Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
BlackRock portfolio manager: China. Causeway CEO: European industrial automation companies. Sierra CIO: high yield corporate bonds. Absolute Strategy chief strategist: short term bonds (or US stocks if you must- but no international). William Blair portfolio manager: India. Vanguard chief economist: diversified portfolio.
What to make of all that? Too bad I don’t have 10k to invest right now
In looking over a recent Instant Xray of my portfolio ... I've got most of these areas covered that are noted in the article. With this, I have no plans to make any adjustments. So, I'd split it up and position it throughout my portfolio along the lines I'm currently invested.
Now that there are some big down days, I would put in DSENX following one.
To play w nervy timing, however, I have been putting nontrivial (though not big) moneys into QQQ or similar on big slumps and then selling upon recovery; have done this thrice the last couple months. Trying to hit singles / make layups, So far, so good. (Famous last words.)
The Fed's Powell just pledged to expand the Fed. Reserve balance sheet. That sounds (alarmingly) like a return to market stimulus via gov't notes and bonds? I'm bond-heavy, already. Systematically adding with auto-reinvest instructions to my funds. PTIAX PRSNX RPSIX. That gov't deficit is already beyond ridiculous. Uncle Jerome would be very plainly diluting the value of the dollar, still further. I can see $10 for a pack of butter at the supermarket. I did NOT just now specify a POUND of butter, which was customary until recently. We'll pay more to get less as every day goes by, as I've often said. How much butter will be in the package, then? 13.5 ounces? 13 ounces....???? And how many dollars will it take to get one Filipino peso? Currently, it's 50 pesos to the dollar. There will be a yooge cost attached to the FUBAR decisions which have been made.
@Crash A form of easing is already in place. Numerous articles over the past several weeks, but this one will do for a broad example. This fits into the topic category, although likely deserves its own subject.
Don't know about the $ going down, as others may be buying dollars to invest in the best turd pile of the global bunch at this time..........just my humble, non-collegiate opinion.
>> That gov't deficit is already beyond ridiculous.
Don't forget that this chiefly is money we owe ourselves, and matters when it crowds out investment, which is not happening yet, though of course it might eventually.
That claim would [be] accurate only in an extreme, theoretical case: if everyone had identical government bond holdings and paid identical taxes to cover the interest and principal that they were paying to themselves. In such a hypothetical situation, debt and taxes would cancel each other and the level of government debt would be meaningless. But we are never going to be in that situation in the real world.
The Shiller quote was about the 1930s; note his actual tenses --- not that it does not partly apply today. See below.
This is not a 'What, me worry?' situation. Why I wrote 'chiefly'. Perhaps I should have made it 'defensibly' --- it depends on what we are spending it on.
(Krugman is no MMT-Kelton fan; kinda odd Shiller did not mention him in such an article.)
Thanks to the tax cuts (giveaways to the rich) of the "president", we are now up to around 120%; see @Catch22's link, over to the right, six rows down. Don't know that anyone believes that is any kind of ideal or optimal situation. Huge huge bailouts for farmers, few complaining.
The grinders below may help those who really fret the seemingly alarming US debt clock (see upper-left part of the link), and feel like @Crash that the 'deficit is already beyond ridiculous'.
The case for worrying about debt is stronger now, given low unemployment. But interest rates are still very low by historical standards — less than 1 percent after adjusting for inflation. This is so low that we needn’t fear that debt will snowball, with interest payments blowing up the deficit. It also suggests that we’re suffering from chronic weakness in private investment demand (which, by the way, the 2017 tax cut doesn’t seem [this is conclusively proved] to have boosted at all). So in the past few months a number of prominent economists — including the former chief economist of the International Monetary Fund and top economists from the Obama administration — have published analyses saying that even now, with unemployment quite low, debt is much less of a problem than previously thought. It’s still a bad idea to run up debt for no good reason — say, to provide tax breaks that corporations just use to buy back their own stock, which is, of course, what the G.O.P. did. But borrowing at ultralow interest rates to pay for investments in the future — infrastructure, of course, but also things like nutrition and health care for the young, who are the workers of tomorrow — is very defensible. [bf emph mine]
>> That gov't deficit is already beyond ridiculous.
