFT banking credit in US dollars yielding zero interest.
Day 5: The USA could cancel the purchased treasuries and save all the interest or slowly sell them over the next year at a huge profit.
Day 6: All is back to normal and CNBC needs all new talking heads because all the old ones had their head explode.
Last edited by Blueskies123 on Wed Oct 17, 2018 1:53 pm, edited 2 times in total.

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Re: Treasuries safe?

Post by Rick Ferri » Wed Oct 17, 2018 1:50 pm

erik265 wrote:
Wed Oct 17, 2018 11:45 am
How safe are they? If China starts to sell as well as Saudi Arabia what will US do to insure treasuries are stable and safe?
Treasuries are safe ~ for now.

Check back with me if you notice all your neighbors walking around with shotguns in their hands.

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Re: Treasuries safe?

Post by UniversityEmployee9 » Wed Oct 17, 2018 1:57 pm

Blueskies123 wrote:
Wed Oct 17, 2018 1:50 pm
UniversityEmployee9 wrote:
Wed Oct 17, 2018 12:08 pm
If China were to dump $1T in treasuries it would probably cause a global panic that would be of no benefit to them. China is heavily dependent on Western importers, they're not in a position to do anything so dramatic.
Like 123 said the Treasury could buy them at a discount and not have to pay all the interest. Let's walk through how this would work.

Day 1: China dumps on the market 1T is treasures.
Day 2: Market panics and prices drop 20% to 50% and yields skyrocket.
Day 3: US treasury or some of its allies buy 1T is treasuries at a 20%-50% discount and credits China in the SWIFT clearing system with 1T dollars.
Day 4: China is left befuddled trying to figure out what do with a 1T (less a 500MM loss) SWIFT banking credit in US dollars yielding zero interest.
Day 5: The USA could cancel the purchased treasuries and save all the interest or slowly sell them over the next year at a huge profit.
Day 6: All is back to normal and CNBC needs all new talking heads because all the old ones had their head explode.
I understand that this is all technically true but it doesn't take into account the emotional reaction that investors might have to such unprecedented events.

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Re: Treasuries safe?

Post by permport » Wed Oct 17, 2018 2:02 pm

UniversityEmployee9 wrote:
Wed Oct 17, 2018 1:57 pm
Blueskies123 wrote:
Wed Oct 17, 2018 1:50 pm
UniversityEmployee9 wrote:
Wed Oct 17, 2018 12:08 pm
If China were to dump $1T in treasuries it would probably cause a global panic that would be of no benefit to them. China is heavily dependent on Western importers, they're not in a position to do anything so dramatic.
Like 123 said the Treasury could buy them at a discount and not have to pay all the interest. Let's walk through how this would work.

Day 1: China dumps on the market 1T is treasures.
Day 2: Market panics and prices drop 20% to 50% and yields skyrocket.
Day 3: US treasury or some of its allies buy 1T is treasuries at a 20%-50% discount and credits China in the SWIFT clearing system with 1T dollars.
Day 4: China is left befuddled trying to figure out what do with a 1T (less a 500MM loss) SWIFT banking credit in US dollars yielding zero interest.
Day 5: The USA could cancel the purchased treasuries and save all the interest or slowly sell them over the next year at a huge profit.
Day 6: All is back to normal and CNBC needs all new talking heads because all the old ones had their head explode.
I understand that this is all technically true but it doesn't take into account the emotional reaction that investors might have to such unprecedented events.
Yeah, it would upend one of the primary global financial pillars.

That debt can't realistically be paid. It's either honest default or dishonest default through inflation.
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Re: Treasuries safe?

Post by Blueskies123 » Wed Oct 17, 2018 2:08 pm

permport wrote:
Wed Oct 17, 2018 2:02 pm
UniversityEmployee9 wrote:
Wed Oct 17, 2018 1:57 pm
Blueskies123 wrote:
Wed Oct 17, 2018 1:50 pm
UniversityEmployee9 wrote:
Wed Oct 17, 2018 12:08 pm
If China were to dump $1T in treasuries it would probably cause a global panic that would be of no benefit to them. China is heavily dependent on Western importers, they're not in a position to do anything so dramatic.
Like 123 said the Treasury could buy them at a discount and not have to pay all the interest. Let's walk through how this would work.

