What if SCI-fi, indeed all traders will start shorting US T’s ? What happens in the process ?

Daniel

As you know Taleb has been a very controversial figure for the last decade. Not only his “Black Swan” theory attracts scores of praise and criticism, but also does his “fight” against Wall Street mathematicians and statisticians bring a kind of “notoriety”.
My point was strictly regarding his repeated remarks, including the ones in Davos – Switzerland, that every single trader in the world should short US Treasury bonds indefinitely. To me, is is completely moronic. Period.

I read some really short fragments from his lately statements, but I didn’t get to read what are the arguments, logic or some exotic econometric model that may come in as support in his view.

Can you help please ?

Bogdan

Exactly because it sounded weird I did ask for your input.

Just if you know that who went for “junk” corporate bonds (not even country x,y bonds) last year, did have booms and not busts , you can derive the fact that US can’t go that low especially now that the recovery is taking place. No genius in that at all.
Besides this, even in the most prosperous bull markets for years, both for financial markets and the real economies, you could have heard “voices” predicting the end of the world.
There is no “optimal” moment when everything is “perfect”, but it looks like there are always people who take weaknesses of something whatever it is, as prospect disasters that shall follow up.
Just like an athlete after an injury is weak and can’t jump right after for the gold medal again, the US economy is in convalescence and it will take some time to eliminate impurities, but it doesn’t mean it will get “injured” again now or tomorrow.

Anyway, Marc Faber was right with the rally since February when he started projecting it, but this one is hard to follow.

Bogdan

Don’t buy everything you hear around. Get real!
Just like a corporation, a country COULD default on its debt.
Unlike a corporation, a country CANNOT go out of business.
Got that?
Do you know what is the probability of default associated with a junk bond?
If Faber’s model seems logical to you, why don’t you do back-of-the-envelope calculation?
Furthermore, you could put your money where your mouth is and do exactly what N. Taleb claims every day: short the US Treasury. Good luck!

What happens if a country (whether it is US, Greece etc) defaults on its debt ? I mean what’s next …

M Faber mentioned regarding the US rating that “if it were a company” … how does that differ from being rated as a country ?

Also he explains the presumably junk rating by saying “if you add all the unfunded liabilities the US has in terms of future liabilities raising from Medicare, Medicaid and SS” … then if it would be a corporation, could be considered a “Junk” rating. The liabilities issue sounds pretty logic for me.

Daniel

How do you feel about the idea of the U.S. Would Be Rated “Junk” if it were a company right now ?

Mark Faber is pointing that now US is in the situation when “additional debt growth, does not to lead to any additional GDP growth” (Bloomberg) So what’s left is monetizing debt or defaulting … where do you stand concerning this ? The issue is very interesting (at least for me).

Bogdan