Don't forget that this chiefly is money we owe ourselves, and matters when it crowds out investment, which is not happening yet, though of course it might eventually.
That was the entire post I responded to. Just so that we're clear on "drivebys".
The Shiller quote was timeless. It was a conceptual statement. I can't tell why you say it doesn't apply fully today. Is that because:
Today everyone is taxed the same and is owed the same amount, so that unlike the world of the 1930s, debt and taxes now cancel each other out? or
Profligate spending today is less likely to crowd out private investment than in the 1930s? or
Adding to today's large deficits would be for better reasons today than in the 1930s?
Interesting that you say that debt/GDP is key, when Krugman says that it is the interest payments (not the raw debt) that matters. He couches it in more dynamic (i.e. rate) terms, referring to deficit, not debt:
"[Krugman] then argues that... if the rate of interest on government debt exceeds the rate of growth, either the debt to GDP ratio spirals out of control or the government is forced to tighten fiscal policy." (From your wonkish cite).
In case you'd like that direct from the horse's mouth: "But this kind of debt spiral can only happen if the interest rate on the debt is higher than the economy’s growth rate." He goes on to say that "debt doesn’t spiral. On the contrary, it tends to fall as a share of GDP unless the government runs large primary deficits." (Emphasis added)
That's because a large primary deficit significantly increases interest payments even when interest rates aren't higher than GDP growth. How large do you think is too large? We're now at $1T deficits (admittedly fiscal, not primary) and still growing (AP, Oct 7, 2019):
The government ran a budget deficit of just under $1 trillion in the just-closed fiscal year, the Congressional Budget Office said Monday.
The $984 billion deficit tally for 2019 came in more than $200 billion more than last year’s, despite very low unemployment and continuing economic growth. ...
CBO noted that deficits have been growing faster than the size of the economy for four years in a row, ending 2019 at 4.7 percent of gross domestic product.
" interest rates are still very low by historical standards" (from Krugman's opinion piece in the NYTimes that you quoted above). This begs the obvious question: what happens when the debt rolls over?
was curious what you would advocate or were advocating, was saying 'do go on'
am always curious, when you are brief
(I myself support way higher wealth taxes, loophole closures, and also DoD and select subsidy cuts, just for starters)
yes, correct about interest being part of debt
also it is good that shiller is timeless, so influential is he; wonder why he specifically history-qualified his explanation as he did
and from thehill.com just now, quite as you say:
The difference between federal spending and revenue has only ever exceeded $1 trillion four times, in the period immediately following the global financial crisis.
This from 27y ago is pretty droll, about inequality (which is fundamentally related to debt and to taxation, as everyone knows who read this week's headlines about ultrarich low low low tax rates, or even those who did not):
And from today, repeating the above total figure, lest anyone think Krugman is (again) a 'what, me worry?' about debt; also the ramifications of not doing the right things with the debt moneys:
While we're all (rightly) focused on the constitutional crisis, CBO just projected a fiscal 2019 deficit of $984 billion — just shy of a trillion. No need to panic about solvency; but we should marvel both at GOP hypocrisy and how little all this debt bought, 1/
All through the Obama years, Republicans gave fire-and-brimstone speeches denouncing the evils of budget deficits — and blackmailed Obama into fiscal austerity in the face of high unemployment. Then they blew up the deficit as soon as they were in power, 2/
The deficit was $660 billion in fiscal 2017 (which ended on Sept. 30 and didn't reflect the Trump tax cut). So we've seen a $320 billion surge, despite a growing economy that should have brought the deficit down. That's a lot of fiscal stimulus! 3/
Imagine what might have been accomplished if we'd been willing to spend an extra $300 billion a year on infrastructure. Instead, it was mainly taxcuts for businesses and the wealthy, which were supposed to supercharge growth. 4/
In reality it's unclear at this point whether the taxcut did anything for growth; it certainly didn't lead to the promised surge in investment. 5/
A best guess is that the taxcut was a bit of a stimulus, but with low bang for the buck; and that its effects were offset, or more than offset, by Trump's trade war. So despite completely abandoning their pretended principles, Rs haven't gotten much. 6/
In particular, the idea that a booming economy would rescue Trump from his troubles on other fronts now looks farfetched. Moral: if you're going to be a complete hypocrite, at least try to do it right. 7/
Hi sir @_davidrmoran.. Good post... Imagine if they cut everything across the board (reduce indegent Healthcare /ssi/Medicare infrastructure spendings/nonessntial staff workers in govt cut back/military budget spending, /taxeveryone 1%higher (and 5%raisetax for wealthy individuals) - - we will reach deficits goals in no time. .. The problem are no one would give in.. These views are too radicals
with its assertion that "There is a lot of frustration among economists and policymakers about the seeming unwillingness of young Americans to appreciate the enormous threat posed by deficits and debt," is a teachable moment. The author contrasts millennial alarm over climate change with lack of attention to debt. So maybe the first thing to say is that Olivier Blanchard, who tells us with great authority that debt risks are exaggerated, is not a millennial.