Day 1: China dumps on the market 1T is treasures.
Day 2: Market panics and prices drop 20% to 50% and yields skyrocket.
Day 3: US treasury or some of its allies buy 1T is treasuries at a 20%-50% discount and credits China in the SWIFT clearing system with 1T dollars.
Day 4: China is left befuddled trying to figure out what do with a 1T (less a 500MM loss) SWIFT banking credit in US dollars yielding zero interest.
Day 5: The USA could cancel the purchased treasuries and save all the interest or slowly sell them over the next year at a huge profit.
Day 6: All is back to normal and CNBC needs all new talking heads because all the old ones had their head explode.
I understand that this is all technically true but it doesn't take into account the emotional reaction that investors might have to such unprecedented events.
Yeah, it would upend one of the primary global financial pillars.

That debt can't realistically be paid. It's either honest default or dishonest default through inflation.
Oh yes, it can. All they need to do is print 1000 million dollar bills and deliver them. These fears are way overblown and China is holding all the short straws.

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JoMoney
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Re: Treasuries safe?

Post by JoMoney » Wed Oct 17, 2018 2:14 pm

permport wrote:
Wed Oct 17, 2018 2:02 pm
...
Yeah, it would upend one of the primary global financial pillars.

That debt can't realistically be paid. It's either honest default or dishonest default through inflation.
The debt doesn't have to be paid until it's due. The sellers have a problem in that
(A) They have to find a buyer, and
(B) They have to find something else to do with the U.S. dollars they will receive as payment
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Re: Treasuries safe?

Post by MichCPA » Wed Oct 17, 2018 2:27 pm

The accumulated wealth of the United States is something like $100 trillion with a GDP just short of $20 trillion. More than enough to pay a $20+ trillion debt with maturities spanning out 30 years. If the government wants to pay, it can.

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Re: Treasuries safe?

Post by fujiters » Wed Oct 17, 2018 2:35 pm

jacksonm wrote:
Wed Oct 17, 2018 1:26 pm
If U.S. treasuries ever actually get to the point of being generally considered "unsafe" I think we are all in a world of hurt (ALL, as in the entire world, not just U.S. citizens). Having said that, 20-25% of my total portfolio is gold so I don't consider it outside the realm of possibility.
You hold physical gold bars as 20-25% of your portfolio or do you hold a gold ETF? I feel like if we're in a situation where the US government has gone under and cash/treasuries are worthless, you may have trouble converting your shares into anything useful. If gold bars, how do you safely store them?

Gold as value storage has always seemed strange to me. It's just not particularly useful. Canned food and ammunition seem like much better currencies in society collapse scenarios.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

jacksonm
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Re: Treasuries safe?

Post by jacksonm » Wed Oct 17, 2018 2:37 pm

MichCPA wrote:
Wed Oct 17, 2018 2:27 pm
The accumulated wealth of the United States is something like $100 trillion with a GDP just short of $20 trillion. More than enough to pay a $20+ trillion debt with maturities spanning out 30 years. If the government wants to pay, it can.
That's good to know. Hopefully that $100 trillion dollars of wealth is invested in safe assets in case the government needs it.

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Re: Treasuries safe?

Post by All Seasons » Wed Oct 17, 2018 2:49 pm

fujiters wrote:
Wed Oct 17, 2018 2:35 pm
jacksonm wrote:
Wed Oct 17, 2018 1:26 pm
If U.S. treasuries ever actually get to the point of being generally considered "unsafe" I think we are all in a world of hurt (ALL, as in the entire world, not just U.S. citizens). Having said that, 20-25% of my total portfolio is gold so I don't consider it outside the realm of possibility.
You hold physical gold bars as 20-25% of your portfolio or do you hold a gold ETF? I feel like if we're in a situation where the US government has gone under and cash/treasuries are worthless, you may have trouble converting your shares into anything useful. If gold bars, how do you safely store them?

Gold as value storage has always seemed strange to me. It's just not particularly useful. Canned food and ammunition seem like much better currencies in society collapse scenarios.
Yes, to put it plainly, gold is weird as hell. I have some thoughts I enunciated in another thread about why gold is valuable. Here's was my 2 cents. Probably sounds crazy to some, but take what you will with it.
Some additional perspective. I think much of the reason why gold is disliked by many in the traditional investment community is because of the common paradigms and ways of thinking that are taught in economic academia. It wasn't always that way.

More specifically, the time value of money is frequently cited as being the central concept of finance. An asset is worth whatever the future cash flows it produces are, discounted to the present by an appropriate rate. Gold, as a result, doesn't seem to have value as per this test.