Neither, of course, is Larry Summers or yours truly. All of us have concluded based on data and hard thinking that debt isn't the kind of existential threat a lot of Beltway types claim that it is.
It's not just that with interest rates below growth rates, debt won't snowball. Also, public debt is NOT borrowing from the future. Unless it displaces investment — which there's no sign it's doing — it just creates claims by one part of the population on another part. That is, taxpayers owe interest to bondholders. This can create some problems, but it doesn't reduce the future income of society as a whole. [[emph added]] So running budget deficits is nothing at all like emitting greenhouse gases.
Emissions will stay in the atmosphere for generations, raising global temperatures all the while. So every year we fail to act really does damage our future, perhaps irrevocably. It takes willful misunderstanding not to get the difference between that and deficits. In other words, the millennials are right and the debt scolds are wrong — wrong conceptually, wrong empirically.
"It's not just that with interest rates below growth rates, debt won't snowball." Regardless of how much debt is added outside of interest? Didn't he say before: "unless the government runs large primary deficits"? I wish he'd make up his mind.
"it doesn't reduce the future income of society as a whole" What about future per capita income? GDP may have a faster growth rate than interest (especially as we approach negative rates), but still not as fast as population growth. Will we all become poorer together? Likely not, as he acknowledges: it creates claims by one part of the population on another part ... This can create some problems." It does not create, but amplifies, income inequality.
"Emissions will stay in the atmosphere for generations, raising global temperatures all the while." Some will, like CO₂, some won't like CH₄. Methane has 21x the impact of carbon dioxide, but that impact is front loaded. It is not "raising global temperatures all the while", just long enough to "damage our future ... irrevocably." Persistence is secondary.
There's a reason why I pay no attention to twitter with its typical laconic tweets.
(Saez and others are clear about other, non-gov debt: 'This explosion in debt means effectively that the bottom 90% has been saving 0% of their income over the last 30 years.'
So ... in what direction is your own mind made up? What, again, do you yourself advocate?
In the same laconic style as PK, I wrote: It [public debt] does not create, but amplifies, income inequality."
The findings summary of the paper you cited reads: "The author finds that the composition of public debt is consistently a significant determinant of income inequality: the domestic share of public debt is regressive and significant across all specifications [even controlling for other factors]."
Sounds about the same. What appears to be an earlier (2011) version of the paper likewise finds evidence that "the domestic share of public debt is associated with higher levels of the Gini coefficient".
Have you read the full paper? I'm disinclined to rent it for 24 hours (even for $4) when my time is limited.
Right now I'm too busy reading a paper for an urban economics class I'm taking. That paper looks at how income level affects where people live in urban environments. And I've been having out-of-class exchanges with the teacher on different methods of calculating environmental footprints (think sustainable cities).
no, might acquire from sib who pinged me about it, but would probably want more-recent data inclusion, and a focus on gov debt only. Also there's a lot of Saez and Piketty et alia to read sooner.
Been following this heated debate as well, naturally (not income-focused):
I tend to agree with Terri Spath on junk bonds although my conviction isn't very high. Their allure is if stocks rise more than expected because of a strong economy that should be favorable for junk. If instead stocks tank, 10 year rates should fall also making junk attractive as an income generator. I am buying an inconsequential amount of a junk fund today (5%). and add if necessary.