A few points on this. First, an asset that doesn't produce cash flow also doesn't possess counterparty risk. Stocks, bonds, options, etc. -- all of these traditional assets have counterparty risk. Gold doesn't. It's unique in that aspect as far as portfolio insurance is concerned. Gold actually goes a step further than even dollars, in that even dollars have counterparty risk (the government and central banks). And as we've learned from history, sometimes governments throw their hands up in the air and invalidate the old currency in favour of something new. Gold, for the most part, has its value dictated by the market rather than this coercion.

Also, gold doesn't produce cash flow because gold is money. A self-referencing asset if you will. It has been for thousands of years because humanity and the markets settled on it through trial and error. Compared to other elements and materials it's very ideal. It's rare but not too rare. It doesn't corrode or rust. It's not poisonous or radioactive. Governments can't print it. It's rarity is enforced by nature, not artificially like bitcoin. It's fungible. It's durable, but not so durable that it's onerously difficult to work with. It's beautiful and desirable. It doesn't get "used up" or truly consumed. The industrial uses are enough to put a floor on the price, but not so much that the commodity uses overwhelm the monetary effects on its price. It's really ideal.

The $100 bill in your pocket doesn't produce cash flow either -- because it's money. However it's a poorer form of money, what with it losing value and being printable ad infinitum. The cash in your chequing account with interest to offset the loss in value? Not really money in the purest sense because that cash is actually an unsecured liability of the bank. You are effectively the bank's creditor. That's why you earn a return on your account, because you're taking on counterparty risk, however small it may be. As we learned in 2008, sometimes those bank risks come home to roost.

So, why should gold be valuable despite what people like Buffett say? Because gold is straight up money. The original and authentic money whose value is determined by an invisible hand and not a coercive one.
The market portfolio is always a legitimate portfolio.

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Re: Treasuries safe?

Post by Doc » Wed Oct 17, 2018 3:41 pm

Rick Ferri wrote:
Wed Oct 17, 2018 1:50 pm
Check back with me if you notice all your neighbors walking around with shotguns in their hands.
I've lived in areas where that was normal.

And nobody mugged people on the street or broke into houses.
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UniversityEmployee9
Posts: 104
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Re: Treasuries safe?

Post by UniversityEmployee9 » Wed Oct 17, 2018 4:23 pm

Blueskies123 wrote:
Wed Oct 17, 2018 2:08 pm
permport wrote:
Wed Oct 17, 2018 2:02 pm
UniversityEmployee9 wrote:
Wed Oct 17, 2018 1:57 pm
Blueskies123 wrote:
Wed Oct 17, 2018 1:50 pm
UniversityEmployee9 wrote:
Wed Oct 17, 2018 12:08 pm
If China were to dump $1T in treasuries it would probably cause a global panic that would be of no benefit to them. China is heavily dependent on Western importers, they're not in a position to do anything so dramatic.
Like 123 said the Treasury could buy them at a discount and not have to pay all the interest. Let's walk through how this would work.

Day 1: China dumps on the market 1T is treasures.
Day 2: Market panics and prices drop 20% to 50% and yields skyrocket.
Day 3: US treasury or some of its allies buy 1T is treasuries at a 20%-50% discount and credits China in the SWIFT clearing system with 1T dollars.
Day 4: China is left befuddled trying to figure out what do with a 1T (less a 500MM loss) SWIFT banking credit in US dollars yielding zero interest.
Day 5: The USA could cancel the purchased treasuries and save all the interest or slowly sell them over the next year at a huge profit.
Day 6: All is back to normal and CNBC needs all new talking heads because all the old ones had their head explode.
I understand that this is all technically true but it doesn't take into account the emotional reaction that investors might have to such unprecedented events.
Yeah, it would upend one of the primary global financial pillars.

That debt can't realistically be paid. It's either honest default or dishonest default through inflation.
Oh yes, it can. All they need to do is print 1000 million dollar bills and deliver them. These fears are way overblown and China is holding all the short straws.
I agree that China is holding the short straws (and thus will never do something like dump all of their treasury holdings), but I think it's kind of silly to think that since the US could technically just "print 1000 million dollar bills" everything would be 100% fine in such a situation.

All Seasons
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Re: Treasuries safe?

Post by All Seasons » Wed Oct 17, 2018 5:30 pm

Indeed in a certain sense, the U.S. dollar has no greater ally than China.

China, however, has been offsetting their dollar concentration vulnerabilities via massive accumulations of physical gold bullion. It's basically a hedge against potential dollar decline -- which they are likely anticipating as the printing presses are run to service the debts. :twisted:
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Re: Treasuries safe?

Post by LadyGeek » Wed Oct 17, 2018 7:26 pm

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