Edit: Unlike this year, I worry that 2020 may be a real challenging year for bond investors. Hope I am wrong.
No, actually DPFNX is miscategorized by M* as a high yield fund. It is primarily an alt A non agency rmbs fund. I went in VWEHX. Very low conviction trade.
Just my two cents worth, but I would put all $10,000 into stocks because I believe this secular bull market has years and years left to run. The market has been base-building since August in preparation for much higher levels to come. A good, low cost index tracker mutual fund or ETF such as VOO or VUG would be ideal. Yes, earnings are due to be on the soft side this quarter, but that doesn't indicate in any way the onset of a recession. Don't believe what you read online or in the press. Outlets such as Marketwatch and CNBC sell fear. The Fed will lower rates at least one more time this year, and coupled with what is effectively QE4 with $60bn of monthly treasury purchases starting tomorrow, this will only juice all asset prices going forward.
Comments
Causeway CEO: European industrial automation companies.
Sierra CIO: high yield corporate bonds.
Absolute Strategy chief strategist: short term bonds (or US stocks if you must- but no international).
William Blair portfolio manager: India.
Vanguard chief economist: diversified portfolio.
What to make of all that? Too bad I don’t have 10k to invest right now
To play w nervy timing, however, I have been putting nontrivial (though not big) moneys into QQQ or similar on big slumps and then selling upon recovery; have done this thrice the last couple months. Trying to hit singles / make layups, So far, so good. (Famous last words.)
A form of easing is already in place. Numerous articles over the past several weeks, but this one will do for a broad example.
This fits into the topic category, although likely deserves its own subject.
Don't know about the $ going down, as others may be buying dollars to invest in the best turd pile of the global bunch at this time..........just my humble, non-collegiate opinion.
REPO MARKET SUPPORT or are things getting twitchy elsewhere?
>> That gov't deficit is already beyond ridiculous.
Don't forget that this chiefly is money we owe ourselves, and matters when it crowds out investment, which is not happening yet, though of course it might eventually.
Numerous click-ables at the site.
https://www.usdebtclock.org/
The Shiller quote was about the 1930s; note his actual tenses --- not that it does not partly apply today. See below.
This is not a 'What, me worry?' situation. Why I wrote 'chiefly'. Perhaps I should have made it 'defensibly' --- it depends on what we are spending it on.
(Krugman is no MMT-Kelton fan; kinda odd Shiller did not mention him in such an article.)
Debt/GDP is key. A primer:
https://www.thebalance.com/what-is-the-debt-to-gdp-ratio-1978993
Thanks to the tax cuts (giveaways to the rich) of the "president", we are now up to around 120%; see @Catch22's link, over to the right, six rows down. Don't know that anyone believes that is any kind of ideal or optimal situation. Huge huge bailouts for farmers, few complaining.
The grinders below may help those who really fret the seemingly alarming US debt clock (see upper-left part of the link), and feel like @Crash that the 'deficit is already beyond ridiculous'.
Detail
lay backgrounder:
https://www.washingtonpost.com/outlook/five-myths/five-myths-about-federal-debt/2019/04/26/28d8e78c-66d4-11e9-82ba-fcfeff232e8f_story.html
modulated take, by guess who; from 8mos ago:
https://www.nytimes.com/2019/02/11/opinion/democrats-federal-deficit.html
The case for worrying about debt is stronger now, given low unemployment. But interest rates are still very low by historical standards — less than 1 percent after adjusting for inflation. This is so low that we needn’t fear that debt will snowball, with interest payments blowing up the deficit. It also suggests that we’re suffering from chronic weakness in private investment demand (which, by the way, the 2017 tax cut doesn’t seem [this is conclusively proved] to have boosted at all).
So in the past few months a number of prominent economists — including the former chief economist of the International Monetary Fund and top economists from the Obama administration — have published analyses saying that even now, with unemployment quite low, debt is much less of a problem than previously thought.
It’s still a bad idea to run up debt for no good reason — say, to provide tax breaks that corporations just use to buy back their own stock, which is, of course, what the G.O.P. did. But borrowing at ultralow interest rates to pay for investments in the future — infrastructure, of course, but also things like nutrition and health care for the young, who are the workers of tomorrow — is very defensible. [bf emph mine]
way more wonkish:
https://criticalfinance.org/2019/03/06/kelton-and-krugman-on-is-lm-and-mmt/
backward-looking:
https://www.bradford-delong.com/2019/06/the-intergenerational-burden-of-the-debt-nick-rowe-tempts-fate-weblogging-hoisted-from-the-archives.html
https://archives.cjr.org/the_audit/inside_the_bubble_with_cnbc_an.php
The Shiller quote was timeless. It was a conceptual statement. I can't tell why you say it doesn't apply fully today. Is that because:
- Today everyone is taxed the same and is owed the same amount, so that unlike the world of the 1930s, debt and taxes now cancel each other out? or
- Profligate spending today is less likely to crowd out private investment than in the 1930s? or
- Adding to today's large deficits would be for better reasons today than in the 1930s?
Interesting that you say that debt/GDP is key, when Krugman says that it is the interest payments (not the raw debt) that matters. He couches it in more dynamic (i.e. rate) terms, referring to deficit, not debt:"[Krugman] then argues that... if the rate of interest on government debt exceeds the rate of growth, either the debt to GDP ratio spirals out of control or the government is forced to tighten fiscal policy." (From your wonkish cite).
In case you'd like that direct from the horse's mouth: "But this kind of debt spiral can only happen if the interest rate on the debt is higher than the economy’s growth rate." He goes on to say that "debt doesn’t spiral. On the contrary, it tends to fall as a share of GDP unless the government runs large primary deficits." (Emphasis added)
That's because a large primary deficit significantly increases interest payments even when interest rates aren't higher than GDP growth. How large do you think is too large? We're now at $1T deficits (admittedly fiscal, not primary) and still growing (AP, Oct 7, 2019): " interest rates are still very low by historical standards" (from Krugman's opinion piece in the NYTimes that you quoted above). This begs the obvious question: what happens when the debt rolls over?
am always curious, when you are brief
(I myself support way higher wealth taxes, loophole closures, and also DoD and select subsidy cuts, just for starters)
yes, correct about interest being part of debt
also it is good that shiller is timeless, so influential is he; wonder why he specifically history-qualified his explanation as he did
and from thehill.com just now, quite as you say:
The difference between federal spending and revenue has only ever exceeded $1 trillion four times, in the period immediately following the global financial crisis.
https://www.bradford-delong.com/2019/10/income-and-wealth-distribution-or-watching-professional-republicans-sell-their-souls-back-in-1992-hoisted-from-the-archive.html
While we're all (rightly) focused on the constitutional crisis, CBO just projected a fiscal 2019 deficit of $984 billion — just shy of a trillion. No need to panic about solvency; but we should marvel both at GOP hypocrisy and how little all this debt bought, 1/
All through the Obama years, Republicans gave fire-and-brimstone speeches denouncing the evils of budget deficits — and blackmailed Obama into fiscal austerity in the face of high unemployment. Then they blew up the deficit as soon as they were in power, 2/
The deficit was $660 billion in fiscal 2017 (which ended on Sept. 30 and didn't reflect the Trump tax cut). So we've seen a $320 billion surge, despite a growing economy that should have brought the deficit down. That's a lot of fiscal stimulus! 3/
Imagine what might have been accomplished if we'd been willing to spend an extra $300 billion a year on infrastructure. Instead, it was mainly taxcuts for businesses and the wealthy, which were supposed to supercharge growth. 4/
In reality it's unclear at this point whether the taxcut did anything for growth; it certainly didn't lead to the promised surge in investment. 5/
A best guess is that the taxcut was a bit of a stimulus, but with low bang for the buck; and that its effects were offset, or more than offset, by Trump's trade war. So despite completely abandoning their pretended principles, Rs haven't gotten much. 6/
In particular, the idea that a booming economy would rescue Trump from his troubles on other fronts now looks farfetched. Moral: if you're going to be a complete hypocrite, at least try to do it right. 7/
https://www.nytimes.com/2019/10/11/opinion/sunday/wealth-income-tax-rate.html
new from Saez et alia
I thought about this 10 times in the last 3 years. Every time my answer was VMMXX. Looking at my return, I'm quite happy.
This very bad column,
https://www.brookings.edu/opinions/why-are-millennials-unfazed-by-the-national-debt/
with its assertion that "There is a lot of frustration among economists and policymakers about the seeming unwillingness of young Americans to appreciate the enormous threat posed by deficits and debt," is a teachable moment. The author contrasts millennial alarm over climate change with lack of attention to debt. So maybe the first thing to say is that Olivier Blanchard, who tells us with great authority that debt risks are exaggerated, is not a millennial.
https://www.piie.com/blogs/realtime-economic-issues-watch/why-critics-more-relaxed-attitude-public-debt-are-wrong
Neither, of course, is Larry Summers or yours truly. All of us have concluded based on data and hard thinking that debt isn't the kind of existential threat a lot of Beltway types claim that it is.
It's not just that with interest rates below growth rates, debt won't snowball. Also, public debt is NOT borrowing from the future. Unless it displaces investment — which there's no sign it's doing — it just creates claims by one part of the population on another part. That is, taxpayers owe interest to bondholders. This can create some problems, but it doesn't reduce the future income of society as a whole. [[emph added]] So running budget deficits is nothing at all like emitting greenhouse gases.
Emissions will stay in the atmosphere for generations, raising global temperatures all the while. So every year we fail to act really does damage our future, perhaps irrevocably. It takes willful misunderstanding not to get the difference between that and deficits. In other words, the millennials are right and the debt scolds are wrong — wrong conceptually, wrong empirically.
Regardless of how much debt is added outside of interest? Didn't he say before: "unless the government runs large primary deficits"? I wish he'd make up his mind.
"it doesn't reduce the future income of society as a whole"
What about future per capita income? GDP may have a faster growth rate than interest (especially as we approach negative rates), but still not as fast as population growth. Will we all become poorer together? Likely not, as he acknowledges: it creates claims by one part of the population on another part ... This can create some problems." It does not create, but amplifies, income inequality.
"Emissions will stay in the atmosphere for generations, raising global temperatures all the while."
Some will, like CO₂, some won't like CH₄. Methane has 21x the impact of carbon dioxide, but that impact is front loaded. It is not "raising global temperatures all the while", just long enough to "damage our future ... irrevocably." Persistence is secondary.
There's a reason why I pay no attention to twitter with its typical laconic tweets.
This, about gov debts and income inequality, looks pertinent, brought to my attention by a family member:
https://www.emerald.com/insight/content/doi/10.1108/JES-01-2014-0015/full/html
(Saez and others are clear about other, non-gov debt: 'This explosion in debt means effectively that the bottom 90% has been saving 0% of their income over the last 30 years.'
So ... in what direction is your own mind made up? What, again, do you yourself advocate?
The findings summary of the paper you cited reads: "The author finds that the composition of public debt is consistently a significant determinant of income inequality: the domestic share of public debt is regressive and significant across all specifications [even controlling for other factors]."
Sounds about the same. What appears to be an earlier (2011) version of the paper likewise finds evidence that "the domestic share of public debt is associated with higher levels of the Gini coefficient".
Have you read the full paper? I'm disinclined to rent it for 24 hours (even for $4) when my time is limited.
Right now I'm too busy reading a paper for an urban economics class I'm taking. That paper looks at how income level affects where people live in urban environments. And I've been having out-of-class exchanges with the teacher on different methods of calculating environmental footprints (think sustainable cities).
Also there's a lot of Saez and Piketty et alia to read sooner.
Been following this heated debate as well, naturally (not income-focused):
https://www.scientificamerican.com/article/the-myth-of-the-sustainable-city/
http://greeneconomics.blogspot.com/2017/09/a-few-thoughts-about-paul-krugman-urban.html
Edit: Unlike this year, I worry that 2020 may be a real challenging year for bond investors. Hope I am wrong.
a usual survey